Don’t Change Your Mind After Accident

Waiver of Stacking UM/UIM Cover Upheld

Insurance is a contract. An insured saves money by agreeing to limit the coverage available because the insured does not believe it would be needed. Only after an accident does an insured reconsider the decision and then tries to get a court to change the decision so that, in the case of UM/UIM coverage, the insured can get more money than the coverage purchased.

In Michele DeCrosta v. Erie Insurance Group, J-A19044-17, No. 2982 EDA 2016, Superior Court Of Pennsylvania, (OCTOBER 18, 2017) DeCrosta asked the court to ignore her waiver of UM/UIM stacking after an accident.

FACTS

DeCrosta sued Erie seeking to recover stacked uninsured and underinsured (“UM/UIM”) motorist benefits under the automobile insurance policy issued to her by Erie (“Policy”), which insured two vehicles DeCrosta owned. DeCrosta has held a Policy with Erie from approximately July 1990 to the present. DeCrosta was injured in an automobile accident in February 2012. Neither party disputes that DeCrosta’s Policy with Erie required Erie to indemnify DeCrosta for underinsured motorist coverage. The dispute between the parties arose when DeCrosta submitted the claim requesting stacked UM/UIM coverage.

The Policy reflects unstacked automobile insurance at the time relevant to the accident. Erie asserts, and DeCrosta admitted in her deposition, that DeCrosta signed a Waiver of Stacking Underinsured Motorist Coverage Limits form. The parties dispute whether the date handwritten on the document, September 17, 2004, was written by DeCrosta.

The dispute between the parties circles around the validity of the waiver, and the continued application of that waiver through the removal of Auto #2 from the Policy, and the addition of Auto #3 to the Policy.

The trial court granted Erie’s Motion for Summary Judgment and entering judgment in favor of Erie. DeCrosta appealed.

ISSUES

DeCrosta stated the issues to be:

  1. Whether a material issue of fact exists concerning an unrelated, non-stacking waiver [of insurance coverage]?
  2. Whether or not the substitution of a Chevrolet Malibu for a Chevrolet Camaro constituted a “replacement vehicle” per the terminology of the applicable insurance Policy?

DISCUSSION

Specifically, DeCrosta points out that the waiver was purportedly hand-dated by an anonymous person, and contends that “there is no evidence whatsoever produced by Erie … concerning the validity of the anonymous dating of same.”

As a matter of statutory interpretation a court may not insert into a statute a word or requirement that does not exist in the statute.

Under Pennsylvania statutes, to be a “valid,” a UM/UIM stacked insurance waiver form must be signed, but not necessarily dated, by the insured. A court may not insert a requirement that the insured “sign and date” into the statute when the statute only required that it be signed.

It is undisputed that DeCrosta signed the waiver. Accordingly, the trial court did not err in ruling that the waiver is valid, and that its validity did not hinge upon who dated the document. The only logical purpose for a date is to eliminate disputes about when such a waiver was effective. Thus, DeCrosta’s first issue does not entitle her to relief.

In her second issue, DeCrosta contends that a disputed issue of material fact exists concerning the addition of Auto #3 to the Policy. Specifically, DeCrosta argues that, contrary to the trial court’s determination, Auto #3 did not constitute a “replacement vehicle,” which thereby required Erie to present DeCrosta with the opportunity to execute a new UM/UIM stacking waiver, but was a new vehicle.

To determine whether an insurer is obligated to have an insured sign a new UM/UIM stacking waiver following the addition of a new vehicle to an automobile insurance policy, the Court must focus on the following: “1) how was the ‘new’ vehicle added to the existing policy; and 2) what is the specific language of the relevant clause(s) in the applicable insurance policy?”

In the instant case, there were two vehicles on DeCrosta’s Policy as of the date she signed the waiver, and thereafter, there were never more than two vehicles on the Policy. As she merely replaced Auto #2 with Auto #3, Erie did not have to obtain from DeCrosta a new UM/UIM waiver. Finally, there is no merit to DeCrosta’s bald claim that the Policy provision defining “replacement auto” was somehow ambiguous.

Accordingly, the appellate court concluded that the trial court did not err in determining that there is no material issue of fact insofar as this claim is concerned.

ZALMA OPINION

Any person insured is entitled to recover all of the benefits of the policy. The person insured is not entitled to recover benefits not called for by the policy. Therefore, no one can buy a policy of fire insurance to cover a fire that happened before the fire occurred nor can a person obtain stacking of UM/UIM coverage without ordering and paying a premium for the coverage. Courts should punish people who try with more than an order denying coverage.

 


© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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 Library, at 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 three new e-books  were recently added and are available at http://zalma.com/zalma-books/

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/bzalma  on Facebook at https://www.facebook.com/barry.zalma and you can follow him 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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Workers’ Compensation Policy Does Not Cover Defense of Third Parties

No Cover for Liability Assumed by Contract

Workers’ Compensation is required by statute to provide coverage to employees who are injured in the course of employment without a need to prove liability, negligence or any other tort. Workers’ Compensation policies also provide Employer’s Liability insurance that intends to cover the employer’s liability to third parties under certain limited circumstances.

In New Hampshire Insurance Company v. JVA Industries Inc., Taconic Builders, Inc., CPW Park Views, LLC, New York Marine And General Insurance, Everest National Insurance Company and Luis Cruz, Index NO. 155525/2016, Supreme Court Of The State Of New York County Of New York: Part 43, 2017 NY Slip Op 32148(U)  (October 12, 2017) New Hampshire Insurance Company moved the court for an order awarding it summary judgment. New Hampshire’s suit sought a declaration that it had no duty to defend or indemnify any party in connection with the underlying personal injury action entitled Luis Cruz v Taconic Builders, Inc. v JVA Industries, index No. 307751/2010 (Sup Ct, Bronx County).

