Agents May Compete in California

To Sue for Intentional Interference With Economic Advantage You Must Prove an Independently Wrongful Act

In California insurance agents and brokers aggressively compete for business. In 1998, by legislative action, repealed a law prohibiting “unlawful rebates” in connection with the procurement of insurance.  When agents lose business to other agents they become upset and try to get the business back by suing the competition claiming unfair and unlawful conduct caused them to lose the business.

In Razmco and Associates, Inc. v. BB & T Insurance, California Court of Appeal, 2016 WL 519868 (February 9, 2016) a jury provided the plaintiffs $140,000 in compensatory and $600,000 in punitive damages on plaintiffs’ cause of action for intentional interference with prospective economic advantage (IIPEA).

FACTUAL SUMMARY

At issue in this case was the placement of automobile liability insurance for the large taxi cab fleets of United Independent Taxi Drivers, Inc. (UITD) and San Gabriel Transit, Inc. (SGT).

Plaintiffs’ alleged that defendant BB & T was also in the business of providing commercial transportation insurance and was a direct competitor of plaintiffs; that neither plaintiffs nor BB & T provided insurance to their clientele directly, but rather through broker agreements between their clientele and various insurance providers; that both plaintiffs and BB & T generally offered insurance from common insurance providers, subject to those insurance providers’ premium rates for commercial vehicles garaged in different geographic locations and various discounts allowed for among other things, mounted cameras; and that because of the relatively small number of insurance brokers dealing in the public livery insurance business the defendants were aware at all times relevant of plaintiffs’ existing and prospective economic relationships with various taxi cab companies subject to this lawsuit.

The complaint alleged that when Mercury implemented its public livery coverage, it established guidelines or “basic tenets” that it expected brokers and agents to follow, including, “Mercury will not condone special monetary, gift or favors incentivizing arrangements outside of the premium quote to attract the business in competition with another Mercury [a]gent/[b]roker.”

In addition to other material misrepresentations made by Shahri, the operative complaint alleged that defendants paid “‘kickbacks’ of insurance premiums and/or subsidizing the insurance premiums paid by the large taxi cab fleets”; that they paid “substantial sums of money (a.k.a.bribes) to large taxi cab fleets, disguised as ‘Risk Management Incentives,’ anniversary gifts or other ‘authorized’ discounts”; and that they offered loans to large taxi cab fleets at below market interest rates among other allegedly improper payments.

DISCUSSION

Mercury’s “Tenets” Do Not Constitute a “Determinable Legal Standard”

Before trial and in response to defendants’ motion to strike, the trial court ruled that Mercury’s tenets could be used as a basis to establish wrongful conduct separate and apart from the interference itself for purposes of an IIPEA cause of action.

The author of the tenets and Mercury’s head of agent relations, Richard Wolak, testified at trial that shortly after the August 2007 board meeting he investigated complaints by Bitaraf and others that Shahri had improperly given checks to UITD. Wolak then found Shahri had done nothing wrong.

Wolak testified that he wrote the tenets. At least with respect to UITD, as noted plaintiffs in large part relied on defendants’ violation of the commissions and incentives tenets to show defendants’ conduct was independently wrongful.

Wolak further testified he used the word “tenet,” and specifically avoided the word “rule,” because Wolak’s whole purpose here was to create a gentleman’s agreement, “something like a guideline. Not a strict and hard[-]fast law, but I wanted to give it some meaning.”  He testified that if the tenets were violated, Mercury “didn’t promote any remedy” and instead, “would take under advisement whatever the violation would be”; that the tenets were not binding but rather were “just suggestions”; that he “absolutely” did not intend the tenets to have “any legal effect,” or to use them to set up some sort of “legal structure”; that he never used the tenets to take any disciplinary action against a “single person”; that the purpose of the tenets was “to keep the Mercury agents from fighting with each other while [Mercury] tried to get [its commercial transportation insurance] business off the ground”; and that he unilaterally withdrew the tenets in March 2008.

Guiding Principles

The elements of an IIPEA claim are: (1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant’s knowledge of the relationship; (3) intentional acts on the part of the defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant.

Particularly relevant to the case at issue, the interference also must amount to independently actionable conduct. For an act to be sufficiently independently wrongful, it must be unlawful, that is, if it is proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard.

An act is independently wrongful if it is unlawful, that is, if it is proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard.

Analysis

The Court of Appeal concluded Mercury’s tenets do not constitute a determinable legal standard as required by the California Supreme Court. Indeed, as noted by their author Wolak, the tenets were not intended to be “rules” but rather a “gentlemen’s agreement” between Mercury and its independent agents/brokers.

As such, the Court of Appeal concluded that the tenets were not well-defined, established rules or standards on which to base an IIPEA claim but rather were nebulous guidelines that would create uncertainty.

However, even if the tenets constituted a “determinable legal standard” for purposes of an IIPEA cause of action, the court of appeal concluded that they unduly restricted free competition. Indeed it is not unlawful for an agent/broker to obtain a competitive advantage by offering incentives, including reducing his or her commission or offering rebates, when placing insurance.  Although former Insurance Code section 7513 prohibited “unlawful rebates” in connection with the procurement of insurance, this anti-rebating statute was repealed in 1988 by the passage of Proposition 103.

As such, it appears Mercury’s incentives tenet, which as noted prohibited “incentivizing arrangements outside of the premium quote to attract … business,” was an invalid restraint on competition. Again, after repeal of the anti-rebating statute in 1988, an agent/broker may properly exercise his or her “entrepreneurial freedom” and compete for business by “relinquishing” commission in order to offset premiums.

Therefore, Mercury’s tenets cannot be used as a “determinable legal standard” for purposes of plaintiffs’ IIPEA claim. Even if such tenets constituted a “determinable legal standard,” the court of appeal further concluded it would be inappropriate to permit a plaintiff to base an interference with prospective economic advantage upon them because, at a minimum, they unduly restricted lawful competition among agents/brokers when placing insurance.

The judgment was reversed. The trial court is ordered to enter judgment in favor of defendants. Defendants to recover their costs of appeal.

ZALMA OPINION

The agents who sued were upset because they lost business to the defendants. The defendants got the business by reducing their commissions and managing the client’s accounts in ways that obtained reduced premium. In essence the defendants helped the clients get the same insurance for less money. For its efforts to help the clients the defendants were sued and a large judgment was assessed against it improperly. The trial court punished the defendants’ good work and the Court of Appeal reversed because the defendant did nothing more than compete professionally.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

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Claims File Sacrosanct Until Coverage Established

Fishing For Bad Faith Evidence Not Allowed in Florida

Some people believe it is best to obtain an agreed upon judgment against a person who has limited insurance and then take an assignment of the defendant’s rights against his insurer so they can obtain bad faith tort damages and punitive damages. They forget that to succeed the plaintiff must prove that there is coverage for the person insured and if it is covered, that the insurer acted improperly. Without such evidence the plaintiff attempts to obtain copies of the claims file of the insurer hoping to find some damning comments.

In Doctors Co. v. Thomas, District Court of Appeal of Florida — So.3d —- 2016 WL 455796 (Feb. 5, 2016) the Florida Court of Appeal in a brief, well reasoned, and succinct opinion refused to allow a fishing expedition into the claims file of the Doctors Company.

FACTS

This lawsuit originated as a declaratory judgment action wherein The Doctors Company sought a declaration concerning its obligations under an insurance policy issued to an insured after the insured entered into an unauthorized settlement with a tort claimant. James Randall Thomas, the personal representative of the estate of the original tort claimant, subsequently filed an action asserting various claims against The Doctors Company including claims for both statutory and common-law bad faith. After the actions were consolidated, Thomas sought discovery of information related to The Doctors Company’s claims materials while the declaratory action remained pending.
 
REASONING

The Doctors Company petitioned the Florida Court of Appeal for a writ of certiorari to review a discovery order that denies its motion for protective order and compels the production of The Doctors Company’s claims file and other investigative documents prior to any insurance coverage determination. Because the trial court’s order directs The Doctors Company to turn over protected materials before any coverage determination has been made, the Court of Appeal granted the petition and quashed the order.

Agreeing  with The Doctors Company that the order compelling disclosure of its claims file and other related materials prior to any coverage determination departs from the essential requirements of the law the Court of Appeal concluded that an order compelling production of an insurer’s claim file when the issue of coverage is unresolved constitutes a departure from the essential requirements of law for which certiorari relief is appropriate. Such premature disclosure results in irreparable harm that cannot be remedied on plenary appeal.

ZALMA OPINION

A bad faith lawsuit requires, before a plaintiff can receive discovery into confidential claims materials, evidence that there is coverage under the policy. In this case, the fact that the insured settled the suit with the tortfeasor, breached a material condition of the policy, thereby avoiding coverage. Before the plaintiff can see the claims file he must first establish that there was coverage available to his assignor.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Leave a comment

Innocent or Intentional Misrepresentation Requires Rescission

The Equitable Remedy of Rescission

Sometimes courts think insurance is a government entitlement rather than a contract between two parties. In H.J. Heinz Company v. Starr Surplus Lines Insurance Company, Slip Copy, United States District Court, W.D. Pennsylvania 2016 WL 374307 (02/01/2016)
the US District Court for the Western District of Pennsylvania, remembered the reality and that “An insurance company has the unquestioned right to select those whom it will insure and to rely upon him who would be insured for such information as it desires as a basis for its determination to the end that a wise discrimination may be exercised in selecting its risks.” [Robinson v. Occidental Life Ins. Co. (1955) 131 Cal.App.2d 581]

THE ISSUES

This case involves an insurance coverage dispute between Plaintiff/Counterclaim-Defendant H.J. Heinz Company (“Heinz”) and Defendant/Counterclaim-Plaintiff Starr Surplus Lines Insurance Company (“Starr”).

The Counterclaim seeks the equitable relief of rescission of the insurance policy, and thus the final determination of that claim is one for the Court, even though the Court decided to employ an advisory jury after consultation with counsel.

DISCUSSION

New York applies the Marine Rule with regard to rescission of insurance contracts and Section 3105 of New York’s Insurance Law sets forth the basic framework for rescission. [N.Y. Ins. Law § 3105] It states in relevant part that: “No misrepresentation shall avoid any contract of insurance or defeat recovery thereunder unless such misrepresentation was material.”

New York case law instructs that both intentional and unintentional misrepresentations will void a contract of insurance if the misrepresentation is material because it is unfair to deceive an insurer into issuing an insurance policy it would not have issued had it known the truth.

Starr Underwriters Credibly Explained Why the Misrepresentations Were Material

Starr underwriter Jill Peev had 8 years of experience in underwriting in contamination insurance policies, and Christian Waeldner, to whom she reported, had 15 years of experience doing the same. The judge concluded that they both credibly testified to support a finding that misrepresentations by Heinz were material, meaning that had the underwriters known of these misrepresentations, they would have declined to issue the same or substantially the same policy on the same terms.

The judge also concluded that Heinz concealed from Starr:

  • The January 2014 China Nitrite Loss, wherein Chinese Government food safety agents detected that Heinz baby cereal products were contaminated with levels of Nitrite that exceeded the limit imposed by Chinese law, which prompted Heinz to conduct a “silent recall.” Heinz eventually destroyed 245,000 pounds of product, and the loss was $11-12 million. This loss was intentionally not disclosed to Starr or other prospective insurers on the purported basis (according to Mr. Ascher) that the loss would not have been covered by a Contaminated Products Insurance (CPI) policy. The Court notes, however, that Application Question 11a sought the disclosure of all withdrawals, recall and stock recoveries “whether or not insured or insurable under” a CPI policy. Regardless of Question 11a, these events should have triggered a “yes” to Question 6e — which broadly asked about government regulatory issues.
  • The 2013 China Mercury Loss, wherein Heinz’s tuna-based baby food was contaminated with Mercury, the product was recalled, and Heinz was fined in July of 2013 by the Chinese Government. In Heinz’s response to Question 6e, Heinz represented that it had not been fined by a governmental agency in the last three years, which was false.
  • The 2008 Listeria Loss, wherein Heinz’s San Diego facility was found by the United States Department of Agriculture to be contaminated with Listeria, resulting in a loss of at least $12.7 million. Although the Listeria event was provided to Starr, the associated loss amount was listed as a dash (“-”), which the testimony established denoted as a “$0 loss.” Regardless, prior versions of the loss history by Aon to Heinz correctly disclosed a $12.7 million loss, but those versions were never provided to Starr. Mr. Ascher the Heinz representative testified that he purposefully removed this information from the “updated” loss history that Heinz submitted to insurers.  In fact Mr. Ascher’s predecessor at Heinz had previously determined that the non-disclosed Listeria loss was a covered loss, and the loss would have been covered by an ACI Policy.
  • Other smaller losses in 2014, including one in Canada and two in New Zealand, were not disclosed. Heinz contended those losses were disclosed but offered no credible evidence of disclosure.

Alex Pittignano, Senior Vice-President at Starr, testified credibly that these misrepresentations were material.

Mr. Ascher, a sophisticated business person in an executive position at Heinz, was responsible for completing and signing/certifying the Insurance Application pursuant to his newly acquired role as Global Insurance Director. The undisputed evidence revealed that Heinz had a form of Product Contamination Insurance prior to 2013, subject to a $20 million self-insured retention (SIR) but Mr. Ascher knew that the new Heinz senior management did not continue coverage as part of a cost-reduction measure.

After Mr. Ascher was hired, he recommended to Heinz senior management that Heinz obtain this coverage again — but he needed a lower SIR and/or a lower premium in order to gain the support of Heinz senior management. Thus, on behalf of Heinz, Mr. Ascher, who considered himself to be an “expert” on matters relating to insurance, sought proposals to achieve his goal of a lower SIR ($5 million or less) and a lower premium.

The trial evidence established that his goal would not have been achieved if he had provided to Starr the same information he provided to Heinz senior management — namely the misrepresentations described above.

The Court found that Mr. Ascher’s testimony was not credible. The Court instead found that Mr. Ascher, a sophisticated business person and insurance “expert,” misrepresented information on the Application to obtain a lower Self Insured Retention (SIR) ($5 million instead of $10 or $20 million) and/or to secure a lower insurance premium. Additionally, he signed a Certification, on behalf of Heinz, that the statements in its Application were “true” and that “no material information has been withheld,” knowing that his Certification was intentionally false.

NO POST-CLAIM UNDERWRITING

There was no credible evidence to support Heinz’s theory of “post-claim underwriting.” Heinz’s expert, D. Bendure, an expert in the field of insurance, could not apply his broad opinions about insurance underwriting and claims processing to the facts of this case. Instead, he spoke in generalities regarding undisclosed losses above an SIR and its effect on underwriting.

Additionally, the credible testimony of Louise Ann Kelleher, of Starr Adjustment Services, Inc., who was involved in this case pursuant to her employment as a supervisor of all Starr claims managers during the period at issue, established that Starr acted promptly and reasonably.

The evidence reveals that at the time that Heinz brought suit against Starr, Starr was properly and deliberately engaged in the process of evaluating Heinz’s claim for coverage under the policy. Heinz failed to meet its burden to show that Starr did not act promptly to rescind the policy under these circumstances.

The Court employed the use of an advisory jury with the purpose of providing insight into the facts underlying the Counterclaim for Rescission. The advisory jury has provided this insight in a thorough and thoughtful manner. The Court, however, was keenly aware that pursuant to its equitable powers, it maintains the ultimate responsibility to resolve claims and counterclaims of an equitable nature. The Court also recognized that the decision to void an insurance contract ab initio is not to be taken lightly

Based upon the facts that were fully developed at trial, the evidence warrants application of the extraordinary equitable remedy of rescission. As the advisory jury found, Starr has adequately demonstrated that Heinz made material misrepresentations, misrepresentations that the Court found were intentional, and that Heinz has fallen short on carrying its burden of proof on the affirmative defense of waiver.

ZALMA OPINION

Rescission is an equitable remedy that when one party to a contract of insurance is deceived by the other into entering into the contract by misrepresentation or concealment of material fact, the parties must be returned to the status quo that existed before the contract was made. Heinz intentionally deceived Starr to obtain a reduced premium and a smaller SIR. Since equity requires that Heinz should not be allowed to profit from its deception rescission was the only proper remedy because it would not be fair to compel Starr to insure a risk it would not have taken but for the deception.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Leave a comment

Umbrella Excess over Municipal Risk Pool

Umbrella Provides a Unique and Special Coverage

It is a rare and useful occurrence when an appellate court applies the clear and unambiguous language of an insurance policy. When an insured buys an umbrella policy the insured knows that it only comes into effect and only owes defense or indemnity to the insured after any underlying insurance is exhausted. In Illinois Mun. League Risk Management Ass’n v. State Farm, — N.E.3d —-  2016 IL App (1st) 143336 (Feb. 2, 2016) the insured primary protection was provided by a Municipal Risk Pool that paid a claim and then sought to get its money back from an umbrella policy issued by State Farm.

The trial court found enforceable a clause in the umbrella policy that made its coverage apply only after exhaustion of the limits of all applicable “insurance and self insurance.” The self-insurance pool appeals, arguing that the umbrella policy should count as primary insurance because the self-insurance pool uses public funds.

FACTS

State Farm Fire & Casualty Company issued an insurance policy to Roel Valle, who worked as the city clerk for the Village of Lynwood. Lynwood belonged to the Illinois Municipal League Risk Management Association (Association), a municipal risk-pooling organization.

On February 4, 2011, a car owned by Lynwood and driven by Valle collided with a car driven by Manuel Little. Little sued Valle and Lynwood. Valle and Lynwood notified the Association and State Farm about the lawsuit. The Association invited State Farm to participate in the defense of the lawsuit and settlement negotiations. On August 16, 2011, the Association agreed to pay Little and his passengers a total settlement amount of $5,822,500 for a release of all their claims against Valle and Lynwood. State Farm did not contribute to the settlement amount. The Association, as subrogee of Valle and Lynwood, then filed the lawsuit at issue alleging that State Farm breached its contract by failing to contribute its policy limits to the settlement.

State Farm’s insurance policy, titled “Personal Liability Umbrella Policy,” required Valle to purchase automobile liability insurance and other forms of primary insurance. The policy states, “Other Insurance. The coverage provided by this policy is excess over all other insurance and self insurance.”

The Association’s contract with Lynwood provided that the Association would pay up to a limit of $8 million. The contract required Lynwood to notify the Association of any occurrence, and the contract established the Association’s right and duty to defend Lynwood. The contract did not require Lynwood or its employees to purchase any underlying insurance to make its coverages come into effect.

The Association admitted that the contract expressly covered the liability of Lynwood and “any other person while using an ‘owned automobile’ * * * with the permission of [Lynwood],” but not “the owner of a ‘non-owned automobile.’ “ The Association also admitted that Valle, as an employee of Lynwood permitted to drive Lynwood’s automobile, qualified as a person covered under the Association’s contract with Lynwood.

The trial court found that the Association, by contract, agreed to pay the liability of Lynwood and Valle, up to the contract limits of $8 million, and State Farm’s umbrella policy provided coverage for the accident only if the liability exceeded $8 million. Because the Association settled the lawsuit for less than $8 million, the trial court held that State Farm owed the Association nothing.

ANALYSIS

First, an umbrella policy, in contrast to a primary policy that contains an other insurance clause, has been recognized as providing unique and special coverage. Umbrella or catastrophe coverage has been defined as a needed form of coverage which picks up, above the limits of all other contracts, such as automobile and homeowners coverages, to give the security and peace of mind so necessary today where jury verdicts, or court awards, may be very substantial, to discharge the unexpected, but potentially bankrupting, judgment.

The two policies cannot be considered on the same level nor can the general rules regarding excess and escape clauses be applied. Umbrella policies remain excess over and above all other applicable forms of contract, except as to the specific risks upon which it may elect to carry the primary burden. Umbrella coverages, almost without dispute, are regarded as true excess over and above any type of primary coverage, excess provisions arising in regular policies in any manner, or escape clauses.

State Farm issued an umbrella liability policy to Valle. The Association provided primary coverage to Lynwood. Thus, if we treat the Association’s contract with Lynwood as an insurance policy, the umbrella policy would provide coverage only if Valle’s liability exceeded the limits of the Association’s coverage.

But the Association’s contract is not an insurance policy. Municipalities in Illinois that participate in such risk-management pools do not waive municipal immunities from liability. The Association’s contract with Lynwood qualifies as a kind of “pooled self-insurance. The Illinois appellate court concluded that the umbrella policy was available to provide insurance coverage only when the loss exceeded available limits of insurance and self-insurance, including pooled self-insurance.

State Farm’s umbrella policy is unambiguous. The policy makes the insurance “excess over all other insurance and self insurance.” Because the Association provides coverage for the accident here under the contract for pooled self-insurance, the appellate court found that the Association provided coverage for the losses up to $8 million, and State Farm’s policy would cover losses in excess of that amount. Because the Association settled the claims for less than $8 million, State Farm did not owe the Association any reimbursement for the loss.

ZALMA OPINION

The unique nature of the umbrella policy only provides coverage that fits within the promises made by the policy. Since the policy promises to provide defense and indemnity after the underlying insurance or self-insurance is exhausted. The pool tried to avoid its contractual obligations by seeking to impose the loss it incurred on State Farm even though it did not exhaust its limits.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Leave a comment

No Honor Among Insurance Criminals

Lying to the FBI About Insurance Fraud is Fatal

Because it is a $300 billion a year business many amateurs believe it is easy to defraud an insurance company as long as they have the unmitigated gall to deny all wrongful conduct. Clayton Manning learned how fatal to his freedom is relying upon co-conspirators to complete a fraudulent claim and that there is no honor among thieves.

In U.S. v. Manning, — Fed.Appx. —- United States Court of Appeals, Eleventh Circuit, 2016 WL 425157 (Feb. 4, 2016) Manning appealed his convictions for conspiring to commit mail and wire fraud and making a false statement on a matter within the jurisdiction of the FBI.

FACTS

In March of 2014, a federal grand jury indicted Mr. Manning on charges of conspiring to commit mail and wire fraud and making a false statement on a matter within the jurisdiction of the FBI. The indictment alleged that Mr. Manning conspired with Connie Darner and Noha Soliman to submit a fraudulent insurance claim on his personal boat and then, in May of 2013, knowingly made a false statement to FBI agents when he told them the boat had been stolen. Both Ms. Darner and Ms. Soliman, who had also been charged, pled guilty to conspiring to commit mail and wire fraud. Mr. Manning proceeded to a jury trial.

Ms. Darner, an insurance adjuster with a boat insurance company called BoatUS, was the government’s first witness. Ms. Darner admitted that she processed fraudulent insurance claims for Mr. Manning and his then-wife, Ms. Soliman. Ms. Darner explained that Mr. Manning asked her to process a fraudulent insurance claim on his boat because he needed money for his struggling business. Ms. Darner agreed to help. She instructed Mr. Manning to obtain boat insurance from BoatUS, and she told him to get rid of the boat before filing the fraudulent insurance claim.

The same day Mr. Manning received insurance coverage, he filed a fraudulent theft claim. Ms. Darner testified that she had collaborated with Mr. Manning and Ms. Soliman to draft the theft-of-boat claim. After the claim was filed, Mr. Manning told Ms. Darner that he buried the boat on his uncle’s property in Georgia.

The government also called Ms. Soliman, who testified that Mr. Manning switched his boat insurance to BoatUS so that he could profit from the fraudulent theft claim that Ms. Darner agreed to process. According to Ms. Soliman, it was Ms. Darner who originally suggested the fraud scheme. Ms. Soliman also testified that she traveled to Georgia with Mr. Manning to hide the boat on his uncle’s property.

FBI Special Agent Douglas Mathews, investigated the boat insurance scheme, and interviewed Mr. Manning. During that interview, Mr. Manning maintained that the theft-of-boat claim was legitimate. He also claimed Ms. Soliman and Ms. Darner were framing him and that his signature had been forged on several documents. On October 15, 2014, the jury convicted Mr. Manning on both counts.

ANALYSIS

The offenses of mail and wire fraud require that a person (1) intentionally participates in a scheme or artifice to defraud another of money or property, and (2) uses or causes the use of the mails or wires for the purpose of executing the scheme or artifice. Proof of intent to defraud is necessary to support convictions for mail and wire fraud. A jury may infer an intent to defraud from the defendant’s conduct.  To obtain a conviction for conspiracy to commit mail and wire fraud, the government must prove that the defendant knew of and willfully joined in the unlawful scheme to defraud.

To prove that Mr. Manning made a false statement to a law enforcement officer the government must prove (1) that a statement was made; (2) that it was false; (3) that it was material; (4) that it was made with specific intent; and (5) that it was within the jurisdiction of an agency of the United States.

On appeal, Mr. Manning argues that the evidence was insufficient to support his convictions because the government’s witnesses were not credible.  It is well established that credibility determinations are the exclusive province of the jury. Therefore, an appellate court cannot revisit credibility determinations unless the testimony of the witnesses was incredible as a matter of law. For testimony to be considered incredible as a matter of law, it must be unbelievable on its face.

Mr. Manning’s only argument with respect to his false statement conviction is that it was tied to Count 1 “in an essential fashion” because his statement to Agent Mathews—that his boat was indeed stolen and the theft-of-boat claim was legitimate—was just the truthful denial of his involvement in the conspiracy. Mr. Manning argues that because there was insufficient evidence to convict him of the conspiracy, there was insufficiency evidence to convict him of making a false statement.

Drawing all reasonable inferences in favor of the government, the Eleventh Circuit held that a reasonable trier of fact could find that the evidence established Mr. Manning’s guilt beyond a reasonable doubt. It, therefore affirmed Mr. Manning’s convictions.

ZALMA OPINION

Although insurance fraud is a fairly easy crime to commit it takes some knowledge of insurance, the strength to stick to a story, and the ability to avoid involving weak co-conspirators. Manning was convicted because he involved people who pleaded guilty to conspiring with him and testified to his involvement in the fraud. We can only hope that the federal government continues in its effort to defeat insurance fraud.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Leave a comment

Speculative Class Action Fails

Claim of Future Injury Not Basis For Declaratory Relief

When the Supreme Court of the state of Georgia decided State Farm Mutual Automobile Insurance Co. v. Mabry, 274 Ga. 498, 556 S.E.2d 114 (Ga. 11/28/2001) it opened the door to litigation against insurers who determined actual cash value losses by determining full replacement cost and then deducting physical depreciation without consideration for the diminished value of an automobile that had been in an accident and repaired.

Since Mabry courts in Georgia and across the country are faced with claims for both the cost of repair plus diminished value. In Brewton v. Liberty Mutual Holding Company, Inc., Slip Copy,  United States District Court, M.D. Georgia 2016 WL 224124 (01/19/2016) a homeowners insured attempted to create a class action out of future failure of her insurer to pay her for diminished value.

BACKGROUND

In this putative class action, Plaintiff Chandra H. Brewton seeks relief on behalf of herself and others similarly situated for the Defendants’ alleged refusal to assess and pay damages for diminution in value when claims are made under their homeowners insurance policies. Brewton’s home suffered water damage which allegedly resulted in the diminution of the fair market value of the home. Brewton alleges she “timely reported a claim for direct physical loss to her home resulting from water damage,” but “[i]n violation of Georgia law and in breach of their insurance contract” with Brewton, the Defendants failed to assess and pay damages for diminution in the value of Brewton’s property.

In Count 2, Brewton asks the Court to “issue a declaratory judgment that Liberty Mutual is obligated under the homeowners insurance policies to assess insured properties for and pay diminished value when policyholders present first-party physical damage claims arising from direct physical losses to their insured properties, which are covered events.”

Though Brewton has not yet moved for class certification, she envisions two classes: (1) the “Policyholder Class” comprised of “[a]ll persons currently insured under homeowners insurance policies issued by Liberty Mutual that provide coverage for property located in the State of Georgia,” and (2) the “Covered Loss Class” comprised of “[a]ll persons formerly or currently insured under homeowners insurance policies issued by First Liberty that provide coverage for property located in the State of Georgia” who presented claims within the past six years for loss resulting from water damage for which damages for diminution in value were not paid.

DISCUSSION

First Liberty raises three arguments in support of its motion to dismiss Count 2: (1) to the extent the claim is based on First Liberty’s prior denial of Brewton’s claim, it should be dismissed because Brewton has an adequate remedy at law; (2) to the extent the claim is based on her “ongoing relationship” with First Liberty, the claim should be dismissed because she has failed to allege an imminent threat of future harm; and (3) Brewton “may not rely on the alleged threat of harm to absent class members to sustain her declaratory judgment.

First Liberty’s first argument relies on the assumption that Brewton seeks declaratory relief regarding the denial of her claim for diminution in value. However, in her response brief, Brewton clarifies that she “seeks a declaration to define the parties’ future rights and obligations,” whereas the breach of contract claim seeks recovery of damages “incurred in the past.” Similarly, Brewton states that “she does not … rely on an alleged threat of harm to her fellow policyholder class members to confer standing.” The question is whether Brewton’s declaratory judgment claim presents an actual controversy.The Declaratory Judgment Act, “echoing the ‘case or controversy’ requirement of Article III of the Constitution, provides that a declaratory judgment may only be issued in the case of an ‘actual controversy.’

The controversy may not be conjectural, hypothetical, or contingent; it must be real and immediate, and create a definite, rather than speculative threat of future injury. There must be a substantial likelihood that the plaintiff will suffer future injury: a “perhaps” or “maybe” chance is not enough.

First Liberty contends Brewton “has not sufficiently pled that her alleged injury will continue or will be repeated in the future. On this point, Brewton alleges that “there exists an actual controversy as to the responsibilities of the parties under the homeowners insurance policies issued by Liberty Mutual to Plaintiff and the members of the Policyholder and Covered Loss Classes” and that she “and other current insureds have an ongoing relationship with Defendants.”

As stated by the Eleventh Circuit, “[t]he remote possibility that a future injury may happen is not sufficient to satisfy the “actual controversy” requirement for declaratory judgments. A plaintiff must allege facts to establish a reasonable expectation that the injury she has suffered will continue or will be repeated in the future. Because Brewton’s injury is contingent upon her home suffering damage, the practical likelihood that the contingency will occur and that the controversy is a real one is decisive in determining whether an actual controversy exists.”

Although it is possible that Brewton may experience damage to her home and thus a dispute with First Liberty over diminished value in the future, her allegations are insufficient to establish a reasonable expectation that her alleged injury will be repeated. A plaintiff seeking declaratory relief must allege a real and immediate — as opposed to a merely hypothetical or conjectural — threat of future injury.  The mere possibility that Brewton’s home may suffer damage in the future is simply too remote to satisfy the case-or-controversy requirement and permit adjudication by a federal court.

Accordingly, because Brewton has failed to allege any facts from which the Court could reasonably conclude that she will suffer future injury, the Court lacks jurisdiction to adjudicate her dispute. The federal courts are under an independent obligation to examine their own jurisdiction, and standing is perhaps the most important of the jurisdictional doctrines.

Because the Court lacks subject matter jurisdiction over Brewton’s claim for declaratory judgment, First Liberty’s motion to dismiss Count 2 was granted.

ZALMA OPINION

No court should honor a speculative, hypothetical or conjectural threat of future injury. It is difficult enough to deal with actual existing damages. Without H.G. Wells’ time machine there would be no way for a court to make a decision on the damages a plaintiff will suffer as a result of a future claim of future, indeterminable, damage. The Mabry case that is the subject of my book Diminution in Value Damages available from the American Bar Association at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Leave a comment

Exclusion Clear & Unambiguous Applies

Unless the Legislature Specifically Prohibits Action It is Not Against Public Policy

Insurance policies, if written in clear and unambiguous language, are enforceable. The United States District Court for the Eastern District of Arkansas in a simple, brief and unambiguous opinion did away with a public policy argument against an exclusionary clause in a policy.

In American Alternative Ins. Corp. v. Williams, — Fed.Appx. —- 2016 WL 362378, United States District Court for the Eastern District of Arkansas—Little Rock (Jan. 29, 2016) the court found that there is no public policy unless the Legislature makes it so.

FACTS

While paramedic Anthony Williams was riding as a passenger in his employer’s ambulance, he was injured in a collision with a city bus owned by Central Arkansas Transit Authority (CATA) and driven by Thurman Scott. Mr. Williams obtained a judgment against CATA and Scott in the amount of $475,000. After CATA paid its liability limits of $25,000, Mr. Williams sought underinsured motorist (UIM) benefits from American Alternative Insurance Corporation (AAIC), the insurer for his employer, ambulance owner Metropolitan Emergency Medical Services. AAIC in turn filed this diversity action seeking a declaratory judgment that it was not liable because the insurance policy excluded from the definition of an “underinsured motor vehicle” one owned by a governmental unit or agency such as CATA.

The parties filed cross-motions for summary judgment, and the district court entered judgment in favor of AAIC. Mr. Williams appealed arguing, as he did below, that the relevant policy clause excluding coverage is void as against public policy; alternatively, he argues that the clause was not negotiated.

ANALYSIS

Under Arkansas law, an insurer issuing a commercial automobile liability policy is not required to offer UIM coverage. AAIC’s exclusion of government-owned vehicles from UIM coverage in the policy at issue is not void as against public policy because the Legislature has not spoken on the issue.

Courts will not find insurance coverage exclusions void as against public policy unless the legislature specifically prohibited the exclusion. Since the Legislature did not speak on the issue, there was no public policy offended by the exclusion.

Finally, Mr. Williams’s argument that the exclusion clause was not negotiated is not a basis for reversal since he was not the person who negotiated the contract and the contract was valid as it appeared.

ZALMA OPINION

The state in this case maintained a very low limit of insurance coverage for auto accidents incurred by its employees. Mr. Williams obtained a judgment of $475,000 and tried to collect it from his insurance company rather than the governmental entity who caused his injury.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Leave a comment

Agent’s Duty Limited

Expanded Duty of Agent Withdrawn by Iowa Supreme Court

Although insurance professionals recommend against it most people shop for insurance based upon premium not coverages available. As a result, when a loss occurs that is not covered by the apparently inexpensive policy, the insured becomes upset and sues his insurance agent or broker for not buying the insurance coverage needed rather than the insurance coverage ordered.

In 3140 LLC v. State Cent. Financial Services, Inc., Slip Copy, 2016 WL 351425 (Jan. 27, 2016) the Court of Appeals of Iowa was faced with a claim by an insured whose claim was properly denied based upon the wording of the insurance policy sought to recover its losses by suing its insurance agent. The insured, 3140 LLC, claims its insurance agent, State Central Financial Services, Inc., doing business as State Central Insurance (State Central), was negligent in “providing false information to 3140 LLC regarding the requirement to have a working sprinkler system.” The district court granted State Central summary judgment, and 3140 LLC appeals.

FACTS

Leon Ewart and Rick Greenfield are two of the principals or owners of 3140 LLC, which purchased a parcel of real estate located at 3140 Plank Road in Keokuk, Lee County, Iowa, in 2004. A former nursing home is located on the land.

The building became uninsured after June 2007. The real estate was subject to a mortgage by State Central Bank. State Central Bank, upon learning of the cancellation of insurance, demanded that 3140 LLC provide property damage coverage for the building located on the real estate in the amount of the mortgage.

The building located on the property could not be insured by a standard insurance carrier doing business in the state of Iowa. As a result, it was necessary for 3140 LLC to pursue insurance coverage in the secondary market through an insurance broker.

State Central, through insurance broker M.J. Kelly, obtained a quote from Mount Vernon Insurance Company. 3140 LLC requested that insurance coverage be bound and that they receive a written binder for insurance on the building from Mount Vernon. An insurance policy was issued by Mount Vernon for the building. The policy had an exclusion for damage due to sprinkler leakage. Ewart acknowledges receiving a copy of the policy, reading the policy, and being comfortable with the coverage it provided.

A memo from Mount Vernon to insurance broker M.J. Kelly Company dated November 5, 2007, reported the results of a loss control survey for the 3140 LLC account. It included recommendations to minimize the insured’s exposure to loss. Included within this memo was a recommendation to test the sprinkler system at the vacant property because it had not been tested for a long time.

The insurer advised that the recommendations made by the Life Safety Inspector excused the insured from having fire extinguishers because the property was vacant, but they still wanted to have the sprinkler system main drain tested regularly to comply with federal regulations. The last test was in 2004, which would indicate that it has not been tested in recent times. The testing was mandatory requirement of the insurance.

The basic form only provides coverage for fire, lightning, explosion, wind or hail, smoke, aircraft or vehicle, riot, vandalism, sprinkler leakage, sinkhole collapse and volcanic action all as defined and limited within the policy. In addition, the policy contains several exclusions including earthquake and flood.

On December 24, 2008, it was discovered the building owned by 3140 LLC incurred damages as a result of water pipes and sprinkler system freezing and breaking. 3140 LLC made a claim for the damages with the insurance company. The claim was denied pursuant to the policy exclusion for damage due to sprinkler leakage.