New Hampshire also moved for an order entering a default on the non-appearing parties, defendants JVA Industries, Inc. (JVA) and Luis Cruz (Cruz).]

FACTS

The underlying action was commenced by Cruz against, inter alia, defendants Taconic Builders, Inc. (Taconic) and CPW Park Views, LLC (CPW), seeking money damages for personal injuries sustained as a result of a construction site accident  at 15 Central Park West, New York, New York (the Premises). CPW owned the Premises, and Taconic was the general contractor of the construction project at the Premises. Cruz was employed by JVA, a subcontractor, at the time of the accident. Cruz alleges that, on the day of the accident, he fell from a ladder while working at the Premises.

Taconic and CPW sued JVA seeking (1) common law indemnification; (2) contribution; (3) contractual indemnification; and (4) breach of contract to procure insurance.

Cruz sustained personal injuries to his back, including a herniation of the L3-L4 disc, a herniation of the C3-C4 disc, and a fractured right ring finger. Cruz also alleges that he has sustained a “head injury, concussion, post concussive syndrome [and] post traumatic mood disorder”.

New Hampshire issued a policy of Workers’ Compensation and Employers’ Liability Insurance to JVA, policy number WC 009-87-2033. Insurance, coverage is specifically excluded for “liability assumed under a contract”.

Chartis Claims, Inc. (Chartis), the claim administrator handling claims under the New Hampshire policy, wrote to JVA regarding the claims in the underlying action and the third-party action commenced by Taconic. Chartis advised JVA that it would participate in JVA’s defense against the claims in the underlying action and in the first third-party action, subject to a reservation of rights and partial disclaimer of coverage. Specifically, plaintiff reserved its rights to disclaim coverage under the exclusion in Coverage Part Two for all claims based on liability assumed under a contract.

Eventually New Hampshire sued. The complaint contains four causes of action, each seeking a declaration that plaintiff has no duty to defend or indemnify JVA for the causes of action for contractual indemnification (first cause of action), common law contribution (second cause of action), common law indemnification (third cause of action) or breach of contract to purchase insurance (fourth cause of action), as set forth in the first and second third-party complaints in the underlying action.

Neither JVA nor Cruz has properly appeared in this action, and are now in default.

DISCUSSION

With respect to the claims for contractual indemnification (first cause of action) and breach of contract to purchase insurance (fourth cause of action), the New Hampshire policy contains an exclusion for “liability assumed under a contract.” Accordingly, New Hampshire has no duty to defend or indemnify any party in relation to the claims for contractual indemnification, and breach of contract to purchase insurance since the policy explicitly excludes coverage for any liability assumed under a contract. Further, New Hampshire is not required to either defend or indemnify defendant for the contractual indemnification or breach of contract causes of action.

Plaintiff is clearly entitled to a declaration that it owes no coverage to any party in the underlying action for these claims. With respect to the claims for common law contribution there is no coverage for such claims under an Employers’ Liability policy like the one issued by plaintiff.

Here, the principal injuries alleged in the bill of particulars are a fractured ring finger and back injuries, which do not qualify as “grave injuries” within the meaning of § 11 of the Workers’ Compensation Law and there is no allegation that Cruz permanently and totally lost the use of his arm or hand.

Cruz, who is currently working, could not have sustained a “grave injury.” Hence, plaintiff is entitled to a declaration that the injuries sustained by Cruz do not qualify as “grave injuries” within the meaning of Workers’ Compensation Law § 11, and that, accordingly, plaintiff has no obligation to defend or indemnify [defendants] for the underlying common-law indemnification and contribution claims.

New Hampshire’s motion for the entry of a default judgment against defendants JVA Industries Inc. and Luis Cruz was granted, and the Clerk is directed to enter judgment on the complaint in favor of plaintiff and against said defendants; and the motion for summary judgment was granted and it was ordered that that New Hampshire has no duty to defend or indemnify any party in connection with the underlying personal injury action entitled Luis Cruz v Taconic Builders, Inc. v JVA Industries.

ZALMA OPINION

When a court is faced with an insurance coverage dispute it must read the insurance policy as written. In this case the policy clearly and unambiguously excluded coverage for any liability assumed under a contract. Since the only claim against New Hampshire’s insured was for a liability assumed under a contract there was no coverage for defense or indemnity.

 


© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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 Library, at 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 three new e-books  were recently added and are available at http://zalma.com/zalma-books/

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/bzalma  on Facebook at https://www.facebook.com/barry.zalma and you can follow him 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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When is an Appraiser Disinterested?

What is “Competent and Disinterested”?

California Insurance Code, at § 2071 provides a method by which an insured and insurer may quickly, and informally, resolve disputes concerning the amount of loss. Although called “appraisal” it is really a contractual arbitration agreement mandated by statute where the court is required to treat the award of the appraisers and umpire in the case at bench as a confirmed award in arbitration.

Therefore, when an insurer and its insured fail to agree on the amount of loss following a fire, the California Insurance Code allows each of them to select a “competent and disinterested appraiser,” who are in turn required to agree on a “competent and disinterested umpire” (or request appointment of one by the court) to form a three-member panel to adjudge the amount of loss. The award of the appraisers will be treated as an award of arbitrators and when confirmed will be an enforceable judgment of the court.

California courts have concluded this adjudication must be conducted pursuant to the provisions of the California Arbitration Act, Code of Civil Procedure section 1280 et seq. (Arbitration Act).

Section 1281.9 of the Arbitration Act requires proposed neutral arbitrators to disclose to opposing parties the existence of any potential grounds for disqualification. If a party objects to the proposed neutral arbitrator, section 1281.91 requires the objecting party to serve a notice of disqualification within 15 days of receipt of the disclosure statement.
Do the disclosure required by the Arbitration Act and its disqualification provisions apply only to the jointly proposed umpire in a loss appraisal proceeding or also to the “competent and disinterested” appraisers unilaterally designated by the parties?