On April 13, 2011, the district court granted summary judgment to State Central as to the claim of negligence in State Central’s failing to provide necessary or requested coverage. The difficulty in the case arose when State Central, admittedly because of information provided to it by the insurance broker, notified the insured that they must test their sprinkler system to [e]nsure that it was working. That would lead a reasonable person to believe that the sprinkler system must be operational in order for the policy to be effective.

A jury trial resulted in a verdict for 3140 LLC in the amount of $351,784. However, on February 8, 2012, the trial court granted State Central’s motion for new trial “on all issues.” The court determined the verdict was contrary to the jury instruction in that the “jury awarded damages for restoration, which was substantially greater than diminution of value.”

2014 Summary Judgment.

On August 28, 2014, the district court noted Iowa Code section 522B.11(7)(c) (2013) provides that “an insurance producer, while acting within the scope and course of the license provided by this chapter is not in the business of supplying information to others unless the requirements of paragraph ‘a’ relating to expanded duties and responsibilities are met.”

The district court determined there was nothing in the record indicating State Central held itself out to 3140 LLC as an insurance specialist, consultant, or counselor, which “shields the Defendant from liability in this case.” The court granted summary judgment to State Central.

DISCUSSION

The difficulty presented to the court arises because an insurance agent’s duties to its clients have expanded and contracted over time. As stated in Collegiate Manufacturing Co. v. McDowell’s Agency, Inc., 200 N.W.2d 854, 857 (Iowa 1972): “Generally an agent owes his principal the use of such skill as is required to accomplish the object of his employment. If he fails to exercise reasonable care, diligence, and judgment in this task, he is liable to his principal for any loss or damage occasioned thereby.”

An expanded agency agreement, arrangement or relationship, sufficient to require a greater duty from the agent than the general duty, generally exists when the agent holds himself out as an insurance specialist, consultant or counselor and is receiving compensation for consultation and advice apart from premiums paid by the insured. Hardt v. Brink, 192 F.Supp. 879, 880–81 (W.D.Wash .1961)  The agent may be liable to an insured for the damage suffered by his failing to inform him as to a potential source of loss and by his failing to recommend insurance therefor. This was the state of the law with respect to an insurance agent’s duties to its clients at the time of the conduct complained of here in 2008. Thus, State Central had the duty “to use reasonable care, diligence, and judgment in procuring the insurance requested by an insured.”

In 2010, the Iowa Supreme Court abandoned the restrictive requirements for an expanded agency. The court held that it is for the fact finder to determine, based on a consideration of all the circumstances, the agreement of the parties with respect to the service to be rendered by the insurance agent and whether that service was performed with the skill and knowledge normally possessed by insurance agents under like circumstances.

State Central had the general duty to use reasonable care, diligence, and judgment in procuring the insurance requested by an insured. 3140 LLC presented no evidence supporting a finding that State Central held itself out as an insurance specialist, consultant, or counselor, or received compensation for consultation and advice apart from commissions paid by 3140 LLC. In April 2011, even before trial, the district court observed there is no evidence of an expanded agency agreement, such as O’Connor or Grisham holding themselves out to be an insurance specialist or receiving additional compensation apart from the premiums paid.

3140 LLC has not raised a genuine issue of fact that State Central assumed a duty beyond the procurement of the coverage. Consequently, the district court did not err in determining State Central was shielded from liability with respect to the claims of negligence or negligent misrepresentation.

ZALMA OPINION

Insurance agents, as the court clearly ruled, are not fiduciaries. The duty owed to the insurance agent’s client is to fulfill the insured’s order and nothing more. Only if the agent holds himself out as an insurance specialist or receives addition compensation apart from the premiums paid can the agent be held to a higher standard.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Leave a comment

Claim File Sacrosanct Until Right to Benefits Established

No Right to Claim File In Florida Until Coverage Established

Insurers create claims files for many different reasons including, but not limited to, management of claims handling, preparation for litigation as work product, and analysis of insurance coverages available to the insured.  People suing insurance companies seek copies of the claim file in order to develop claims of bad faith claims handling and to establish a tort claim against the insurer.

In states, like Florida, with a no-fault auto policy system, find that medical billings are often inflated and the insureds assign their rights to the medical provider who then sues the insurer to collect what the insurer believes to be an inflated claim. Such an investigation may contain information that indicates that the medical provider is less than honest and can, simultaneously, provide the medical provider with information to support a claim of bad faith claims handling since the investigation is incomplete and the insured – and the insureds assignee – has not proved a right to the benefits of the insurance policy.

In State Farm Mut. Auto. Ins. Co. v. Premier Diagnostic Centers, LLC, — So.3d —-, District Court of Appeal of Florida, 2016 WL 314129 (Jan. 27,  2016) Premier attempted to obtain a copy of State Farm’s claim file before it obtained any evidence it was entitled to the benefits of the policy as an assignee of State Farm’s insured. The trial court ordered the production of the files and State Farm sought extraordinary relief from the Florida Court of Appeal.

THE ISSUE

State Farm petitioned for issuance of an appellate writ quashing three trial court orders requiring State Farm, in three first-party non-bad-faith cases, to produce portions of its adjusters’ claims files to a medical care provider.

For an appellate court to review a nonfinal order by petition for certiorari, the petitioner must demonstrate that the trial court departed from the essential requirements of law, thereby causing irreparable injury which cannot be adequately remedied on appeal following final judgment.

It is axiomatic that a party is not entitled to discovery of an insurer’s claim file in an action for insurance benefits until the insurer’s obligation to provide coverage has been established. An insurer’s claim files, investigative reports, and notes are either irrelevant to the first-party dispute that this case presents or are privileged work product. When the issue of insurance coverage is unresolved and at issue in pending court proceedings, a trial court should not order an insurer to produce its claims files and other work product documents.

CONCLUSION

Accordingly the appellate court issued the writ sought and quashed the decision of the trial court affirming the three orders at issue requiring State Farm to produce its adjusters’ notes to Premier Diagnostic Centers, LLC.

Because courts have repeatedly held that an insurer’s claim file is not discoverable in cases such as this. The appellate court found that not only the wrong law was applied below but also that an irreparable departure from the essential requirements of the law resulting in manifest injustice has occurred as well.

An order that directed the production of an insurer’s claims file when the issue of coverage is still in dispute departs from the essential requirements of law and, therefore, reversed the trial court orders and allowed State Farm to keep its files sacrosanct.

ZALMA OPINION

Before an insured or the assignee of an insured can obtain copies of the insurer’s claim file the insured must establish that it is entitled to the benefits of the insurance policy and that the benefits were wrongfully refused. This case, and the appeal, is the result of a no-fault system of automobile insurance where medical providers take assignments from persons allegedly injured in automobile accidents leaving the insurer with little ability to investigate the veracity of the medical billing.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

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Zalma’s Insurance Fraud Letter – February 1, 2016

  Zalma’s Insurance Fraud Letter February 1, 2016, Volume 20, No. 3

 BZINCLOGO.gif

Welcome to the February 1, 2016 Issue of ZIFL

Click here to receive the current issue

In this, the second issue of the 20th year of publication of Zalma’s Insurance Fraud Letter (ZIFL), Barry Zalma, on January 15, 2016 continues the effort to reduce the effect of insurance fraud around the world. The issue indicates that, regardless of some success, the efforts must be increased.

Insurance fraud investigations must be conducted fairly, thoroughly, and always in good faith. Insurance professionals must understand and act ethically in everything they do in their claims investigations and evaluation of an insurance policy and its coverages.

The current issue of ZIFL reports on:

  • Lie About Loss — Go to Jail
  • Barry Zalma
  • Criminals Not Qualified to Commit Insurance Fraud
  • Proformative Academy Webinars
  • Good News From the Coalition Against Insurance Fraud
  • New From Barry Zalma
  • Wisdom
  • Books from Barry Zalma, The Zalma Insurance Claims Library & the ABA
  • Health Insurance Fraud Convictions
  • Zalma’s Insurance 101
  • Health Insurance Fraud Convictions
  • Other Insurance Fraud Convictions
  • Zalma’s Insurance Fraud Letter

Visit the Website of Zalma Insurance Consultants

Insurance Publications by Barry Zalma

 

Insurance Claims: A Comprehensive Guide

     For Readers of ZIFL a Special 25% Discount
In addition the standard FC&S Online published by The National Underwriter Company now includes a Fraud Channel with the majority of the information taken from my work on insurance fraud. It is available at http://www.nationalunderwriterpc.com/Pages/default.aspx. The Fraud Channel covers issues like: Fraud Basics, Checklists and Charts, Investigation, Ethics, Reference Materials, Fraud Of The Week, and  both the full text and summaries of insurance fraud Cases.

Buyer Bonus:

You automatically receive-AT NO ADDITIONAL COST-a subscription to the author’s e-newsletter: The Monday Claims Report, a weekly e-newsletter featuring coverage and analysis on the top insurance law court decisions from across the country.

New From The American Bar Association

Diminution in Value Damages

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

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.

ISBN: 978-1-63425-295-8, Product Code: 5190524, 2015, 235 pages, 7 x 10, Paperback 00-285-2221.

Available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

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 assist 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.

ISBN: 978-1-62722-676-9  Product Code: 5190506
2014, 486 pages, 7 x 10, Paperback

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 most recent posts to the daily blog, Zalma on Insurance, are available at http://zalma.com/blog including the following:

Check in every day for a case summary at http://zalma.com/blog

I have also created a video blog called Zalma’s Insurance 101 which currently has over 399 three to four minute videos starting with “What is Insurance” and moving forward to the Release of All Claims 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

The videoblog is adapted from my book, Insurance Claims: A Comprehensive Guide available at the Zalma Insurance Claims Library

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Reinsurer Must Pay

Follow the Settlement Doctrine Applied

Insurers and reinsurers are in business to pay claims. Sometimes the differ on who, how, when and how much to pay. When that happens litigation ensues.

In Utica Mutual Insurance Company v. Clearwater Insurance Company…, United States District Court,  N.D. New York Slip Copy , 2016 WL 254770 (01/20/2016) the District Court was asked to resolve disputes between an insurer and reinsurer who had refused to fully indemnify the insurer for losses and expenses it paid.

FACTS

Plaintiff Utica Mutual Insurance Company commenced this diversity action against defendant Clearwater Insurance Company, alleging breach of contract claims and seeking declaratory relief and damages. Clearwater counterclaims for breach of contract and seeks damages to recoup the payments already provided to Utica.

Goulds Pumps, Inc. manufactures, distributes, and sells pump products. Utica, the insurer, issued primary and umbrella general insurance policies to Goulds, the policyholder, for the relevant years of 1978 to 1981. Clearwater, the reinsurer, agreed to issue reinsurance certificates for all four of Utica’s umbrella policies. Specifically, Clearwater directly reinsured the umbrella policies issued for the calendar years of 1978 and 1979 (hereinafter “Clearwater Certificates”). Clearwater also reinsured a portion of Utica’s umbrella policies issued for the calendar years of 1979, 1980, and 1981 (hereinafter “TPFC Memoranda”) as a member of a pool of reinsurers managed by Towers, Perrin, Forester & Crosby, Inc. (TPFC).

Both the Clearwater Certificates and the TPFC Memoranda included liability clauses. The Clearwater Certificates provided that Clearwater’s liability “shall follow [Utica’s] liability in accordance with the terms and conditions of the policy reinsured hereunder.”  The TPFC Memoranda “Loss Clause” stated that “[a]ll claims settlements when authorized by [TPFC] shall be binding on [Clearwater] which shall be bound to pay [its] proportion of such settlements” and Clearwater must also pay its “proportion of expenses … incurred by [Utica] in the investigation and settlement of claims or suits.”

Beginning in 1997, over 140,000 claims had been filed against Goulds alleging asbestos-related bodily injuries attributed to Goulds’ pump products. In accordance with its primary policy, Utica defended and indemnified Goulds on these claims. Two lawsuits subsequently arose regarding Utica’s coverage obligations. In the first, commenced in California state court, Goulds impleaded Utica as a defendant in February 2003 alleging that Utica did not fulfill its coverage obligations under its primary policies. In the second, Utica commenced an action in October 2003 in New York state court against Goulds seeking a declaration of its duties under the same primary policies.
Under a reservation of rights, Utica indemnified Goulds for more than its pro rata share, however, Utica maintained that Goulds should reimburse it for these excess payments.
Regarding the aggregate limit issue, Goulds asserted that the primary policies did not contain any limit.  Thus, Utica would be responsible for a potentially unlimited number of claims capped only by a per occurrence limit. Utica, on the other hand, maintained that each of its primary policies from 1978 to 1982 had a $500,000 aggregate limit for bodily injury from products liability. Utica cited documentary and testimonial evidence to support its position. Utica, however, feared that the California court would agree with Goulds, and it could be liable for an unlimited amount, possibly rendering the company bankrupt. Based on this uncertain liability, Utica determined that settlement was the best course of action.

Richard Creedon, Utica’s General Counsel at the time of settlement, and Kristen Martin, Utica’s associate claims attorney at the time of settlement, testified that Utica did not consider or attempt to maximize its reinsurance recovery during the settlement negotiations. During and after its settlement negotiations with Utica, Goulds continued its California coverage litigation against an additional insurer. In January 2014, as part of its decision regarding the other insurer’s coverage obligation, the California state court held that Utica’s primary policies each contained a $500,000 aggregate limit.

Pursuant to the settlement agreement, Utica began to bill Clearwater for indemnity and defense costs from its umbrella policies issued to Goulds.

According to Utica, as of April 2015, Clearwater owes it $5.63 million, representing the amount in unpaid billings.

DISCUSSION

Utica argues that Clearwater is bound by its settlement with Goulds under the follow-the-fortunes or follow-the-settlement doctrine. Clearwater contends that the doctrine does not apply because Utica settled unreasonably or in bad faith. Alternatively, if the doctrine applies, Clearwater argues that Utica billed it for unrecoverable amounts, including defense costs, for which it seeks summary judgment.

Under the follow-the-settlements doctrine, a reinsurer must “accept the cedent’s good faith decisions on all things concerning the underlying insurance terms and claims against the underlying insured: coverage, tactics, lawsuits, compromise, resistance or capitulation,” as well as settlements and settlement allocation. The follow-the-settlement doctrine serves to promote the “long established” goals of “maximum coverage and settlement” and to avoid “a proliferation of litigation” between the cedent and the reinsurer.

Good Faith

Clearwater argues that Utica settled in bad faith because Utica intentionally shifted liability from its primary policies, which did not have reinsurance coverage, to its umbrella policies, which had such coverage. In doing so, Clearwater contends that Utica put its own interests as the cedent above Clearwater’s interests as the reinsurer.

Generally, the duty of good faith requires the reinsured to align its interests with those of the reinsurer. These interests, however, need not be perfectly aligned to trigger a follow-the-settlements clause.  The reinsurer bears the burden to prove the cedent’s bad faith and must present an extraordinary showing of a disingenuous or dishonest. Bad faith requires that the cedent acted, at a minimum, with gross negligence or recklessness.

Here, Clearwater has not produced any evidence that Utica’s settlement allocation was made in bad faith.   Although Utica’s board was presented with memoranda explaining the reinsurance impact of the settlement terms, consideration of that impact alone does not amount to gross negligence or recklessness. Rather, a cedent has no obligation to strictly align its interests with the reinsurer. Utica’s conduct certainly does not rise to the level of a “disingenuous or dishonest failure,” and Clearwater’s attempt to raise a question of fact does not approach the requisite “extraordinary

Reasonableness

Utica asserts that its settlement with Goulds was reasonable in two respects. First, Utica argues that it reasonably negotiated and Utica maintains that its payment to Goulds under the umbrella policies was reasonable because the primary policies had been exhausted. In opposition, Clearwater reiterates its argument that Utica unreasonably shifted all liability from the primary policies to the umbrella policies to maximize reinsurance recovery.

Deference to the follow-the-settlement doctrine also requires that the cedent reasonably settle. Accordingly, a settlement allocation is reasonable if the cedent and the insured could have arrived at the allocation without the possibility of reinsurance recovery.
Here, Utica’s settlement decision was reasonable because sufficient evidence supported its position. Although some primary policies lacked an explicit aggregate limit, Utica contended that this was a “scrivener’s error” which left the policies ambiguous. Utica then cited extrinsic evidence to support that the primary policies had aggregate limits of $500,000. Utica cited documentary evidence that supported its position including: (1) handwritten markups on the 1980 and 1981 primary policies noting a $500,000 aggregate limit; (2) letters from Utica’s broker to Goulds that the 1979 and 1980 primary policies contained aggregate limits of $500,000; and (3) certificates of insurance that listed a $500,000 aggregate limit for the 1978, 1980, and 1981 primary policies. Accordingly, Utica’s settlement decision was reasonable in light of the ambiguous contract as well as the documentary and testimonial evidence.

Coverage Within Reinsurance Policy Terms

Clearwater opposes certain billings by Utica as unrecoverable costs under the Clearwater Certificates and the TPFC Memoranda. Specifically, Clearwater refutes the billings of orphan share payments, declaratory judgment expenses, and defense costs. Utica maintains that the reinsurance certificates covered all of these billings, and under the follow-the-settlements doctrine, Clearwater must indemnify it.

The reinsurer is liable to indemnify the cedent for losses covered by the reinsurance policy. The reinsurer must indemnify the cedent where the cedent’s good-faith payment is at least arguably within the scope of the insurance coverage that was reinsured.

Clearwater solely relies on the terms of the umbrella policies and fails to present any other evidence that defense costs are clearly beyond the scope of the original policy. Accordingly, Clearwater is not entitled to summary judgment on this billing.

Because the follow-the-settlement doctrine applies and Utica’s billings are within the scope of coverage, Utica is also entitled to summary judgment on Clearwater’s breach of contract counterclaim. At present, the amount of Utica’s money judgment is uncertain, and the issue of damages remains outstanding to be later addressed by the court.

ZALMA OPINION

The issues raised were reasonable but the evidence established that the reinsurer was obligated to pay on its policy because the conduct of the cedent was reasonable and clearly not in bad faith. The covenant applies to both the insurer and its reinsurer and if there was no evidence that the insurer acted in bad faith to collect on the reinsurance the reinsurer’s claim failed.

 

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Leave a comment

Criminals Not Qualified to Commit Insurance Fraud

Stupid Insurance Criminals to Stay In Jail for Many Years

Although criminals understand crime they do not understand insurance. Further, most believe setting fires to a home to make a profit is easy. Rather, it is almost impossible to make a profit from arson fires, and usually set themselves on fire in the process. After every arson fire the first thing investigators do is check hospitals for people with burns on their hands and face because incompetent arsonists often get burned when the accelerant they use explodes.

In United States of America v. David Samuels, Slip Copy, United States District Court, E.D. Louisiana 2016 WL 258614 (01/21/2016)  the US District Court for the Eastern District of Louisiana was faced with a challenge to the sentences imposed on Samuels while he was incarcerated.

BACKGROUND

At trial, cooperating co-defendant Damian Landry testified that Samuels worked with him at Volunteers of America, an elder care provider in New Orleans. When Landry and his wife fell behind on mortgage payments for her house in 2002, Samuels advised Landry to increase his insurance coverage on the house and burn it down for the proceeds. Landry agreed, and Samuels set out to find someone who would set fire to the house for a share of the insurance money.

Landry filed a fire insurance claim on the house, but did not mention the arson to the insurance company. Because the insurance payment he received was not as large as he had anticipated, he used it to pay the mortgage company and did not tell Samuels that he had obtained the money. The person who set the fire suffered burns to his hands and face as a result of his inadequate methods in starting the fire.

Landry further testified that while the fire insurance claim was pending in July 2003, he accompanied Samuels to insurance agent Stefan James’s office. Samuels and James (a cooperating co-defendant in this matter) discussed obtaining $100,000 to $150,000 of insurance coverage on the life of Treyor Winston August, Samuels’s cousin.

Even though James was aware of Samuels’s fraudulent and murderous intentions, he ultimately sold Samuels a “double-indemnity” life insurance policy. This meant that although the policy’s face value was $75,000, it would pay out $150,000 if August’s death were accidental. Samuels structured the policy in this way because any policy with a face value of $100,000 or more would have prompted the underwriter to collect the insured’s blood and urine, and administer a medical exam.

Samuels’s brother Chris, who had taken Moss to the hospital following the Landry house fire, testified that Samuels asked him to kill August for $20,000. Samuels showed him one of the fraudulent life insurance policies to demonstrate a means of payment. Chris testified that he was unwilling to kill his cousin.

Apparently becoming impatient that Chris had not killed August, Samuels eventually obtained someone else for the task. tA 10:53 PM on April 24th, Samuels called James, and said, “Winston ha[s] been killed. He’s dead. What do we need to do to get the claims process going?” A fire inspector testified that the arsonists had probably poured a flammable liquid into the car and set fire to it.

The fire inspector who examined the van testified that it was abnormally parked in an area where it would not cause Samuels’s house to catch fire, but was still in view of the security camera. Samuels stated that he had moved the van between 2:00 and 3:00 PM on May 7th to wash it. The insurance company issued a check to him for $4,094, which he later cashed.

The government later indicted Samuels, Moss, Surtain, and three other co-defendants. While under indictment, Surtain spoke about his case to his cellmate in St. Bernard Parish Jail, Orlando Brown. He told Brown, inter alia, that his case involved arson and fraud; he was not worried about being convicted because he had disposed of the gun he had used to commit his crime; he had not been charged with murder; he had sent someone to pick up the murder victim; he had “tussled with the guy and then he shot him”; he was not worried about his child’s mother or her brother testifying against him because he knew at which jail the brother was being housed; his case involved insurance; his child’s mother and her brother were beneficiaries, but he was not a main beneficiary; and “if everything went right,” he would be paid for his part in his crime.

After an eight-day trial, the jury found Surtain and Moss guilty of conspiracy to commit mail and wire fraud, and use of fire to commit obstruction of justice in relation to the van fire. Moss was also found guilty on one count of use of fire to commit mail fraud in relation to the house fire. Samuels was found guilty on all fifteen counts. These included one count of conspiracy to commit mail and wire fraud, three counts of mail fraud, seven counts of wire fraud, one count of use of fire to commit obstruction of justice, two counts of use of fire to commit mail fraud, one count of making a false statement, and aiding and abetting.

Moss and Surtain were respectively sentenced to 420 months’ and 180 months’ imprisonment. Samuels was sentenced to 900 months’ imprisonment.

ANALYSIS

Pursuant to § 2255, a prisoner in custody under a federal court sentence may seek relief on four grounds: (1) “that the sentence was imposed in violation of the Constitution or laws of the United States”; (2) “that the court was without jurisdiction to impose such sentence”; (3) “that the sentence was in excess of the maximum authorized by law”; or, (4) that the sentence “is otherwise subject to collateral attack.”   To show “actual prejudice” the defendant must demonstrate not just the possibility of prejudice, but an actual and substantial disadvantage, infecting his entire [proceedings] with error of constitutional dimension.

To succeed on a claim of ineffective assistance counsel, petitioner must show: (1) that his counsel’s performance was deficient; and (2) that his counsel’s deficient performance prejudiced his defense. Strickland v. Washington, 104 S.Ct. 2052, 2064 (1984). Deficient performance by counsel is established by showing “that counsel’s representation fell below an objective standard of reasonableness.” In applying this standard, the “court must indulge a ‘strong presumption’ that counsel’s conduct falls within the wide range of reasonable professional assistance because it is all too easy to conclude that a particular act or omission of counsel was unreasonable in the harsh light of hindsight.” Bell v. Cone, 122 S.Ct. 1843, 1854 (2002)

Samuels has not demonstrated any prejudice resulting from his counsel’s failure to object to the jury being informed by the court that none of the defendants were free on bond. The instruction the court gave did not imply the defendants’ guilt, and the court repeatedly instructed the jury that its verdict must be based on the evidence presented at trial and the law. Lack of prejudice is demonstrated by the jury’s acquittal of Moss and Surtain on some charges.

Samuels has not demonstrated that his trial counsel was deficient in this respect, or that there was any prejudice. A video of the ATF agent’s interview with Samuels was admitted into evidence. The ATF agent asked Samuels about his knowledge of a life insurance policy on August’s life, and Samuels responds that he ‘never had insurance on‘ August. It is clear that the agent was trying to ascertain whether Samuels had insurance policies on August’s life at the time of August’s death, not at the time of the interview. Samuels’s attorney gave Samuels the opportunity during his trial testimony to offer the explanation that Samuels now argues his attorney failed to raise. Thus, Samuels’s attorney was not ineffective in this respect.

ZALMA OPINION

It is understandable, faced with a 75-year definite federal sentence that Samuels would try everything possible to reduce his sentence. He could not overcome, however, that his criminal activities were stupid beyond reason; that evidence was damning; and that he committed arson for profit and solicited murder to attempt to collect on a fraudulently obtained life insurance policy. Stupidity and criminality that was evil resulted in a fair sentence that should keep him in jail for the rest of his life.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Leave a comment

If One Part of Policy is Covered Insurer Must Defend Entire Action

All Claims Must Be Excluded to Avoid Duty to Defend

When insured sprays herbicide on its farm and the negligently sprays a neighboring property causing damage to its trees and other plants, the US District Court for the Southern District of Florida, in National Union Fire Insurance Company of Pittsburgh v. Florida Crystals Corporation and Sugar Farms …, United States District Court,  S.D. Florida Slip Copy 2016 WL 237253 (January 19, 2016) needed to determine if the claimed loss was totally excluded.

BACKGROUND

On October 24, 2013, Date Palm Wholesalers, Inc. (“Date Palm”), sued Defendants in state court (the “Date Palm Action”).  Date Palm operates a commercial nursery in Palm Beach County. Defendants own and maintain nearby sugar-cane growing and processing operations.

Defendants contract with a company specializing in the aerial application of pesticides, Roma Air Corp. (“Roma”), to apply pesticides and herbicides at their operations. The Complaint in the Date Palm Action alleges that in March 2013, Defendants directed Roma to spray a powerful herbicide on a large area of land. This area included not only Defendants’ operations, but also Date Palm’s nursery. The herbicide damaged many of Date Palm’s trees. Date Palm thus sued Defendants and Roma for negligence, strict liability, and trespass.

Plaintiff, the insurer of the defendants in the state court action, subsequently commenced the instant lawsuit, seeking a declaration that the Policy imposes no duty to defend or indemnify Defendants in the Date Palm Action, which has recently settled. Plaintiff’s Complaint advances numerous theories as to why the claims in the Date Palm Action fall outside the Policy’s scope. On March 30, 2015, the Court dismissed with prejudice Count I of Plaintiff’s Complaint, which sought a declaration that Plaintiff had no duty to defend Defendants in the Date Palm Action because the Date Palm Complaint did not set forth an “occurrence” within the meaning of the Policy. The Court allowed the remainder of Plaintiff’s claims to proceed.

On May 11, 2015, the Court denied Plaintiff’s Motion for Summary Judgment. Defendants moved for Judgment on the Pleadings.

DISCUSSION

Defendants move for Judgment on the Pleadings as to Plaintiff’s Complaint for Declaratory Relief and Count I of Defendants’ Counterclaim for declaratory relief regarding (1) Plaintiff’s duty to defend Defendants in the Date Palm Action, and (2) Plaintiff’s obligation to reimburse Defendants for their attorney’s fees and costs incurred in defense of the Date Palm Action.

Duty to Defend

The court has earlier ruled that “the excess other insurance provisions in the Allianz Policy and National Union Policy render one another inert, and the excess other insurance clause in the Policy does not relieve National Union of a duty to defend.”

Because the Court has already held that the Date Palm Complaint alleges an occurrence within the meaning of the Policy, Plaintiff can only avoid a duty to defend if all allegations in the Date Palm Complaint fall within one or more policy exclusions.

In Count II of the Complaint, Plaintiff claims that the allegations in the Date Palm Complaint fall within the Policy’s Expected or Intended Injury Exclusion, which excludes from coverage “Property Damage expected or intended from the standpoint of the Insured.” However, the Court has already established that “harm to Date Palm’s nursery arising from Defendants’ carelessness in using herbicides comes within this meaning of an ‘accident,’ ” which includes “injuries or damage neither expected nor intended from the standpoint of the insured.” Therefore, such allegations of accidental harm do not fall within the Expected or Intended Injury Exclusion.

Count III maintains that coverage is barred by the Exclusion for Property Damage to Property Over Which the Insured Exercises Control. As the Court concluded earlier, “whether Roma’s alleged spraying of herbicide on Date Palm’s plants from above represented the exercise of control over the property is arguable,” and “[w]here, as here, the applicability of an exclusion is uncertain, the insurer is not relieved of its duty to defend.” (WPC Indus. Contractors, Ltd. v. Amerisure Mut. Ins. Co., 720 F.Supp.2d 1377, 1380 (S.D.Fla.2009)).

Finally, Counts V through VII seek to relieve Plaintiff of its duty to defend under Policy Endorsements Seven and Thirteen. As the Court has already concluded, though a number of the Policy’s exclusions might have applied to claims in the Date Palm Action, including those in Endorsement Seven, Endorsement Thirteen restores coverage at least for parts of those claims.”

Because at least some of the allegations in the Date Palm Complaint fall within the scope of Policy coverage and are not otherwise excluded, the Court finds that Plaintiff has a duty to defend Defendants in the Date Palm Action. Accordingly, Defendants are entitled to judgment on the pleadings as to Plaintiff’s Complaint for Declaratory Judgment and Count I of Defendants’ Counterclaim on the issue of Plaintiff’s duty to defend. Defendants are therefore entitled to be reimbursed by National Union for the reasonable attorney’s fees and costs that they incurred in their defense of the Date Palm Action.

CONCLUSION

Based on the foregoing, this Court finds and declares that:
1. The allegations set forth in the Date Palm Action constituted an “occurrence,” as that term is defined in the National Union Policy;
2. National Union had a duty to provide a defense to Florida Crystals Corporation and Sugar Farms Co–Op, from the date of the filing of the Date Palm Action on October 24, 2013, to the date settlement was concluded; and

3. Florida Crystals Corporation and Sugar Farms Co–Op are entitled to be reimbursed by National Union for the reasonable attorney’s fees and costs incurred by them in their defense of the Date Palm Action from October 24, 2013, to the date settlement was concluded.

ZALMA OPINION

Every liability insurance policy contains exclusions – statements of risks the insurer is not willing to take. To avoid a duty to defend the insurer must establish that every allegation of a complaint in a four corners state like Florida are specifically, clearly and unambiguously excluded. Since the court found that all claims were not excluded the insurer was obligated to provide a defense.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Leave a comment

Employer has no Duty to Insure Employee

Fraud Actions Not Covered

When a party gets involved in a fraud as an employee of a corporation does not automatically become an insured on an errors and omissions policy nor can the fraud perpetrator force an insurer to defend a person neither an insured, additional insured nor an insured by definition.

In Fidelity National Title Insurance Company v. Craven, United States District Court, E.D. Pennsylvania,  Slip Copy 2016 WL 215068 (01/19/2016) the U.S. District Court for the Eastern District of Pennsylvania reviewed the denial of coverage for one of the purported fraud perpetrators Tammi M. Torbik.

FACTUAL BACKGROUND

This suit arises out of an alleged conspiracy to defraud Plaintiff Fidelity National Title Insurance Company (“Fidelity”) and other lenders by taking out mortgages and failing to record them properly so that they went unpaid at foreclosure.  Torbik allegedly took an active part in three fraudulent schemes.

Torbik, in turn, filed a Third-Party Complaint alleging that her former employer, Whitford Land Transfer Co., Inc. and its principal, Bruce G. Taylor, should have defended and indemnified her. Plaintiff Fidelity brought suit on July 30, 2012, alleging ten counts, including fraud against Torbik for failing to disclose the above information and for directing the Washington Mutual payoff check for a mortgage to Mr. Craven; breach of fiduciary duty against Torbik; civil conspiracy against Torbik; and violations of the Racketeer Influence and Corrupt Organizations (“RICO”) Act, 18 U.S.C. § 1962 et. seq.

The Third-Party Complaint

Following the initiation of Fidelity’s suit against her, Torbik filed a Third Party Complaint against her employers Third-party Defendants Bruce G. Taylor (“Taylor”) and Whitford Land (collectively “Third-party Defendants”). According to that Third-party Complaint, from the late 1990s through 2008, Torbik was employed by and served as closing agent for Whitford Land.  Torbik, in her capacity as Whitford Land’s closing agent, performed only notary, fund disbursement, and other limited administrative services at real estate closings on Whitford Land’s behalf, at all times subject to Whitford Land’s and Taylor’s control, supervision, and direction.

The Third-party Complaint alleges that Fidelity’s and Whitford Land’s principal-agent relationship is governed by the Issuing Agency Agreement, dated October 7, 1992 (the “Agency Agreement”), which was signed on behalf of Whitford Land by Taylor in his capacity as president. Pursuant to the Agency Agreement, Fidelity allegedly agreed that Whitford Land would be solely liable for the entire amount of any loss incurred by Fidelity as a result of, among other things, issuance of title insurance policies with errors or omissions, which should have been known to Whitford Land, as well as “[f]raud, dishonesty, or defalcation committed by [Whitford Land], or its employee(s), officer(s), director(s), or agent(s).”

Fidelity alleged that Torbik was responsible for its losses. In response, Torbik asserts that to the extent she committed any act or omission causing such losses, she did so within the scope of her employment and at the direction of Taylor and/or Whitford Land. Ultimately, Torbik avers that the acts and/or omissions of Taylor, Whitford Land, and/or Whitford Land’s other employees were fraudulent with respect to Fidelity and Washington Mutual, constitute breaches of Whitford Land’s Agency Agreement with Fidelity, constitute breaches of Whitford Land’s fiduciary duty to Fidelity, were acts/omissions of negligence, and directly caused Fidelity’s alleged damages.

Torbik’s Third-party Complaint then goes on to assert that Taylor and Whitford Land wrongfully forfeited Torbik’s liability insurance coverage. Specifically, Torbik asserts that at all times during her tenure as a Whitford Land employee, Torbik performed professional services for others in connection with Whitford Land’s real estate title and settlement business.

LEGAL DISCUSSION

In an effort to impose a duty in this case, Torbik cites to 40 P.S. § 910-26.1 as requiring Third-party Defendants to obtain errors and omissions insurance on her behalf. Contrary to Torbik’s contention, however, this statute only provides that: “Agents for a title insurance company shall be required to: ¶ (1) Obtain errors and omissions insurance in an amount acceptable to the insurer appointing the agent, but in no event in an amount less than two hundred fifty thousand dollars ($250,000) per claim and an aggregate limit of five hundred thousand dollars ($500,000) … ”

A plain language interpretation of the statute reveals that no duty to an employee of a title insurance company is created. Rather, the statute simply requires that a title insurance agency obtain the errors and omissions coverage to protect the title insurance carrier, who issues the policy, against error or omissions of the title insurance agency. Nothing in this provision suggests that employees of the title insurance agency are entitled to such coverage by their employer in order to protect them from liability relating to their own mistakes.

Torbik suggests that, under the circumstances of this case, an employer such as Whitford Land/Taylor had a duty to provide an employee such as Torbik with errors and omissions insurance because the relationship between the parties left Torbik at her employer’s mercy to maintain such insurance, and the risk of loss to her was foreseeable. In making this argument, however, Torbik identifies no basis in either statute or common law that would impose a duty on Third-party Defendants to obtain insurance coverage to protect its employees against errors and omissions in the employees’ work on behalf of the company. Likewise, this Court’s own review of the applicable jurisprudence unveils no cases wherein such a duty was imposed.

Extending Torbik’s argument to its extreme would impose a duty on all employers— regardless of the nature of the business — to obtain errors and omissions coverage for the benefit of their employees.

In short, the Court simply could not find that Third-party Defendants bore any duty to Torbik to obtain insurance coverage on her behalf.  Given the complete absence of any discussion of this issue between Torbik and Third-party Defendants, the Court cannot find that Third-party Defendants’ failure to explicitly tell Torbik that she was not covered by certain insurance policies rose to the level of a promise on which Torbik could justifiably rely.

In the present case, it is undisputed the contract at issue is Whitford Land’s insurance contract with AIG, under which Torbik, as employee, was named as a potential insured. Torbik never actually entered into any contract with AIG and, indeed, admitted that she did not have any insurance policy with AIG.

In short, Torbik has failed to show a genuine issue of material fact that would preclude the entry of summary judgment in favor of Third-party Defendants on the tortious interference with contract claim. Accordingly, Third-party Defendants’ Motion on this claim is granted.

ZALMA OPINION

Being involved in a fraudulent scheme is not the type of event that is subject to typical errors and omissions insurance. Insurance is, and always will be, a contract of personal indemnity. It only insures those persons who are named in the policy or who are declared to be an insured by the terms and conditions of the policy. Torbik was neither and regardless of her multiple arguments could not obtain insurance coverage to avoid liability for her fraud.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Leave a comment

Fraud Defense Doesn’t Apply to Innocent Co Insureds

Fourth Circuit Construes A Group Policy as Multiple Insurance Policies

With regard to insurance the equitable remedy of rescission, hoary with age, is designed to prevent a person from profiting from a misrepresentation or concealment of material fact that, had the truth been known, a policy would not have been issued at all or on the same terms and conditions. When the misrepresentation is intentional and the insurer is deceived to its detriment the insurer is allowed to rescind the policy from its inception or declare the policy void in accordance with a policy condition.

FACTS

In Evanston Ins. Co. v. Agape Sr. Primary Care, Inc., — Fed.Appx. —-, United States Court of Appeals, Fourth Circuit 2016 WL 192748 (Jan. 15, 2016) an insurer was deceived when one of its insureds claimed to be a board certified physician when he was using a stolen identity and was not even a physician.

In 2012, Evanston Insurance Company issued a renewed Professional Liability Insurance Policy to Agape Senior Primary Care, Inc. and certain of its employees, doctors, and nurse practitioners, including Kezia Nixon and Dr. Floyd Cribbs (collectively, “Agape”). Unbeknownst to any other employee at Agape, Ernest Osei Addo had stolen Dr. Arthur Kennedy’s identity, and was fraudulently practicing medicine as an Agape “physician” ostensibly insured by Evanston. Once Addo’s deceit was uncovered, Evanston sought to rescind the policy as to all participants based on Addo’s fraudulent conduct and false statements on his insurance application.

Prior to Addo’s criminal conviction, in 2011, Evanston issued Physicians, Surgeons, Dentists and Podiatrists Professional Liability Insurance Policy. On February 11, 2012, Addo filled out an individual application for insurance through Evanston, representing himself to be Dr. Kennedy and board-certified in family medicine.  After receiving Addo’s false application, Evanston issued Endorsement 10–10, adding “Kennedy” to the First Policy and charging an additional $4,000 premium for “Kennedy.”

On July 15, 2012, all applicants, including the individual physicians, Addo, and Agape, submitted separate renewal applications. Thereafter, Evanston issued a Renewal Policy for the period from August 1, 2012 to August 1, 2013.

Had Addo’s identity been disclosed, Evanston would not have issued Endorsement 10–10 or the Renewal Policy.

TRIAL COURT DECISION

The district court addressed this novel circumstance within the bounds of what would be South Carolina law. The court ruled that the Renewal Policy was void as to Addo because of his fraudulent misrepresentations. The court did not “impute” Addo’s conduct to Agape, finding that (1) Addo applied separately for the Policies and Agape had no knowledge of his fraud; (2) the Renewal Policy demonstrated an intent to provide separate insurance coverage for the “co-insureds” and thus the Renewal Policy was not void ab initio. The Renewal Policy did not provide Agape coverage for its own negligent acts.

ANALYSIS

The Supreme Court of South Carolina applies the general rules of contract construction to construe insurance policies. A common general contract principle allows an injured party to void a contract when that party’s assent to the bargain is induced by the fraudulent or material misrepresentation of the other contracting party, and the injured party relied on the misrepresentation in question.

Some states, including South Carolina, statutorily modify the traditional contract principle in the insurance context by requiring the insured party to have intended to defraud the insurance company.  Rescission is an equitable remedy that attempts to undo a contract from the beginning as if the contract had never existed.  In South Carolina rescission will not be granted for a minor or casual breach of a contract, but only for those breaches which defeat the object of the contracting parties.

South Carolina law and principles of equity weigh in favor of allowing coverage for the innocent co-insured parties, who are the individual doctors, nurses, and Agape.

South Carolina law disfavors rescission against the insured. In particular, under South Carolina law, three factors tip the equity scales in favor of Agape: (1) as the insurer and drafter, Evanston could have included forfeiture language in the policy; (2) neither Agape nor any of its employees had any knowledge of Addo’s fraud, rendering them “innocent” under South Carolina law; and, (3) the public interest would not be served through rescission.

Under South Carolina statutory law, an accident or health insurance policy is not void ab initio despite a material misrepresentation made in the application unless “the false statement was made with actual intent to deceive or unless it materially affected either the acceptance of the risk or the hazard assumed by the insurer.” S.C.Code § 38–71–40. South Carolina common law places the burden on the insurer to show, by clear and convincing evidence, that: (1) the statements made on the application were untrue; (2) the applicant knew the statements were false; (3) the statements were material to the risk; (4) the insurer relied on the false statements; and, (5) the statements were made with the intent to deceive and defraud the company. Lanham v. Blue Cross & Blue Shield of S.C., Inc., 563 S.E.2d 331, 334 (S.C.2002).

The Supreme Court of South Carolina noted that insurers, as drafters of insurance policies, can include express policy language supporting their position to rescind for the intentional misrepresentation of any applicant. Evanston, as the insurer and drafter, could easily have included provisions limiting coverage in the face of fraud by one discrete applicant.

Public policy considerations—appropriate to weigh in this equitable action—reinforce that the district court arrived at the proper outcome under South Carolina law. Equity cannot demand that the actions of one corrupt applicant, who conned Agape and Evanston alike, deprive the innocent insureds of the benefit of their contract. Agape and its employees separately applied for medical malpractice insurance in good faith, and they would be left without such insurance through no fault of their own.

Evanston accepted individual premiums as to each insured and seemingly spread the risk accordingly. Further, and perhaps more important in an equitable determination, rescission would leave the public essentially unprotected on matters of medical malpractice brought against every other Agape employee.

The Fourth Circuit concluded that the district court did not err when it concluded that South Carolina would not allow rescission under the facts of this case. South Carolina law and principles of equity demand that fraudulent misrepresentations on an application for medical malpractice insurance by a person posing as a doctor should not vitiate the insurance policy as to his or her innocent employer and fellow employees.

ZALMA OPINION

The court appears to have misconstrued the difference between an equitable remedy and policy wording requiring a policy to be void in the event of fraud. Rescission has nothing to do with the wording of a policy but with what is fair. It should be unfair to force an insurer to insure someone who deceived it. Had it known the truth it would not have issued the policy and it should have been voided. Public policy trumped fairness to the insurer in favor of those injured by the doctors. The court treated each doctor’s application  as a separate policy and only voided the policy as to the fake Dr. Kennedy. An insurer cannot be partially defrauded any more than Dr. Kennedy/Addo could be partially dead.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

Posted in Zalma on Insurance | Leave a comment

Lie About Loss – Go To Jail

Insurance Fraud Conviction Stands Even If The Fraud Fails

Some people believe that to commit the crime of insurance fraud a person must effectively defraud the insurer and obtain the benefits of an insurance policy to which he is not entitled. The statutory scheme that brought about criminal statutes for insurance fraud was not so limited. The legislatures across the country, including New Jersey, made the crime one where a person provides false information to the insurer that materially effected its investigation or decision with regard to a claim.

In State of New Jersey  v. Robert Goodwin (a/k/a Robert Ebbs, Michael Kink, Robert James, et al..., Supreme Court of New Jersey — A.3d —- 2016 WL 207688 (1/19/2016) the New Jersey Supreme Court was faced with Goodwin’s conviction for insurance fraud that was reversed by the appellate court, and asked to reinstate the conviction.

FACTUAL BACKGROUND

Defendant and “Stacey” had been involved in a romantic relationship since 2004 and lived together on the third floor of an apartment at 303 South 11th Street in Newark, New Jersey.1 In April 2009, Stacey purchased an SUV, a 1999 Chevy Tahoe, which cost over $6000. Stacey made a $3000 down payment and financed the remainder through a loan. Defendant co-signed the loan. The loan payments on the SUV were approximately $282 per month. Stacey secured automobile insurance from Progressive Insurance Company. The automobile insurance payments were $283 per month. Because Stacey had only a permit to drive, defendant was the primary operator of the SUV.

Progressive, examined both defendant and Stacey under oath regarding the claim. In response to questioning, defendant claimed that he had the only set of keys to the SUV and that he had parked the vehicle in front of the South 11th Street apartment on the evening it was stolen. Investigator Goldman advised defendant that the SUV could not have been operated without the keys. Shortly thereafter, defendant admitted that he had parked the SUV in the spot where it was found in flames. Defendant explained that he lied about the location where he had parked the SUV so that Stacey would not learn that he had been cheating on her. Defendant denied that he had set the vehicle on fire.

Ultimately, Progressive denied the claim based on defendant’s misrepresentations about the theft.

A jury found defendant Robert Goodwin guilty of second-degree insurance fraud. In doing so, the jury necessarily concluded that defendant knowingly made or caused to be made false statements of material fact concerning an insurance claim for damage to his girlfriend’s sport utility vehicle (SUV). The heart of the State’s case was that defendant falsely reported the theft of his girlfriend’s vehicle, which was found severely damaged as the result of arson.

The Appellate Division overturned defendant’s conviction because the jury was not told that a finding of insurance fraud could be returned only if the carrier actually relied on defendant’s false statements. In the Appellate Division’s view, the trial court erred by charging a relaxed standard—that guilt could be found if the false statements had the capacity to influence the insurance company’s decision to pay the claim.

ANALYSIS

A person violates the insurance fraud statute even if he does not succeed in duping an insurance carrier into paying a fraudulent claim. A false statement of material fact is one that has the capacity to influence a decision-maker in determining whether to cover a claim. If the falsehood is discovered during an investigation but before payment of the claim, a defendant is not relieved of criminal responsibility. Here, defendant falsely reported that his girlfriend’s vehicle was stolen. It was for the jury to determine whether the series of false statements about the theft generated by defendant had the capacity to influence the insurance carrier in deciding whether to reimburse for the damage caused by the arson.

Instructing the jury on the law, the trial court charged that a person is guilty of insurance fraud if he “knowingly makes or causes to be made a false … or misleading statement of material fact … in connection with a claim for payment, reimbursement, or other benefit from an insured’s company.”

Defendant contends that Progressive did not suffer prejudice or incur liability from his false statement that the SUV was stolen because, in fact, the vehicle was not stolen and because the authorities knew where the SUV was located before the report of the theft. He also asserts that the jury verdict acquitting him of arson and theft by deception was a validation of the truthfulness of his statement that he did not set the SUV on fire.

Pruned to the language relevant to this case, the insurance fraud statute states that a defendant “is guilty of the crime of insurance fraud if [he] knowingly makes, or causes to be made … a false … statement of material fact … as part of … a claim for payment … pursuant to an insurance policy.”

First, the statute contains no language stating that criminal liability is dependent on an insurance company actually relying on a false statement and suffering a loss. Rather, the statute merely requires the knowing submission of a false or fraudulent statement of material fact for criminal liability to attach.

A constricted interpretation of “material fact” is not consistent with either the common understanding or usage of that term or its intended purpose within the insurance-fraud statute. Consistent with the definition of material misrepresentation in our state perjury statute and the federal false-statements statute is one of the legal definitions of “material” in Black’s Law Dictionary 1124 (10th ed.2014)—“[o]f such a nature that knowledge of the item would affect a person’s decision-making”—and the general definition of “material” in Webster’s New World College Dictionary 900 (5th ed.2014)—“important enough to affect the outcome of a case, the validity of a legal instrument.”

The Legislature set forth its purpose in criminalizing insurance fraud in the statute itself. The Legislature declared that “[i]nsurance fraud is inimical to public safety, welfare and order within the State of New Jersey” and that “[a]ll New Jerseyans ultimately bear the societal burdens and costs caused by those who commit insurance fraud” N.J.S.A. 2C:21–4.4(a). Those objectives strongly suggest that the Legislature did not intend a crabbed definition of the term “false statement of material fact” — one that would limit the scope of criminal prosecutions to only those cases in which a fraudster succeeded in inducing an insurance company to pay a false claim but not to those cases in which the fraudster was caught beforehand.

The definition of material in Model Jury Charge (Criminal), “Insurance Fraud: Making False Statement (Claims)” (2010) is consistent with the way that term is defined in our state perjury statute, in multiple federal statutes, in the common law, and in legal and general dictionaries. The Model Charge states that a misstatement: “is material if, when the statement was made, a reasonable insurer would have considered the misrepresented fact relevant to its concerns and important in determining its course of action. In other words, the statement of fact is material if it could have reasonably affected the decision by an insurance company to provide insurance coverage to a claimant or the decision to provide any benefit pursuant to an insurance policy or the decision to provide reimbursement or the decision to pay a claim.”

Here, the false statements made and caused to be made by defendant concerning the theft of the SUV could have reasonably affected the decision by Progressive to pay the damage claim caused by the arson. As Progressive’s investigator testified at trial, the lie that the SUV was stolen infected the credibility of the entire claim, including defendant’s denials that he was not involved in setting the vehicle on fire.

ZALMA OPINION

Even a partial and unsuccessful attempt at insurance fraud is still criminal insurance fraud. The defendant intended to deceive, misrepresented the facts to the insurer, and was caught in the lie resulting in the claim being denied. The fraud was effected when the lie was made and it was not necessary for the insurer to be deceived and pay the claim before a person could be convicted of the crime. Since a rational jury was free to conclude that defendant’s knowingly made false statements could have reasonably affected Progressive’s decision whether to pay the claim his conviction was reinstated.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Leave a comment

Attorney’s Fees Alone Not Enough To Sustain a Claim

Insurable Loss Required to Make Claim for Attorneys Fees

The Ninth Circuit Court of Appeals in a surprisingly brief and succinct opinion – not authorized for publication because it was so brief – made an important insurance decision concerning the need to prove the existence of an insurable loss. When, before a claim is made against an insured, the insured incurs an pre-existing obligation to pay a plaintiff, there can never be coverage for that loss because it is not fortuitous.

In Screen Actors Guild-American Federation of Television v. Federal Insurance…, — Fed.Appx. —- 2016 WL 209856 United States Court of Appeals, Ninth Circuit(Jan. 15, 2016)  the Screen Actors Guild–American Federation of Radio and Television Artists (SAG) appealed the district court’s decision denying its motion for summary judgment and granting defendant-Appellee Federal Insurance Company’s (Federal) motion for summary judgment.

SAG failed to identify a covered loss for which Federal breached its duty to indemnify, SAG’s claims for breach of contract and for breach of the covenant of good faith and fair dealing fail. As the California Court of Appeal stated in Davis v. Farmers Ins. Grp., 134 Cal.App. 4th 100, 105 (2005) the first step in any insurance coverage dispute is to determine whether the insuring provisions of the policy afforded coverage for the alleged losses, SAG was required to prove the existence of a policy that afforded coverage for its claimed losses.

The Ninth Circuit concluded that SAG is not entitled to coverage based solely on a claim for attorney’s fees untethered to any insurable loss. [Health Net, Inc. v. RLI Ins. Co., 206 Cal.App. 4th 232, 257 (2012) (holding that “the claim for attorney’s fees is covered only to the extent it arises out of the covered wrongful acts.”)]

Under California law, a pre-existing obligation is not a covered loss. [August Entm’t, Inc. v. Philadelphia Indem. Ins. Co., 146 Cal.App. 4th 565, 578 (2007).]

As SAG admittedly had a pre-existing obligation to pay the foreign levy funds to the state court plaintiffs, SAG’s failure to honor that obligation is not a covered Loss as a matter of law. Accordingly, SAG is not entitled to coverage for the $330,000.00 in attorney’s fees assessed against SAG in the state court case, because the award was based on the state court plaintiffs’ success in securing payment of the pre-existing obligation. [Health Net, 206 Cal.App. 4th at 257] emphasizing that coverage cannot be bootstrapped based solely on a claim for attorney’s fees.

ZALMA OPINION

Important decisions, even if the court decides they should not be published, are still important. Claims should never be presented for non-fortuitous losses and it becomes even more egregious to make a claim for the fees incurred to defend against payment of a pre-existing obligation.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Leave a comment

Read The Policy or Be Forced to Litigate Later

Is It Fraud to Sell A Policy That Excludes The Risk He Wants to Protect?

No one wants to read insurance policies they acquire. They believe, even though the policy is written in Sesame Street English that anyone with a fourth grade education should be able to read, it is too difficult and impossible to understand. As a result of the failure the insured gets a policy that is different than what he reasonably expected to receive. When a loss occurs and the insured learns there is no coverage for the loss under the clear and unambiguous language of the policy, he sues the insurer and its agents for fraud and unfair trade practices.

In Rick Skiles d/b/a B4ure Home Inspections  v Edward Mercado, et al …., Slip Copy, United States District Court,  S.D. West Virginia 2016 WL 183921  (01/14/2016) the insurer asked the Court to dismiss the suit and various parts of it.

BACKGROUND

In 2011 Plaintiff became a licensed home inspector and began doing business as B4Sure Home Inspections. To obtain insurance for his home inspection business, Plaintiff contacted Mercado and Newtek, both agents or employees of Sentinel.

Newtek, through its agent, Mercado, provided Plaintiff with a quote for an insurance policy. Newtek and Mercado’s quote included a “Commercial Declination Checklist,” (“Checklist”). The Checklist included types of coverage that an insurance purchaser could choose from when deciding what policy to purchase. The purchaser would mark either “accepted” or “declined.” Plaintiff marked the “general liability” coverage and declined all others listed. The checklist did not show any separate category for “professional liability” and Plaintiff believed, for reasons not explained in the Complaint, this to be included under the general liability policy.

Based on a quote from Newtek, Plaintiff ultimately purchased an insurance policy from Sentinel Insurance Company’s (“Sentinel”). Prior to issuing the policy, Defendants knew that Plaintiff was engaging in business as a home inspector and that Plaintiff sought coverage for liability that might be incurred arising from his business activities as a home inspector. Plaintiff renewed the policy two times.

Sometime in 2013, Plaintiff was named as a defendant in two lawsuits arising from his business activities as a home inspector. At that time, Plaintiff reported the claims to his insurer, Sentinel, and requested a defense and indemnity. Sentinel declined to defend or indemnify Plaintiff against either lawsuit, claiming in denial letters dated April 15, 2013 and September 18, 2013 that Plaintiff’s policy contained an exclusion for professional services by a home inspector (the only liability for which the Plaintiff sought insurance).

DISCUSSION

Fraud Claim

Defendants argue that Plaintiff’s fraud claim fails as a matter of law for several reasons. After stripping the Complaint of legal conclusions, the following facts supporting Plaintiff’s fraud claim remain: To obtain insurance for his home inspection business, Plaintiff contacted Mercado and Newtek, both agents or employees of Sentinel. All three Defendants knew, prior to issuing the policy to Plaintiff, that Plaintiff sought coverage for liability that Plaintiff might incur through his home inspector business activities.

Even viewing these remaining facts that support Plaintiff’s fraud claim in a light most favorable to Plaintiff, the Complaint does not state a fraud claim that is plausible on its face.

There are insufficient facts to support an inference that Plaintiff, after only reviewing a vague quote sheet, was justified in believing that the general liability policy would cover all the activities of his business, including home inspection services. Plaintiff asked the Court to infer that Plaintiff was justified in believing the general liability coverage option included all the activities of his business, including home inspection services, and that Plaintiff was justified in believing this in the absence of any representation by Defendants specifically to that effect. On the contrary, the facts alleged suggest such an inference would be unreasonable. An equally plausible inference would be that Plaintiff was not justified in relying on a vague policy description without asking Defendants for more information about the extent of that policy’s coverage.

The Court refused to rule on the motion to dismiss Plaintiff’s fraud claim and, instead, granted Plaintiff leave to amend the Complaint’s fraud claim on or before fourteen days after the entry of this Order.

West Virginia Fraudulent Inducement Claims

In West Virginia, the elements of a claim of fraudulent inducement of a contract are that: the allegedly fraudulent act was committed by the defendant; the act was material and false; the plaintiff justifiably relied upon the act; and the plaintiff was damaged because he relied upon it. Any fraudulent or material misrepresentation that induces a party’s manifestation of assent will be sufficient for a fraudulent inducement claim and under West Virginia law, promises are not the exclusive means by which fraud in the inducement may be carried out. Therefore, Plaintiff can allege a fraudulent inducement in its amended complaint.

Failure to Read Contract

Sentinel argues that Plaintiff should be bound by the terms of the insurance contract — specifically the policy exclusion for home inspection services — because a party who fails to read a contract will be bound nonetheless by its terms, allegations of fraud notwithstanding. Assuming a valid fraud claim exists here, Plaintiff will not be bound by the terms of a contract he entered into due to Defendant’s fraud. Therefore, assuming Plaintiff’s assent to the insurance contract was induced by fraud, it is no defense that Plaintiff should have read the insurance contract and determined that it excluded home inspector services.

Breach of Contract and UTPA Claims

West Virginia’s statute of limitations for a breach of contract claim is ten years. W. Va. Code § 55–2–6.  Plaintiff filed his claim based on these two alleged breaches of contract well within West Virginia’s ten-year statute of limitations for breach of contract claims.

As for Plaintiff’s UTPA claim, the Court cannot, in resolving this motion to dismiss, find that Plaintiff’s UTPA claim based on Sentinel’s refusal to indemnify Plaintiff is barred by the applicable statute of limitations. Plaintiff and Defendant claim different dates for the beginning of the statute of limitations and the court decided that that issue must be subject to proof at trial.

Neither party cited, nor did the Court find, West Virginia case law directly answering whether under West Virginia law Defendants would have a duty to advise on insurance coverage needs in the circumstances of this case. Moreover, looking to Plaintiff’s Response and construing the facts alleged in a light most favorable to Plaintiff, the doctrine of reasonable expectations may supply the relevant basis for Plaintiff’s breach of contract claim.

In the absence of any West Virginia case law directly on point and with the possible applicability of the doctrine of reasonable expectations, the court will not dismiss Plaintiff’s breach of contract claim to the extent it is based on Defendants’ failure to provide the type of insurance they knew Plaintiff sought.

ZALMA OPINION

Insurance agents and brokers are more than simple order takers. When dealing with a person in business who seeks general liability insurance for his business would not want to buy a policy that specifically excludes his business activities. It would be like a surgeon seeking malpractice insurance that excluded injuries from surgery. The plaintiff failed to effectively plead its case and the court gave it sufficient hints to amend the complaint to avoid the motions.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Leave a comment

Violation of Fifth Amendment Rights Triggers Coverage

Personal Injury Coverage Requires Insurer to Defend City For Wrongful Conviction

Insurers and insureds often argue over what is the appropriate trigger of coverage in third party liability policies. Because of the ability to plead a cause of action in federal court in broad generalities the decision regarding trigger must consider every possible allegation made against the insured and if one of those allegations triggered a duty to defend the insurer is obligated to defend the entire case.

In Westport Insurance Corporation v. City of Waukegan, United States District Court,N.D. Illinois, Eastern Division…., Slip Copy, 2016 WL 193385, 01/15/2016 the U.S. District Court, on reassignment to a new judge, was asked to reverse an order reqiring the insurer to defend the city.

Plaintiff Westport Insurance Corporation (“Westport”) brought this action against Defendants the City of Waukegan, Lucian Tessman, Donald Meadie, Fernando Shipley, Howard Pratt, Richard Davis, Phillip Stevenson, Terry House, Robert Repp, Burton Setterlund (collectively, the “Waukegan Defendants” or “Waukegan”), and Juan A. Rivera, Jr. (“Rivera”), seeking a declaratory judgment that it has no obligation to provide coverage under two insurance policies issued to the City of Waukegan.

BACKGROUND

Westport issued two policies to the City of Waukegan: (1) General Liability/Law Enforcement Policy (“GL/LEL Policy”), providing a $1 million limit of liability for general liability claims and a $1 million limit of liability for law enforcement liability claims; and (2) Umbrella Liability Policy (“Umbrella Policy”), providing a $5 million limit of liability (collectively, the “Westport Policies”).

Rivera alleges that after several days of illegal interrogation, he was forced to sign a statement implicating himself in the rape and murder of a young girl. Rivera was tried for rape and murder in November 1993. He was wrongfully convicted of first-degree murder and sentenced to life in prison without the possibility of parole. The Illinois Appellate Court reversed Rivera’s conviction and entered a judgment of acquittal on December 9, 2011. Rivera was released from prison on January 6, 2012.  He subsequently filed suit against the Waukegan Defendants, asserting claims of civil rights violations in numerous counts. The Waukegan Defendants tendered their defense to Westport and Westport initiated this coverage action, seeking a declaratory judgment that Rivera’s claims do not trigger the Westport policies and Rivera is collaterally estopped from arguing otherwise.

WESTPORT’S MOTION TO RECONSIDER

Westport insists that Judge Darrah (the original trial judge) erred because his decision does not conform to either of the trigger theories that Illinois courts have recognized in the context of wrongful conviction claims. Thus, courts interpreting Illinois law have held that coverage in wrongful conviction cases is triggered either at the time criminal proceedings are initiated against the underlying plaintiff, or at the time he is exonerated and a malicious prosecution claim accrues, but never in between.

Waukegan contended that Judge Darrah correctly ruled that the use of Rivera’s coerced confession at his 1998 retrial potentially triggered coverage for his § 1983 claim of a Fifth Amendment self-incrimination clause violation, and therefore Westport had a duty to defend Waukegan in the Rivera suit, regardless of when any malicious prosecution or prosecutorial due process claim might have been triggered.

Under both the General Liability and Law Enforcement Liability coverages, the Westport policies provide coverage for “personal injury caused by an offense.” “Personal injury” is defined as “injury…arising out of” any of a number of enumerated “offenses,” including “[m]alicious prosecution” and, more to the point, “[v]iolation of the Federal Civil Rights Act of 1871 or 42 U.S.C. 1983 and similar laws.”

Judge Darrah relied on the recent decision of the Illinois Appellate Court which looked to the leading case on trigger of coverage for tortious law enforcement activity and approved of its holding that the injury flows immediately from the tortious act because the essence of the tort of malicious prosecution is the wrongful conduct in making the criminal  But in the different context of a § 1983 claim of a Fifth Amendment self-incrimination clause violation, the “tortious act” that is the “essence” of the claim is “courtroom use of a criminal defendant’s compelled, self-incriminating testimony”; there is no Fifth Amendment self-incrimination claim merely for coercing a suspect to confess nor is exoneration an element of the cause of action.

Under this reasoning, a covered “offense” occurred and Rivera suffered a “personal injury caused by an offense” when his coerced confession was used against him in violation of his Fifth Amendment self-incrimination rights at the 1998 retrial. Both the “personal injury” occurred and the “offense” accrued, in the sense that all the elements of the cause of action occurred, in 1998, during Westport’s policy period. It follows that Rivera’s Fifth Amendment self-incrimination claim was potentially covered under the Westport policies, and Westport had a duty to defend Waukegan in the underlying Rivera lawsuit, under either of the recognized trigger theories.

It is clear from Rivera’s complaint that he intended to assert claims arising out of his prosecution for the Holly Staker rape and murder; there was no question as to what case was the subject of the underlying complaint. As a result Westport’s motion for reconsideration of Judge Darrah’s trigger ruling was denied.

WAUKEGAN’S MOTION FOR A RULE TO SHOW CAUSE

Waukegan moves for a rule to show cause why Westport should not be held in contempt for failing to pay defense costs after Judge Darrah issued his December 11, 2014 trigger ruling.

Waukegan misunderstands the nature of Judge Darrah’s ruling. Judge Darrah did not issue an injunction or other order that compelled or commanded Westport to do anything. After the parties filed motions for judgment on the pleadings in this declaratory judgment action, Judge Darrah simply declared that Westport had a duty to defend. There was no deadline for compliance or any other indication of an injunctive component to the ruling.

ZALMA OPINION

Insurance coverage requires, especially in an eight corners state like Illinois, that the entire policy be read along with all of the allegations of the complaint. In this case one of those allegations recited a tort that occurred during the insurer’s policy period and required it, therefore, to defend the city for its wrongful conduct in depriving the defendant of his Fifth Amendment rights and using the wrongfully obtained confession.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Leave a comment

Zalma’s Insurance Fraud Letter – January 15, 2016

 Zalma’s Insurance Fraud Letter

January 15, 2016, Volume 20, No. 2  

Click here to receive the current issue

In this, the second issue of the 20th year of publication of Zalma’s Insurance Fraud Letter (ZIFL), Barry Zalma, on January 15, 2016 continues the effort to reduce the effect of insurance fraud around the world. The issue indicates that, regardless of some success, the efforts must be increased.

Insurance fraud investigations must be conducted fairly, thoroughly, and always in good faith. Insurance professionals must understand and act ethically in everything they do in their claims investigations and evaluation of an insurance policy and its coverages.

The current issue of ZIFL reports on:

  • Insurance Fraud: The Equal Opportunity Crime
  • Barry Zalma
  • New California Laws
  • Proformative Academy Webinars
  • Evidence of Insurance Fraud Not Admissible to Support Deportation
  • New from Barry Zalma
  • Is Anyone Trustworthy?
  • Wisdom
  • Books from the American Bar Association by Barry Zalma
  • Good News From the Coalition Against Insurance Fraud
  • Health Insurance Fraud Convictions
  • Zalma’s Insurance 101
  • Other Insurance Fraud Convictions
  • Zalma’s Insurance Fraud Letter

Insurance Publications by Barry Zalma

The Zalma Insurance Claims Library

URL: http://www.nationalunderwriter.com/ConstructionDefects

Construction Defects Coverage Guide

URL:  www.nationalunderwriter.com/ConstructionDefects

Insurance Claims: A Comprehensive Guide

     For Readers of ZIFL a Special 25% Discount

URL:  www.nationalunderwriter.com/InsuranceClaims

Insurance Law
URL:  http://www.nationalunderwriter.com/insurance-law.html

Mold Claims Coverage Guide
URL:  www.nationalunderwriter.com/Mold

In addition the standard FC&S Online published by The National Underwriter Company now includes a Fraud Channel with the majority of the information taken from my work on insurance fraud. It is available at http://www.nationalunderwriterpc.com/Pages/default.aspx. The Fraud Channel covers issues like: Fraud Basics, Checklists and Charts, Investigation, Ethics, Reference Materials, Fraud Of The Week, and  both the full text and summaries of insurance fraud Cases.

Buyer Bonus:

You automatically receive-AT NO ADDITIONAL COST-a subscription to the author’s e-newsletter: The Monday Claims Report, a weekly e-newsletter featuring coverage and analysis on the top insurance law court decisions from across the country.

New From The American Bar Association

Diminution in Value Damages

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

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.

ISBN: 978-1-63425-295-8, Product Code: 5190524, 2015, 235 pages, 7 x 10, Paperback 00-285-2221.

Available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

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 assist 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.

ISBN: 978-1-62722-676-9  Product Code: 5190506 2014, 486 pages, 7 x 10, Paperback

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 most recent posts to the daily blog, Zalma on Insurance, are available at http://zalma.com/blog including the following:
Zalma on Insurance 

Check in every day for a case summary at http://zalma.com/blog

I have also created a video blog called Zalma’s Insurance 101 which currently has over 300 three to four minute videos 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

The videoblog is adapted from my book, Insurance Claims: A Comprehensive Guide available at the Zalma Insurance Claims Library

 

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Anti-Stacking Language Defeated by Other Insurance Clause

Stacking Exists in Missouri

Insurance companies who issue underinsured motorist coverage (UIM) to more than one vehicle in a family do not want the limits stacked so that it might – if there are three cars in the family – pay three times the limit. To avoid stacking the insurer places anti-stacking language in their policies only to have a court accept the fact that the language is clear and unambiguous but by adding an other insured language an ambiguity is created that will allow for stacking.

Insurance companies are not charitable organizations. They are profit making organizations that write their policies to limit the exposure to risks they are willing to take and base their premium charges on the risks they believe they are taking. In Martin Auto Owners Insurance Company, — S.W.3d —-,   2016 WL 145299 (January 12, 2016) the Missouri Court of Appeals was asked to reverse a trial court decision and allow the stacking of UIM coverages regardless of the unambiguous anti-stacking language.

FACTS

This action arises out of an automobile accident that occurred in 2010 in Pettis County, Missouri. Dylan Martin was crossing a rural highway to board a school bus, when a vehicle driven by Laura Loyd struck him. Ms. Loyd was insured by State Auto Insurance Company (hereinafter “State Auto”). Dylan suffered bodily injury and there is no dispute that the amount of damages he suffered exceeds $300,000.

At the time of the collision, Ms. Loyd had a State Auto automobile liability insurance policy with a bodily injury liability limit of $100,000, which was paid to Dylan as a result of his personal injuries.

At the time of the accident, the Martins held an automobile insurance policy issued through Owners (hereinafter “the Policy”), that included UIM coverage. The Policy insured three automobiles owned by the Martins. The Policy declaration pages list UIM coverage separately under each vehicle and show a separate premium charged for each vehicle. The Policy declarations pages also list “$100,000 person/$300,000 occurrence” under each vehicle and next to each of the three separate UIM premiums.

The parties do not dispute that Ms. Loyd was an underinsured motorist under the terms of the Policy. Also, the parties do not dispute that Dylan was “occupying” an “other automobile” within the definitions of the Owners UIM coverage at the time he was struck by Ms. Loyd. Dylan made an UIM claim to Owners. Thereafter, Dylan and Owners entered into a settlement agreement that was approved by the trial court, which provided that Owners agreed to pay Dylan $100,000 UIM benefits. The Martins filed a declaratory judgment action against Owners, requesting that the trial court declare that they were entitled to additional UIM coverage based on the Policy covering three vehicles, each providing UIM coverage of $100,000 per person.

The policy contained “anti-stacking” language as follows: “When Underinsured Motorist Coverage applies to two or more automobiles, the limit of liability stated for “each person” shall not be stacked to provide higher limits of liability than would apply if coverage applied to only one automobile.” (Emphasis added)

APPEAL

The Martins argued that the trial court erred in finding that they could not stack the underinsured motorist coverage for the Martins’ three insured vehicles, because the Policy’s other insurance provision creates an exception to the Policy’s anti-stacking language and creates an ambiguity in the Policy as a whole, which must be construed in favor of the insured.

Stacking is defined as an insured’s ability to obtain benefits either from more than one insurance policy, as when the insured has two or more separate vehicles under separate policies, or from multiple coverages within a single policy, as when an insured has one policy that covers more than one vehicle.  UIM coverage is in the nature of floating, personal accident insurance rather than insurance on a particular vehicle, and thus follows the insured individual wherever he goes.  If policy language is unambiguous in forbidding stacking, we will not create extra coverage. If policy language is ambiguous, the court will construe the policy in favor of the insured and allow stacking.

In interpreting an insurance policy, the court must attempt to give meaning to all terms and, where possible, harmonize those terms in order to accomplish the intention of the parties.

A policy and its anti-stacking provisions (i.e., the terms that operate to preclude stacking) may be clarified by adding an express no-stacking disclaimer. The policy contained a  general anti-stacking provisions, an express anti-stacking disclaimer in its general provisions, UIM-specific anti-stacking provisions, a UIM-specific express anti-stacking disclaimer, and common-form other insurance language, which does not mention ‘stacking’ at all. The court reasoned that a layperson could not reasonably think that common form other insurance language would override the anti-stacking provisions and disclaimers preceding it.

Where there is an ambiguity created between an other insurance provision of excess coverage and anti-stacking provisions that attempt to take such coverage away, the ambiguity is to be construed against the insurer, and the policies therefore must be allowed to be stacked where the facts of the case would bring the insured within the scope of coverage under the other insurance clause.

Here, the subject Policy contains an anti-stacking provision, an express anti-stacking disclaimer, and an other insurance provision, in that order, all appearing in the UIM endorsement. The express anti-stacking disclaimer states that when UIM coverage “applies” to two or more automobiles, the limits shall not be stacked to provide higher liability limits than would apply for only one automobile. Read in isolation, this disclaimer is unambiguous.

However it is well-settled precedent that each policy must be interpreted as a whole. In this context, the disclaimer directly conflicts with the very next provision regarding other insurance. The other insurance provision indicates that the very UIM coverage just mentioned, that which “applies” to two or more vehicles, when applied specifically to persons occupying any other automobile, “shall be excess over all other applicable underinsured motorists coverage.”

A reasonable reading of the provisions in the Policy suggests that the policy’s anti-stacking provisions, which might normally and otherwise apply, do not apply in the special situation where the insured is injured while occupying a non-owned vehicle.

The promise of excess coverage in the other insurance provision read in conjunction with the anti-stacking provision and disclaimer purporting to take away such coverage create an ambiguity to be resolved in favor of the insured, who, without contest, was a person “occupying any other automobile” at the time of his injury. Stacking of the Martins’ underinsured motorist coverage for each of their three vehicles insured by the Owners Policy is permitted. The trial court erred in granting summary judgment in favor of Owners.