If they do not apply, under what circumstances may a party to the appraisal proceeding disqualify an opposing party appraiser for cause?

In Mahnke v. Superior Court of Los Angeles County, 180 Cal.App.4th 565, 103 Cal.Rptr.3d 197 (Cal.App. Dist.2 12/21/2009) the Court of Appeal resolved an issue of disqualification and allowed a party-selected appraiser who disclosed a potential conflict in favor of allowing the appraiser to serve. The Mahnke court explained:

Party-selected appraisers, however, have been treated differently from party arbitrators due to Insurance Code section 2071’s specification that each party select a “competent and disinterested appraiser.” This requirement, incorporated into every fire insurance policy issued in California, in effect constitutes a contractual agreement between the parties to select neutral appraisers. … As the Gebers [Gebers v. State Farm General Ins. Co. (1995) 38 Cal.App.4th 1648]court explained, “current or prospective financial dealings with a party are well recognized as grounds for an arbitrator’s disqualification.” (Gebers, at p. 1653.)

The insurer, California FAIR Plan Association (CFPA), sought to disqualify the party appraiser selected by their insureds, Peter and Patricia Mahnke. The trial court granted CFPA’s petition, concluding that section 1281.9’s disclosure and disqualification standards that required “requires a proposed neutral arbitrator to disclose: “(1) The existence of any ground specified in Section 170.1 for disqualification of a judge” and that it applied to party-selected appraisers. The Mahnkes’ party-appraiser’s retention as an expert witness by another client of the Mahnkes’ counsel was an impermissible conflict of interest requiring his disqualification.

The Court of Appeal disagreed with the superior court’s analysis on both points and granted the petition for writ of mandate filed by the Mahnkes and directed the superior court to vacate its order disqualifying the party appraiser and to enter a new order denying CFPA’s petition to disqualify him.

Factual and Procedural Background

After the Mahnkes’ home was severely damaged in the November 2008 Sylmar wildfires, they tendered a claim to CFPA. CFPA acknowledged coverage, adjusted the claim and offered payment. The Mahnkes did not agree with CFPA’s assessment of their damages and elected to proceed under the appraisal provision of the policy.

On January 26, 2009 the Mahnkes served CFPA with notice of this election and their choice of Robert McConihay to serve as their appraiser. The next day CFPA responded with the name of the appraiser it had selected, William Bruce Reid. On February 9, 2009 Mr. Reid mailed a disclosure statement indicating his own lack of financial interest in the outcome of the appraisal and disclosing he was currently serving as CFPA’s designated appraiser in another pending action. In a letter dated February 11, 2009 the Mahnkes’ counsel responded, “[t]hough we are unaware of a requirement to make the disclosure . . . your appraiser has made, out of courtesy we will do the same.” Mr. McConihay’s disclosure statement asserted he lacked any financial interest in the outcome of the proceeding and had no previous dealings with the parties. The declaration disclosed, however, he was currently engaged as a construction expert for another client of the law firm representing the Mahnkes. The letter also attached his resume, which recounted his professional experience and included the names of 14 lawyers, including the Mahnkes’ counsel, as references.

The Appraisal Provision of Insurance Code Section 2071

Fire insurance policies on California properties have long been required to use standard language specified by the Legislature. Among other policy provisions, in the event the insurer and the insured disagree about the amount of loss, Insurance Code section 2071provides a method by which their differences may be resolved, called “appraisal.” Each party is required to select “a competent and disinterested appraiser,” who together must then select (or, if the party-selected appraisers cannot agree, have the court appoint) “a competent and disinterested umpire.” The party-selected appraisers are each required to appraise the loss and, in the event of disagreement, submit their differences to the umpire for adjudication.

The “Appraisal” provision in the current version of the statute has remained largely unchanged since it was first enacted in 1949. In particular, the terms “competent and disinterested appraiser” and “competent and disinterested umpire” appear in the original, 1949 legislation. Amendments in 2000 insisted that the appraisal process be “informal.”
Notwithstanding this statutory direction to maintain the informality of appraisal proceedings, in general those proceedings must also conform to the procedural requirements of the Arbitration Act.

The Disclosure and Disqualification Provisions of the Arbitration Act

Courts have long struggled with the problem of ensuring not only the neutrality but also the perception of neutrality of arbitrators, who wield tremendous power to decide cases and whose actions lack, for the most part, substantive judicial review. It is difficult to conceive a way in which the effectiveness of the arbitration process will be hampered by the simple requirement that arbitrators disclose to the parties any dealings that might create an impression of possible bias. The Legislature, by the Arbitration Act, requires such disclosure.

However, insurance appraisals are not run-of-the-mill arbitrations. As one court explained, “bias in a party arbitrator is expected and furnishes no ground for vacating an arbitration award, unless it amounts to ‘corruption.’” Party-selected appraisers have been treated differently from party arbitrators due to section 2071’s specification that each party select a “competent and disinterested appraiser.” This requirement, incorporated into every fire insurance policy issued in California, in effect constitutes a contractual agreement between the parties to select neutral appraisers.

Even if the evidence tends to establish that no actual bias, prejudice, influence, or fraud was disclosed on the part of the umpire, public policy and an unconscious predilection to favor one’s interest renders an arbitrator, directly or indirectly interested in the result of the arbitration, partial, incompetent, and disqualified.

For instance, in Gebers v. State Farm General Insurance Co. (1995) 38 Cal.App.4th 1648 (Gebers) the court concluded party-selected appraisers are held to a higher standard of impartiality than are party arbitrators precisely because of this legislative mandate. Because the insurer-selected appraiser in Gebers had a direct pecuniary interest in ongoing litigation work for State Farm, the court vacated the underlying arbitration award based on the appraiser’s presumed bias. A similar finding was made in Figi v. New Hampshire Ins. Co. (1980) 108 Cal.App.3d 772, 776-778 where an arbitration award was vacated based on a disinterested umpire’s failure to disclose ongoing business relationship between himself and insurer’s designated appraiser.

Section 1281.9 now imposes disclosure requirements on a “proposed neutral arbitrator.”
The term “proposed neutral arbitrator,” in turn, is defined in section 1280, subdivision (d), as one “who is (1) selected jointly by the parties or by the arbitrators selected by the parties or (2) appointed by the court when the parties or the arbitrators selected by the parties fail to select an arbitrator who was to be selected jointly by them.”

The statutory scheme now imposes a disclosure obligation exclusively on the “proposed neutral arbitrator” who, like the “umpire” contemplated in Insurance Code section 2071, is either selected jointly by the parties and their respective party arbitrators or appointed by the court upon the failure of the parties to agree. The Court of Appeal concluded:

The disclosure requirements in section 1281.9 and the Judicial Council’s Ethics Standards for Neutral Arbitrators do not apply to any arbitrator other than the jointly selected, or court-appointed, proposed neutral arbitrator-or, in the case of a contested appraisal proceeding, the competent and disinterested umpire.

So long as the proposed neutral umpire is subject to the Arbitration Act’s disclosure and disqualification requirements, subjecting the party-selected appraisers to the same obligations and limitations is inconsistent with the spirit of the Legislature’s amendments.

Party-Selected Appraisers May Be Disqualified When a Substantial Business Relationship Exists Between the Appraiser and a Party

The interest or bias that disqualifies an arbitrator or appraiser must be direct, definite, and demonstrable as contrasted with remote, uncertain, or speculative. The key to disqualifying a party appointed appraiser is whether there is a “substantial” business relationship between the party appointed appraiser and a party to the appraisal, their counsel, or the umpire. Impartial arbitrators/appraisers must disclose to the parties any dealings that might “create an impression of possible bias.” The test is whether a reasonable member of the public at large, aware of all of the facts, would fairly entertain doubts concerning the arbitrator’s/appraiser’s impartiality, the arbitrator/appraiser is not subject to disqualification.

In Banwait v. Hernandez (1988) 205 Cal.App.3d 823 (Banwait), also cited by appellants, the arbitrator failed to disclose that he had once been represented as a client by the law firm representing the insurer in the underlying arbitration. The trial court found that the prior representation did not constitute a substantial business relationship, but nevertheless vacated the arbitration award. The Court of Appeal reversed. The Banwait court noted that California appellate courts had uniformly held that Commonwealth should govern the application of subdivisions (a) and (b) of section 1286.2. (Banwait, supra, at p. 828.) However, it found that the trial court’s findings precluded any conclusion that the arbitrator was corrupt or biased, thus there was no basis for setting aside the award.

A relationship where there exists a present or past business relationship between the arbitrator and a party, its counsel or a witness can suggest a pecuniary interest on the part of the arbitrator or that the arbitrator will place unusual trust or confidence in the party with whom the relationship existed. If the arbitrator provides a reason that would lead a reasonably prudent person to favor the party for reasons wholly unrelated to the merits of the arbitration, the arbitrator/appraiser may be disqualified if the business relationship is substantial.

An arbitrator cannot be expected to provide the parties with his complete and unexpurgated business biography. It is enough for the purposes of an appraisal to require that where the arbitrator has a substantial interest in a firm which has done more than trivial business with a party, that fact must be disclosed.

Mr. McConihay affirmed in his disclosure that he had no financial interest in the underlying dispute between the Mahnkes and CFPA. Regardless, it is presumed that he is being compensated by the other client, just as the Mahnkes are responsible for compensating him in their proceeding. Although compensation for services is often relevant to the question of ability to serve impartially, it is not determinative in this instance because any party-selected appraiser will necessarily be paid by the retaining party. Since most arbitrators are drawn from business and professional ranks, and are not full-time judicial officers with public responsibilities, to attract and obtain the most capable among them, a court should not demand divestment of all interests or withdrawal from all activities prohibited to judicial officers. Therefore, the arbitrator/appraiser may serve if the financial relationship is not substantial and must be more than the fact that he or she is being paid for services rendered.
The court concluded that:

Imposing overly rigorous standards on party-selected appraisers in informal proceedings under Insurance Code section 2071 would be both short- sighted and naïve about the realities of modern litigation practices. Viewed as a whole, Mr. McConihay’s resume demonstrates that he possesses experience qualifying him to act as a “competent” appraiser and that his broad client base distinguishes him from those professionals who regularly perform services for particular clients (or attorneys) and become financially dependent on them. Viewed from the standpoint of a reasonable member of the public, we see nothing that warrants Mr. McConihay’s disqualification.

A peremptory writ of mandate was issued directing the superior court to vacate its order granting CFPA’s petition to disqualify Mr. McConihay and to enter a new order denying the petition.

CONCLUSION

A person or insurer entering into an appraisal proceeding should find the Mahnke decision to broaden the field of available appraisers and limit the ability of either party to disqualify a party appointed appraiser.

 


© 2017 – Barry Zalma

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

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

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

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

National Underwriter Company publishes the  Zalma Insurance Claims Library, at 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 reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma and at his web site: http://www.zalma.com.

 

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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No Good Deed Goes Unpunished

Pay the Premium or Lose Coverage

States across the U.S. have passed statutes regulating the cancellation of insurance policies. The statutes impose strict notice to the insured and how cancellation for failure to pay premium can be cured.

In Anthony Chenevert And Cindy Langwell v. Allstate Property And Casualty Insurance Company, 17-561, State Of Louisiana Court Of Appeal, Third Circuit (October 11, 2017) the state of Louisiana enacted such a statute that a trial court applied strictly requiring the notice to be in the exact language of the statute.