ZALMA OPINION

Stacking three different policies to provide coverage not purchased because the court found an ambiguity by comparing two different parts of the policy that have little or nothing to do with each other to allow stacking. This is a decision based more on a desire to indemnify a child hit by a car and severely injured than to properly analyze an insurance policy or group of insurance policies. If the Martins wanted $300,000 in UIM coverage it was available to be purchased and this suit was brought to correct their error not that of the insurer.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

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“Arising Out Of” Provides Broad Meaning

Primary v. Excess

Leases are often used as risk transfer devices where the lessor transfers the risk of loss causing bodily injury or property damage to the lessee and the lessee’s insurer by means of an indemnity provision and a requirement that the lessee make the lessor an additional insured on its liability policy. As a result, much like an Abbot & Costello routine, insurers litigate who is on first and must pay to defend or indemnify against an injury action.

In North Pacific Insurance Company v. Travelers Casualty Insurance..., Slip Copy, USDC, W.D. Washington, 2016 the United States District Court for the Western District of Washington was called upon to determine who is obligated to pay for the defense and indemnity of the lessor.

FACTUAL BACKGROUND

The Lease

Jeff Talamantes (“Talamantes”) owned a commercial building in Vancouver, Washington. Talamantes leased the building to 3 Sheets LLC (“3 Sheets”). 3 Sheets, in turn, operated a sports bar on the premises called Main Street Events Sports Grill (“Sports Grill”). The lease provided that Talamantes “will maintain the exterior of the building, including the roof.”

The Insurance Policies

Travelers issued a commercial insurance policy to Talamantes. The Travelers policy provides commercial general liability coverage for “those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.” The Travelers policy includes an “other insurance” clause, which details that insurance is excess over other insurance coverages.

North Pacific issued a commercial insurance policy to 3 Sheets. The North Pacific policy provides business liability coverage for “those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury,’ ‘property damage’ or ‘personal and advertising injury’ to which this insurance applies.”  The North Pacific policy names Talamantes as an additional insured, but “only with respect to liability arising out of the ownership, maintenance or use of that part of premises leased to [3 Sheets].” The policy also includes an “other insurance” clause, which details when insurance is excess.

The Accident

Tyler Hooper (“Hooper”) visited the Sports Grill on August 21, 2011. While inside the Sports Grill, Hooper lost his balance and fell against a nearby window.  The window was not made of safety glass, and it shattered into large pieces. Hooper fell through the window and onto the sidewalk outside the Sports Grill.

At the time of the accident, Samantha Adams (“Adams”), a Sports Grill employee, was standing outside on the sidewalk next to the window Hooper fell through. Adams saw that Hooper was injured, and began to assist him.  While Adams was helping Hooper, “a large piece of the window’s glass dropped from above, slicing through [Adams’s] left arm down to the bone.”

The Underlying Suit

Adams filed a personal injury complaint against Talamantes.  Adams alleged Talamantes knew or should have known: (1) “that the premises were used as a sports bar and that customers would be drinking in the [Sports Grill];” (2) “that based on the location and/or layout of the booths and windows that customers or others could easily stumble into the windows;” and (3) “that the condition of the premises created a significant danger of injury to the public.” Adams did not name her employer 3 Sheets as a defendant.

Talamantes tendered Adams’s claim to Travelers. Travelers then tendered Talamentes’s defense to North Pacific in a letter invoking additional insurance coverage. North Pacific accepted Talamantes’s defense as a potential additional insured, subject to a reservation of rights. North Pacific reached a settlement with Adams, which relieved Talamantes of liability for $200,000.

DISCUSSION

North Pacific seeks reimbursement from Travelers under two alternate theories. First, North Pacific argues Travelers must completely reimburse North Pacific for defending and indemnifying Talamantes because the North Pacific policy does not provide coverage to Talamantes. Second, North Pacific argues Travelers must reimburse North Pacific for half of the expenses because of the “other insurance” clauses in the parties’ respective policies. Travelers denies any duty to contribute.

North Pacific Policy Coverage

To resolve the dispute the Court first turned to the language in the North Pacific policy. Washington courts construe insurance policies as a whole, giving force and effect to each clause in the policy. The North Pacific policy names Talamantes as an additional insured, but limits coverage “to liability arising out of the ownership, maintenance or use of that part of the premises leased to [3 Sheets].”  Under Washington law, the phrase “arising out of” has a broad meaning in the insurance context. The phrase is unamibiguous and encompasses more than “caused by” or “resulted from” It ordinarily means “originating from,” “having its origin in,” “growing out of,” or “flowing from.” The phrase requires only a causal contribution, and means less than proximately caused by.

In this case, Talamantes’s liability in the underlying suit “arises out of” the ownership, maintenance, or use of the premises leased to 3 Sheets. Adams sued Talamantes for the injuries she sustained while assisting Hooper. Although Adams was outside the Sports Grill when she was injured, the liability-causing accident originated from inside the leased premises. Moreover, Adams alleged Talamantes was liable because he should have known the premises were being used as a sports bar and that customers could fall into the windows. Under these circumstances, a causal connection exists between Talamantes’s liability and the Sports Grill. In Washington, this causal connection is sufficient to establish that Talamentes’s liability “arose out of” the use of the leased premises. The Court therefore concluded North Pacific’s policy provides additional insured coverage to Talamantes.

“Other Insurance” Clauses

The second issue is whether Travelers must reimburse North Pacific under the parties’ respective “other insurance” clauses. Under the Travelers “other insurance” clause, the policy is excess over “[a]ny other insurance, whether primary, excess, contingent or on any other basis…that is available to the insured when the insured is added as an additional insured under any other policy, including any umbrella or excess policy.”  Talamantes was named as an additional insured on the North Pacific policy. Under the plain language of this “other insurance” clause, the Travelers policy is excess over the North Pacific policy.

With regard to the North Pacific policy, the “other insurance” clause provides that liability coverage is excess in two situations, (1) the policy is excess over “any other insurance that insures for direct physical loss or damage.” (2) the policy is excess over “any other primary insurance available to you covering liability for damages arising out of the premises or operations for which you have been added as an additional insured by attachment of an endorsement.”

The other insurance clause makes the North Pacific policy excess to “any other insurance that insures for direct physical loss or damage.” The North Pacific policy differentiates between “damages” and “damage” throughout the policy.  Notably, the policy uses “damages” in the liability coverage section and “damage” in the property coverage section. The policy provides liability coverage for “sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury,’ ‘property damage’ or ‘personal and advertising injury.”’

Based on this language, “damages” has a different meaning than “damage” in the North Pacific policy. “Damages” refers to money owed to a plaintiff because of an injury or harm, while “damage” refers to injury to property. In the absence of an applicable “other insurance” clause that makes North Pacific’s policy excess, the North Pacific policy is primary.

Because the North Pacific policy is primary and the Travelers policy is excess, Travelers does not need to reimburse North Pacific for the defense or settlement of the underlying suit until the North Pacific policy is exhausted.

ZALMA OPINION

This is the type of dispute between insurers that should not result in litigation but should be resolved by the two insurers communicating with each other. Since the “other insurance” clauses are different, as the court found, the difference should have been obvious to the two insurers. Coverage litigation is expensive and it probably cost the two close to the $200,000 in dispute.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

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Facts Must Support Pleading

Copying Statutory Language Into Complaint Insufficient

I have always believed that complaints should be brief and succinct factual statements that lead to the final allegation that the defendant did something wrong allowing the plaintiff to receive damages. Some lawyers who are either lazy or unable to plead a lawsuit in a clear, succinct and factual manner try to plead a case by listing a series of statutory prohibitions. For example Unfair Trade Practices Acts and Unfair Claims Settlement Practices acts list parades of horrible conduct that the states find wrongful. Listing the specified horrible conduct in a complaint does nothing to state a cause of action as the United States District Court for the Northern District of West Virginia stated in David Knisely v. Allied Health Benefits, Inc.,…, Slip Copy USDC, N.D. West Virginia, 2016 WL 79989 (1/6/2016)

BACKGROUND

In the amended complaint, the Plaintiff alleged that Premiere Administrative Solutions, Inc. (“PAS”) (1) violated the West Virginia Unfair Trade Practices Act (“UTPA”), (2) committed fraud and (3) is required to indemnify the Plaintiff for unauthorized account withdrawals.

PAS filed its motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). The Plaintiff filed his response in opposition and PAS filed its reply.  In his response in opposition to PAS’s motion to dismiss, the Plaintiff withdraws his claims against PAS pursuant to Count V (fraud) and VI (indemnification). Therefore, the only claim left against PAS is Count II, alleged violations of the West Virginia UTPA.

In support of its motion to dismiss, PAS presents three arguments as to why the Plaintiff’s claim under the West Virginia UTPA fails. First, PAS avers that the claim is time-barred under the applicable one year statute of limitations. Second, PAS claims that the Plaintiff has not alleged sufficient facts, and instead relies on legal conclusions, to support injury under the UTPA. Finally, PAS claims that the Plaintiff has not pled a sufficient general business practice as required under the UTPA. In response, the Plaintiff avers that the statute of limitations does not bar his claim because the identity of PAS was not discovered until April 23, 2014. The Plaintiff further avers that his amended complaint sets forth sufficient facts demonstrating injury and sufficient facts demonstrating PAS’s general business practice under the West Virginia UTPA.

ANALYSIS

Statute of Limitations

A one year statute of limitations applies to claims brought pursuant to the West Virginia UTPA.  Since it was not readily apparent to the Court on what date the statute of limitations began to run in regard to the Plaintiff’s West Virginia UTPA claim against PAS but, because dismissal is warranted on another ground, the Court declined to further address this issue.

Sufficiency of the Amended Complaint

The Plaintiff begins his amended complaint by giving an overview of the nature of the case. Nowhere in this overview does the Plaintiff mention PAS. It is not until paragraph thirty-three that the Plaintiff mentions PAS, where he identifies the corporation as (the insurer) AMLI’s third-party administrator. PAS is not mentioned again until paragraph seventy-one, where the Plaintiff alleges that “[w]hen [he] reported his claim to the AMLI/PAS representative, he was advised that his claim would be denied as untimely, although this is an improper basis for denial under West Virginia Ins. Reg. § 114-14-4.4.”

The Plaintiff then mentions PAS in paragraph eighty-five, where he alleges that “[o]n May 23, 2013, [his] counsel contacted an AMLI/PAS representative to discuss the claim and was advised that a HIPPA authorization had to be submitted first.” The Plaintiff raises no other factual allegations specifically against PAS.

In Count II of his amended complaint, the Plaintiff alleges violation of various West Virginia statutes W. Va. Code § 33-11-4(9)(a), W. Va. Code § 33-11-4(9)(b), W. Va. Code § 33-11-4(9)(b)4, and W. Va. Code § 33-11-4(9)(d). These paragraphs in the complaint were verbatim recitations of the relevant code sections. Furthermore, the Plaintiff fails to support these blanket assertions with any facts pertinent to PAS. Again, the Plaintiff merely provides verbatim recitations of the relevant code sections and fails to support these asserted violations with any facts pertinent to PAS.  The Plaintiff does not provide any factual support for his assertion of statutory violations.

The court, unlike counsel, destroyed the plaintiffs allegations succinctly by stating: “This mechanistic practice of copying and pasting statutory language into a complaint falls woefully short of the pleading requirements set forth in Rule 8 of the Federal Rules of Civil Procedure. The Plaintiff’s allegations against PAS are nothing more than copied and pasted sections from the West Virginia Code, and are therefore nothing more than legal conclusions. Rather than plead what law a defendant allegedly violated, a plaintiff must articulate—albeit, by the use of a short and plain statement—how a defendant allegedly violated the law. In his amended complaint, the Plaintiff ‘tenders naked assertion[s]’ against PAS, which are devoid of further factual enhancements.”

Accordingly, the Court granted Premiere Administrative Solutions, Inc’s Motion to Dismiss.

ZALMA OPINION

Although plaintiffs’ case against PAS was dismissed plaintiff is not without a remedy. The failure of his lawyers to plead a factually based complaint after the court gave counsel a second try an allowed the filing of an amended complaint and failed again, was either incompetent or an admission that no facts exist. If incompetent plaintiff may recover from his lawyer. If no facts exist plaintiff should be punished for maliciously prosecuting the suit.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

Posted in Zalma on Insurance | Comments Off on Facts Must Support Pleading

Responsibility for Slip and Fall Raises Coverage Issues

Failure to Make Client Additional Insured Breaches Contract

Almost every business contract between a corporation and its vendors include a risk diversion provision whereby the corporation requires the vendor to take on the responsibility for injuries from the corporation to the vendor by requiring the vendor to make the vendee corporation an additional insured on its policy and to indemnify the corporation.

FACTS

In Manhart v. Morton International, Inc., — F.Supp.3d —- USDC, W.D. New York, 2016 WL 70466 (01/06/2016) Plaintiffs Edward and Deborah Manhart (“Plaintiffs”) sued defendant and third-party plaintiff Morton International, Inc. (“Morton”) seeking monetary damages for injuries allegedly sustained as a result of a slip-and-fall accident occurring at a security guard station located at the Morton salt plant in Silver Springs, New York. Plaintiff Edward Manhart, a truck driver for Land Air Express who was at the facility for a pickup, alleges that he was injured when he fell from stairs leading from that security guard station.

ISSUES

The third-party action involving Morton and third-party defendant Securitas Security Services USA, Inc. (“Securitas”) consists of indemnification, contribution and contract claims made by Morton against Securitas. Securitas provided security guard services at the Morton facility pursuant to an Agreement, Amendment to the Agreement, and Purchase Order. Securitas’s employee was present at the security guard station when the accident occurred.

Securitas and Morton both filed motions for summary judgment. Securitas sought dismissal of Plaintiffs’ claims for damages based on liability arising from the snow and ice allegedly present at the accident site, and Securitas also sought dismissal of the third-party complaint in its entirety. Morton filed a motion for summary judgment seeking enforcement of the indemnification provision of the contract between Morton and Securitas in the event Plaintiffs should ultimately prevail.

On August 11, 2015, Magistrate Judge Foschio issued a Report and Recommendation (“R&R”) recommending that much of the Securitas motion that the judge was required to review anew and either adopt or reject Magistrate Judge Foschio’s findings.

ANALYSIS

After the review the Court adopted the R&R to the extent it recommended granting summary judgment in favor of Morton on its breach of contract claim for failure to procure insurance naming Morton as an additional insured. The Purchase Order plainly required that Morton be listed as an additional insured and it does not conflict with the terms of the Agreement which do not address whether Morton must be listed as an additional insured. Clauses of a contract, even where they seem to conflict, should be construed, if possible, as consistent with one another.  In this case, the contract terms do not conflict – Morton was plainly required to be listed as an additional insured.

Finally the Court disagreed with the R&R to the extent it recommended that summary judgment be granted in favor of Securitas relating to dismissal of Morton’s contractual indemnification claim. Rather, the Court founds that there are disputed issues of material fact with respect to this claim. Securitas argued that because the Agreement fails to expressly make reference to removing snow and spreading salt, which it claimed was the reason for the fall, then by virtue of paragraph 8 of the Amendment to the Agreement, Securitas cannot be required to indemnify Morton.

Paragraph 8 of the Amendment provides that Securitas has “no obligation to perform any duties or services (and will bear no responsibility for duties and services) other than those expressly specified in the Agreement.”  The Court agreed with the argument advanced by Morton in its objections that the services to be provided by Securitas are not expressly specified at any part of the Agreement. Thus, if Securitas’s argument was taken to its logical conclusion, there would be no obligation to perform any duties or services by Securitas. Plainly such an interpretation is not only illogical it is inconsistent with Pennsylvania law.

The Purchase Order makes it clear that Securitas’s obligation was to provide “security services.” Whether those services included maintaining the safety and condition of the entranceway to the guard house where Securitas employees were stationed, by for example removing snow and spreading salt, is an issue of fact that cannot be resolved on a summary judgment motion.

A jury must determine whether the scope of Securitas’s responsibilities included such duties, and if they did, then Securitas would be required to indemnify Morton pursuant to the terms of its contract (for example, “to the extent the claim, loss, damage or expense is caused by the negligence, willful misconduct, or other fault …. of Securitas ….”

Accordingly summary judgment was granted in favor of Morton on its claim that Securitas breached its contract by failing to procure insurance listing Morton as an additional insured, but the motions for summary judgment are otherwise denied.

ZALMA OPINION

This case teaches every vendor to read the terms and conditions of its contract with the vendee and make certain that – if required – the vendee be named as an additional insured. Failure to do so can be extremely expensive depending on the damages that result from the trial that is due to commence in the next year. If they had done what was required Securitas would have no reason to be involved in this case.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Comments Off on Responsibility for Slip and Fall Raises Coverage Issues

Chutzpah & Insurance Defense of Crime

Defense Counsel Fee Issues Not Properly Before Trial Court

Criminals, by definition, have “chutzpah” (Yiddish for unmitigated gall) and will try almost anything to avoid the responsibility to pay to defend the prosecution and compel others to pay for their lawyers. This type of fraud is the why people being prosecuted for fraud make the work of criminal trial courts difficult and annoying. In United States v. Yates, — F.Supp.3d —-, 2016 WL 25720 (1/4/2016) the U.S. District Court for the District of Oregon, was asked to compel the bank who employed the defendant to pay for the cost of her defense to criminal charges alleging conspiracy to commit bank fraud and making false bank entries, reports, and transactions during the time that she was affiliated with The Bank of Oswego (the “Bank”).

Yates’s moved the court to compel the Bank—her former employer, who is not a party to this criminal action—to advance the legal expenses Yates incurs in defending against the charges in this case. Yates argues that she has a contractual right to advancement of her legal expenses under the Bank’s Articles of Incorporation and Oregon law.

BACKGROUND

From 2004 through March 2012, Yates was the Executive Vice President, Chief Financial Officer, and co-founder of the Bank. Yates was also Secretary of the Bank’s Board of Directors. On June 26, 2015, Yates and Dan Heine (“Heine”)  were indicted in this criminal action for conspiracy to commit bank fraud and making false bank entries, reports, and transactions during the time that Heine and Yates were affiliated with the Bank. Although they are co-defendants, Heine and Yates have interests that are adverse in this case. The criminal trial against Heine and Yates is scheduled to begin on November 1, 2016.

On August 31, 2015, Yates requested that the Bank advance the legal expenses she incurs in defending against the criminal charges in this matter pursuant to the Bank’s indemnification obligations in its Articles of Incorporation and Oregon law. In support of her request, Yates provided the Bank with an affirmation of good faith and an undertaking to repay any expenses advanced if it is ultimately determined that she is not entitled to indemnification. On October 7, 2015, the Bank, through a Board resolution, determined that Yates was not entitled to indemnification under the Articles of Incorporation because “the Board cannot conclude that Ms. Yates acted in good faith and in a manner she believed to be in the best interest of the Bank.”

The Bank previously had denied a similar request by Yates in December 2013 to advance expenses Yates incurred in defending against an FDIC investigation. The Bank reasoned “that it does not have the authority under the Articles of Incorporation to provide Ms. Yates with an advancement.”

The Court held in an earlier decision that co-defendant-Heine was entitled to advancement of reasonable legal expenses incurred in defending against the criminal charges, and the Court issued a declaratory judgment in favor of Heine stating that the Bank was obligated to advance his defense expenses. The Court entered Judgment in favor of Heine on December 29, 2015.

Although Yates had some participatory rights in that proceeding, she was not a party and thus the Court’s Judgment did not directly resolve her claims against the Bank. In light of the Court’s Opinion and Order regarding Heine, Yates renewed her previous demand against the Bank for advancement, which the Bank again denied.

Yates is currently receiving payment of her legal expenses incurred in defending against the criminal charges in this case through the Bank’s Directors and Officers liability insurance coverage under a reservation of rights although insurance will seldom pay to defend criminal charges. The insurance policy has a three million dollar limit, to be shared among all “insured persons,” which includes former officers such as Yates and Heine. The Bank is a Named Insured and has the right to seek reimbursement under the insurance policy for expenses it advances to “insured persons,” including Heine. No apportionment of the available insurance funds has yet been made.

DISCUSSION

Yates argues that under the indemnification section of the Bank’s Articles of Incorporation, she is entitled to advancement of legal expenses incurred in defending this criminal action, provided that she sign both an affirmation of good faith and an undertaking to repay the expenses if it is ultimately determined that she is not entitled to indemnification the same promise that a reservation of rights from an insurer would require.

Yates signed those documents and now requests that the Court exercise its ancillary jurisdiction and enter an order compelling the Bank to advance her legal expenses incurred in defending against the criminal charges in this case. Yates additionally requests that the Court enter an order granting Yates her attorney’s fees incurred in pursuing her asserted right of advancement.  Courts commonly exercise ancillary jurisdiction when presented with a fee dispute between a client and his or her attorney arising from litigation pending before those courts. Courts have long recognized that fee disputes arising from litigation pending before a district court fall within that court’s ancillary jurisdiction.

However, Yates did not ask the Court to adjudicate a fee dispute between herself and her attorney that arose during the course of this proceeding; rather, Yates asks the Court to adjudicate a dispute between herself and her former employer who would not otherwise be before the Court as a party in this criminal action.

In Yates’s current motion, she argues that her right to advancement under the Articles of Incorporation is similar to the right she asserted in December 2013. Thus, Yates could have brought breach of contract claims against the Bank in state court nearly two years ago. Alternatively, Yates could have commenced a civil action alleging breach of contract against the Bank shortly after she was indicted in late June of 2015. In fact, Yates may still pursue her civil claims in state court.  Yates is currently having her legal expenses paid under the Bank’s Directors and Officers liability insurance coverage. Yates provides no reason why she cannot now file a civil action in state court against the Bank and continue to draw from the Bank’s insurance policy while her civil contract claims are being litigated in another forum.

Although Yates asserts that the insurance funds are at risk of depletion, thereby jeopardizing her right to counsel of choice, Yates has not presented any evidence regarding how much the insurance policy already has been drawn down, or at what point in time she expects that the funds may run out.

Exercising ancillary jurisdiction in the absence of clear procedural standards would risk confusion for all parties and unfair prejudice to the Bank and would not necessarily enable the court to function successfully and manage its proceedings. The Court does not believe that it would be appropriate to exercise ancillary jurisdiction over Yates’s motion.

ZALMA OPINION

It appears that the Directors and Officers policy acquired by the bank was unusual in that it required the insurer to pay for the defense of an officer of the bank to criminal charges brought against the officer for criminal conduct in the pursuit of her duties as an officer of the bank. She then added insult to injury seeking to require the bank to pay her fees in addition to the fees she is receiving from the insurer. If convicted there will be little chance that either will be repaid. The court refused to get involved because the criminal defendant had the opportunity to file a civil action against the bank and did not.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Comments Off on Chutzpah & Insurance Defense of Crime

Anti-Stacking Provision Limits Recovery

Injured Person Can’t Get More From Tortfeasor’s Insurer Than the Limit of One Policy

When a person has two different liability policies that provide coverage for the same risk of loss the insured may usually tap both policies. As a result insurers placed anti-stacking provisions in their policies limiting recovery to the highest limit of any one policy.

In Gohagan v. Cincinnati Ins. Co., — F.3d —- 2016 WL 66944 (USCA, 8th Jan. 6, 2016) a trial court refused to allow stacking of two policies and limited the plaintiffs to one policy limit. The plaintiffs appealed claiming they were entitled to stack the two policies and thereby double their recovery for injuries incurred. Since the action was brought by the injured parties it appears they took an assignment from the tortfeasor and placed their bets on the suit against the insurer rather than trying to collect their injuries from the assets of the tortfeasor over the insurance coverage.

FACTS

John and Jessica Gohagan appealed the district court’s grant of summary judgment to The Cincinnati Insurance Company (“Cincinnati”). The district court held that, even if both the Business Owners Package (“BOP”) and Commercial General Liability (“CGL”) policies issued by Cincinnati covered Mr. Gohagan’s injury, the terms of those policies prohibited a single injury from giving rise to more than the $1,000,000 in coverage benefits the Gohagans had already received under the CGL policy. On appeal, the Gohagans argue that they are entitled to coverage under both the BOP and CGL policies and that the policies’ anti-stacking provisions are ambiguous and therefore must be construed to allow coverage up to the $1,000,000 each-occurrence limit of both policies, for a total of $2,000,000 of coverage.

In January 2012, Thomas Campbell attempted to remove a tree from a property being developed for a residential subdivision. The tree fell on John Gohagan, who suffered serious injuries as a result. Mr. Gohagan asserted claims against Campbell for the injuries, and Mrs. Gohagan sought compensation from Campbell for loss of consortium. The Gohagans reached a settlement with Campbell, which included Cincinnati’s payment of the $1,000,000 per-occurrence limit under the Cincinnati-issued CGL policy held by Campbell and his wife. However, the Gohagans reserved the right to litigate whether Campbell’s BOP policy, which also had a $1,000,000 each-occurrence limit, provided additional coverage.

ANALYSIS

Although the parties stipulated to the fact that the BOP policy was in effect when Mr. Gohagan was injured, Cincinnati contended that the BOP policy’s bodily injury liability coverage did not apply to Mr. Gohagan because the injury did not arise out of Campbell’s ownership, maintenance, or use of certain business premises in Waynesville, Missouri, as the BOP policy required. Cincinnati also argued that, even if the BOP policy were applicable, the BOP and CGL policies’ anti-stacking provisions limited coverage to the $1,000,000 already paid by Cincinnati under the CGL policy.

The court ignored the obvious lack of coverage under the BOP’s location limitation and based its summary-judgment found that the language of the BOP and CGL policies prohibited the stacking of coverage when both policies covered the same injury. The policies thus limited the maximum coverage for any one occurrence to the each-occurrence limit of $1,000,000.

Because the Gohagans already received $1,000,000 from Cincinnati under the CGL policy, their appeal fails if the BOP and CGL policies’ anti-stacking provisions limit the combined total of coverage for Mr. Gohagan’s injury to $1,000,000.

The declarations pages of both the BOP and CGL policies refer to an “Each Occurrence Limit” of $1,000,000 and a “General Aggregate Limit” of $2,000,000. The Eighth Circuit Court of Appeal saw no ambiguity in the wording of the various policies. An ambiguity exists when there is duplicity, indistinctness, or uncertainty in the meaning of the language in the policy. Language is ambiguous if it is reasonably open to different constructions. A contract or provision is not ambiguous merely because the parties disagree over its interpretation.

Here, the anti-stacking provisions viewed in their entirety are unambiguous. By focusing solely on “aggregate maximum limit of insurance,” the Gohagans ignored the stipulation that the aggregate maximum limit “shall not exceed the highest applicable limit of insurance under any one policy.”

In this case, the tree-falling incident that resulted in Mr. Gohagan’s injury represents the “occurrence” from which the court’s interpretation of the policies flows. Both policies have an each-occurrence limit of $1,000,000. For the occurrence at issue, then, the “highest applicable limit of insurance” under either individual policy is equivalent to the each-occurrence limit. Thus, the aggregate maximum limit of insurance under both policies combined may not exceed the each-occurrence limit under either policy—in this case, $1,000,000.

Reading the anti-stacking provisions as a whole the Gohagans received the full amount of coverage owed to them under the BOP and CGL policies when Cincinnati paid them $1,000,000 pursuant to the CGL policy.

The Gohagans’ last gasp interpretation – reading the “other insurance clause” standing alone – mistakenly relies on reading an individual provision in isolation from the rest of the policy, an approach that would leave the anti-stacking provisions meaningless. The district court correctly determined that the “Other Insurance” provisions apply when policies covering the same injury are issued by Cincinnati and another insurance company, not when two policies are issued by Cincinnati. Instead, the “Two or More Policies Issued by Us” provisions apply when policies covering the same injury are issued by Cincinnati alone.

The Gohagans’ interpretation would render the “Two or More Policies Issued by Us” provisions meaningless, an outcome courts seek to avoid when interpreting contracts.  The Gohagans’ attempts to create ambiguity where none exists failed.

For the reasons set forth above, the district court did not err in finding that the BOP and CGL policies prohibit stacking where both policies cover the same injury, such that the maximum coverage for Mr. Gohagan’s injury is $1,000,000.

ZALMA OPINION

Insurance companies have the right to negotiate whatever terms and conditions they can obtain agreement from someone to acquire. When Cincinnati issued two different policies to its insured it did not want its liability exposure to exceed $1 million and included anti-stacking language to prevent paying more than the single limit. If the insured wished to avoid the anti-stacking language the insured only needed to buy one of the two policies from a different insurance company. The Gohagans’ should have obtained a judgment and executed against the assets of the tortfeasor.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Comments Off on Anti-Stacking Provision Limits Recovery

Ignorance Can Be Cured

The Need to Maintain a Claims Staff Dedicated to Excellence in Claims Handling

It is a certainty that the business of insurance will act in cycles. Premiums go up. Premiums go down. Catastrophes happen regularly and in some years there are no catastrophes. Insurers pay any claim presented to avoid litigation and investigation expenses. Insurers change and refuse to pay any case where they believe there is fraud.

Sometimes insurers are intelligent and conclude that the best way to make a profit is to maintain a staff of professional claims personnel who are dedicated to fulfilling the promises made by the insurance policy issued by the insurer, promptly, efficiently and in absolute good faith. To do so they maintain professional continuing education for the staff and insist that all claims be investigated thoroughly and all insureds be treated fairly and in good faith.

The expense incurred in keeping a professional claim staff becomes unbearable, human resources directors are instructed to eliminate expense and stop the training programs, fire the expensive and experienced claim staff, and hire in their place recent college graduates who are asked to deal with claims without training or experience.

The decimation of the professional claims staff is either due to corporate ignorance – that can be cured – or corporate stupidity which will remain until the corporation becomes insolvent.

Historic Basic Claims Training

In 1967 I was a young insurance claims trainee with a major insurance company. In my first month as an employee management sat me down at a desk and told me to read a classic insurance claims handling book written by Paul Thomas. Since I knew absolutely nothing about insurance reading the book gave me a basic understanding of insurance and insurance claims handling. I was then sent out to ride with experienced adjusters in every field of insurance written by the company from fire, casualty, comprehensive general liability, personal liability, all types of third-party liability, workman’s compensation (now renamed worker’s compensation), surety, fidelity, inland marine and motion picture insurance.

I was then allowed, under close supervision, to adjust minor claims over the telephone, for small injuries and minor theft claims. After three months of study, on the job training with experienced adjusters, and adjusting minor claims I was sent, at the insurer’s expense, to their Home Office Training School where I spent 30 days with other trainees for 9 to 5 classroom training on every aspect of insurance, insurance law, insurance policy interpretation, repairing damaged structures, medicine and evaluation of traumatic injuries, insurance contract interpretation, repairing of damaged automobiles, repair of damaged structures, and claims investigations techniques.

Since I had spent three years in the military as an Army Intelligence agent I had experience and skill as an investigator and was able to convert my experience and training as an investigator to become an effective claims investigator.

After I completed the Home Office training course I was sent back to the office in Los Angeles and allowed to deal with multiple insurance claims over the telephone with less strict supervision. After a year I was promoted to field adjuster and allowed to meet with the public because I had proved to management that I understood insurance, insurance claims, the duty of good faith and fair dealing, and could be trusted with the insurer’s assets.

I was admitted to the California Bar in 1972 and stopped being an adjuster. I did not, however, give up on insurance. Rather, I directed my law practice to nothing but insurance and insurance claims handling.

The Majority of Claims Training Today

Experienced adjusters who were trained as I was have been fired or laid off with regularity to cut down on the expenses of their relatively high salary and the low salary for which a novice adjuster can be paid.

Today, a new adjuster, recently graduated from a community college or four year college is given little or no training. Rather the new adjuster is given a check book, a cellular smart telephone with a digital camera, a digital recorder, and a company car. He or she is given discretionary authority to pay any claim up to $2500 without approval of management. As a result, if the adjuster is assigned 100 to 1000 claims a year he or she, knowing little or nothing about insurance and insurance claims handling, has the right to spend, without approval, as much as $250,000 to $2,500,000 – more than his supervisor or the company president. He or she is told they are adjusters and should resolve the claims provided to them by their supervisor. Only if they have problems with a claim are they to seek the advice of their supervisor who may only have two years of experience as an adjuster. Neither the new adjuster nor the supervisor had any formal training.

Insurance management, finding that the expense side of the ledger has moved downward, and the quarterly profit increased, believe that they are wise and have helped the insurer’s profit margin. They are wrong. They are, by forgetting that insurance profitability is determined over a quarter of a century, not a quarter of a year. They are destroying the insurer and depriving the insurer of the ability to keep the promises made by the insurance policies issued by the insurer.

The Problem

The short term expense savings is penny wise and dollar foolish. Because of their lack of education and experience a young and untrained adjuster has created litigation against the insurer who employed them by:

  • Writing in his file that the insured was obviously a fraud because (of any one of dozens of ethnic minorities).
  • Accusing an insured of arson-for-profit without evidence of any kind.
  • Denying a fire claim because it was set by a homeless person.
  • Denying a claim based on an exclusion and concealing from the insured the exception to the exclusion that made the loss one that was covered.
  • Denying a claim in writing by quoting only a portion of the policy wording and refusing to quote the language of the policy that made coverage clear.
  • Denying a claim because the damage was done by the insured’s negligence.
  • Accusing an insured of fraud because there were no receipts for stolen personal property.
  • Denying a claim for failure to submit a sworn proof of loss without first providing the form to the insured.
  • Deciding to pay the new owner of a property who was not named on the policy because he had an insurable interest.
  • Refusing to pay the named insured because he had sold the dwelling even though he kept an insurable interest by taking back a loan from the buyer.
  • Refusing to pay more than $1500 for a fire damaged Persian Rug when the limitation only applied to theft claims.
  • Refusing to defend an insured because a claim of defamation is an intentional tort.
  • Refusing to defend an insured because he did not like the insured.
  • Refusing to pay an independent lawyer because he charged too much.
  • Refusing to investigate a claim because it was reported a year after the loss occurred.
  • Refusing to return telephone calls from an insured because the adjuster was “too busy.”
  • Refusing to personally inspect the loss site because the adjuster was “too busy.”
  • Refusing to pay a claimant because he was not injured but had a disease only a horse could suffer.
  • Refusing to pay a claimant because of his or her race.

All of these, and many more, resulted in a suit against the insurer alleging breach of contract, breach of the covenant of good faith and fair dealing and resulted in verdicts providing the insured contract damages, tort damages, and punitive damages that far overshadowed the annual savings obtained as a result firing the insurer’s experienced claims staff. One judgment against an insurer for bad faith assessing tort and punitive damage can far exceed the annual payroll of the claims department.

This ignorance is not limited to insurance adjusters. Lawyers who should know better, who should understand how to analyze the wording of an insurance policy, do not. Insurance company lawyers are often referred to by lawyers working in large law firms, as “discount lawyers” who they believe deserve less than the respect that union leaders have for Walmart. That is because insurance companies, agreeing to provide regular business to a law firm, can negotiate low hourly rates from the law firms they retain to defend insureds and to advise the insurer. Of course, the law firms working to maximize profits, assign insurance claims to their least experienced and knowledgeable young associates who will be assigned to ghost write pleadings, discovery and opinion letters for a partner who will at most review the documents and usually simply sign them.

The young lawyers, although they charge low hourly fees, spend dozens – if not hundreds – of hours reinventing the wheel and learning their trade. The experienced lawyers and partners do little to help. When I was a young lawyer the law firm for which I worked gave me 250 litigation files and told me to start work explaining that if I had any questions the answers were in the firm’s law library (before computers, let alone computer aided research). I learned the hard way because no one would help me. Some clients paid the cost of my learning how to properly represent their interests.

Today I see even less from young lawyers whose advice caused an insurer to be sued. Their errors are too broad to list in detail but are as bad as the list of errors made by the adjusters. In fact, wanting to please their client, the young lawyers will adopt the adjuster’s opinions because they believe the adjuster – probably accurately – knows more about the subject than the lawyer. They will, rather, file a standard answer to the complaint they are asked to defend, serve multiple statutory forms of interrogatories, send custom draw interrogatories and requests for admission, and notice depositions of every person involved in the claim.

The ignorance that resulted in claimed savings by dismissing experienced claims people and refusing to pay the fees of experienced and knowledgeable claims counsel, can be cured. The stupidity that believes that the savings are appropriate and add to the insurer’s profits can never be cured.

If insurers wish to make a reasonable profit and actually keep the promises made by the policies they issue in good faith and deal with their insureds fairly and good faith they must give up on the short term savings on the expense side of the ledger. Rather, insurers need to create a program requiring excellence in claims handling. Insureds will be pleased, claims people will be confident, and litigation against the insurer will be rare and easily defended. If not they will continue to be an easy victim of fraud and they will be sued for bad faith regularly. Profits will dissipate and those who refuse to learn will become insolvent.

An Excellence In Claims Handling Program

To avoid claims of bad faith, punitive damages, and losses, and to make a profit, insurers must maintain a claims staff dedicated to excellence in claims handling. That means they recognize that they are obligated to assist the policyholder and the insurer to fulfill all the promises made by the insurer in the wording of the policy. The insurer that wants to create a claims staff dedicated to excellence in claims handling must, at least:

  • Hire insurance claims professionals.
  • If professionals are not available, the insurer must use the services of professional independent adjusters.
  • If professionals are not available the insurer must establish a system to train all members of the existing, and new members of the claims staff, to be insurance claims professionals.
  • Requiring each member of the claims staff to be trained annually on the local fair claims settlement practices regulations and SIU Regulations.
  • Employ insurance professionals who can intelligently supervise the work of each claims handler.
  • Supervise each claims handler closely to confirm all claims are handled professionally and in good faith.
  • Train, regularly, each member of the claims staff on the meaning of the covenant of good faith and fair dealing.
  • Require that the claims staff treat every insured with good faith and fair dealing.
  • Demand excellence in claims handling from the claims staff.
  • Let the claims staff know that failure to provide excellence in claims handling to those insured will result in immediate dismissal of any claims handler.
  • Be ready to have an executive of the insurer meet with an insured who was not treated professionally, apologize for the failure, advise that the offending claims person has been dismissed, and provide a means to fulfill the promise of good faith and fair dealing.

If any experienced claims professionals exist on the insurer’s staff, the insurer must cherish and nurture them and use their experience and professionalism to train new claims people. If none are available, the insurer has no option but to train its people from scratch. Those claims people who treat all insureds and claimants with good faith and fair dealing and provide excellence in claims handling must be honored with increases in earnings and perquisites. Similarly, those who do not treat all insureds and claimants with good faith and fair dealing should be counseled and given detailed training. If they continue with less than professional conduct they must be fired. The insurer must make clear to all employees that it is committed to immediately eliminating staff members who do not provide excellence in claims handling.

An excellence in claims handling program can include a series of lectures supported by text materials. It must be supplemented by meetings between supervisors and claims staff on a regular basis to reinforce the information learned in the lectures. The insurer also must institute a regular program of auditing claims files to establish compliance with the subjects studied. The insurer’s management must support the training and repeat it regularly. There is no quick and easy solution. The training takes time; learning takes longer. If the insurer does not have the ability to train its staff it should use outside vendors who can do so.

The excellence in claims handling program requires thorough training providing each member of the claims staff with a minimum of the following:

Training

The insurer seeking to create an excellence in claims handling program should institute regular training of its claims staff in all or more of the following subjects:

  1. How to read and understand the contract that is the basis of every adjustment, including but not limited to:
    1. The formation of the insurance policy.
    2. The rules of interpretation.
  2. Tort law including negligence, strict liability in tort, and intentional torts.
  3. Contract law including the insurance contract, the lease agreement, the bill of lading, nonwaiver agreements, proofs of loss, releases and other claims related contracts.
  4. The duties and obligations of the insured in a personal injury claim.
  5. The duties and obligations of the insurer in a personal injury claim.
  6. The duties and obligations of the insured in a first party property claim.
  7. The duties and obligations of the insurer in a first party property claim.
  8. The Fair Claims Practices Act and the regulations that enforce it.
  9. The thorough investigation:
    1. Basic investigation of an auto accident claim.
    2. Investigation of a construction defect claim.
    3. Investigation of a non-auto negligence claim.
    4. Investigation of a strict liability claim.
    5. Investigation of the first party property claim.
    6. The recorded statement of the first party property claimant.
    7. The recorded statement or interview of a third party claimant.
    8. The recorded statement of the insured.
    9. The red flags of fraud.
  10. The SIU and the obligation of the claims representative when fraud is suspected.

This training can be accomplished in several ways. The claims person may be required to read a chapter every week of “Insurance Claims: A Comprehensive Guide” available from National Underwriter Company at http://www.nationalunderwriter.com/reference-bookstore/property-and-casualty/zalma-insurance-claims-library.html. In addition, the claims person can be required to view a three to four minute video training session by starting at volume 1 and going through all videos, one or more a day, at Zalma Insurance 101.

Claims Report Writing

The new adjuster and new insurance lawyer must understand that an insurer needs information to evaluate the risks it is asked to take. To fulfill the needs of the insurer the claims person must recognize that report writing is essential to the duty imposed on the adjuster and insurance lawyer. The reports must include:

  • The name and address of each person insured.
  • The identity of the insurer.
  • The policy number.
  • The persons named as insured.
  • All persons who are insured or additional insureds by means of the policy wording.
  • The date of the loss.
  • The cause of the loss.
  • The risks of loss insured against by the policy.
  • The limits of liability available to the insured.
  • Whether the cause of the loss is due to a peril insured against.
  • Whether there are any exclusions in the policy that might apply to the situation.
  • The estimated exposure face by the insured so that appropriate reserves can be set.
  • The evaluation and settlement of the personal injury claim.
  • Whether there is a need to retain defense counsel to represent the insured.
  • Whether there is a need to retain coverage counsel to aid the insurer when a coverage issue is detected.
  • The need to control coverage counsel and defense counsel.
  • The need to evaluate the charges presented by defense and coverage counsel.
  • An evaluation of the plaintiff’s lawyer whose client is suing the insured or the insurer.
  • Dealing with personal injury defense counsel.
  • The evaluation of the injuries claimed by a plaintiff suing an insured.
  • The evaluation and settlement of the property damage claim.
  • The need for arbitration or mediation.
  • The estimated jury value of the case.
  • The estimated settlement value of the case.

Why an Excellence in Claims Handling Program?

 The answer is simple: an ability to keep all the promises made by the policy and an ability to make a profit by performing better than all other insurer.

                      © 2016 – Barry Zalma

Begin your Excellence in Claims Handling Program by requiring your people to view Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

 

 

 

Posted in Zalma on Insurance | 1 Comment

Buyers Remorse Not Enough To Create Coverage

You Only Get What You Pay For

Every state that allows uninsured motorist or underinsured motorist (UM/UIM) coverage allow insureds to either refuse UM/UIM coverage or write it down to minimum limits. Waiver or write down of limits reduce premium and many individuals decide to take the risk of insufficient coverage to save money. However, when they then are the victims of an uninsured or underinsured motorist buyers remorse takes charge and the insured sues to create UM/UIM coverage greater than that for which the insured paid.

In Kidd v. State Farm Mutual Automobile Insurance Company, Slip Copy, USDC, MD Pennsylvania, 2015 WL 9479997, (12/29/2015) the U.S. District Court for the Middle District of Pennsylvania heard evidence at a bench trial, reviewed briefing and ruled on the claims by the plaintiffs concerning the available limits of the UM/UIM coverage.

FACTS

Prior to October 1998, Plaintiff Sandra A. Kidd held an automobile insurance policy, which included coverage for up to four vehicles. One of these was purchased by her son, James Fred Brown, who was a resident relative in the Kidd household. Around that time, it became the desire of Sandra Kidd and her husband, David Kidd, that Mr. Brown’s vehicle be removed from their policy and that Mr. Brown would secure his own policy. At trial, Mr. Kidd testified that, as Mr. Brown reached adulthood, they wanted to effect this change to teach him responsibility. At the time, Mr. Brown was eighteen years old. The policy owned by Mrs. Kidd at that time already included reduced coverage for damage caused by under-insured or uninsured motorists (“UM/UIM”) due to a “Sign-Down Form” that had been executed previously.

In October 1998, a “Change Memo” was delivered to State Farm effecting a title transfer to Mr. Brown. On the Change Memo a new policy number was issued. Mr. Brown, thereafter, executed a sign-down form, agreeing to coverage of $15,000/$30,000, an amount lower than the original liability coverage of $100,000/$300,000. The parties do not dispute the fact that Mr. Brown lowered the liability coverage at that time.

On January 24, 2010, Mr. Brown was rendered incapacitated in an automobile accident involving an uninsured or underinsured motorist. Plaintiffs made a claim for benefits asking for UM/UIM benefits for Mr. Brown and Ms. McNeal, in the amount of $100,000.00. The insurer later indicated that it would pay only $15,000.00, due to their understanding that the policy included only reduced UM/UIM coverage.

DISCUSSION

This suit arises under the Pennsylvania Motor Vehicle Financial Responsibility Law, (“MVFRL”). The MVFRL was enacted to control the costs of automobile insurance, and also to address issues caused by uninsured and underinsured motorists. UM/UIM coverage provides protection for persons who suffer injury arising out of the maintenance or use of a motor vehicle and are legally entitled to recover damages therefor from owners or operators of uninsured [or underinsured] motor vehicles. Purchase of UM/UIM coverage is optional but must be offered as part of or in supplement to motor vehicle insurance.

In order to show that an insured validly reduced UM/UIM benefits, an insurance company must show that: (i) the insured had notice of his rights under the MVFRL; and (ii) the insured voluntarily requested in writing that the limits of his UM/UIM coverage be lowered.

The sole issue in this case is whether Mr. Brown waived his right to UM/UIM coverage equal to his bodily injury coverage when he executed the 1998 sign-down form. Plaintiffs make a variety of arguments that he did not validly waive the higher coverage.

Ambiguity in the Sign-Down Form

Plaintiffs’ first argument: that the sign-down form executed by Mr. Brown was impermissibly ambiguous and thus must be construed in favor of the insured.

The primary goal in interpreting a contract is to determine the intent of the parties, and the best way to arrive at this intent is to look to the plain language of the instrument. The language of a contract should be given its plain meaning, but if ambiguity exists, the particular ambiguous provision is to be construed in favor of the insured.

Given the particular set of facts presented in the bench trial the court found that the contractual terms at issue could only be interpreted in one way, and therefore are not ambiguous. Here, according to Mr. Brown’s testimony and those of the insurance agent, both were under the impression, and had the expectation, that Mr. Brown was obtaining his own new automobile insurance policy through his execution of the forms in question. Indeed, they had requested that precisely such an action occur. Also, the UM/UIM coverage on Mrs. Kidd’s policy had already been reduced by Mrs. Kidd at an earlier time, making it even less likely that Mr. Brown would presume he was currently electing to reduce the other policy’s coverage with this particular sign-down form.

Since Mr. Brown was primarily engaged in the establishment of his own new and separate policy it is far more likely and reasonable to infer that Mr. Brown expected that the sign-down pertained to that new policy and not to his mothers’ policy.

Subsequent to Mr. Brown’s execution of the forms, he enjoyed reduced premiums as a result of the decreased coverage. There was no testimony on any events taking place after the forms were signed, but the reduction Mr. Brown benefitted from presumably placed him on notice of the lesser UM/UIM coverage, and any mistake or unintended reduction of coverage could have been rectified between 1998 and 2010, when Mr. Brown’s accident took place. But no such rectification occurred. Rather, Mr. Brown continued to enjoy savings throughout that span of time. Courts are hesitant to find insurance coverage for which insureds have not paid. An insured is bound by having understood the policy limits and acquiesced to them by paying lower premiums.

The parties here acknowledge that Mr. Brown was signing the insurance forms in furtherance of his intent to obtain a new policy while his mother retained the old policy. The court found that given the circumstances under which Mr. Brown executed the sign-down form, Plaintiffs have failed to show by a preponderance of the evidence that Mr. Brown could have interpreted the sign-down form to pertain to his mothers’ coverage, and not his.

Validity of the Sign-Down Form

The notice set forth in the statute is identical to that which was provided to Mr. Brown in the important notice form that he executed along with the sign-down form. No testimony was adduced that indicates that Mr. Brown was not in receipt of the notice, nor unaware of the rights provided under the MVFRL after his receipt of that notice. Foul-Play in the Alteration of the Sign-Down Form

Not an iota of evidence was presented at trial to support the Plaintiffs’ allegations of foul play.

Though the system may be imperfect, there is no requirement that Defendants implement the most ideal system, and the court concluded that Defendants’ explanation is plausible and that Plaintiffs are unable to support their entirely speculative allegations of wrongdoing. Judgment was, therefore, entered in favor of State Farm.

ZALMA OPINION

Courts must never find insurance coverage for which insureds have not paid while insureds, like Mr. Brown in this case, try to get the court to provide them with insurance for which they did not pay because they are sorry that the insured who suffered serious injury does not have adequate coverage.  The attempt failed in this case. The insurance for which Mr. Brown paid indemnified him but refused to pay for insurance he did not buy. A major life lesson learned: you only get what you pay for.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Comments Off on Buyers Remorse Not Enough To Create Coverage

Assignment Against Insurer With No Coverage Is Ignorance

Intentional Acts Never Insurable

I have reported until I am blue in the face that insurance only provides coverage for contingent or unknown events. The loss, to be covered must be fortuitous. A battery, the intentional touching of another with the intent to cause damage that actually causes damage, can never be fortuitous. Therefore, letting the assailant off without a possibility for paying a judgment in exchange for an assignment of the assailant’s claim against his insurer, silly if the assailant has any assets worth attaching.

In Dittel v. Farmers Ins. Exchange, Not Reported in N.W.2d , 2015 WL 9437759 (12/28/2015) the Court of Appeals of Minnesota was asked to ignore a clear and unambiguous intentional act exclusion and allow the victim of a battery to recover from the assailant’s insurer. The trial court granted the insurer’s motion for summary judgment and the victim appealed.

FACTS

In June 2009, appellant Christine Dittel sued Woody’s Bar and Grill, Jeff Fusco, Bradley Smith, and Cary Jay Anderson for injuries Dittel sustained at Woody’s. Dittel asserted two causes of action in her complaint. First, Dittel alleged that Woody’s, Fusco, and Smith violated the law by “illegally [selling] and barter[ing] intoxicating liquor” to Anderson when he was “obviously intoxicated” and that Anderson “caused harmful contact with [her].”

The complaint describes Anderson’s actions as a “battery.” Second, Dittel incorporated the allegations from the first cause of action and further alleged that Anderson “intended to cause and did cause a harmful contact with [her] person” and that she did not consent to Anderson’s act. Specifically, the complaint alleges that Dittel approached Anderson outside Woody’s and that Anderson “grabbed her arm with both hands,” “lifted her up,” and “flipped her over onto the ground.”

Anderson was insured under a homeowner’s insurance policy issued by Farmers Insurance Exchange. Farmers investigated the incident and denied Anderson coverage.

Dittel and Anderson entered into a “Stipulation for Entry of Judgment,” under which Anderson agreed to entry of a $100,000 judgment against him, and Dittel agreed that she would only seek to satisfy the judgment from Farmers.

In May 2013, Dittel sued Farmers, seeking to collect the March 2011 judgment against Anderson from Farmers. The district court concluded that coverage was not available based on an intentional-act exclusion in Farmers’ policy and that Dittel therefore has no basis to collect her judgment against Anderson from Farmers.

The district court noted that Dittel “pled only an intentional tort against [Anderson],” that there was “no allegation of negligence,” that the stipulation “was based solely upon the settlement of an intentional tort,” and that Dittel “could have pled negligence against Mr. Anderson, but chose not to make that claim.”

DECISION

Summary judgment shall be granted when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that either party is entitled to a judgment as a matter of law.

Whether an insurance policy provides coverage in a particular situation is a question of law that appellate courts review as if the motion was presented directly to it. An insurance policy’s coverage exclusions are construed strictly against the insurer. The insurer generally bears the burden of proving that policy exclusions apply to bar coverage. When determining whether there is coverage under a policy, appellate courts compare the allegations in the complaint in the underlying action with the relevant language in the insurance policy.

Farmers’ policy requires Farmers to “pay those damages which an insured becomes legally obligated to pay because of bodily injury … resulting from an occurrence to which this coverage applies.” But the policy also provides that Farmers does not provide coverage for damages stemming from bodily injury that is either “caused intentionally by or at the direction of an insured” or “results from any occurrence caused by an intentional act of any insured where the results are reasonably foreseeable.” The policy defines “occurrence” as “an accident including exposure to conditions which results during the policy period in bodily injury or property damage.”

The law in Minnesota is well-settled: an intentional act exclusion applies only where the insured acts with the specific intent to cause bodily injury.  An insurer may establish intent to injure, and therefore lack of coverage, in two ways. An insurer may offer proof of actual intent to injure, or intent to injure may be inferred as a matter of law. As a general rule, intent is inferred as a matter of law when the nature and circumstances of the insured’s act are such that harm is substantially certain to result.

The nature and circumstances of Anderson’s acts, as described in the complaint, are such that intent to injure can be inferred as a matter of law. The factual assertions in Dittel’s complaint, as well as the identified legal theories, lead to one conclusion: Anderson intentionally caused Dittel’s injuries and coverage is therefore barred under Farmers’ intentional-act exclusion.

Dittel notes that her stipulation with Anderson “was not solely based on an intentional act” because it discharged Anderson from his liability “for negligence or any other liability.” The stipulation’s reference to a hypothetical negligence claim is immaterial. The gravamen of Dittel’s complaint is that Anderson intentionally caused her injuries. Farmers’ policy excludes coverage for damages stemming from such injuries.

ZALMA OPINION

The Court of Appeals of Minnesota correctly concluded the obvious, an intentional tort like battery is not covered by a policy of insurance, especially one with an intentional act exclusion putting the fortuity doctrine within the body of the policy. If Anderson had any assets that could have been collected after entry of judgment Ms. Dittel and her counsel took a chance on a lawsuit that they had little chance to win.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Comments Off on Assignment Against Insurer With No Coverage Is Ignorance

Insurance Agents do not Have an Affirmative Duty to Advise

Third Party Beneficiary’s Rights To Insurance Must Spring from Contract Itself

Third party beneficiaries to an insurance contract, as a matter of course, do not have contact with the insurer or the insurance agent obtaining the insurance for the named insured. In Emerald Coast Finest Produce Company, Inc. v. Sunrise Fresh Produce, LLC, Civil Action, 2015 WL 9461494 NO. 2:14-CV-166-KS-MTP, USDC, S.D. Mississippi,  Filed 12/23/2015 an attempt was made by a person claiming to be a third party beneficiary to collect more than the existing policy limit because of its claimed negligence of the insurance agent.

BACKGROUND

This case arose from a warehouse fire. Plaintiff Emerald Coast Finest Produce Company, Inc. (“Emerald Coast”) owned the building and leased it to Defendant Sunrise Fresh Produce, LLC (“Sunrise”). The lease agreement required Sunrise to “provide and keep in force fire and extended coverage property damage insurance on the Premises equal to 100% of the replacement value of the building.” The building burned down. Emerald Coast claims that the cost to repair or replace it is $15,000,258.19, but the policy insuring the building only provides $5,000,000 in coverage.

Emerald Coast asserted negligence claims against Defendants BancorpSouth Insurance Services, Inc. (“BancorpSouth”) and Alterra American Insurance Co. (“Alterra”). Specifically, Emerald Coast contends that it was a third-party beneficiary of the insurance policy. It argues that the agent negligently failed to procure insurance coverage equal to the replacement cost of the subject warehouse. Likewise, Emerald Coast argues that Alterra is liable for its insurance agent’s actions.

BancorpSouth and Alterra filed Motions for Summary Judgment. Each argues that it owed no duty to Emerald Coast, and that it procured a policy as specifically instructed by Sunrise.

MOTIONS FOR SUMMARY JUDGMENT

A Court is not permitted to make credibility determinations or weigh the evidence. When deciding whether a genuine fact issue exists, the court must view the facts and the inference to be drawn therefrom in the light most favorable to the nonmoving party.
Plaintiff contends that BancorpSouth and Alterra owed it a duty to 1) determine the replacement cost of the warehouse before placing coverage, 2) properly inspect the premises to determine the replacement cost before placing coverage, 3) take other precautions to determine the replacement cost before placing coverage, and 4) procure insurance coverage equal to the replacement cost of the warehouse. Each of these claims arises from the procurement of the policy; Plaintiff contends that Defendants negligently failed to procure enough insurance coverage on the warehouse.

THE ISSUE

Among other issues, Defendants’ Motions for Summary Judgment present a discrete question of law: may a third-party beneficiary of an insurance policy assert a negligence claim against the insurer and/or its agent arising from the policy’s procurement, rather than its fulfillment?

DISCUSSION

Applying the principles of agency, an insurer is bound by the acts of agents, and knowledge gained by an insurance agent within the scope of its agency is imputed to the insurer. An insurance agent must use that degree of diligence and care with reference thereto which a reasonably prudent person would exercise in the transaction of his own business. Insurance agents do not have an affirmative duty to advise buyers regarding their coverage needs, but if they offer advice to insureds, they have a duty to exercise reasonable care in doing so. Likewise, if an insurance agent or broker with a view to being compensated agrees to procure insurance for another and through fault or neglect fails to do so, he will be liable for any damage that results thereby.

Under Mississippi law, a third party may maintain an action as a third-party beneficiary to enforce a promise made for their benefit. However, this right must spring from the terms of the contract. A third-party beneficiary may sue for a contract breach only when the alleged broken condition was placed in the contract for their direct benefit. In order for the third person beneficiary to have a cause of action, the contracts between the original parties must have been entered into for his benefit, or at least such benefit must be the direct result of the performance within the contemplation of the parties as shown by its terms.

Assuming that Plaintiff is a third-party beneficiary of the insurance policy, its negligence claims against BancorpSouth and Alterra are untenable because an insurer’s duties to a third-party beneficiary must spring from the terms of the contract itself, and a third-party beneficiary may sue for a contract breach only when the alleged broken condition was placed in the contract for their direct benefit.  Plaintiff argues that BancorpSouth and Alterra owed it the duty of procuring coverage in a certain amount, and that this duty arose under the insurance policy acquired by Sunrise for its benefit.

Plaintiff cited no Mississippi case in which a third-party beneficiary of an insurance policy was permitted to assert a negligence claim arising from an insurance agent’s failure to procure adequate coverage. Indeed, the Court’s own research has revealed no such cases. Instead, Mississippi courts have consistently held that duties owed to the third-party beneficiary of a contract must “spring from the terms of the contract itself” to be enforceable. A duty to procure certain coverage can not spring from the terms of the contract itself.

ZALMA OPINION

An insurance agent or broker who merely fulfills the request of the insured owes nothing more to the insured or any third party beneficiary making a claim under the policy. The contract of insurance clearly and unambiguously provided $5 million in coverage and no more. The contract of insurance only made the owner an additional insured. If he knew there was a $15 million building he should have insisted that the tenant provide $15 million in coverage and cannot complain after the loss he did not get what he needed when he did receive what he ordered.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Comments Off on Insurance Agents do not Have an Affirmative Duty to Advise

Exception to Exclusion Defeats Summary Judgment

Agent Negligent but Claims No Coverage Anyway

An insurance agent is only required to obtain the insurance requested by the insured. The insurance agent does not guarantee that every claim the insured presents will be covered by the insurer.

In Glasser v. M&O Agencies, Inc., Not Reported in P.3d, Court of Appeal, Arizona, 2015 WL 9096764 (12/15/2015) an insured sued his agent because the policy he ordered was not in effect at the time of a loss. The agent defended based upon the fact that there was no coverage for the loss. The trial court granted summary judgment and Elliott J. Glasser appealed the summary judgment granted to M & O Agencies, Inc., Ryan James Bradley and Kristina N. Bradley (collectively, “Mahoney”) dismissing his claims for breach of contract, negligence, and negligent misrepresentation.

FACTS

Glasser bought a large commercial property in March 2010 (the “McDowell Property”) that was previously an automobile dealership. Glasser’s employees began cleaning and making repairs at the McDowell Property, but Glasser did not lease the property or occupy it himself.

Glasser, through his insurance agent Mahoney, added the McDowell Property as a scheduled location on his existing commercial insurance policy (the “Policy”) from Great American Insurance Company, which covered the McDowell Property with property and liability insurance. In April 2010, and at the direction of an employee of Glasser’s business, Mahoney instructed Great American to delete the property coverage for the McDowell Property.

On approximately July 6, 2010, Glasser discovered theft and vandalism at the McDowell Property, and submitted a claim for the loss to Great American. Great American denied the claim because the Policy did not cover property damage at the McDowell Property and the property had been vacant for more than 60 days before the loss, a vacancy exclusion term under the Policy.

Glasser filed this lawsuit against Mahoney alleging it breached the agreement with Glasser by failing to obtain appropriate insurance coverage for the McDowell Property; failed to exercise reasonable care, skill, and diligence to secure and maintain appropriate insurance coverage for Glasser’s real properties; and negligently misrepresented that it had secured appropriate insurance coverage for Glasser’s real properties, including the McDowell Property.

Mahoney moved for summary judgment on the grounds that Glasser had produced no evidence that the Policy would have covered the loss even if it had been in effect and he, therefore, could not prove that Mahoney’s allegedly negligent conduct caused him any damage.  Specifically, Mahoney argued that the terms of the Policy excluded coverage for theft and vandalism at the McDowell Property because it had been vacant for the 60 days preceding the loss. In response, Glasser maintained that an exception to the vacancy exclusion for buildings under “renovation” applied because his employees had been readying the building to serve as his business headquarters. Mahoney argued, however, that Glasser’s activities at the McDowell Property constituted routine maintenance and repair, not renovation.

The superior court granted summary judgment for Mahoney, ruling as a matter of law that there was insufficient evidence for a jury to find that the McDowell Property was under renovation at the time of the loss. The court determined that the evidence only supported an inference that the McDowell Property was being cleaned, repaired, and maintained and such acts, as a matter of law, did not constitute “renovation.”

DISCUSSION

The Policy excludes coverage for theft or vandalism occurring at a building that has been vacant for more than 60 consecutive days before the loss. As relevant, the Policy states that a “building is vacant unless at least 31% of its total square footage is: (i) rented to a lessee … and used by the lessee … to conduct its customary operations; and/or (ii) used by the building owner to conduct customary operations.” The Policy provides that “[b]uildings under construction or renovation are not considered vacant.”

Because Glasser does not dispute that the McDowell Property was vacant at the time of the loss, the court focused only on whether he produced sufficient evidence to allow a reasonable jury to find that the renovation exception to the vacancy exclusion applies in this case.

Webster’s defines the term “renovate” as “(1) to make new or like new; to clean up, replace worn and broken parts in, repair, etc.; to restore to good condition; (2) to refresh; to revive.” Webster’s New Universal Unabridged Dictionary 1531 (2d ed.1983). Similarly, the American Heritage Dictionary defines this word as “(1) [t]o restore to an earlier condition, as by repairing or remodeling. (2)[t]o impart new vigor to; revive.” American Heritage Dictionary of the English Language 1487 (5th ed.2011).

Based on these definitions, a question of fact exists regarding whether the activities of Glasser’s employees at the McDowell Property during the relevant time qualified as “renovation .” The evidence showed that two of Glasser’s employees were at the McDowell Property every day after the purchase making changes and repairs to render the property acceptable business headquarters.  If Great American and Glasser intended that the Policy’s renovation exception would apply only to substantial reconstruction activities, rather than minor repairs or cleaning, they were free to specify that meaning in the Policy.

Nevertheless, Mahoney argues courts from other jurisdictions have read similar policy language in conjunction with the overall purpose of a vacancy exclusion (to exclude coverage for those buildings that might invite liability and damage) and have refused to find an exception to a vacancy exclusion when the insured’s activities at the property were not substantial and continuing.

Accordingly, even though the activities at the McDowell Property might not be what is ordinarily envisioned by the word renovation, the Arizona Court of Appeal concluded that there is a question of fact under the Policy whether the activities on the property were “renovation.”  As a result, the court reversed the ruling for Mahoney on the grounds that, even if it had remained in effect, the Policy would not have covered Glasser’s loss because of the vacancy exclusion.

ZALMA OPINION

Factual issues almost always defeat summary judgment. The question of whether the exception to the exclusion applies is clearly factual and that is why the summary judgment was reversed. The agent’s error was to make a motion based on the exclusion rather than on the fact that the insured – through his employee – told the agent to cancel coverage for the building. Since the policy was not in effect there was no coverage and that is why Great American wasn’t sued.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Comments Off on Exception to Exclusion Defeats Summary Judgment

No License – No Coverage

Agent’s Sale of Policy to Unlicensed Driver Not a Waiver of Exclusion

Insurance companies are loathe to sell automobile liability insurance to non-licensed drivers unless it believes that person will never drive the vehicle. Since most insurers will trust their insureds and believe the insured’s representations, they also protect themselves by including in their policy an exclusion for any injuries or damages caused by an unlicensed driver.

The Louisiana Court of Appeal in Parker v. Taplin, — So.3d —-, 2015 WL 9434402 15-440 (La.App. 5 Cir. 12/23/15) was asked to resolve a tort action arising out of a motor vehicle accident where its insured admitted he was unlicensed but had coverage because the insurer sold the policy to him knowing he was not licensed. The trial court did not agree with the argument and granted summary judgment in favor of his insurer, Affirmative Insurance Company (“Affirmative”), finding there was no insurance coverage to Plaintiff for his loss because of an exclusion in the policy for unlicensed drivers.

FACTS

Plaintiff, Darryl Parker, filed suit seeking damages for property and personal injuries he allegedly sustained in an automobile accident when a vehicle driven by Laquida Taplin collided with his vehicle, a 2001. Plaintiff named as defendants Ms. Taplin; her insurer, State Farm Mutual Automobile Insurance Company; and his insurer, Affirmative. He alleged that Affirmative provided comprehensive and collision coverage for his 2001 BMW, and that it had denied his claim for property damage in bad faith.

Affirmative subsequently filed a motion for summary judgment claiming that the policy at issue excluded collision coverage for loss caused by an unlicensed driver. Affirmative asserted that Plaintiff was an unlicensed driver and, thus, the policy did not provide first party collision coverage for the accident at issue. In support of its motion for summary judgment, Affirmative attached a certified copy of the insurance policy issued to Plaintiff and a copy of the police report that showed Plaintiff was cited for having no driver’s license.

Plaintiff opposed the motion, arguing that the exclusion at issue was not enforceable under the law. He also argued that even if the exclusion was permissible, Affirmative was estopped from enforcing it because Affirmative knew at the time it issued the policy that Plaintiff did not have a driver’s license. In support of his opposition, Plaintiff attached his own affidavit stating that he informed the lady who assisted him with the purchase of the policy that he did not have a valid driver’s license and that the lady advised him that he would nonetheless be able to purchase the automobile policy. Plaintiff maintained that the factual issue of whether Affirmative knew that he did not possess a valid driver’s license at the time it issued the policy precluded summary judgment.

ISSUE

An insurance policy is a contract between the parties and should be construed by using the general rules of interpretation of contracts set forth in the Louisiana Civil Code. The judicial responsibility in interpreting insurance contracts is to determine the parties’ common intent. The parties’ intent, as reflected by the words of the policy, determines the extent of coverage.

An insurance company may limit coverage in any manner, as long as the limitations do not conflict with statutory provisions or public policy. A provision which seeks to narrow the insurer’s obligation is strictly construed against the insurer.

A review of the policy at issue shows that Affirmative provided automobile insurance for a 2001 BMW operated by Plaintiff and his spouse, Sandra Scieneaux, effective January 4, 2014 through July 6, 2014. The policy provided liability coverage in the amount of $15,000 for each person, $30,000 for each accident, and $25,000 for property damage for each occurrence. It also provided comprehensive and collision coverage subject to a $500 deductible.

ANALYSIS

Under the terms of the policy, collision coverage was provided for property damage to the insured vehicle caused by a collision. However, collision coverage was subject to any applicable exclusion in the policy. The policy specifically provided in pertinent part: “Loss caused by any person driving any auto insured under Parts D, E, F, and/or G without a valid and current driver’s license.”

Plaintiff does not dispute the fact that he did not possess a valid driver’s license at the time of the accident. Thus, under the plain words of the insurance contract, he was not afforded collision coverage under the terms of the insurance contract. However, Plaintiff argues Affirmative should not be allowed to rely on this exclusion under the theory of detrimental reliance. In support of his position, Plaintiff relies on his affidavit wherein he stated that he was told by an agent for Affirmative that he could purchase the insurance policy even though he did not have a valid driver’s license.

Under the theory of detrimental reliance, “[a] party may be obligated by a promise when he knew or should have known that the promise would induce the other party to rely on it to his detriment and the other party was reasonable in so relying.” The purpose of the doctrine of detrimental reliance is to prevent injustice by barring a party from taking a position contrary to his prior acts, admissions, representations, or silence. To prove detrimental reliance, a party must show by a preponderance of the evidence: (1) a representation by conduct or word; (2) justifiable reliance; and (3) a change in position to one’s detriment because of the reliance.

Even assuming Plaintiff’s statements in his affidavit are true, the court of appeal found them inconsequential. According to Plaintiff’s affidavit, when he purchased the automobile insurance in August 2013, he told Affirmative’s agent that “he did not have a valid driver’s license on that date,” and she then “informed Plaintiff that he would be able to purchase an automobile policy with Affirmative Insurance Company though he did not possess a valid driver’s license.”

This statement does not indicate what type of coverage would be afforded—only that insurance could be purchased. Nowhere in Plaintiff’s affidavit does he claim that the agent made any representations regarding the coverage provided by the policy, or that the agent indicated Plaintiff would be provided collision coverage while he was driving without a license in derogation of the clear terms of the contract. Additionally, in his application for insurance, Plaintiff indicated that he was instructed to read his policy.

Based on the record before the court of appeal it had no choice but to find that there was no evidence to support a claim of detrimental reliance.  As a result Affirmative was entitled to summary judgment as a matter of law.

It is undisputed that Plaintiff did not possess a valid driver’s license at the time of the accident at issue. Under the terms of the insurance contract, collision coverage was excluded for persons without a valid driver’s license. Additionally, Plaintiff presented no evidence that Affirmative’s agent made any representations regarding the type of coverage provided by the policy that would support his claim of detrimental reliance so as to preclude summary judgment nor did he provide any evidence that Affirmative intentionally waived any provision of the contract.

ZALMA OPINION

Since Mr. Parker bought a liability, comprehensive and collision coverage from Affirmative to protect his interest in the vehicle and his licensed spouse who also was listed as a driver of the vehicle. Affirmative sold the policy with a clear and unambiguous exclusion that limited the coverage if damage occurred while an uninsured person was driving the car. His wive was still covered as was he if the car was damaged while being operated by a licensed driver. His arguments against the summary judgment were, therefore, specious.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Comments Off on No License – No Coverage

Umbrella is Excess Over Self-Insurance

A Municipal Self-Insurance Pool Is Self-Insurance

Excess or umbrella insurance is designed to protect the person insured against catastrophic losses. Umbrella insurance is fairly inexpensive to acquire because it does not come into play and has no duty to defend or indemnify until the agreed underlying insurance has been exhausted. In Illinois Municipal League Risk Management Ass’n v. State Farm, 2015 IL App (1st) 143336-U (Dec. 22, 2015) a Municipal self-insurance pool attempted to collect its payment of a claim from the umbrella insurer, State Farm. State Farm refused to pay because the underlying insurance and self-insurance had not been exhausted.

The trial court found enforceable a clause in the umbrella policy that made its coverage apply only after exhaustion of the limits of all applicable “insurance and self insurance.” The self-insurance pool appeals, arguing that the umbrella policy should count as primary insurance because the self-insurance pool uses public funds.

BACKGROUND

State Farm Fire & Casualty Company issued an insurance policy to Roel Valle, who worked as the City Clerk for the Village of Lynwood. Lynwood belonged to the Illinois Municipal League Risk Management Association (Association), a municipal risk-pooling organization.

On February 4, 2011, a car owned by the Village of Lynwood and driven by Valle collided with a car driven by Manuel Little. Little sued Valle and Lynwood. Valle and Lynwood notified the Association and State Farm about the lawsuit. The Association invited State Farm to participate in the defense of the lawsuit and settlement negotiations. On August 16, 2011, the Association agreed to pay Little and his passengers a total settlement amount of $5,822,500 for a release of all their claims against Valle and Lynwood. The Association, as subrogee of Valle and Lynwood, then sued State Farm claiming it breached its contract by failing to contribute its policy limits to the settlement.

State Farm’s insurance policy, titled “Personal Liability Umbrella Policy,” required Valle to purchase automobile liability insurance and other forms of primary insurance. The policy states, “Other Insurance. The coverage provided by this policy is excess over all other insurance and self insurance.”

The Association’s contract with Lynwood provided that the Association would pay on Lynwood’s behalf “all sums which [Lynwood] shall become legally obligated to pay * * * because of ‘bodily injury’ * * * to which this form applies, caused by an ‘occurrence’ and arising out of the ownership, maintenance or use * * * of any ‘automobile,’ “ up to a limit of $8 million.

The Association admitted that the contract expressly covered the liability of Lynwood and “any other person while using an ‘owned automobile’ * * * with the permission of [Lynwood],” but not “the owner of a ‘non-owned automobile.’ “ The Association also admitted that Valle, as an employee of Lynwood permitted to drive Lynwood’s automobile, qualified as a person covered under the Association’s contract with Lynwood.

The trial court found that the Association, by contract, agreed to pay the liability of Lynwood and Valle, up to the contract limits of $8 million, and State Farm’s umbrella policy provided coverage for the accident only if the liability exceeded $8 million. Because the Association settled the lawsuit for less than $8 million, the trial court held that State Farm owed the Association nothing. The trial court entered a judgment in favor of State Farm.