Allstate Property and Casualty Insurance Company (Allstate), sought supervisory writs from the judgment of the Twelfth Judicial District Court, Parish of Avoyelles, the Honorable Kerry Spruill presiding, which denied Allstate’s motion for summary judgment on the issue of insurance coverage.

STATEMENT OF THE CASE

An automobile accident occurred on October 15, 2015, involving plaintiffs, Anthony Chenevert and Cindy Langwell, and a vehicle driven by Rodney Lee Johnson, Jr., but owned by Katelin Firmin. Chenevert and Langwell filed suit against Allstate, alleging it provided coverage to Mr. Johnson under its policy issued to Ms. Firmin. Allstate filed its motion for summary judgment, asserting that coverage was not in place for Ms. Firmin or Mr. Johnson on the date of the accident because the policy previously issued to Ms. Firmin had been cancelled due to non-payment of her insurance premium on September 15, 2015.

Notice Of Non-Payment of Insurance Premium

Ms. Firmin by automatic bank transfer forwarded a payment to Allstate for a premium due on the subject policy. The automatic payment form Ms. Firmin’s account was not honored due to insufficient funds. Therefore Allstate forwarded a notice of cancellation to the insured. The notice provided: “Auto policy cancellation notice for non-payment of premium . . . If you want your insurance coverage to continue and do not want it to cancel, please make sure we receive the minimum amount due by the end of the day (midnight) on September 14, 2015 or your policy will cancel at 12:01 a.m. Standard Time on September 15, 2015.”

Despite the notice of payment due from Allstate, the extra time given for payment and the multiple ways that payment could be made to insure that the policy remained in force and effect, Ms. Firmin did not make the required payment of her insurance premium, which would have reinstated her policy, until the day after the accident.

Chenevert and Langwell opposed Allstate’s motion for summary judgment, arguing issues of material fact existed as to whether the cancellation letter met the strict requirements of Louisiana statutes. After hearing oral argument of counsel, the trial court denied Allstate’s motion for summary judgment.  The trial court stated that it Allstate did not create an effective cancellation in accordance with the statutory requirements for effective cancellation.

ON THE MERITS

An insurer seeking to avoid coverage through summary judgment bears the burden of proving that some provision or exclusion applies to preclude coverage. Summary judgment declaring a lack of coverage under an insurance policy may only be rendered if there is no reasonable interpretation of the policy when applied to the undisputed material facts shown by the evidence supporting the motion under which coverage could be afforded.

Statutory Interpretation

The issue before the court was strictly one of statutory interpretation. Does the notice sent to the insured have to meet the exact wording of the statute to be effective? Neither party disputes that the notice sent by Allstate comports with the “spirit” of the law. Plaintiffs even concede their argument is “absolutely a technical argument.”

Undeniably, the notice sent by Allstate to Ms. Firmin provides more time for payment, more continued coverage, and more convenient and modern methods for payment than statutorily required, but it does not contain the exact wording set forth in the statute.

Jurisprudence has long held that the rules of statutory construction require our courts to determine the intent and purpose of the legislature in enacting the law and to give effect, if possible, to that intent and purpose.

The Louisiana Civil Code commands the courts to apply the letter of the law unless the words or expressions are unclear, or its application leads to absurd results, in which case only then may the courts look to the context of the words, other statutes, and the spirit of the law. Pursuant to this rule, it is the duty of the court to apply the statute as written unless a literal application would lead to an absurd result, at which point the letter of the law must give way to the spirit so as to produce a reasonable result.

The statutory requirements are mandatory and are designed to notify the insured his policy is being terminated, to provide the reason for the termination and to afford him ample time to obtain other insurance protection.

Allstate argues the trial court erred in denying its summary judgment motion because the cancellation notice did in fact comply with all the statutory requirements:

  • the notice was forwarded on August 26, 2015, at least ten days prior to the date the cancellation would become effective, September 15, 2015;
  • the notice was forwarded with proof of mailing to the named insured at the address shown in the policy;
  • the notice advised the insured, Ms. Firmin, that her insurance coverage would not be canceled effective August 15, 2015, the date of the premium for which payment was returned, but instead that the cancellation of her policy would be effective at 12:01a.m. Standard Time on September 15, 2015. Therefore, Allstate’s cancellation notice, in effect gave its insured, Ms. Firmin, and the driver of her vehicle, defendant, Mr. Johnson, continued coverage for a full month past the August 15, 2015 date her policy premium was due;
  • the notice contained a transaction history outlining the return of her policy premium payment on August 20, 2015, due to the insufficiency of funds, and an explanation of the minimum amount due; and
  • the notice explained the methods available for making said payment, which methods, i.e., credit/debit card or checking account payments by phone or website, which are more generous than the statutory methods of cashier’s check, money order, or “other negotiable instrument.”

While strict construction is required in the application of the statute there is no requirement that the cancellation notice quote the exact language from the statute. The information contained in the notice sent by Allstate to Ms. Firmin was more than sufficient to advise her of the steps she needed to take to maintain her automobile insurance coverage, and fully complied with the intent and provisions of the statute.

It is undisputed that Ms. Firmin did not pay her automobile insurance premium by midnight on the last day available by the notice but instead paid her premium more than one month later, the day after the accident. This, despite a complete explanation of the methods available for payment of the minimum amount due, and the date the notice of cancellation of the policy was effective.

It is undisputed that Ms. Firmin chose not to take advantage of any of the many different opportunities presented by Allstate for payment of her insurance premium. The court found that Allstate’s cancellation notice more than fully complied with the legislative provisions and the intent of the statute. An insured cannot simply ignore a valid notice of cancellation with provisions for re-instatement more favorable than the statute actually requires, wait more than thirty days after the effective date of cancellation, and then try to send in a policy payment the day after a non-covered accident occurs. Such a statutory construction would produce an absurd result.