ANALYSIS

An umbrella policy, in contrast to a primary policy that contains an other insurance clause, has been recognized as providing unique and special coverage. Umbrella or catastrophe coverage has been defined as a needed form of coverage which picks up, above the limits of all other contracts, such as automobile and homeowners coverages, to give the security and peace of mind so necessary today where jury verdicts, or court awards, may be very substantial, to discharge the unexpected, but potentially bankrupting, judgment.

State Farm issued an umbrella liability policy to Valle. The Association provided primary coverage to Lynwood. Thus, if we treat the Association’s contract with Lynwood as an insurance policy, the umbrella policy would provide coverage only if Valle’s liability exceeded the limits of the Association’s coverage. But the Association’s contract is not an insurance policy. In Antiporek v. Village of Hillside, 114 Ill.2d 246 (1986), the Illinois Supreme Court held that a contract like the Association’s contract with Lynwood “is pooled self-insurance, through formal agreement, of governmental entities which share the risks and costs of civil liabilities.”  Lynwood and other participating municipalities form a risk-management pool in which only Illinois municipalities may participate.

The Association asked the court of appeal to limit the interpretation of “self-insurance” in State Farm’s policy to privately-funded self-insurance risk pools. When a court construes insurance policies it must ascertain and give effect to the intentions of the parties as expressed by the words of the policy. The Court of Appeal construed the umbrella policy to provide insurance coverage only when the loss exceeded available limits of insurance and self-insurance, including pooled self-insurance.

Finding that State Farm’s umbrella policy was unambiguous the Court of Appeal concluded that the State Farm policy makes the insurance “excess over all other insurance and self insurance.” Because the Association provides coverage for the accident under the contract for pooled self-insurance, it found that the Association provided coverage for the losses up to $8 million, and State Farm’s policy would cover losses in excess of that amount. Because the Association settled the claims for less than $8 million, State Farm did not owe the Association any reimbursement for the loss.

CONCLUSION

The Association’s contract with Lynwood qualifies as self-insurance within the meaning of the other insurance clause in State Farm’s umbrella liability policy. Public policy does not make the State Farm contract unenforceable.

ZALMA OPINION

State Farm’s wisdom in issuing its umbrella policy made it clear that it was excess over the stated underlying insurance, all other applicable insurance, and self insurance. Since the municipal pool was self insurance in Illinois the umbrella policy had no obligation to pay defense or indemnity to the Village of Lynwood or its employee.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Comments Off on Umbrella is Excess Over Self-Insurance

Who Are You Going to Believe – Me or Your Lying Eyes?

Two Categorically Different Sworn Statements Establish Fraud

Insurance fraud takes from the U.S. insurance industry between $80 billion and $300 billion a year because it is an easy crime to commit without any downside. In a case like Rizka v. State Farm Fire and Casualty Company, Slip Copy, 2015 WL 9314248 (12/23/2015) an obvious fraud was presented to the United States District Court, E.D. Michigan, Southern Division, that resulted in a sixteen page opinion without ever considering the evidence of two major crimes: Bankruptcy Fraud and Insurance Fraud.

RELEVANT FACTUAL BACKGROUND

In August 2011, Plaintiff Nahid Rizka (“Ms. Rizka”) declared personal bankruptcy. Ms. Rizka had nearly $45,000 in credit card debt, no job, few assets to speak of, and no way to pay her bills. Ms. Rizka said in her sworn bankruptcy schedules that she (1) did not own any real property – and was renting her home – and (2) owned only $1,800 in personal property. Less than a year later, Ms. Rizka’s home suffered water damage; personal property in the home was also damaged. Ms. Rizka then filed a homeowners insurance claim with Defendant State Farm Fire and Casualty Company (“State Farm”). She swore to State Farm that she personally owned the home and the damaged personal property. She sought more than $250,000 for damage to the home and more than $200,000 for the personal property she claimed to have lost. State Farm denied Ms. Rizka’s claim as fraudulent.

Ms. Rizka sued State Farm claiming it failed to pay her “valid and legitimate insurance claim.”

In 2002, Ms. Rizka and her four children (Kamal, Summer, Tarek, and Mike) began living in a home at 435 Woodcrest in Dearborn, Michigan (the “Woodcrest Home”). The Woodcrest Home was originally purchased by the father of Ms. Rizka’s children. He lost the home to foreclosure in 2005. In 2006, Ms. Rizka’s sister, Georgina Mercer (“Mercer”), purchased the Woodcrest Home for Ms. Rizka.  Mercer paid $250,000 for the Woodcrest Home, and Ms. Rizka contributed $20,000 towards the purchase price. Mercer took out a mortgage on the property, and has been the mortgagor ever since.

In 2008, Ms. Rizka applied for a State Farm homeowners insurance policy for the Woodcrest Home. After reviewing her application, State Farm issued a homeowners policy to Ms. Rizka for the Woodcrest Home (the “Policy”).

In August 2011, Ms. Rizka declared personal bankruptcy. During her bankruptcy proceedings, Ms. Rizka swore under oath in the asset schedules to her bankruptcy petition that she did not own any real property and did not own any interest of any kind in any such property. Ms. Rizka stated in her bankruptcy schedules that she leased the Woodcrest Home from Mercer on a “month-to-month residential rental,” and she identified her “rental” payment as monthly expenditure. Ms. Rizka also stated in her bankruptcy schedules that she possessed only $100 in “cash in hand” and owned just $1,500 in “household goods and furnishings” and $200 in “clothing.”

On September 8, 2011, the bankruptcy court held an on-the-record Meeting of Creditors. Ms. Rizka personally appeared at the meeting, took an oath, and again specifically stated that she had read her bankruptcy petition and the attached schedules and confirmed that they were accurate. The bankruptcy court granted Ms. Rizka a discharge on November 8, 2011 – one that had the effect of wiping away her entire debt load of over $45,000.

In July 2012 (less than one year after Ms. Rizka exited bankruptcy), the Woodcrest Home suffered water damage. Ms. Rizka then made an insurance claim with State Farm. As part of her claim, Ms. Rizka submitted two sworn “Proof of Loss” statements: one for the Woodcrest Home and one for the personal property in the home. In the Proof of Loss statement for the Woodcrest Home, Ms. Rizka swore that she was the “OWNER” of the home “at the time of loss” and that she had been the “OWNER” since at least July 30, 2011, when the Policy was last renewed. In the Proof of Loss statement for the damaged personal property, Ms. Rizka swore that she was the “OWNER” of the damaged property, and that “[n]o other person or persons had any interest” in the personal property. Ms. Rizka claimed the replacement cost of the damaged personal property was $200,413.76.

ANALYSIS

The doctrine of judicial estoppel is utilized in order to preserve the integrity of the courts by preventing a party from abusing the judicial process through cynical gamesmanship. Courts have even characterized it as a rule against playing fast and loose with the courts. The Sixth Circuit has explained that in order to apply judicial estoppel based on a position taken by a party in an earlier bankruptcy proceeding, a district court “must find” that a party assumed a position that was contrary to the one that the party asserted under oath in the bankruptcy proceedings;  the bankruptcy court adopted the contrary position either as a preliminary matter or as part of a final disposition; and  the party’s omission did not result from mistake or inadvertence.

The evidence here easily satisfies all three elements.  There is no way to reconcile Ms. Rizka’s statement to the bankruptcy court that she owned no real property (and was renting the Woodcrest Home) with her assertion in this action that she owned the home “[a]t all material times,” including at the time of the water loss. The statements are contrary to one another, and the first element for application of judicial estoppel is therefore satisfied.

Ms. Rizka indisputably had a motive during her bankruptcy to conceal her ownership interest in the Woodcrest Home. It is always in a bankruptcy petitioner’s interest to minimize income and assets. By identifying the Woodcrest Home as a “rental” and claiming her monthly lease payments as a monthly expenditure, Ms. Rizka both decreased her assets and inflated her liabilities. Thus, the uncontroverted evidence establishes that Ms. Rizka had a motive to conceal her ownership of the Woodcrest Home during her bankruptcy proceedings.

Likewise, when State Farm first raised its judicial estoppel argument in this action, Ms. Rizka submitted a sworn affidavit in which she said that she believed that she was “a tenant” of the Woodcrest Home, not its owner. Ms. Rizka’s affidavit flatly contradicts her repeated sworn testimony and statements that she regarded herself as the owner of the home at the time she filed bankruptcy. Ms. Rizka’s attempt to stave off summary judgment by submitting such an affidavit raises serious questions about whether she has proceeded in good faith.

Ms. Rizka Made Fraudulent Statements to State Farm in Connection With Her Personal Property Claim, and Those Statements Void Entirely Ms. Rizka’s Right to Coverage Under the Policy

As part of its defense in this action, State Farm has invoked the “Concealment or Fraud” provision of the Policy. That provision states: “This policy is void as to you and any other insured if you or any other insured under this policy has intentionally concealed or misrepresented any material fact or circumstance relating to this insurance, whether before or after a loss.”

A “Concealment or Fraud” provision like the one in the Policy bars an insured’s claim for coverage and State Farm has established all of the elements stated in the policy. It has shown that Ms. Rizka made a materially false statement in order to collect a substantial payment for damage to personal property that she now says she did not own.

State Farm has established that Ms. Rizka acted with the intent to defraud. There is a huge disparity between the value of the personal property Ms. Rizka claimed to own in her bankruptcy schedules in 2011 (just $1,500 in “household goods and furnishings” and $200 in “clothing”) and the value of the personal property she claimed to own in the Proof of Loss she submitted to State Farm (more than $200,000) less than one year later.

In sum, the Concealment or Fraud provision of the Policy applies here and bars all of Ms. Rizka’s claims for coverage, including for damage to the Woodcrest Home and to personal property.

CONCLUSION

This case requires a finding of both judicial estoppel and the fraud bar to coverage.   Ms. Rizka has always taken the position that is most favorable to her. When it was in her interest to appear penurious (like it was in the bankruptcy), she claimed that she did not own the home or the personal property. But when it was in her interest to own the home and the personal property, she claimed to own both. Even worse, she has taken these irreconcilable positions under oath.

ZALMA OPINION

It is a federal felony to make false statements in a bankruptcy filing. It is a state felony to file a false and fraudulent insurance claim. Although the District Court reached the appropriate decision in this civil action it should have reported Ms. Rizka to the U.S. Attorney and the local District Attorney for prosecution. She profited from the bankruptcy fraud and cost State Farm a great deal of money defending her claim and action.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Comments Off on Who Are You Going to Believe – Me or Your Lying Eyes?

Assault & Battery Exclusion Effective

A Risk Few Insurers are Willing to Take

Insurance is no an entitlement. It is not a right protected by the U.S. Constitution. Insurance is a contract where one (the insurer) agrees to indemnify another (the insured) against certain identified risks of loss as long as they are contingent or unknown prior to the loss. An insurer, a profit making entity, has the unquestioned right to determine who it will insure, limit the risks of loss it is willing to insure, and rely upon the person to be insured for sufficient facts so that the insure may make a wise discrimination in making the decision to insure or not insure the risk of loss.

In Amato v. National Specialty Ins. Co., — N.Y.S.3d —-, 2015 WL 9309126,  Supreme Court, Appellate Division, Second Department, New York, Dec. 23, 2015 the New York Supreme Court, Appellate decision was asked to rule that regardless of the clear and unambiguous language of the assault and battery exclusion of the policy, plaintiff claimed a right to the proceeds of the policy.

FACTS

Amato sued the insurers seeking judgment declaring that the defendants National Specialty Insurance Company and Risk Control Associates Insurance Group are obligated to defend and indemnify the defendant Hylan Bistro, Inc., doing business as Bistro Restaurant, in a personal injury action entitled Amato v. Hylan Bistro, Inc., doing business as Bistro Restaurant, pending in the Supreme Court, Richmond County, the plaintiff appeals from the trial court’s conclusion that granted the motion of the insurers  for summary judgment declaring that they were not obligated to defend and indemnify the defendant Hylan Bistro, Inc., doing business as Bistro Restaurant, in the underlying action.

The plaintiff alleged that on December 21, 2007, she sustained injuries as a result of an altercation with an intoxicated patron at an establishment owned by the defendant Hylan Bistro, Inc., in Richmond County. The plaintiff commenced a personal injury action against the patron and Hylan Bistro alleging, that Hylan Bistro was liable for her injuries for having unlawfully and knowingly sold or provided alcohol to a visibly intoxicated patron, who was known by Hylan Bistro to become intoxicated and violent, and that such intoxication contributed to the patron suddenly assaulting, battering, striking, and/or otherwise injuring the plaintiff.

On January 26, 2009, after acknowledging receipt of a notice of claim, the insurance defendants disclaimed coverage based on the existence of an assault and battery exclusion endorsement in the insurance policy issued to Hylan Bistro.

After the plaintiff sued the insurers they moved for summary judgment declaring that they were not obligated to defend and indemnify Hylan Bistro in the underlying action, and the plaintiff cross-moved for summary judgment. The Supreme Court (the trial court) granted the insurance defendants’ motion on the ground that coverage and a defense of Hylan Bistro was precluded under the terms of the policy, specifically the assault and battery exclusion endorsement, because each of the claims raised by the plaintiff against Hylan Bistro in the personal injury action arose out of the assault and/or battery by the intoxicated patron.

ANALYSIS

The duty to defend is triggered whenever the allegations of a complaint, liberally construed, suggest a reasonable possibility of coverage, or the insurer has actual knowledge of facts establishing a reasonable possibility of coverage. An insurer may also disclaim coverage on the basis of a policy exclusion by demonstrating that the allegations of the complaint cast that pleading solely and entirely within the exclusion. An exclusion for assault and/or battery applies if no cause of action would exist but for the assault and/or battery.

In support of their motion, the insurance defendants demonstrated their prima facie entitlement to judgment as a matter of law by establishing that the claims asserted by the plaintiff against Hylan Bistro in the personal injury action fall within the terms of the assault and battery exclusion endorsement. Each of the claims asserted by the plaintiff in the personal injury action arises out of the assault and/or battery, and thus, fall within the subject policy’s exclusion endorsement.

Since all of the plaintiff’s injuries resulted from the battery by the intoxicated patron the exclusion applied and the insurers were not required to defend or indemnify the Bistro Restaurant.

ZALMA OPINION

Assault and battery are risks of loss most insurers are unwilling to take. This is especially true in areas where the insured sells or otherwise provides alcoholic beverages to its patrons. Serious injuries result often in such situations with little chance of avoiding large judgements. Coverage is available but it is expensive and insureds must be aware of the risks, actively manage the risks, and realize that any damages will come out of their own pockets, not those of an insurer.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

Posted in Zalma on Insurance | Comments Off on Assault & Battery Exclusion Effective

Employment Records Are Admissible Evidence

Decedent Must Fulfill Employment Requirements to Obtain ERISA Life Insurance

Wendy S. Malishka appealed from the District Court’s grant of summary judgment in favor of Metropolitan Life Insurance Company (“MetLife”) on her claim that MetLife improperly denied her life insurance benefits claim following her son’s death. The Third Circuit Court of Appeal, in Malishka v. MetLife, — Fed.Appx. —- 2015 WL 9311399, USCA 3rd Circuit (Dec. 23, 2015) was asked to overturn the denial of a claim based upon the fact that the decedent was qualified during his employment but, at the time of his death, was not qualified for the Union controlled and designed life insurance plan.

BACKGROUND

Malishka filed a life insurance claim following the death of her son, T. Alexander Malishka (“Decedent”). Decedent was a member of the Boilermakers & Iron Ship Builders and Blacksmiths and Forgers and Helpers, Local 13 (“Union”). As a member of the Union, Decedent was given the opportunity to purchase coverage under the Boilermakers National Health and Welfare Fund (“Plan”), an employee welfare benefit plan governed by the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §§ 1001, et seq.

MetLife serves as the claims administrator of the Plan, in which role MetLife has discretionary authority for interpretation and determination of eligibility requirements.
To obtain coverage under the Plan, participants must meet requirements to establish initial eligibility and must meet separate requirements to maintain eligibility. The Plan provides that, for initial eligibility, “[a]n Employee becomes eligible on the first day of the Benefit Quarter next following the end of an Eligibility Quarter in which he worked for a Contributing Employer for at least 350 Hours.” Upon establishing initial eligibility, participants must satisfy the continuing eligibility requirements.

Relying on the detail summaries, MetLife determined that Decedent was not covered under the Plan at the time of his death. In his first eligibility quarter, MetLife determined that Decedent worked 395 hours. Thus, Decedent met the initial eligibility requirement and was able to apply 45 hours to his reserve bank. In his second eligibility quarter, MetLife determined that Decedent worked 282.50 hours, satisfying the continuing eligibility requirement and successfully maintaining coverage. In his third eligibility quarter, however, MetLife determined that Decedent worked only 159 hours. Decedent was therefore rendered ineligible for coverage as, even with his 45 reserve hours, he did not meet the continuing eligibility requirement. In his fourth quarter, MetLife determined that Decedent worked 348.50 hours, 1.50 hours short of meeting the initial eligibility requirements.

Having determined that Decedent failed to meet the requisite hour requirement under the Plan, MetLife concluded that Decedent did not have life insurance coverage at the time of his death.

ANALYSIS

Here, MetLife reasonably determined from the Administrative Record that Decedent lost eligibility for coverage under the Plan in the third Eligibility Quarter in 2011 and did not regain eligibility prior to his death. The detail summaries that MetLife relied upon were provided by the Union, which advised that the hours attributed to Decedent were accurate and had been confirmed by the employer.  Malishka urged the District Court to consider evidence that was not presented to the administrator at the time of the decision, even though Malishka had the opportunity to present such evidence. MetLife reasonably relied on the Administrative Record to conclude that the Decedent was not eligible for coverage at the time of his death.

As such, the District Court properly granted MetLife’s Motion for Summary Judgment.

ZALMA OPINION

ERISA plans are strictly construed by federal courts. In this case the decedent was only 1.5 hours short of eligibility for life insurance at the time of his death which deprived his beneficiaries of coverage as effectively if he was 100 hours short. The Third Circuit affirmed that the contract said what it desired to say and that MetLife was able to show with admissible evidence that the decedent did not qualify for the coverage.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Comments Off on Employment Records Are Admissible Evidence

Statute of Limitations Bars Suit Against Insurer

Policy’s Change in Limitation Period Not Viable

Several years ago the state of California refused to enforce a private limitation of action provision in an insurance policy and ordered that the limitation period was tolled between the time the claim was reported and did not run again until the claim was denied in Prudential-LMI Com. Insurance v. Superior Court, Supreme Court of California, In Bank. November 01, 1990 51 Cal.3d 674 798 P.2d 1230. State Farm incorporated the provision in its homeowners policy.

In Thill v. State Farm Fire & Cas. Ins. Co., Not Reported in N.W.2d, 2015 WL 8985857 (12/15/2015) a Michigan court was faced with an issue whether to apply the policy language or to apply the local statute.

FACTUAL HISTORY

This case arises out of an insurance-coverage dispute relating to what the parties refer to as “ice dam” damage to plaintiffs’ home that occurred on March 1, 2010. On March 26, 2010, plaintiffs notified defendant State Farm, whom they maintained homeowners insurance through, of the damage and sought coverage. Defendant’s claim representative, Al Pool, inspected the damage to plaintiffs’ home on June 14, 2010 and determined that the exterior wood siding was “rotted and deteriorated.” Plaintiffs were informed that due to the rot and deterioration, the exterior damage to their home was excluded from their coverage. Plaintiffs thereafter expressed a desire to no longer pursue their claim, and that desire was confirmed in a letter sent by Pool to plaintiffs on September 16, 2010.

Nearly one year later, plaintiffs resumed pursuing their claim. Pool re-inspected the home on January 11, 2012, and State Farm denied coverage shortly thereafter based on the original and further rot and deterioration. Defendant did issue, however, a payment in the amount of $156.18 to plaintiffs, representing what defendant determined was “the covered portion of their claim.” On March 28, 2012, defendant sent a letter to plaintiffs indicating that “State Farm will not give any further consideration to their claims.” More than one year later, on May 8, 2013, plaintiffs’ attorney sent a letter to Pool requesting an explanation for its denial of coverage. State Farm denied that request. More than nine months later plaintiffs sued State Farm.

Plaintiffs alleged that defendant denied their claim without completing a reasonable investigation; did not act in good faith in denying their claim; acted in an unfair and deceptive manner; caused plaintiffs financial and emotional distress; and violated MCL 500.2026(f)(g), the Uniform Trade Practices Act, and the Fair Trade Practice Act. State Farm argued that summary disposition pursuant to MCR 2.116(C)(7) was appropriate because plaintiffs suit was barred by the applicable statute of limitations under the insurance policy and MCL 500.2833(1)(q). Plaintiffs countered that, under the terms of the insurance policy, the statute of limitations was lengthened and their suit was therefore timely.

The trial court granted State Farm’s motion, concluding that the language used in the insurance policy provided for the tolling, not the lengthening, of the statute of limitations.

APPLICABLE LAW

Summary disposition is appropriate when the undisputed facts establish that the plaintiff’s claim is barred under the applicable statute of

Insurance policies are subject to the same contract construction principles that apply to any other species of contract. Unless a contract provision violates law or one of the traditional defenses to the enforceability of a contract applies, a court must construe and apply unambiguous contract provisions as written.

APPLICATION

In this case, the contractual provision at issue, Endorsement FE–5498, provides the following:

“SUIT OR ACTION EXTENSION

“In the event a claim is formally denied, in whole or in part, the period of time in which a suit or action may be commenced against the company is extended by the number of days between the date the notice of loss is provided to the company and the date the claim is formally denied.”

Both parties contend that this provision should be enforced according to its plain and unambiguous language, albeit in extremely different ways. However, the Michigan courts have previously concluded that this provision is “absolutely void” and “unenforceable” because it “is not compatible with” MCL 500.2833(1)(q). Smitham v. State Farm Fire & Cas. Co., 297 Mich.App 537, 549–550; 824 NW2d 601 (2012). Thus, both parties reliance on this provision is misplaced, and we turn to the provision expressly required by MCL 500.2833(1)(q). Randolph v. State Farm Fire & Cas. Co., 229 Mich.App 102, 106–107; 580 NW2d 903 (1998).

Applying MCL 500.2833(1)(q)’s one-year statute of limitations to this case, it becomes clear that plaintiffs’ suit is barred. It is undisputed that the loss at issue occurred on March 1, 2010; that plaintiffs notified State Farm of the loss on March 26, 2010; and that plaintiffs’ claim was formally denied on March 28, 2012. Under MCL 500.2833(1)(q), plaintiffs had one year from March 1, 2010, to file their complaint, and that one-year period was tolled by the 733 days between March 26, 2010, and March 28, 2012. In sum, plaintiffs had 1099 days, i.e., until March 4, 2013, to file their complaint.

Therefore, because their complaint was filed on January 21, 2014, their suit is barred by the statute of limitations and the trial court properly granted summary disposition pursuant to MCR 2.116(C)(7).

ZALMA OPINION

No insurance policy insures against every possible risk of loss. There was clearly no coverage for rot apparently caused by an ice dam. The insured could sue State Farm for wrongfully denying the claim as long as it did so within a year of the loss or within a year of the denial. The plaintiffs did neither. Their lack of attention to their rights and sloth in finally filing suit was their downfall. Every insured must comply with the local statute of limitations or the private limitation of action provision in the policy.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Comments Off on Statute of Limitations Bars Suit Against Insurer

Lie on Application Voids Insurance

Lie Makes Policy Void Ab Initio

Insurance policies almost always are preceded by an application for insurance. The application is a request for offers of insurance from the insurance companies to whom it is presented. Since insurers rely on the facts stated in the application in making a decision to insure or not insure a particular risk.

A trial court found that Columbia Mutual was entitled to a summary judgment rescinding Caldwell’s insurance policy because of material misrepresentations in the application.  In Caldwell v. Columbia Mutual Insurance Company, Not Reported in S.W.3d, 2015 Ark. App. 719 (12/16/15) Caldwell argued that it was error for the trial court to rescind the policy based on material misrepresentations in his application.

FACTS

On June 11, 1998, Caldwell submitted an application for homeowner’s insurance to Smith Insurance Agency. While the policy was in effect, the home was destroyed by fire on May 29, 2004. In 2009, Columbia Mutual filed a complaint for rescission of the insurance contract ab initio due to fraud. Columbia Mutual claimed that material misrepresentations were discovered in Caldwell’s application after he gave a statement under oath following the fire. Columbia Mutual contended that it was fraudulently induced into entering the contract and would not have issued the policy if truthful information had been provided on the application. In addition, the policy included a provision stating that the entire policy would be void if, before or after a loss, an insured had intentionally concealed or misrepresented any material fact or circumstance, engaged in fraudulent conduct, or made false statements relating to the insurance.

Caldwell filed a counterclaim seeking $199,240 under the policy. The trial court bifurcated the case and first held a bench trial on Columbia Mutual’s claim for rescission. If Columbia Mutual’s claim was denied, Caldwell’s counterclaim would be tried by a jury. After considering the evidence the trial court entered an order making extensive findings. The court found that Judy Rohrscheib of the Smith Insurance Agency asked questions of Caldwell to complete the application, and Caldwell provided his answers to her. The court found that Caldwell’s “no” answer to each of the four following questions constituted a material misrepresentation:

  1. “Any business conducted on premises?”;
  2. “Has applicant had a foreclosure, repossession or bankruptcy during the past five years?”;
  3. “Is the property situated on more than five acres?”; and
  4. “Is the property within 300 feet of a commercial or non-residential property?”

The court concluded that, but for Caldwell’s incorrect responses, Columbia Mutual would not have issued the insurance coverage. The court declared the contract void ab initio,  from its inception, and ordered Columbia Mutual to return Caldwell’s paid premiums, and dismissed Caldwell’s counterclaim.

ANALYSIS

Arkansas follows the general common-law rule that a material misrepresentation made on an application for an insurance policy and relied on by the insurance company will void the policy. The materiality of the misrepresentation goes to whether or not the insurer, with knowledge of the true facts, would have accepted the risk and issued the policy. Caldwell contends that none of his responses to the four questions quoted above were material misrepresentations justifying rescission.

Question 11 of the insurance application asked, “Is the property situated on more than five acres?” Ellen Bender, an underwriter for Columbia Mutual, testified that if this question is answered “yes,” the property is disqualified from homeowner’s insurance. Caldwell testified at trial that the property was, in fact, more than five acres. On appeal, he admits that the application contained this false statement, but he contends that Columbia Mutual waived its ability to rescind on this basis.

Testimony at trial established that, when Caldwell applied for the insurance in 1998, Mark Smith of the Smith Insurance Agency went to Caldwell’s property and photographed the house. A photograph was attached to the insurance application. Caldwell also notes that a representative of Columbia Mutual was on his property in 2004. The company issued a cancellation letter just weeks before the fire stating that, because an inspection had revealed that a business was being conducted on the premises and that there was a lack of maintenance on the house, the policy would not be renewed and would expire on June 11, 2004.

Caldwell argued that Columbia Mutual knew the true facts before the fire, and its failure to rescind at that point constituted a waiver.

The trial court addressed this contention in its order and concluded that “the ‘business’ argument was not waived.” However, Caldwell did not argue below that Columbia Mutual knew the house was located on more than five acres and waived rescission on this ground. The trial court’s determination that the false statement was a material misrepresentation in the application for insurance was sufficient in itself to declare the policy void either by rescission or based on the fraud language of the policy.

Because the court affirmed the finding that Caldwell materially misrepresented the size of the property, it was not necessary to address these arguments. Based on the holding affirming the rescission of the policy the other issues raised by Caldwell were moot.

ZALMA OPINION

The covenant of good faith and fair dealing requires the insurer to believe the facts stated on the insured’s application for insurance and the insured is obligated to tell the truth when he applies for the insurance. Since an insurer has the unquestioned right to rely on what is stated in the application if it is deceived equity allows the insurer to rescind the policy from its inception. The fact that the fire happened shortly after the insurer notice of non-renewal added to the suspicion of the insurer and the case was resolved when the insured admitted that he had lied in the application.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Comments Off on Lie on Application Voids Insurance

The Duty to Defend Almost Limitless

Form Defeats Logic

States that limit decisions regarding the duty to defend are forced to compel defense when there is no possibility that evidence could be produced that would bring the case within coverage. In Employers Insurance Company of Wausau v. Northfield, United States District Court, E.D. New York — F.Supp.3d —- 2015 WL 8901180 (12/15/2015), the District Court for the Eastern District of New York properly applied the law and failed or refused to do justice.

INTRODUCTION

MPCC Corp. (“MPCC”) is a general contractor named as a defendant in a personal injury case filed in New York Supreme Court, Kings County, captioned Wagstaffe v. MPCC Corp., et al., No. 12729–2013 (“Wagstaffe Action”). Defendant, Northfield Insurance Company (“Northfield”), refuses to defend MPCC in the Wagstaffe Action.

Plaintiff, Employers Insurance Company of Wausau (“Employers Insurance”), is MPCC’s general insurance liability carrier. Employers Insurance argues that Northfield is obligated to provide a defense of MPCC in the Wagstaffe Action pursuant to a commercial general liability insurance policy between it and Finest Window, Inc. (“Finest”), a MPCC sub-contractor.

Moving for summary judgment, plaintiff relies on the traditional and substantive New York insurance rule of a broad, powerful, and longstanding policy in favor of an insurer’s duty to defend, even when indemnification claims verge on, or fail to pass, a frivolity test.

FACTS

The underlying injury which triggered the insurance policy claim at issue occurred on February 4, 2014, at 250 Schermerhom Street, Brooklyn, New York.  The building had undergone renovations that were substantially complete by 2011.

The plaintiff in the underlying action, Horatio Wagstaffe, was employed in the building. He alleges that an unknown assailant gained entrance to the building through what was supposed to be a locked door and assaulted him on February 4, 2014; access was gained because a claimed defect in the door or its lock.  Wagstaffe sued the builder and installer of the door and lock.

The contract between MPCC and Finest required Finest to maintain a commercial general liability insurance policy from the date of the contract April 19, 2010 through the final project completion date. The policy terms were required to “include a two year extension beyond acceptance date” for “Products/Completed Operations,” to name MPCC as an additional insured, and to provide for $1,000,000 in coverage for each occurrence of bodily injury and property damage. The policy was also to serve as primary insurance, rather than excess insurance.

Finest obtained a commercial general liability insurance policy from defendant Northfield. Finest was listed as the Named Insured on the Policy; it provided for $1,000,000 in coverage for each occurrence and a policy period of January 10, 2013 to January 10, 2014.
In addition to Finest, the Policy covered “any person or organization that you [Finest] agree in a ‘written contract requiring insurance’ to include as an additional insured on this Coverage Part.”  The terms of the Policy limited the coverage provided to these additional insureds, excluding “ ‘bodily injury’ or ‘property damage’ caused by ‘your work’ and included in the ‘products-completed operations hazard.’ ”

After completion of work, coverage did not apply.

MPCC separately obtained a general commercial liability insurance policy from Employers Insurance. Employers Insurance, as MPCC’s general liability carrier, made a formal demand for insurance coverage to Northfield for the costs incurred in defending the Wagstaffe Action. After receiving no response to its letter, Employers Insurance wrote to Northfield on September 11, 2013, requesting that Northfield acknowledge the demand for coverage and honor its obligations under the contract between MPCC and Finest.

Northfield formally rejected Employers Insurance’s request for coverage. Northfield’s letter denying coverage stated that MPCC did not qualify as an additional insured under the Policy with Finest for two reasons. First, “[t]o the extent the plaintiff [Wagstaffe] has alleged independent acts of negligence against [MPCC], they do not qualify as an additional insured under the policy issued to Finest Window.”  Second, “because this claim involves ‘bodily injury’ included in the ‘products-completed operations hazard’ [MPCC] does not qualify as an additional insured on the policy issued to Finest Window.” .

Northfield declared in its disclaimer that the indemnification requirement in the contract between MPCC and Finest only existed “during the performance” of Finest’s work.  Employers Insurance argued that the Policy should cover the claims raised in the Wagstaffe Complaint because Finest was responsible for the “actual installation of the doors and frames,” and it was the allegedly negligent acts or omissions of Finest with respect to the doors that caused Mr. Wagstaffe’s injuries.

Northfield replied to Employers Insurance on October 15, 2013, maintaining its refusal to provide insurance coverage for MPCC.  It repeated the position that the Policy does not provide coverage for completed operations, and even if work was being done to correct or repair previously completed work, the Policy considers such work to be “completed.”

Employers Insurance seeks a declaratory judgment with respect to Northfield’s obligations to defend and indemnify MPCC under the Policy, and money damages for Northfield’s failure to provide coverage as requested.

LAW

Insurer’s Duty to Indemnify and Defend

While the duty to indemnify is determined by the actual basis for the insured’s liability to a third person, the duty to defend is measured against the allegations of pleadings of the underlying case.

An insurer will be called upon to provide a defense whenever the allegations of the complaint suggest a reasonable possibility of coverage. Where allegations fall within the scope of the risks undertaken by the insurer, regardless of how false or groundless those allegations might be, there is a duty to defend.

Application

Because of the breadth of the duty to defend under New York law, the inclusion of an allegation in the Wagstaffe state court complaint that falls outside of the products-completed operations hazard exception—even if the allegation is against the weight of the evidence in the record—requires a finding that Northfield does have a duty to defend MPCC in the Wagstaffe Action.

The Wagstaffe Complaint alleges that the door through which the unknown assailant purportedly gained entrance was “designed and/or installed to be permanently locked from the outside and only accessible with a key.” This allegation indicates that installation of the door had been completed sometime prior to February 4, 2013, the date of the assault. Moreover, the Wagstaffe Complaint alleges that Mr. Wagstaffe used that same door on the same morning. Thus, not only was installation of the door complete, but it was in use.

The Policy excludes coverage for bodily injury caused by “completed” work. This conclusion is supported by the contract between MPCC and Finest, which defines the scope of Finest’s work to installation of doors and windows, and by deposition testimony.

If the Wagstaffe Complaint alleged nothing further, then it would be appropriate to grant Northfield’s motion. The Wagstaffe Complaint, however, also alleges that Finest’s work included “manag[ing]” and controll[ing]” the door in question. This allegation—regardless of its truth—is not covered by the products-completed operations hazard exception.

Because the allegations of the complaint do not wholly fall within the exception, New York’s long-standing policy favoring a very broad duty to defend requires Northfield to defend MPCC in the Wagstaffe Action.

ZALMA OPINION

To avoid the duty to defend, an insurer must demonstrate that the allegations of an underlying complaint place that pleading solely and entirely within the exclusions of the policy and that the allegations are subject to no other interpretation. The District Court stretched the duty to defend as far as it could go and refused to consider the extrinsic facts that established that the allegations bringing the policy to bear was ridiculous and unproveable.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Comments Off on The Duty to Defend Almost Limitless

Additional Insured Covered Even If 100% Responsible

Liability Arising Out of Work Makes Exxon Additional Insured

Major corporations, like Exxon Mobil Corporation, can demand whatever additional insured language it demands, regardless of what is in normal policies. For example the additional insured coverage usually does not apply if the additional insured is solely responsible for the loss or injury. Exxon, faced with such a claim, explained to the Texas Court of Appeal, that the additional insured endorsement that is the subject of its claim, did not contain that standard language.

In Liberty Surplus Insurance Corporation and Commerce & Industry Insurance Company v. Exxon Mobil Corporation, NO. 14-14-00254-CV, 2015 WL 9256675, Texas Court of Appeal, Opinion filed December 17, 2015,  the trial court granted Exxon Mobil Corporation’s motion for partial summary judgment, holding that a contractor’s primary and excess commercial general liability policies provided additional-insured coverage to Exxon for personal-injury claims arising out of the contractor’s services.

On appeal, the insurers argued that the underlying contract between Exxon and the contractor, Wyatt Field Service Company, required Wyatt to provide Exxon additional-insured coverage only for liability arising out of Wyatt’s ongoing operations, and that the insurance policies incorporate such a coverage limitation.

FACTUAL BACKGROUND

Exxon and Wyatt were parties to a five-year contract under which Wyatt would perform “Services” as set forth in various work orders from Exxon’s affiliates. The contract also required Wyatt to maintain $5 million of commercial general liability insurance. The parties agreed that the policies must cover Exxon and its affiliates “as additional insureds in connection with the performance of Services,” and must be primary to all other policies, including deductibles or self-insured retentions.

In 2008, Wyatt was assigned to work on a flexicoker unit at Exxon’s Baytown refinery during an intensive maintenance period known as a “turnaround.” Three years after the turnaround one of the dummy nozzles  installed by Wyatt unexpectedly pulled all the way free from its packing, and the escaping steam and coke burned several of contractor LWL, Inc.’s employees who were working on the unit.