The claims against Allstate Property and Casualty Insurance Company were dismissed with prejudice.

ZALMA OPINION

Allstate, trying to act in good faith and deal fairly with its insured, provided additional time than required by the statute and provided more means by which she could have paid and reinstated coverage. The insured ignored the offer to reinstate and did nothing until the day after the accident attempting to get coverage only after it was needed. The trial court fell for the argument and Court of Appeal noticed the attempted fraud and granted coverage. Of course, Allstate, was stuck with the cost of defense and the appeal.


© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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 Library, at 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 three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him 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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Insurance Claims In a Catastrophe

Insurance Claims In a Catastrophe

If your house was damaged or destroyed by a wildfire, accidental fire, windstorm, flood, hurricane or earthquake, as a result of state declared catastrophes and you had a fire, homeowners, flood insurance, tenant’s homeowners or condominium policy you will be dealing with an insurance adjuster to gain indemnity for your losses. You should recognize that dealing with an insurance adjuster in a catastrophe is usually fairly easy. The adjuster and the insurer are under pressure from local, state and federal governments to quickly resolve the multitude of claims resulting from the catastrophe.

Insurers dealing with a catastrophe will usually be in a very generous mood. They will be seeking good publicity by taking care of victims of the catastrophe quickly and fairly. To make the claims process go easily the insured person must understand that both the insured and the adjuster have duties when damage caused by fire, windstorm, flood or other insured perils are discovered.

The full article is available at https://www.fastcase.com/blog/insurance-claims-in-a-catastrophe/

 

© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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 Library, at 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 three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him 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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Convicted Insurance Fraud Perpetrator Sues Insurer for Reporting Him

“Chutzpah” by Fraud Perpetrator Fails

“Chutzpah” is a Yiddish term meaning unmitigated gall. The best definition I have heard is when a man is convicted of murdering his parents and pleads for mercy because he is an orphan.

In David Cook v. Federated Mutual Insurance Company, Case NO. C17-5795 RBL, United States District Court Western District Of Washington At Tacoma, (October 16, 2017) “chutzpah” gained a new definition where a person who pleaded guilty to insurance fraud sought damages from the insurer who reported his fraud to the authorities.

THE PROPOSED SUIT

David Cook applied to the USDC to Proceed with litigation against Federated in forma pauperis. Cook has attached to his application a proposed complaint against Defendant Federated Mutual Insurance Company (FMIC) seeking $15 million in damages.

LEGAL STANDARD

A district court may permit indigent litigants to proceed in forma pauperis upon completion of a proper affidavit of indigency. The Court has broad discretion in resolving the application, but the privilege of proceeding in forma pauperis in civil actions for damages should be sparingly granted.

Moreover, a court should “deny leave to proceed in forma pauperis at the outset if it appears from the face of the proposed complaint that the action is frivolous or without merit.” Tripati v. First Nat’l Bank & Trust, 821 F.2d 1368, 1369 (9th Cir. 1987) (citations omitted.

A pro se Plaintiff’s complaint is to be construed liberally, but like any other complaint it must nevertheless contain factual assertions sufficient to support a facially plausible claim for relief. A claim for relief is facially plausible when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.

ANALYSIS

Cook is a notorious fraudster who has previously been identified on the Washington State Insurance Commissioner’s “Insurance Fraud Most Wanted” list. Cook has multiple fraud-related convictions and is currently in custody awaiting trial in Pierce County Superior Court on eighteen counts of identity theft, theft, and forgery.

Cook’s alleged claims against FMIC appear to relate to an insurance fraud scheme stemming from a 2013 car accident, in which Cook submitted fraudulent claims for lost wages and Cook’s nephew falsely claimed that he was a passenger in Cook’s vehicle. The gravamen of Cook’s complaint is that FMIC was responsible for instigating criminal charges against him after learning that Cook had submitted false insurance claims related to the 2013 car accident.

Cook seeks a total of $15 million in damages from FMIC, essentially claiming that FMIC is responsible for his misfortune because they reported his fraudulent insurance claims. Cook’s complaint seeks $10 million in punitive damages from FMIC for pain and suffering resulting from the death of his wife and mother-in-law who died in a traffic accident in 2015.

Cook’s proposed complaint fails to articulate any plausible theory as to how FMIC’s reporting of his fraudulent insurance claims, conduct which Cook pled guilty to, makes FMIC liable for the tragic but unrelated passing of Cook’s family members in a traffic accident.

The Court concluded that Cook’s complaint is frivolous because it has no arguable substance in law or fact and the Court can draw no reasonable inference that FMIC is liable for the misconduct Cook alleges.

CONCLUSION

Because Cook’s proposed complaint was frivolous, his application to proceed in forma pauperis was DENIED and his complaint was dismissed with prejudice and the Application to Proceed In Forma Pauperis is denied with prejudice.

ZALMA OPINION

I have spent the last 50 years of my life dealing with people like David Cook. I have seen insurers waste money defending frivolous bad faith lawsuits because a fraudster like Cook thought a suit would compel an insurer to settle rather than fight. His attempt failed and if he wasn’t already in jail I am sure the court considered holding Cook in contempt.

 

© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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 Library, at 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 three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him 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 – October 15, 2017

The liens of a physician, practitioner or provider and the liens of an entity
controlled by one who has been charged with crimes involving the federal Medicare or Medicaid programs, the Medi-Cal program or the workers compensation system are required to be automatically stayed, along with any interest accruing, until disposition of the criminal proceedings, according to the bill’s latest text.
Barry Zalma, Inc. is available to provide expert advice to individuals and their counsel. Advice from Barry Zalma, Inc. is indispensable to the resolution of insurance disputes. Consultation from Mr. Zalma  can save you, your counsel or client hundreds of hours of investigative and legal work.