The injured workers sued Exxon in the 125th District Court in Harris County, Texas. After Exxon designated Wyatt as a responsible third party, the plaintiffs added Wyatt as a defendant, and Exxon and Wyatt asserted cross-claims against each other. The Insurers denied that they provided Exxon additional-insured coverage for the injured workers’ claims, and they did not contribute to Exxon’s costs of defense or to its settlement with the injured workers.

In the consolidated case, Exxon filed a motion for partial summary judgment concerning the Insurers’ liability, arguing that the policies covered the injured workers’ claims against Exxon as an additional insured.

Construction of the Policies’ Endorsements

In their first issue, the Insurers argue that the trial court erred in granting Exxon’s motion for summary judgment because Exxon was an additional insured only for liability arising from Wyatt’s ongoing operations, not for liability arising from Wyatt’s completed operations.

Rules of Construction

An insurance policy generally is governed by the same rules of construction that apply to other contracts. Unless obligated to do so by the terms of the policy, however, we do not consider coverage limitations in underlying transactional documents. If the policy does not incorporate any coverage limitations from the underlying contract, then the insurer’s obligation depended only on what it contracted to do.

If the parties offer differing constructions of the policy but only one is reasonable, then the policy is unambiguous and we will adopt that construction. But if the policy’s provisions are unclear or inconsistent, and after applying the pertinent rules of construction, more than one interpretation is reasonable, then the contract is ambiguous.

Liberty’s policy includes three endorsements that potentially make Exxon an additional insured. Commerce’s policy insures any person or entity that is included as an additional insured under Liberty’s policy, “but not for broader coverage than would be afforded” by Liberty’s policy.

The Texas Supreme Court explained that under the express terms of the policies, additional-insured status hinges on (1) the existence of an oral or written contract, (2) pertaining to the business of an ‘Insured’, and (3) under which an ‘Insured’ assumes the tort-liability of another party and is ‘obliged’ to provide insurance to such other party. Under the unambiguous language of Endorsement 3, Exxon is an additional insured with respect to liability arising out of Wyatt’s operations. It therefore was unnecessary for the court to consider the coverage available under the remaining, more restrictive endorsements.

NO GENUINE ISSUES OF MATERIAL FACT

In their second issue, the Insurers contend that the trial court erred in granting summary judgment because there is a genuine issue of material fact about whether the injured workers’ claims fall within the coverage afforded to Exxon with respect to liability arising out of Wyatt’s operations. Both Insurers make the legal argument that Exxon cannot conclusively establish that claims against it fall within the scope of coverage unless and until Wyatt is found to be liable to the injured workers.

Coverage is Neither Dependent on a Finding that Wyatt’s Negligence Caused the Accident Nor Excluded by a Finding that Exxon’s Negligence was the Sole Cause of the Accident.

In arguing that coverage is dependent on a finding that Wyatt caused the accident and is excluded if Exxon was found to be the sole cause of the accident, the Insurers rely on the procedural posture of the workers’ separate personal-injury suit. After the injured workers settled with Exxon, they tried their claims against Wyatt.

Regardless of the underlying service agreement’s terms, the court interprets the language “with respect to operations” under a broader theory of causation. Generally, an event “respects” operations if there exists “a causal connection or relation” between the event and the operations; the law does not require proximate cause or legal causation. The particular attribution of fault between insured and additional insured does not change the outcome.

As Commerce correctly points out, the existence of a duty to indemnify often depends on the resolution of disputed facts. Under the terms of the policies Exxon’s additional-insured coverage was neither dependent on a finding that Wyatt was negligent nor excluded if Exxon’s negligence were found to be the sole proximate cause of the workers’ injuries. Exxon was an additional insured “with respect to liability arising out of [Wyatt’s] operations,” (emphasis added) and this language does not require proximate cause or legal causation.

Exxon was not required to prove that Wyatt proximately caused the workers’ damages. The jury’s negligence findings in the underlying case accordingly do not constitute or create a genuine issue of material fact precluding summary judgment.

In sum, Exxon’s evidence showed that Wyatt did the work, and the Insurers did not respond with controverting evidence. Exxon was sued because of the work that Wyatt did. After reviewing the summary-judgment evidence in the light most favorable to the Insurers and drawing all reasonable inferences in their favor, we conclude that Exxon met its burden to establish that the claims against it fall within its additional-insured coverage “with respect to liability arising out of” Wyatt’s operations.

ZALMA OPINION

Insurance contracts, when clear and unambiguous, must be applied. Exxon obtained coverage from a vendor that made it an additional insured if the loss resulting in a claim against Exxon arose with respect to the vendor’s operations even if those operations were perfect and non-negligent. Since the vendor installed the item that caused the injuries and the injuries were “with respect to liability arising out of the” vendor’s operations, Exxon was entitled to defense and indemnity as an additional insured because the insurer agreed to the one sided endorsement and agreed to insure Exxon to tort liability it probably would not have done if Exxon came to them directly. Underwriters, read what you agree to, before allowing an entity to be an additional insured.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Comments Off on Additional Insured Covered Even If 100% Responsible

Agent Need Only Acquire Policy Ordered

Residence is Different From Domicile

When a person submits an application for insurance he or she must be accurate in the representations made. Failure to do so can cause serious difficulties for the person insured.

In Allstate Insurance Co. v. Nicholas J. Popyack et al., 2015 WL 9260050, Civil Action No. 15-1765 | (12/17/2015) Allstate Insurance Company (“Allstate” or “Plaintiff”) sued Nicholas Popyack (“Nicholas”), Jeffrey Popyack (“Jeffrey”) (collectively “the Popyack Defendants”), and Andrew Stahl (“Andrew”) (collectively “Defendants”) for declaratory relief.  Andrew filed a Motion for Summary Judgment. Allstate filed a Response and also filed its own Motion for Summary Judgment.

BACKGROUND

This case concerns an underlying Philadelphia Court of Common Pleas action. In the Philadelphia Court of Common Pleas, Andrew sued Nicholas and Jeffrey for personal injury relating to an accident. The underlying accident occurred in Philadelphia, Pennsylvania. Nicholas, driving a 2010 Toyota Camry, struck Andrew as Andrew was crossing the street.

The vehicle was insured by Jeffrey, as the named insurer, through Allstate Insurance Company policies, including: an Allstate Auto Insurance Policy (“the Primary Policy”) with a limit of $250,000.00 per person and an Allstate Personal Umbrella Policy (the “PUP”) with a limit of $1,000,000.00. When Jeffrey entered into the PUP, he believed that Nicholas was covered. The PUP’s premium stated that “Your policy premium has been developed using the following information: 6 Vehicle(s), 3 Operator(s) in the household…” The application for the PUP states that the “Licensed Operators in the Household” are “Jeffrey Popyack, Rene Popyack, and Nicholas Popyack.” The application for the PUP was prepared following a discussion between Mark McCaffrey, the Allstate agent, and Jeffrey. Information about the licensed operators was derived from such conversations and from Jeffrey’s previous auto insurance policy. The PUP application includes information about the three licensed operators’ drivers licenses. Nicholas’s driver’s license stated that his address was Plumtry Drive.

After the May 9, 2013 accident, Nicholas provided Allstate with notice of the underlying action and demanded that Allstate defend and indemnify him pursuant to Jeffrey’s two policies. Allstate tendered a $250,000 payment to Andrew (representing the limit of the Primary Policy). However, Allstate asserts that it has no further obligation to indemnify Nicholas under the PUP. In the underlying state court action, Andrew seeks to recover damages in excess of the $250,000. Specifically, Andrew demands an additional $1,000,000 (representing the limit of the PUP).

During the policy period, Jeffrey and his wife owned and lived at a house located at 809 Plumtry Drive, West Chester, PA 19382 (“Plumtry Drive”). During the policy period, Nicholas had signed a one year lease with two roommates, with a term running from June 1, 2012 to May 31, 2013 at 627 N. 35th St., Philadelphia, PA (“35th St.”).

On the day of the accident underlying this case, Nicholas stayed the night at 35th Street. On the day after the accident, Nicholas gave a statement to Allstate about the accident and told Allstate that his “current address” was 35th Street. Nicholas confirms that this was a truthful answer. Nicholas brought a bed, a dresser, cups and plates, and other personal belongings to 35th Street. He cooked most of his meals in the apartment, including dinner roughly every night. Nicholas considered 35th Street his “home.”

However, Nicholas also considered Plumtry Drive “home” during this same period. While living at 35th Street, he would periodically go home to visit his parents, sometimes staying for a few days, with the frequency of those visits increasing after mid-April 2013. Allstate has refused to provide Nicholas with coverage under the PUP because he “did not reside with [his] father at his address.”

DISCUSSION

The Court must decide whether or not Nicholas was a “resident” of Jeffrey’s “household” (Plumtry Drive) at the time of the underlying accident under the terms of the PUP. Construction of the term “resident” in an insurance policy is a matter of law

The terms “resident” and “household” are not defined in the PUP. Ambiguous terms must be interpreted in favor of the insured. Thus, determining whether or not a place is a person’s residence is not a question of the person’s intent, but rather, is defined purely in terms of physical facts.

The undisputed facts in support of Nicholas’s dual residency with Plumtry Drive include that such residence was listed on official documents (e.g., his driver’s license, his tax forms, etc.), that he had a key to Plumtry Drive and would come and go as he pleased, that he would spend roughly one night per week at Plumtry Drive, sometimes staying for longer periods of time, that he left clothing and other personal mementos at Plumtry Drive, and that he was periodically moving belongings to Plumtry Drive on a weekly basis.

Even considering all of these facts, including the disputed ones, in the light most favorable to Defendants, the Court finds that there is not sufficient evidence to find that Nicholas had a dual residence at Plumtry Drive. The evidence shows that he was sleeping, eating, and living almost every day of his life at 35th Street.

The personal belongings left at his parents’ house were the types of things one leaves in a storage unit (childhood video games, heavy sweaters during the summer months). A storage unit, however frequently visited, is not a residence. Further, his driver’s license, tax information, and voting registration are not dispositive of his residence. At best, they reflect his residence at the time he filed the relevant forms, rather than his residence on the particular date of the accident.

CLAIM THAT AGENT MISREPRESENTED COVERAGES

Defendants have failed to state a claim for affirmative misrepresentation.
In the absence of an affirmative misrepresentation by the insurer or its agent about the contents of the policy, the plain and unambiguous terms of a policy demonstrate the parties’ intent and they control the rights and obligations of the insurer and the insured. Thus, there is a crucial distinction between misrepresentation cases and cases where the insured received precisely the coverage requested but failed to read the policy to discover clauses that are the usual incident of the coverage applied for.

Defendants argue that Mr. McCaffrey affirmatively misrepresented the PUP’s coverage of Nicholas.In this case, Defendants have pointed to no facts showing that Allstate or its agent, Mr. McCaffrey, affirmatively misrepresented the terms of the PUP to Jeffrey. The evidence during the PUP application process shows that Mr. McCaffrey prepared an application based on information provided by Jeffrey and based on Jeffrey’s previous auto policy. In part, Mr. McCaffrey relied on information provided in Nicholas’s driver’s license. Nicholas’s driver’s license stated that his address was Plumtry Drive. Neither Jeffrey nor Mr. McCaffrey can recall discussing Nicholas’s address or Nicholas’s coverage under the PUP.

In conclusion, there is a crucial distinction between cases where one applies for a specific type of coverage and the insurer unilaterally limits that coverage, resulting in a policy quite different from what the insured requested, and cases where the insured received precisely the coverage that he requested but failed to read the policy to discover clauses that are the usual incident of the coverage applied for.

CONCLUSION

The Court found that pursuant to the terms of the Allstate personal umbrella insurance policy issued to Jeffrey Popyack, Nicholas Popyack was not a resident of Jeffrey Popyack’s household at the time of the accident.

ZALMA OPINION

When the policy in issue was obtained neither Nicholas nor his father advised the agent that Nicholas had moved from the family home. The policy was issued as ordered claiming Nicholas was a resident of his parent’s home. He was not. The insureds failed to read the policy to discover clauses that are the usual incident of the coverage and had they done so would have recognized that Nicholas was not a resident of his parents’ household and therefore had no coverage under the PUP.  It was the insured who concealed material facts and could not force coverage for his mistake.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Comments Off on Agent Need Only Acquire Policy Ordered

Regular Use of Auto Exclusion There to Prevent Abuse

Regular Use of Auto Eliminates Coverage

Automobile liability insurance exists to protect a person who actually uses the automobile and not automobile or its owner. As a result automobile liability insurance companies place exclusion in their policy to prevent using one policy protecting one person from allowing coverage for another. Although the policy covers a resident relative it does not insure the resident relative who regularly uses the vehicle since that regular user was not subject to underwriting review and because a premium was not paid for regular use.

In Nationwide Mutual Ins. Co. v. Shimon (2015) , Cal.App.4th, [No. C071776. Third Dist., Dec. 3, 2015.] the California Court of Appeal was asked to provide coverage for a regular user of a GMC pickup truck that was not identified in the policy and was not declared to be regularly used by a 17-year-old driver who was not specifically insured to save money.

FACTS

This insurance coverage case arose when a 17-year-old driver, Simone Lionudakis (Simone), got into a motor vehicle accident, injuring Aweia Shimon and Flora Shimon. Simone was driving a GMC pickup truck owned by and registered to her father Phillip Lionudakis, but he had excluded Simone from his insurance policy to save money, even though Simone was the only one who ever drove the GMC. Phillip’s ex-wife (Simone’s mother) Kristen Doornenbal had insurance through plaintiff Nationwide Mutual Insurance Company (Nationwide) for her own and her current husband’s vehicles, but not the GMC. The Doornenbals’s Nationwide policy provided coverage for a household family member’s use of a “non-owned” vehicle, but not if the non-owned auto was “furnished or available” for her “regular use.”

Non-owned-auto insurance coverage is meant to allow an insured to be covered for occasional use of a non-owned automobile, while the exclusion for regular use is meant to prevent an insured from regularly using a non-owned vehicle without paying insurance premiums for the use of that vehicle.

The trial court entered declaratory judgment in favor of plaintiff Nationwide against the Shimons as defendants, finding the GMC was furnished or available for Simone’s regular use and therefore coverage was excluded.

The accident happened on February 9, 2008, around 4:45 p.m., between Modesto and Sonora. Simone was a few months shy of her 18th birthday and had been driving the GMC for over a year and a half, since she got her driver’s license. Her father, divorced from her mother since 2002, bought the GMC shortly before Simone’s 16th birthday in May 2006, after asking her what kind of vehicle she wanted. The GMC was owned by and registered to Simone’s father, who had several other vehicles and did not drive the GMC. He excluded Simone’s use of the GMC from his own auto insurance policy, in order to save money.

Simone’s mother and father lived about 10 minutes apart in Escalon, and Simone split her time between them. Simone’s mother and new husband each had their own vehicles. After Simone got her driver’s license in July 2006, her father gave her her own set of keys for the GMC, and she drove it every day. It became her “way of transportation.” She anticipated it would be hers some day.

On the day of the accident in February 2008, Simone was not supposed to be driving the GMC because her mother had taken the keys away due to Simone’s poor grades. Simone nevertheless obtained her father’s set of keys from his home before going to her mother’s home and, in her mother’s absence, took the GMC from the mother’s residence, drove to pick up a friend, and drove to a pool hall in Modesto. An inebriated female stranger at the pool hall asked for a ride to her home in Sonora, about 50 miles away, and Simone agreed in exchange for $100 “gas money.”

On the way to Sonora, Simone got into the accident with the Shimons.

The trial court found the GMC was furnished and available for Simone’s regular use, indeed her exclusive use, hence triggering the exclusion from coverage for a non-owned automobile. The trial court entered judgment in favor of Nationwide.

DISCUSSION

The Exclusion of Coverage for Regular Use Applies

The exclusion of coverage for regular use of vehicles not included in the policy, sometimes called “drive other cars” or “additional insured automobile” provisions, is intended “to prevent abuse, by precluding the insured and his family from regularly driving two or more cars for the price of one policy.” (Highlands Ins. Co. v. Universal Underwriters Ins. Co. (1979) 92 Cal.App.3d 171, 176 (Highlands).) The provision is intended to provide coverage for occasional use of other nonowned cars without requiring payment of additional premiums. The Court of Appeal concluded that, “for obvious reasons, coverage was not intended to include the regular use of other cars because insurance companies would necessarily bear an increased risk without receiving a related increase in premiums.” Specifically, the exclusion serves to prevent a situation in which the members of one family or household may have two or more automobiles actually or potentially used interchangeably but with only one particular automobile insured.

Even though it was registered to her father and he had a key, Simone had her own key and was the only one who drove it for a year and a half, with the possible de minimus exception that her mother may have driven it once or twice.

Certainly, Simone’s use of the GMC at the time of the accident was not a casual or incidental use. Her use was not only the principal use of the GMC; it was the exclusive use of the GMC. Appellants nevertheless argued the truck was not furnished or available for Simone’s regular use because her parents placed some parental restrictions on her such that she should not have been driving the truck at that particular time and place. Here, in contrast to cases cited by Simone, Simone was the exclusive user of the car owned by her father, who deliberately excluded it from his insurance policy to save money.

This is exactly the abuse the “regular use” exclusion is designed to prevent.

That Simone drove that day in defiance of her parents’ discipline for poor grades, and drove further than she was supposed to go without permission, does not render the “regular use” exclusion inapplicable. Where the driver is the exclusive user of the vehicle, we see no reason, and appellants offer none, why “regular use” should vary with each trip the driver takes.

Here, the parental discipline was by both a non-owner of the GMC (mother) and the owner (father). However, the insurance policy at issue in this appeal is the mother’s policy only, and the mother was not the GMC’s owner.

ZALMA OPINION

It seems to me that this case is one where the parties thought, although the language of the policy was clear, it was worth their effort to take the case to trial and up on appeal. What the case did not say was that Simone’s father, who owned the truck and gave it to her for her regular use, refused to insure it and specifically excluded her from his policies. The mother’s policy had no relationship to the truck and kept the insurer ignorant of the risk she and Simone’s father was taking allowing a 17-year-old to operate a GMC pickup without insurance.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Comments Off on Regular Use of Auto Exclusion There to Prevent Abuse

Dr. Huxtable v. AIG

Declaratory Relief Action Determines Coverage as a Matter of Law

Insurance companies who believe they do not owe a defense will file a suit seeking declaratory relief, especially when the parties involve celebrities. When Bill Cosby, the actor and comedian, was charged with sexually assaulting several women in the 1960’s and 1970’s he denied the charges and was sued for defamation. He sought and obtained a defense from his insurer, subject to a reservation of rights. The insurer filed suit for declaratory relief in the same court where the defamation action was filed.

FACTS

In AIG Property Casualty Company v. Tamara, 2015 WL 8779732 (12/15/15)  AIG Property Casualty Company (“AIG”) sued William H. Cosby Jr., Tamara Green, Therese Serignese, and Linda Traitz seeking a declaration that it has no duty to defend or indemnify Cosby under two homeowners insurance policies in relation to a defamation case also pending in this court, Green v. Cosby, Case No. 14-cv-30211-MGM (“Underlying Litigation”), brought by Green, Serignese, and Traitz (“Underlying Plaintiffs”).

The policies contain similar language stating AIG will cover claims against Cosby for “[d]efamation, libel or slander” but will not cover claims “arising out of any actual, alleged or threatened … sexual molestation, misconduct or harassment.”

The Massachusetts Policy contains an exclusion which states that it “does not provide coverage for liability, defense costs or any other cost or expense for … personal injury arising out of any actual, alleged, or threatened by any person: (a) sexual molestation, misconduct or harassment … or (c) sexual, physical or mental abuse.” Similarly, the Excess Policy contains an exclusion stating it “does not provide coverage for liability, defense costs or any other cost or expense … [a]rising out of any actual, alleged or threatened: a. Sexual misconduct, molestation or harassment … or c. Sexual, physical or mental abuse.”

The Underlying Litigation was commenced on December 10, 2014. (Green v. Cosby, Case No. 14-cv-30211-MGM, Dkt. No. 1.) A second amended complaint, which added Serignese and Traitz as plaintiffs along with Green, was filed on April 16, 2015. (Id., Dkt. No. 48.) The second amended complaint asserts defamation claims pertaining to statements issued on behalf of Cosby in response to public allegations of sexual misconduct made by the Underlying Plaintiffs. On December 12, 2014, Cosby notified AIG of the Green lawsuit. On January 6, 2015, AIG sent Cosby a letter stating that it accepted his claim for the Green lawsuit, subject to a full reservation of rights. On June 26, 2015, AIG filed this declaratory judgment action. (Compl.)

On September 14, 2015, Cosby filed the motion to dismiss or, in the alternative, to stay this declaratory judgment action. Meanwhile, on October 9, 2015, this court denied Cosby’s motion to dismiss the Underlying Litigation, concluding that the second amended complaint alleged actionable defamation claims. Thereafter, on October 20, 2015, AIG filed its own motion in this action to stay further proceedings in the Underlying Litigation so the insurance issue can be resolved first.

The only question presently before the court is the sequence in which this action and the Underlying Litigation will be resolved.

DISCUSSION

Cosby’s motion asks this court to dismiss or at least stay this action pending the completion of the Underlying Litigation. He provides three separate grounds for this request. First, Cosby seeks abstention doctrine because another suit involving the same parties and presenting opportunity for ventilation of the same state law issues is pending in state court, is sufficient to allow a federal court may abstain from exercising jurisdiction over a declaratory judgment action.  Second, Cosby seeks abstention based on the fact that state and federal courts are exercising concurrent jurisdiction contemporaneously it may be appropriate in some instances for the federal court to defer to the state court.  Third, Cosby cites Montrose Chem. Corp. v. Superior Court, 861 P.2d 1153, 1162 (Cal. 1993), a California case which provides that an insurance coverage lawsuit which could prejudice the insured in defending the underlying action should be stayed pending resolution of the underlying litigation.

Of course there is no parallel state-court action; rather, the Underlying Litigation is pending before this same court. While the Declaratory Judgment Act itself gives the court discretion to decline to exercise jurisdiction here, Cosby has not cited any case in which a federal court abstained in favor of a pending federal court action, much less a case pending before the same judge.

Most importantly, as AIG argues, in deciding whether it owes Cosby a duty to defend, this court will not have to resolve any of the factual issues at stake in the Underlying Litigation. Instead, “[t]he duty to defend is determined based on the facts alleged in the complaint, and on facts known or readily knowable by the insurer that may aid in its interpretation of the allegations in the complaint.” Billings v. Commerce Ins. Co., 963 N.E.2d 408, 414 (Mass. 2010.) In order for the duty of defense to arise, the underlying complaint need only show, through general allegations, a possibility that the liability claim falls within the insurance coverage.  An insurer has a duty to defend an insured when the allegations in a complaint are reasonably susceptible of an interpretation that states or roughly sketches a claim covered by the policy terms.

Moreover, this is not a case in which the insurance company seeks to exclude coverage based on questions of fact, such as whether the insured acted intentionally rather than negligently. Rather, the question here is simply whether the claims for defamation arise out of sexual misconduct such that they fit within the exclusions, and this is a question of law that can be decided primarily, if not exclusively, based on the allegations set forth in the underlying complaint.

Accordingly, the court concluded that,m adjudicating this issue presents no risk of inconsistent findings with the Underlying Litigation and, thus, no risk of prejudice to Cosby in that action.  A declaratory judgment action will only prejudice the defendant in the underlying case when the same issues are implicated in both, and this is not the case here.

For example, when the third party seeks damages on account of the insured’s negligence, and the insurer seeks to avoid providing a defense by arguing that its insured harmed the third party by intentional conduct, the potential that the insurer’s proof will prejudice its insured in the underlying litigation is obvious. However, when the coverage question is logically unrelated to the issues of consequence in the underlying case, the declaratory relief action may properly proceed to judgment. That latter category of cases is the situation here, at least with regard to the duty to defend issue.

The court therefore denied Cosby’s motion to dismiss or, in the alternative, to stay this action pending resolution of the Underlying Litigation.

AIG, for its part, filed a motion to stay the Underlying Litigation case following this court’s denial of Cosby’s motion to dismiss in that action.  AIG also argues that the alleged sexual assaults at issue in the Underlying Litigation occurred many years ago, so it is not unreasonable for the parties to wait slightly longer, especially when AIG is incurring expenses funding Cosby’s defense in the meantime.

Because AIG likely could intervene in the Underlying Litigation under Rule 24(b), and because this court is also presiding over that action and thus would have to decide whether to stay the matter if AIG successfully intervened, the court addressed this issue in the interest of judicial economy.

As the alleged sexual assaults occurred in the 1960s and 1970s, delaying the Underlying Litigation “would increase the danger of prejudice resulting from the loss of evidence, including the inability of witnesses to recall specific facts, or the possible death of a party.” Clinton v. Jones, 520 U.S. 681, 707-708 (1997). In addition, as Cosby and the Underlying Plaintiffs point out, if AIG is correct that this insurance issue can be resolved soon, then AIG will not have to incur significantly more costs in defending Cosby and denying a stay will encourage AIG to seek a quicker resolution.

Accordingly, the court will deny AIG’s motion to stay the Underlying Litigation.

ZALMA OPINION

The court, rather than agreeing with either party, did justice and decided to reach the issue of duty to defend itself. If the facts of the defamation action is found to have only arisen out of sexual misconduct it will find no coverage and if there is a potential for coverage it will be in a position to decide that AIG is obligated to continue to defend Cosby subject to its reservation of rights.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Comments Off on Dr. Huxtable v. AIG

No Occurrence – No Coverage

Defense Provided Under a Reservation Requires Return of Defense Costs When Court Determines No Coverage

It is axiomatic that liability insurance only pays for damage caused by an “occurrence” as defined in the policy. It does not guarantee the work of the insured and the insurer does not act as a surety of the insured’s work.

In Maxum Indemnity Company v. A One Testing Laboratories, Inc. aka A-1 Testing Laboratories, Inc., 610 West Realty LLC, Riverview West Contracting LLC, B&V Contracting Enterprises, Inc. and ACE Inspecition and Testing Services, Inc. 2015 WL 8492756, (Filed 12/10/2015) the  United States District Court, Southern District of  New York was called upon to determine coverage and whether the insured is entitled to recover funds paid to defend from the insured.

FACTS

Plaintiff Maxum Indemnity Company, an insurer, sought a declaration that it does not owe a duty to defend or indemnify its insured, defendant A-1 Testing Laboratories, in a lawsuit (the “Underlying Action”) that defendant 610 West Realty LLC filed in state court against A-1 and defendants Riverview West Contracting LLC, B&V Contracting Enterprises, Inc., and Ace Inspection and Testing Services, Inc.  The crux of Maxum’s argument in its motion for summary judgment is that the general liability policy it entered into with A-1 does not cover 610 West’s theory of liability in the Underlying Action because 610 West does not allege an “occurrence” resulting in “property damage” that occurred during the policy period.

In the Underlying Contract, 610 West has asserted breach of contract, negligence, and fraudulent conveyance causes of action against A-1. These causes of action stem from allegations that A-1’s faulty workmanship in performing certain inspections required 610 to undertake repair work. As a matter of law, the general liability insurance contract between Maxum and A-1 does not cover such allegations, and even if it did the damage occurred outside of the policy period.

Maxum provided A-1 with commercial general liability coverage between February 28, 2011 and February 28, 2012. The contract provided that Maxum would “pay those sums that [A-1] becomes legally obligated to pay as ‘damages’ because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.”  It established that the insurance applied “only if … [t]he ‘bodily injury’ or ‘property damage’ is caused by an ‘occurrence’ … and … occurs during the policy period.”

The policy defined “occurrence” to mean “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

In October, Maxum sent A-1 a letter explaining that “[t]he summons with notice [gave] little information with which to establish a true evaluation of the covered and/or uncovered damages,” and that Maxum was therefore “continu [ing] to investigate this matter under a full reservation of rights.” Maxum’s letter also explained that it had retained counsel “to secure an extension of time for A One to appear, move or otherwise act and demand plaintiff provide more information through a formal complaint,” which would put Maxum “in a better position to evaluate its obligations regarding defense and indemnity for the action.”

610 West filed its complaint in the Underlying Action (“UAC”). The UAC alleged that 610 West was the sponsor of project to build condominiums and in 2005 had hired Riverview as a general contractor for the construction. It further alleged that Riverview had, during 2004 and 2005, hired B&V as a subcontractor to provide drywall and carpentry work and A-1 as a subcontractor “to perform controlled inspections in connection with, among other things, the ‘Fire Stops.’ ” According to the UAC, B&V’s work was defective, a fact that neither Riverview nor A-1 detected or caused to be corrected, and which was only discovered by 610 West sometime prior to June 2010. As a result, the UAC alleged, 610 West was required to remediate and repair the defective work over a number of years.

The two causes of action asserted against A-1 mirrored each other; the breach of contract claim alleged that A-1 “breached its duties and obligations under the A-1 Testing Subcontract by failing to perform its controlled inspection services with reasonable care and in accordance with accepted industry standards and practices,” while the negligence claim alleged that A-1 “owed a duty to plaintiff to perform its controlled inspection services with reasonable care and in accordance with accepted industry standards and practices,” and breached that duty “by performing its controlled inspection services in a negligent fashion and contrary to accepted industry standards and practices.”

In March 2014, Maxum’s counsel wrote to A-1 to “advise [it] of Maxum’s coverage position based upon the allegations and information presently known.” Notwithstanding the determination of non-coverage, the letter went on to explain that Maxum would continue defending A-1 in the Underlying Action. This agreement to provide defense counsel was, however, subject to an explicit statement that Maxum did not “waive the right … to contest the duty to defend, or indemnify or seek to recover back defense costs paid on behalf of [A-1].” Specifically, Maxum “reserve[d] its right to commence a coverage action to obtain a declaration of no coverage and/or recover back defense costs.”

Maxum sued seeking a declaration of non-coverage and a determination that it was entitled to recoup defenses costs expended in the Underlying Action. Eventually Maxum sought summary judgment.

General Commercial Liability Insurance Coverage

Under New York law, like everywhere else, an insurer’s duty to defend is far broader than its duty to indemnify. The New York Court of Appeals has, however, eschewed wooden application of the four corners of the complaint rule, in favor of a rule requiring the insurer to also provide a defense where, notwithstanding the complaint allegations, underlying facts made known to the insurer create a reasonable possibility of coverage.

New York law permits insurers to provide their insureds with a defense subject to a reservation of rights to, among other things, later recoup their defense costs upon a determination of Courts have consistently determined that insurers are entitled to reimbursement of defense costs upon a determination of non-coverage so long as the reservation was communicated to the insured, who did not expressly refuse to consent to the reservation.

DISCUSSION

Based on the requirement that covered damage result from an “occurrence,” the policy was never intended to provide contractual indemnification for economic loss to a contracting party because the work product contracted for is defectively produced, and that requiring the insurer to defend would transform it into a surety for the performance of the insured’s work.
There can be no doubt that the allegations that 610 West includes in the UAC bring this matter within the “no occurrence, no coverage” rule for commercial general liability policies under New York law. The damages 610 West seeks to recover represent the cost of repairing the allegedly defective work in order to bring it into compliance with the underlying contracts, industry standards, and legal requirements. New York law is clear that the recitation of a cause of action labeled “negligence” in the underlying complaint does not suffice to create coverage for faulty work product under a commercial general liability insurance policy.

Even if the claims asserted in the Underlying Action were properly connected to an “occurrence,” under the definitions in the policy they would have occurred prior to the policy period and thus be excluded from coverage. When faulty workmanship in building materials is the gravamen of an allegation of property damage, under an injury-in-fact analysis, the injury may be said to occur at the time of installation. Even if A-1’s alleged non-performance could be said to be an “occurrence” triggering coverage, it took place entirely before the February 2011 through February 2012 coverage period of the policy at issue.

Maxum does not owe a duty to defend or indemnify A-1 in the Underlying Action because that action does not contain allegations that create a reasonable possibility of coverage under the commercial general liability policy between Maxum and A-1. It is entitled to a declaration of that fact.

Because Maxum has to date provided A-1 with a defense in the Underlying Action under an express reservation of right “to recover back defense costs,” it is further entitled to recoup from A-1 defense costs Maxum has incurred in its defense of the Underlying Action.

ZALMA OPINION

No insurance policy insures against every eventuality and every suit that may be filed against an insured. In this case the damage occurred before the policy came into effect and further did not seek indemnity for property damage or bodily injury but only for replacement of defectively built damage. Importantly, a proper reservation, allowed the insurer to recover from the insured the funds it paid to defend under reservation.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Comments Off on No Occurrence – No Coverage

No Claim for Person Not Named as an Insured

Only Insured Can Make Claim for Replacement Value After Actually Replacing Property

First party property insurance policies do not insure property, rather, they insure people against the risk of loss of certain identified property against perils the insurer agreed to insure. In Wallace Auto Parts & Services, Inc. v. Charles L. Crane Agency Company and the Travelers Indemnity Company of Connecticut, 2015 WL 8606429 USDC, SD Illinois, (12/14/2015) the United States District Court for the Southern District of Illinois, was called upon to deal with a claim for the difference between a replacement cost loss and actual cash value when the insured decides not to replace.

BACKGROUND

Plaintiff Wallace Auto is a corporation that sells auto parts and manufactures/retrofits underground mining equipment. Rod Wallace is the president and sole shareholder of Wallace Auto. Beginning in 1992, Wallace Auto leased (and, at the time of depositions, continued to rent) property located at 5605 Highway 34 North in Raleigh, Illinois from Amy Wallace. Although Amy Wallace and Rod Wallace are married, Amy Wallace holds no ownership interest in Wallace Auto.

Crane is a full-service insurance brokerage firm that sells, solicits and negotiates insurance coverage for its clients. George Hubbard is a broker for Crane. Beginning in 1994, through Hubbard as broker, Crane procured quotes and policies with Amy Wallace’s name listed as an additional insured at the request of Rod Wallace. However, Amy Wallace’s name did not appear on policies procured by Crane after 1999. Rod Wallace did not request that Amy Wallace’s name be removed as an additional insured.

Through Hubbard, Crane procured a commercial insurance policy for Plaintiff from Defendant Travelers. When two buildings on the property were destroyed by fire in November 2012, Defendant Travelers paid to Plaintiff the agreed-upon cash value of the damages. Wallace Auto decided not to rebuild. Instead, Amy Wallace procured vacation rental cabins in Tennessee to replace her income stream. Because Amy Wallace was not a named insured on the policy, Travelers denied Plaintiff’s $349,006.49 replacement value claim. Plaintiff seeks to recover this amount pursuant to a breach of contract claim against Travelers policy or on a breach of fiduciary duty and/or negligence claim against Crane.

ANALYSIS

Summary judgment is appropriate where “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a).

First, Travelers argues that it is not liable to compensate Plaintiff for the replacement value of the destroyed buildings because Plaintiff did not replace the buildings. Thus, when it issued payment for the loss value under the policy, it fulfilled its obligation. Plaintiff argues that the insurance policy does not define the term “replacement” and that the Court should resolve ambiguity of the term in favor of Wallace Auto. Ultimately, Plaintiff argues that the log cabins purchased in Tennessee by Amy Wallace constitute replacement because Amy Wallace had an insurable interest in the destroyed buildings (despite the absence of her name on the insurance policy).

The Court need not address whether log cabins in Tennessee constitute a “replacement” under the Travelers policy or whether the term is ambiguous. Amy Wallace was not a party to the contract between Plaintiff and Travelers, has not brought an action on her own behalf as a third-party beneficiary and has no ownership interest in Wallace Auto. Wallace Auto, through its president and sole shareholder, cancelled its lease and decided not to rebuild after the fire. Instead, Wallace Auto entered into a subsequent rental agreement with Amy Wallace and began renting a trailer and “storage container type pods” after the buildings were destroyed. Wallace Auto— the sole insured entity named on the policy with Travelers— did not purchase log cabins or otherwise replace the property in question by any definition.

As Travelers correctly states, Wallace Auto’s payment of $349,006.49 to Amy Wallace (whether required by the lease agreement or not) does not oblige Travelers to compensate Wallace Auto under the replacement cost coverage provision of the insurance policy. The policy is clear that Wallace Auto must replace the insured property in order to be compensated for replacement. There being no material issues of fact to be resolved, the Court granted summary judgment in favor of Defendant Travelers’ Indemnity Company of Connecticut.

AGENT’S MOTION FOR SUMMARY JUDGMENT

For its motion, Defendant Crane first contends that Plaintiff’s negligence and breach of contract claims (Counts II and IV) are barred by the two-year statute of limitations. Crane argues that the claims accrued in July, 2012 when a copy of the policy on which Amy Wallace’s name was omitted as an additional insured was delivered to Plaintiff. Plaintiff counters that its cause of action against Crane did not accrue until November, 2014—when the replacement claim was denied.

Illinois law requires that “[a]ll causes of action brought … against an insurance producer… concerning the sale, placement, procurement, renewal, cancellation of, or failure to procure any policy of insurance shall be brought within 2 years of the date the cause of action accrues.” 735 ILCS 5/13-214.4. In actions against insurance producers, the discovery rule may delay the commencement of a limitations period if the plaintiff was not immediately aware of a discrepancy.

The Court found, for the purposes of the application of the discovery rule, Plaintiff reasonably should have known of Crane’s alleged breach of contract and negligence when Rod Wallace received a copy of the insurance policy in July, 2012. No appellate decision relieves a policyholder from an obligation to review an insurance policy and, as a result, leaving Amy off the policy, defeats the claim.

Defendant Crane also moved for summary judgment of Plaintiff’s breach of fiduciary duty claim. In this regard, Crane argued that it is shielded from liability as an “insurance producer” under the Illinois Insurance Placement Act (hereinafter, “the Act”) 735 ILCS 5/2-2201(b). The court agreed and made the following rulings:

•     Defendant Travelers Indemnity Company of Connecticut’s Motion for Summary Judgment is GRANTED.
•     Defendant Charles L Crane Agency Company’s Motion for Summary Judgment is GRANTED.
•     Plaintiff Wallace Auto Parts & Services’ Motion for Summary Judgment is DENIED.

ZALMA OPINION

This case teaches very important issues relating to first party property insurance:

  1. If not named as an insured even a person with an insurable interest has no rights to the policy proceeds.
  2. If the insured doesn’t read the policy the insured has no right to complain that an additional insured was not added to the policy.
  3. The insured can only collect the difference between actual cash value and replacement value after the insured actually replaces the property.
  4. Replacement by a person not an insured does not count.
  5. An insurance agent is only obligated to buy the insurance ordered.
  6. Suits must be filed before the expiration of the statute of limitation.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Comments Off on No Claim for Person Not Named as an Insured

Sue Within a Year of Denial or Lose

Private Limitations of Action Affirmed in Tennessee

Some states, like Tennessee have long statutes of limitations for breach of contract and other actions. Insurance companies, because of the terms of the contract and the problems with evidence concerning insurance disputes, almost always include in first party property insurance policies, include a private limitation of action provision to avoid stale lawsuits over insurance disputes.

In Buffy Hall v. Allstate Insurance Co.,  et al., Slip Copy, 2015 WL 8492458, 2015 WL 8492458 the U.S. District Court was called upon to apply Tennessee law with regard to a suit filed two years after the expiration of the private limitation of action provision of a policy issued by Allstate but well within the state statute of limitations.

FACTS

Plaintiff owned the property at 228 Hassler Mill Road, Harriman, Tennessee, (“the Property”), which was covered by a policy issued by Defendant Allstate Insurance Company and Allstate Property and Casualty Insurance Company (collectively “Allstate”).
The Property was damaged by fire on or about June 2, 2010. Plaintiff submitted a claim to Allstate, which Allstate investigated and then denied the claim on September 22, 2010. Plaintiff sued Allstate in state court and was later removed to federal court.

Plaintiff claims she did not receive a copy of her policy. Plaintiff testified in her deposition that she first requested a copy of her policy from her insurance agent, Janet Sill, in September 2010 following the fire. Plaintiff testified that Ms. Sill gave her a copy of her declarations page, rather than the actual policy.

The policy states: “No one may bring an action against us in any way related to the existence or amount of coverage, or the amount of loss for which coverage is sought, under a coverage to which Section I Conditions applies, unless: ¶ a) there has been full compliance with all policy terms; and ¶  b) the action is commenced within one year after the inception of loss or damage.”

ISSUES

Allstate argues that it is entitled to summary judgment in its favor, as a matter of law because: (1) Plaintiff filed suit more than one year after Allstate denied her claim, and therefore, her claim is barred by the one-year limitation period contained in the Policy; (2) Plaintiff’s Consumer Protection Act claim against Allstate is barred by Tenn. Code Ann. § 56-8-113; and (3) her claim for punitive damages is barred by Tenn. Code Ann. § 56-7-105.

ANALYSIS

Breach of Contract

Under Tennessee law, actions on contracts shall be commenced within six years after the cause of action accrues. However, Tennessee, like many states has a history of upholding contractual limitations periods that reduce the statutory period for filing suits.

Plaintiff has not disputed that the Property was insured through the Policy presented by Allstate, and the Court found that there is no evidence to the contrary before the Court. Further, Plaintiff has not disputed that the Policy contains a contractual limitations period of one year, and there is no evidence to the contrary before the Court. The limitations period is/was applicable to any suit or legal action “brought asserting claims relating to the existence or amount of coverage ….”

Under Tennessee law, the contractual limitation provision runs from the date on which the insurer actually denies the claim. In this case, the undisputed date of denial is September 22, 2010. Thus, the Plaintiff had up to and including September 21, 2011, in which to file her suit yet Plaintiff waited for two more years before filing suit against Allstate.

The evidence in the record, even when viewed in the light most favorable to the Plaintiff, does not constitute a basis upon which a reasonable finder of fact could find in that Allstate and state officials participated in a conspiracy meant to deny Plaintiff funds owed to her under the policy.

The District Court concluded, rather, that the Tennessee Supreme Court would hold that the suit is absolutely barred by the one-year limitation in the insurance policy.

The Plaintiff did not present any evidence that Allstate prevented Plaintiff from obtaining a copy of the Policy. After the agent advised Plaintiff that she only had the declarations page Plaintiff conceded that she simply left the agent’s office and never sought a copy of the entire policy directly from Allstate. Moreover, the Plaintiff has done little to respond to the sworn testimony supporting Allstate’s assertion that it mailed a copy to Plaintiff and would have been notified if the mail had been returned. The  evidence in the record could not support a jury finding that Allstate interfered with or obstructed Plaintiff’s attempts to obtain a copy of her policy so that the one-year contractual limitations period would be tolled or potentially inapplicable.

Based upon the foregoing the Plaintiff was required to file her suit on or before September 22, 2011. She filed suit almost two years too late. Therefore, Plaintiff’s breach of contract claim is barred by the one-year limitations period contained in the Policy.

“Bad Faith” under Tennessee Code Annotated § 56-7-105

An insured may recover for bad faith pursuant to Tennessee Code Annotated § 56-7-105, where: a policy has become due and payable; the insured made a formal demand for payment; sixty days passed from the date of demand; and the refusal to pay was in bad faith. It is well-established that a formal demand for payment by the insured is a prerequisite to recovery under the statute.

Plaintiff concedes that she did not make a formal demand in this case, and therefore, she cannot recover for bad faith, as a matter of law.

Constructive Fraud and/or Fraud

Even viewing the evidence in the record in the light most favorable to the Plaintiff did not bring forth any evidence that Allstate made a misrepresentation as to a material fact, either intentionally or unintentionally. To the extent the Plaintiff contends that the failure to provide a copy of the Policy was a misrepresentation, the evidence before the Court could not support a finding that Allstate either intentionally or even negligently withheld the Policy, because as discussed above, the Plaintiff apparently acquiesced to accepting the declarations page from Ms. Sills without following-up with Allstate.

Negligent Misrepresentation

The Court could not find that the Plaintiff has brought forth any evidence that Allstate made a misrepresentation as to a material fact, and thus, an essential element of Plaintiff’s claim is absent.

Based upon the foregoing, Defendant Allstate Insurance Company and Allstate Property and Casualty Insurance Company’s Second Motion for Summary Judgment is GRANTED, and judgment will be entered in favor of Allstate Insurance Company and Allstate Property and Casualty Insurance Company.

ZALMA OPINION

The Plaintiff in this case waited almost three years after the claim was denied to file suit against Allstate. One could speculate that the delay might have been due to the fact that a criminal investigation concerning the fire was pending. Whether to avoid prosecution or simply due to sloth, the insured failed to file suit within the limitation period and tried the specious argument that the limitation period should not apply because Allstate did not provide a copy of the policy. The argument, for good reason, failed.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

Posted in Zalma on Insurance | Comments Off on Sue Within a Year of Denial or Lose

Zalma’s Insurance Fraud Letter – December 15, 2015

Merry Christmas  

A Belated Happy Chanukah 

In this, the twenty fourth issue of the 19th year of publication of Zalma’s Insurance Fraud Letter (ZIFL), Barry Zalma, on December 15, 2015 continues the effort to reduce the effect of insurance fraud around the world. The issue indicates that, regardless of some success, the efforts must be increased.

Insurance fraud investigations must be conducted fairly, thoroughly, and always in good faith. Insurance professionals must understand and act ethically in everything they do in their claims investigations and evaluation of an insurance policy and its coverages.

The current issue of ZIFL reports on:

  • Politicians Convicted of Fraud
  • Amazing Trial Testimony
  • Proformative Academy Webinars
  • Arson for Profit Fails
  • New from Barry Zalma
  • False Claim of Fraud By Insurance Department Fails
  • E-Books from Barry Zalma
  • The Coalition Against Insurance Fraud’s Hall of Shame
  • The Zalma Insurance Claims Library
  • Health Care Fraud Conviction Affirmed
  • Where there is a Will, There are Relatives
  • Good News From the Coalition Against Insurance Fraud
  • Health Insurance Fraud Convictions
  • Other Insurance Fraud Convictions
  • Zalma Books from the American Bar Association
  • Zalma’s Insurance 101

Zalma’s Insurance Fraud Letter — Vol. 19, Number 24

Visit the Website of Zalma Insurance Consultants

Visit the Zalma Insurance Claims Library

Insurance Publications by Barry Zalma

The Zalma Insurance Claims Library

Insurance Claims: A Comprehensive Guide

     For Readers of ZIFL a Special 25% Discount

In addition the standard FC&S Online published by The National Underwriter Company now includes a Fraud Channel with the majority of the information taken from my work on insurance fraud. It is available at http://www.nationalunderwriterpc.com/Pages/default.aspx. The Fraud Channel covers issues like: Fraud Basics, Checklists and Charts, Investigation, Ethics, Reference Materials, Fraud Of The Week, and  both the full text and summaries of insurance fraud Cases.

Buyer Bonus:

You automatically receive-AT NO ADDITIONAL COST-a subscription to the author’s e-newsletter: The Monday Claims Report, a weekly e-newsletter featuring coverage and analysis on the top insurance law court decisions from across the country.

New From The American Bar Association

Diminution in Value Damages

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

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.

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

http://shop.americanbar.org/eBus/Default.aspx?TabID=251&productId=214624; or  orders@americanbar.org, or 800-285-222

800-285-2221.

THE “ZALMA ON INSURANCE” BLOG

The most recent posts to the daily blog, Zalma on Insurance, are available at http://zalma.com/blog including the following:

Check in every day for a case summary

I have also created a video blog called Zalma’s Insurance 101 which currently has over 154 three to four minute videos 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

Posted in Zalma on Insurance | Comments Off on Zalma’s Insurance Fraud Letter – December 15, 2015

Fraudulent Claim Defeated by Failure of Insured to Fulfill Condition

No Excuse for Failure To Give Prompt Notice

The factual basis of this case has occurred many times. I wrote a story similar to this on in the 1980’s when I first started writing my E-book “Heads I Win, Tails You Lose” which was fiction based on a real case.

In NIKOLAI MINASIAN and HARUTYUN MINASIAN, Plaintiffs,v.IDS PROPERTY CASUALTY INSURANCE COMPANY and STATE FARM FIRE AND CASUALTY COMPANY, Defendants.14-cv-10125 (KBF), 2015 WL 8485257, Filed 12/09/2015 a New York federal District Court ruled based solely on claim by insurers that the insureds failed to report their claims promptly because the fraud, as obvious as it appears, was more difficult to prove when New York enforces reporting conditions.

FACTUAL BACKGROUND

Plaintiffs have alleged that they sustained a loss by theft from the insured premises at 240 Main Street, Apt. 11, Nyack, New York (the “Apartment”), on January 1, 2014. Plaintiffs claim that the Apartment was burglarized and that jewelry consisting of two watches, two bracelets and two rings owned by plaintiffs and $1,150 cash were stolen from the Apartment. According to plaintiffs, they were given the jewelry by Harutyun’s mother, which they brought with them on a return trip to the United States from Armenia on or about June 19, 2013. Plaintiffs testified that they did not declare the jewelry at United States Customs when they brought it to the United States and do not have any documentation relating to the acquisition or purchase of the jewelry.

According to plaintiffs, Nikolai had three pieces of jewelry appraised in or about September 2013 as follows: a Gentleman’s 18 Karat Yellow Gold Diamond Ring, appraised at $40,500, a Gentlemen’s 18 Karat Rose Gold Egona Swiss Chronograph Watch, appraised at $23,500, and a Gentlemen’s 18 Karat Yellow Gold Diamond Bracelet, appraised at $33,000.  According to plaintiffs, Harutyun also had three (rather remarkably similar) pieces of jewelry.

The Investigative Report of the Orangetown Police Department indicates that Detective Frank Buhler, along with a finger print unit of officers, responded to plaintiffs’ call at approximately 6:45 p.m.  Nikolai testified that he spoke with the police a few times regarding the burglary after first reporting the burglary.

Insurance Policy Provisions and Denial of Claims

Plaintiffs allege that their losses were covered by three separate insurance policies, one policy issued by IDS and two policies issued by State Farm.

The court, indicating some suspicion about the loss noted that “although the purported burglary happened on January 1, 2014,” Nikolai testified that plaintiffs did not report the loss to State Farm until March 28, 2014, 86 days later.

Detective Buhler testified that on January 2, 2014, he spoke with a State Farm agent, Eric Jaslow, about the fact that he was investigating a burglary at 240 Main Street and that the resident alleged that he had a renter’s policy through State Farm.  Detective Buhler testified that he asked Jaslow if there was any documentation regarding the policy or an application to get a policy and if Jaslow could provide the policy, which he did.

On December 24, 2014, State Farm sent a letter to plaintiffs via their counsel disclaiming coverage for plaintiffs’ claims based on plaintiffs’ breach of the policies’ notice conditions, plaintiffs’ intentional concealment and misrepresentation of material facts or circumstances during the presentation of the claim, the absence of an accidental direct physical loss, the theft exclusion and the fact that the loss involved an intentional act.

Notice Under New York Law

Timely notice is a condition precedent to coverage. Am. Ins. Co. v. Fairchild Indus., Inc., 56 F.3d 435, 438 (2d Cir. 1995); see also White v. City of New York, 81 N.Y.2d 955, 957 (1993)

An untimely delay may be found inexcusable as a matter of law “when either no excuse is advanced or a proffered excuse is meritless.” Green Door Realty Corp. v. TIG Ins. Co., 329 F.3d 282, 287 (2d Cir. 2003).  The insured bears the burden of showing any delay was excusable under the circumstances.

The test for determining whether a notice provision has been triggered in the first instance is whether the circumstances known to the insured at that time would have suggested to a reasonable person the possibility of a claim. Each insurance policy imposes a separate contractual duty on the insured to provide notice. S

DISCUSSION

The sole ground upon which defendants seek summary judgment is that plaintiffs failed to comply with the timely notice requirements of the three applicable insurance policies.

Plaintiffs do not dispute that they failed to provide defendants with notice of their potential claims until Friday, March 28, 2014, 86 days after the January 1, 2014 burglary of the Apartment.

Furthermore, even if the weight of authority did not make clear that an unexcused 86 day delay is untimely as a matter of law, the surrounding contract language makes clear that initial notice was to be provided far more quickly than plaintiffs provided it here. First, in the very same sentences in which the policies stated that plaintiffs had to provide notice to the insurer in the event of loss, all three provisions also stated that, if the loss was due to theft, plaintiffs also had to notify the police.

As for plaintiffs’ purported mitigating factors (i.e. their lack of sophistication and experience with filing insurance claims), Plaintiffs baldly assert their lack of sophistication and experience, yet the record shows that they were sophisticated enough to obtain appraisals, insurance coverage, safety deposit boxes, and specifically schedule the jewelry for coverage. If plaintiffs were sophisticated enough to take each of these steps, they were certainly capable of providing timely notice to IDS and State Farm.

“In determining a motion for summary judgment involving the construction of contractual language, a court should accord that language its plain meaning giving due consideration to the surrounding circumstances and apparent purpose which the parties sought to accomplish.” Cable Sci. Corp. v. Rochdale Vill., Inc., 920 F.2d 147, 151 (2d Cir. 1990)

Use of the term “covered loss” clearly connotes that property which is covered under the policy is no longer in the physical possession of the insured, and use of the phrase “loss … which may become a claim” indicates that an insured need not (and should not) wait until the loss has definitively ripened into a meritorious claim for payment. No reasonable person could interpret this language to mean that a known theft of property only becomes a covered loss once the police cease to conduct an active investigation. A

For the reasons set forth above, defendants’ motions for summary judgment are GRANTED.

ZALMA OPINION

Insurance fraud is often often difficult to prove. Jurors do not like it when an insurer designates an insured as a fraud, no matter how obvious the factual basis of the claim makes – as it did in this case – fraudulent. The insurers, although they denied the claims on various bases, moved for summary judgment on one condition, failure to give prompt notice. It worked because insurance criminals know crime but do not understand insurance. Fraud investigators should take note of the work of the insurers in this case and remember there is more than one way to defeat a fraudulent claim.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

Posted in Zalma on Insurance | Comments Off on Fraudulent Claim Defeated by Failure of Insured to Fulfill Condition

Expert on Causation Must be Able to Testify to an Engineering Certainty

Trier of Fact Must Determine Whether Excluded or Covered Cause Predominates

First party property insurance determines whether it is obligated to indemnify an insured for damage to property whether the predominant and moving cause of the damage is excluded or not. Sometimes that decision requires the assistance of an expert. In Stochel v. Allstate Property and Casualty Insurance Company, Slip Copy (12/09/2015) 2015 WL 8331394 the court was asked to find the actual cause and eliminate the testimony of certain experts whose testimony was less than definitive.

FACTUAL BACKGROUND

Plaintiffs Maria Stochel and Eugene Nowakowski suffered damage to their home following a water main break. At the time of the break, Plaintiffs maintained a homeowners’ insurance policy with Defendant Allstate that excludes coverage for flood or groundwater damage.

On August 20, 2014, Plaintiffs filed a second claim with Allstate alleging that the City of Philadelphia’s efforts to repair the water main had caused vibration damage to the property. The parties appear to agree that this vibration damage, if proven, would be covered under the insurance policy.

Rosen’s Expert Reports

Allstate’s expert Jawad issued a report concluding that there was no damage to Plaintiffs’ home caused by vibration. Rosen, the insured’s expert, issued a report. Rosen concluded that “the house was damaged due to the forces that occurred during the water main breakage and subsequent flooding. The flooding resulted in saturation of the lower levels of the structure and damage to the existing foundation and exterior walls.”

On February 26, 2015, Rosen issued a supplemental report without re-inspecting the property. The supplement clarified that “[a]s per my original report, the damage that occurred due to the water main break is attributable to the initial flooding and [sic] well as vibration due to the equipment used to reconstruct the main.” The parties hotly dispute whether Rosen’s February 2015 supplement altered the September 2014 report.

Allstate contended that Rosen’s initial report made no mention of damage to the property as a result of vibrations from heavy equipment and attributed all costs to flooding. Plaintiffs counter that Rosen’s initial report made factual assertions consistent with vibration damage such that his supplemental report merely clarified any ambiguity.

During his deposition, Rosen repeatedly emphasized that it is difficult to separate damage caused by water from damage caused by vibration. He could not provide a scientific basis for his conclusion about the water line as causal boundary.

After this litigation had commenced as outlined below, Allstate conducted a second inspection of Plaintiffs’ property. Present were Allstate’s structural engineer Gary Popolizio and an estimator working for the Plaintiffs named Walter Clark.
Clark prepared interior and exterior damage estimates. Clark relied on Rosen’s initial September 2014 report, conversations with the Plaintiffs, and a visual inspection in making his estimates. Clark assumed that all damage to the exterior was attributable to vibration damage while all damage to the interior was caused by flooding.

Allstate denied Plaintiffs’ vibration claim on grounds that damage to the property resulted from earth movement, not vibration. Plaintiffs filed suit.

ANALYSIS

Motion to Preclude

In this case, Defendant has not argued that Plaintiffs failed to produce qualified experts. Both of plaintiffs’ experts were clearly qualified.

The difficult issue concerned whether Rosen’s February 2015 supplemental report and Clark’s damages estimate resulted from reliable processes. Determining whether an expert report is reliable is a “flexible” inquiry that can consider the following non-exhaustive list of factors: (1) whether a method consists of a testable hypothesis; (2) whether the method has been subject to peer review; (3) the known or potential rate of error; (4) the existence and maintenance of standards controlling the technique’s operation; (5) whether the method is generally accepted; (6) the relationship of the technique to methods which have been established to be reliable; (7) the qualifications of the expert witness testifying based on the methodology; and (8) the non-judicial uses to which the method has been put.

One portion of Rosen’s February 2015 report, in which Rosen claims that the water line provides a way to demarcate damage caused from flooding from damage caused by vibrations, fails to meet the reliability standards outlined above. As noted, Rosen testified repeatedly during his deposition that he was “hedging” and picking a bright line for its own sake.

However, the remaining conclusion in Rosen’s February 2015 report (that there is harm present in the Plaintiffs’ home from both vibration and water damage, without apportioning relative degrees) is admissible. Defendant can cross-examine Rosen at trial on what Defendant characterizes as an inconsistency between Rosen’s September 2014 and February 2015 reports on this issue.

Clark’s damages estimate is also admissible. Defendant’s main objection is that Clark’s estimate cannot opine on what caused the damage to the exterior of the property. However, Clark’s report merely assumes that all damage to the exterior of Plaintiffs’ residence is from vibration damage; it does not purport to establish causation. To the extent Plaintiffs cannot first prove that exterior damage resulted from vibration, Clark’s report may be of little use to them. But to the extent they can, his report may provide a sound scientific basis for approximating how much damage they incurred. Motion for Summary Judgment.

Defendant’s argument that Plaintiffs have failed to prove damages with reasonable certainty similarly fails for purposes of this Motion for Summary Judgment. Ordinarily in insurance coverage disputes an insured bears the initial burden to make a prima facie showing that a claim falls within the policy’s grant of coverage. If the insured meets that burden, the insurer then bears the burden of demonstrating that a policy exclusion excuses the insurer from providing coverage if the insurer contends that it does.

Here, assuming the fact finder credits Plaintiffs’ contention that vibration damage is present, Plaintiffs will have made that prima facie showing.  Defendant would then rely on an exclusion covering situations of damage from both covered and uncovered loss: at page 16, the policy notes, “[w]e do not cover loss to the property…when: 1) there are two or more causes of loss to the covered property; and 2) the predominant cause(s) of loss is [excluded as flooding damage per page 15].”

Rosen’s February 2015 opinion that the water line on Plaintiffs’ property provides a bright line causal break between damage caused by flooding and damage caused by vibration is not the product of reliable methodology. It is therefore inadmissible. The portion of Rosen’s report clarifying that both vibration and water damage are present, as well as Clark’s estimate of damages, do not suffer from the same defect and are thus admissible.

Because issues of fact exist as to the cause of damage to the property, Defendant’s Motion for Summary Judgment shall be denied.

ZALMA OPINION

Experts are often necessary to establish coverage when more than one cause work together to cause damage and one of those causes are covered and one is not. For the last decade or two insurers, following the lead of appellate courts, have avoided concurrent cause allegations by requiring the insurer to prove that the predominant cause of the loss was excluded. Since the decision is fact based the ability to resolve the case on summary judgment is almost impossible.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Comments Off on Expert on Causation Must be Able to Testify to an Engineering Certainty

Lack of Approved Claim Defeats Demand for Benefits Under a Bond

Bond Need Not Pay Limits Without Proof of Loss

The plaintiff in this bond insurance coverage case, Scott Jensen (“Jensen”), in his capacity as Director of the Rhode Island Department of Labor and Training (“DLT”), brought a claim against North River Insurance Company (“North River”) in connection with a workers’ compensation bond (the “Bond”) issued by North River to Landmark Health Systems, Inc. (“Landmark”).  In Scott Jensen, in his capacity as Director of the Rhode Island Department of Labor and Training v. North River Insurance Company, 2015 WL 8041998, C.A. No. 15-083-MML | Filed 12/04/2015 DLT sought recovery of the limits of the bond, $500,000, although there was no agreed claim in that amount.

The limit of liability of a bond is only paid when there are claims up to that limit. The DLT tried to collect the penal limit of the bond but refused to present evidence that established an entitlement to the limit.

FACTUAL BACKGROUND

On September 24, 1990, North River issued the Bond to Landmark as the principal and for the benefit of DLT.  The Bond, limited to a penal sum of $500,000, secured payment of benefits and services pursuant to R.I. Gen. Laws 28-33 and 28-34, including workers’ compensation benefits for Landmark employees. Landmark, which was self-insured at the time in question, was responsible for a portion of workers compensation claim payments. After that, Republic Western Insurance Company (“Republic Western”) was responsible to pay medical and other expenses under an excess policy (the “Excess Policy”) and Landmark was obligated to make continuing indemnity payments.

After a number of annual renewals, the Bond was cancelled effective October 1, 1999, and, as DLT acknowledged, no liability exists under the Bond for injuries incurred on or after that date. Following an injury on November 17, 1998, a workers compensation claim was made by Frances Valeika (the “Valeika Claim”). After compensation payments were ordered in 1999, Landmark made payments on the Valeika Claim, first directly and, beginning in 2003, through Beacon Mutual Insurance Co. as its third party administrator. After Landmark’s payments on the Valeika Claim reached $350,000, Republic West began reimbursing Landmark for medical and other expenses pursuant to the Excess Policy, while Landmark continued to make indemnity payments.

In 2008, Landmark entered receivership. Pursuant to an agreement with its court-appointed receiver, the indemnity payments on the Valeika Claim continued. Landmark’s assets were acquired by Prime Healthcare, which failed to continue making the indemnity payments. Republic West continued to make medical and other payments on the Valeika Claim.

DLT filed a complaint against North River in Rhode Island state court, which was removed by North River to the federal District Court.

North River timely filed a motion for summary judgment. DLT’s response to North River’s motion was due on October 19, 2015. As of the date of this Memorandum and Order, no response was received to North River’s motion.

DISCUSSION

Although its motion for summary judgment is unopposed, North River, as the moving party, must meet its burden to demonstrate undisputed facts entitling it to summary judgment as a matter of law. It is undisputed that the Bond was cancelled effective October 1, 1999 and that North River was “not responsible thereunder for any Acts or Defaults committed or Loss occurring after said date of cancellation.”  North River asserts—and DLT does not dispute, nor has it offered any evidence to the contrary—that the only outstanding claim asserted against the Bond is that of Frances Valeika. After Prime Healthcare acquired Landmark’s assets and failed to make indemnity payments on the Valeika Claim, North River made payments totaling $94,502 on the Valeika Claim. Eventually, the Valeika Claim was settled by Republic West, which sought a $77,876 contribution from DLT. Defs.’  In turn, DLT requested that North River pay that amount under the Bond, to which North River agreed.

The Bond requires payment only to “persons entitled thereto,” i.e., to “persons who may be entitled to such sums for the compensation benefits and services provided by” Rhode Island’s worker compensation laws.

Nothing in those statutes or in the Bond itself imposes an obligation on North River to pay the full amount of the Bond’s penal sum to DLT without a corresponding identified and approved claim. In the absence of even an assertion that such a claim exists; that such a claim may be raised more than sixteen years after the Bond was cancelled; or of any factual or legal support for DLT’s demand under the Bond, DLT cannot withstand North River’s motion for summary judgment.

ZALMA OPINION

DLT failed to respond to the motion for summary judgment because it did not have any evidence that it was entitled to more than North River had already paid based upon a provable claim.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Comments Off on Lack of Approved Claim Defeats Demand for Benefits Under a Bond

Defendant Abuses Judicial System

Summary Judgment Required When There is No Response

Liability insurance policies agree to defend and indemnify the person insured against contingent or unknown events that are not excluded by the terms and conditions of the policy. Not all risks of loss are covered. The prudent insurer, faced with a claim that it believes is not covered will file a complaint for declaratory relief to gain an order of a court that their is no coverage.

In National Casualty Company v. Kevin Lee Wallace, et al., Slip Copy, 2015 WL 7854401 (E.D.Ky., 12/03/2015) National Casualty Company sought a declaration of rights concluding that it has no obligation to provide insurance coverage for the civil claims asserted in Kevin Lee Wallace’s state court negligence lawsuit.

FACTS

Plaintiff National Casualty Company brought suit against Defendants Kevin Lee Wallace and Timothy Justice d/b/a/ TJ’s Marine and ATV Repairs, seeking a declaration that it has no insurance coverage obligations for claims by the Defendants arising out of a work-related accident that occurred on or about September 19, 2012 in Lancaster, Garrard County, Kentucky. On or about that date, Wallace was working for TJ’s Marine and was assisting in transporting a houseboat to Pulaski County. As the TJ’s Marine employees transporting the boat approached Lancaster, Kentucky, on their way to the TJ’s Marine shop, Wallace was directed to raise a stoplight and wires so that the houseboat could safely pass underneath. As Wallace did so, another employee, Paul Weber, struck a utility cable with a truck. The utility cable then struck and injured Wallace. Wallace filed a civil action for negligence and a violation of Ky. Rev. Stat. § 342.690, which concerns employers’ workers’ compensation coverage. Shortly after Wallace filed the state court suit, Plaintiff National Casualty Company filed this declaratory relief action.

Although Defendant Wallace has timely answered both the initial and the amended complaint, his participation in this lawsuit has been what the court described as “somewhat abnormal.” The record indicates that National Casualty Company has served two written discovery requests on Wallace; however, Wallace has failed to respond to either request. The record is absent of any signs of discovery that Wallace himself has conducted.

National Casualty Company filed the motion for summary judgment that is now before the Court. Wallace failed to respond to the summary judgment motion.

Although the Court is required to review the evidence and draw inferences in favor of Defendant Wallace, the non-moving party, at this stage, the Court was faced with the \ situation in which the non-moving party has failed to present any evidence at all. Wallace has not offered proof supporting his position, nor has he made any arguments opposing National Casualty Company’s position. As a result, Wallace is in the precarious position of hoping that the general denials made in his answer to National Casualty Company’s amended complaint are sufficient to create a genuine issue of material fact.

National Casualty Company’s motion for summary judgment was well-supported. National Casualty Company sets forth the exclusions in the insurance policy in question that apply to employees of the insured. It explains why Wallace is a properly excluded employee under the policy, regardless of Wallace’s contention that he was acting as an independent contractor of TJ’s Marine when he was injured. On the whole, there is evidence showing that the accident giving rise to the underlying state court and present federal actions does not trigger coverage obligations on behalf of National Casualty Company. Defendant Wallace offered nothing to the contrary, such that a reasonable jury could return a verdict for him.

Summary judgment for National Casualty Company against Defendant Kevin Wallace is appropriate, and National Casualty Company’s motion was granted.

ZALMA OPINION

Wallace forced National Casualty to litigate with a party who had no intention or ability to return the favor. The court bent over backwards to protect the rights of Wallace even though he refused to do anything to defend himself. He, National Casualty, and the court knew that he was an employee at the time he was injured and that no coverage existed under the National Casualty policy and by answering the suit and doing nothing more he abused the judicial system.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Posted in Zalma on Insurance | Comments Off on Defendant Abuses Judicial System

Where there is a Will, There are Relatives

Don’t Make Yourself Beneficiary of Life Policy for Incompetent Person

Elderly, sick people are often the subject of fraud because they do not have the capacity to protect themselves. This is especially true in the last days of their lives when they can be influenced by a person charged with caring for the old, ill and demented.

In Metropolitan Life Insurance Company v. Michelle Austin and Laura Brown, Slip Copy, 2015 WL 7770659 (E.D.Mich., 12/03/2015) the District Court for the Eastern District of Michigan, was faced with a dispute over who was the appropriate beneficiary of a life insurance policy.

FACTS

Metropolitan Life Insurance Company (“MetLife”) initiated an interpleader action be depositing into court the benefits of the policy and allowing the two competing beneficiaries to litage who should received the benefits. The proceeds of a life insurance policy owned by Clara Austin, who died in 2013. Defendant Laura Brown (“Ms. Brown”), the adult great niece of Clara Austin, was named the primary beneficiary of the policy in March 2008. At that time, Michelle Austin (“Ms. Austin”), Clara Austin’s adult granddaughter, was removed as the primary beneficiary. Ms. Brown and Ms. Austin each claim entitlement to the insurance proceeds.

BACKGROUND

Clara Austin, a retiree from General Motors Corporation, was a participant in the General Motors Life and Disability Benefits Program (the “Plan”), an employee welfare benefit plan regulated under the Employee Retirement Income Security Act (“ERISA”). The Plan is funded by a group life insurance policy issued by MetLife. The latest beneficiary designation on file with the Plan for Clara Austin is dated March 21, 2008. The form was completed via the Internet (i.e., online) and names Ms. Brown as the sole primary beneficiary of Clara Austin’s life insurance benefits.

The next prior beneficiary designation on file with the Plan for Clara Austin is dated October 17, 2005, and names Ms. Austin as the sole primary beneficiary of the life insurance benefits. This beneficiary designation also was completed online.

Clara Austin died on May 22, 2013. At the time of her death, Clara Austin was enrolled under the Plan for life insurance coverage in the total amount of $16,813.00 (“plan benefits”). Ms. Austin and Ms. Brown submitted life insurance claim forms to MetLife for the plan benefits. Ms. Austin filed an allegation of fraud with MetLife, contesting the latest beneficiary designation.

To resolve the conflicting claims, MetLife filed this interpleader action. MetLife thereafter deposited the full amount of the plan benefits with the Court, minus its costs and attorney’s fees totaling $1,400.00, and was dismissed from this case.

APPLICABLE LAW

As a general rule, the proceeds of an ERISA plan are to be paid in accordance with the plan documents. However, the improper procurement of a beneficiary designation would call into question the validity of the plan document itself and, thus, creates a limited exception to this general rule.

The Sixth Circuit Court of Appeals held that claims touching on the designation of a beneficiary of an ERISA-governed plan fall under ERISA’s broad preemptive reach and are consequently governed by federal law. Thus the determination of which claimant is entitled to the proceeds from Clara Austin’s life insurance plan due to the alleged “fraud” on the 2008 beneficiary designation change form is preempted by ERISA and governed by federal law. As such, this court must look to either the statutory language or, finding no answer there, to federal common law which, if not clear, may draw guidance from analogous state law.

ERISA contains no provisions regulating the problem of beneficiary designations that are forged, the result of undue influence, or otherwise improperly procured. There is no established federal common law in the Sixth Circuit dealing with forgery and undue influence in the designation of beneficiaries, and thus it is necessary for the federal court to look to state-law principles for guidance.

Under Michigan law determining the mental competency of the insured to change the beneficiary of an insurance policy, the test is whether he had sufficient mental capacity to understand the business in which he was engaged, the extent of his property, the manner in which he desired to dispose of it, and who were dependent on him.Adults are presumed to be competent enough to enter into contracts. However, a person under guardianship is conclusively presumed to be incompetent.  Michigan law has long held that a person under guardianship is conclusively presumed incompetent to make a valid contract and that any contract made by a person under guardianship is void.

According to the records of the Wayne County Probate Court, a guardianship petition identifying Clara Austin as a legally incapacitated individual was filed on September 14, 2007, and Ms. Brown was appointed as Clara Austin’s guardian in November 2007. Ms. Brown remained Clara Austin’s guardian until Clara Austin’s death in 2013. As such, Clara Austin was incompetent to change the beneficiary of her life insurance policy when the change was made in March 2008.Ms. Brown admitted during a status conference with the Court that she, not Clara Austin, submitted the beneficiary designation form making herself the primary beneficiary of Clara Austin’s policy in 2008.

According to Ms. Brown, she made the change to comport with Clara Austin’s wishes, as expressed to Ms. Brown previously. Therefore, the Court concluded that the purported designation of Ms. Brown as a beneficiary of the life insurance policy of Clara Austin is invalid and, therefore, ineffective for purposes of paying any benefits under the policy.

For the above reasons, the Court held that the beneficiary designation that controls the disposition of the plan benefits is the designation naming Ms. Austin as the primary beneficiary.

ZALMA OPINION

Although less than $17,000 was involved the relatives, Ms. Brown and Ms. Austin, tried to take the benefits of Clara’s life insurance policy. If it was truly Clara’s intent to change beneficiaries Ms. Brown should have obtained Ms. Austin’s permission before attempting to change beneficiaries on line. As a result she now is the party to a reported decision showing she attempted a fraud that failed only because Clara and Ms. Austin had the foresight to have Ms. Austin appointed Clara’s Guardian.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.