Zalma’s Insurance Fraud Letter, Volume 21, No. 20

The Current Issue Contains the Following

  • Any Medical Provider Convicted of Fraud in California Will Be Suspended
  • Become a Certified Expert in Corporate Property Insurance and a Certified Expert in Corporate Liability Insurance
  • The Insurance Examination Under Oath
  • Books from Barry Zalma
  • Fraud Units Being Formed by U.S. Attorney
  • Barry Zalma Speaks at Your Request
  • What Happens When the Insured Refuses to Testify at EUO?
  • E-Books from Barry Zalma
  • California Division of Workers’ Comp Suspends 8 Medical Providers for Fraud
  • The Zalma Insurance Claims Library
  • Wisdom
  • Barry Zalma
  • Good News From the Coalition Against Insurance Fraud
  • Health Insurance Fraud Convictions
  • Other Insurance Fraud Convictions
  • Books from the American Bar Association
  • Zalma’s Insurance Fraud Letter
  • The Legend

Zalma on Insurance – A Blog

 The most recent posts to the daily blog, Zalma on Insurance, are available at  http://zalma.com/blog.
Check in every day for a case summary at http://zalma.com/blog:

 Zalma’s Insurance 101 

I have completed a video blog called that consist of 1022 three to four minute videos starting with “What is Insurance” and moving forward to insurance fraud investigations explaining the basics of insurance and insurance claims handling in a painless fashion that can be viewed every morning with the first cup of coffee at  Zalma’s Insurance 101.

The videoblog is adapted from my book, Insurance Claims: A Comprehensive Guide available at the Zalma Insurance Claims Library.
Some of the 1,022 videos follow: If you start at Volume 1 at the bottom of the blog’s first page and view one or two videos a day you will have approximately 12 to 24 hours of training a year until you get to the last video.
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Trademark Infringement Claim Places Insured at Land’s End

Advertising Injury Coverage & Exclusion Clarified

Trademark infringement lawsuits are often complex and difficult for insurers to deal with. Some provide coverage without dispute while others rely on exclusions written to limit the coverages provided. Since insurance coverage grants are broad – and because no insurance policy covers every possible eventuality – exclusions are written to limit the effect of the coverage grant.

In Land’s End At Sunset Beach Community Association, Inc. v. Aspen Specialty Insurance Company, Case No: 8:17-cv-1740-T-30TGW, United States District Court Middle District Of Florida Tampa Division (October 4, 2017) the USDC was asked to compel an insurer to provide coverage it claimed was clearly and unambiguously excluded.

FACTUAL BACKGROUND

Land’s End at Sunset Beach Community Association, Inc. successfully defended itself against an Alaskan corporation for its use of “Land’s End” in advertisements. In this suit, the Community Association argues its insurer, Aspen Specialty Insurance Company, had a duty to defend it in the underlying suit. Whether that duty arose required the Court to determine what claims the Alaskan corporation brought—a task much more complicated than it sounds—and whether those claims were excluded under the Policy.

The Community Association operates a condominium complex in Treasure Island, Florida, and advertises short-term rentals of its condos. Aspen issued a commercial general liability policy to the Community Association. The Policy provides coverage for “Personal and Advertising Injury” subject to certain exclusions. The relevant exclusion provides:

“2. Exclusions

“This insurance does not apply to:… i. Infringement Of Copyright, Patent, Trademark Or Trade Secret.”

THE CLAIMS AGAINST THE COMMUNITY ASSOCIATION

Land’s End Acquisition Corporation (“LEAC”) is a corporation that operates hotels and resorts in Alaska, including the Land’s End hotel. LEAC owns the “LAND’S END” trademark, which it uses to advertise its hotels and resorts.

LEAC sent the Community Association a cease and desist letter accusing the Community Association of improperly using the “LAND’S END” trademark. After attempting to resolve the situation, the Community Association filed a declaratory judgment action against LEAC in the District Court for the Middle District of Florida seeking a declaration that the Community Association had not infringed on LEAC’s trademarks.

In response, LEAC counterclaimed. The Community Association notified Aspen and requested a defense under the Policy. Aspen denied the Community Association’s request for a defense, arguing the claims against the Community Association were not covered.

In its Counterclaim against the Community Association, LEAC alleged that the Community Association used “the LAND’S END mark in connection with short-term rental services … which creates a likelihood of confusion with LEAC’s LAND’S END marks.”

Each of the Counts incorporated the same general allegations and included claim-specific allegations referring to the use of the LAND’S END mark, constituted trademark infringement, “thereby creating a likelihood of confusion as to the source of origin, affiliation, approval or sponsorship of such services.”

GENERAL LAW GOVERNING INSURANCE COVERAGE DISPUTES

Whether an insurer has a duty to defend is determined solely from the allegations in the complaint against the insured, not by the true facts of the cause of action against the insured, the insured’s version of the facts or the insured’s defenses. If the underlying suit brings even one claim that falls within the scope of coverage, the insurer is obligated to provide a defense for the entire dispute. Any doubt about the duty to defend must be resolved in favor of the insured. But courts need not stretch the allegations beyond reason to impose a duty on the insurer. [Trailer Bridge, Inc. v. Illinois Nat. Ins. Co., 657 F.3d 1135, 1144 (11th Cir. 2011)].

An insurer has a duty to defend unless either (1) all the claims in the underlying suit do not fall within the grant of coverage, or (2) the complaint shows the applicability of a policy exclusion as to all claims within the broad scope of coverage.

POLICY COVERAGE AND APPLICABILITY OF THE IP EXCLUSION

The Court concluded the claims in the underlying suit contained allegations that the Community Association used LEAC’s advertising idea or its slogan (i.e., whether the underlying suit made claims within the scope of coverage).

The court rejected the idea that the underlying suit alleged the Community Association used LEAC’s slogan. LEAC never referred to “LAND’S END” as a slogan in the Counterclaim or Amended Counterclaim, and did not bring an explicit action for slogan infringement. LEAC also alleged in the Amended Counterclaim that the Community Association appeared to use the LAND’S END mark alone, “not descriptively.” In other words, not as a slogan.

THE EXCLUSION

Having concluded that the allegations in the underlying suit can safely be said to fall within the Advertising Idea Offense definition of personal and advertising injury—but not within the Slogan Offense—the Court then determined what effect, if any, the IP Exclusion had on the coverage.

The Court concluded that all LEAC alleges is that the Community Association infringed on its LAND’S END mark. Having made that determination, it is clear the claims are excluded.

The IP Exclusion stated that there is no coverage for “‘Personal and advertising injury’ arising out of the infringement of … trademark.” Because the IP Exclusion bars coverage for claims arising out of trademark infringement, and the underlying suits arose out of trademark infringement, the claims are clearly excluded from coverage.

Contrary to the Community Association’s argument, the second sentence of the IP Exclusion does not apply. The second sentence states, “Under this exclusion, such other intellectual property rights do not include the use of another’s advertising idea in your ‘advertisement’.”

The Community Association argued that the Advertising Idea Offense claims are within an exception to the IP Exclusion. But the exception does not apply to trademark infringement — it only applies to infringement of other intellectual property rights. This result simply makes sense. Given the broad definition of advertising idea under Florida law, all cases of trademark infringement involving advertisements would fall within the exception to the IP Exclusion at issue. If the Court were to adopt the Community Association’s position would make the exception swallow the IP Exclusion, and make it useless. That cannot be the intent of the insured and insurer when the policy was acquired.

CONCLUSION

The Community Association is correct that LEAC made claims against it in the underlying suit that fell within the broad grant of the Aspen Policy’s “personal and advertising injury” coverage. Specifically, LEAC alleged the Community Association infringed on its LAND’S END trademark, which gave rise to multiple causes of action. But because all of the causes of action were dependent on the Community Association’s infringement of the LAND’S END trademark, the IP Exclusion unambiguously barred coverage under the Policy. Because it was clear that none of the claims LEAC alleged against the Community Association were covered by the Policy, Aspen did not owe a duty to defend the Community Association in the underlying suit.

ZALMA OPINION

Much to the surprise of insureds and to the detriment of the income of the policyholders’ bar, no policy covers every possible event. As broad as the duty to defend is, it is not unlimited. When a policy clearly and unambiguously excludes a cause, as did Aspen when it excluded trademark infringement, there is no coverage for defense.

 

© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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 Library, at 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 three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him 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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Oklahoma Statute Deprives UM/UIM Insurer of the Equitable Remedy of Subrogation

Oklahoma Statute Takes Away Insurer’s Right of Subrogation Against UM/UIM Insurer

Subrogation is an equitable remedy that allows an insurer who pays a claim to an insured due to the actions of a tortfeasor to sue the tortfeasor as if the insurer is its insured to recover its payment. It is only fair to allow the insurer subrogation as it would allow an uninsured to sue, and recover from, a tortfeasor.

In Vonda Raymond, Guardian Of Mark Raymond v. Tami Taylor, individually and as Personal Representative of the Estate of William Cole Taylor, deceased, and on behalf of the wrongful death beneficiaries v. Larry Bedell, an individual, And Blueknight Energy Partners, L.P., a foreign corporation, Defendants v. Compsource Oklahoma, Intervenor, and American Mercury Insurance Company, 2017 OK 80, Case Number: 113894, Supreme Court Of The State Of Oklahoma (October 10, 2017) The Supreme Court of Oklahoma was called upon to construe a statute that deprived an insurer of its right to subrogate.

THE ISSUE

The question presented is whether the uninsured motorist insurance carrier is entitled to subrogation against the underinsured tortfeasor’s assets, including excess insurance coverage, in the amount the uninsured motorist insurance carrier had previously paid to the injured party.

FACTUAL HISTORY

Mark Raymond sued various tortfeasors. American Mercury Insurance Company, the uninsured motorist insurance carrier, sought subrogation from the tortfeasors of the uninsured motorist payments. Raymond settled with the tortfeasors for a confidential amount inclusive of the disputed subrogation claim. The district court ordered that the UM insurance carrier was entitled to full subrogation. The Court of Civil Appeals affirmed and the case was resolved by the Supreme Court.

Larry Bedell (Bedell) was an employee of BlueKnight Energy Partners (BlueKnight); BlueKnight carried a $1,000,000 primary automobile liability policy and a $40,000,000 excess liability policy. Bedell was driving an oil tanker truck, owned by BlueKnight, and attempted to turn in front of the Guy’s Seed vehicle causing a collision. The collision caused an immediate explosion, which resulted in Taylor’s death and Raymond suffering significant permanent injuries.

Raymond qualified as insured under Mercury’s UM coverage and the UM claim was reported to Mercury. Raymond sued Bedell and BlueKnight. Mercury investigated and offered the UM policy limits to Raymond’s and Taylor’s representatives, paying $500,000 to each.

Raymond disputed Mercury’s right to subrogation in this action, but Defendants refused to settle unless the settlement amount was inclusive of Mercury’s disputed subrogation claim. An agreement was reached where Raymond settled with Defendants for a confidential amount greater than the primary insurance liability limits but less than the excess policy; Defendants paid Raymond the amount of the settlement minus the $500,000 claimed by Mercury. The disputed $500,000 was to be held until there was an agreement or court order as to who was entitled to the funds.

ANALYSIS

Oklahoma statutes provide regulations for uninsured motorist insurance coverage and makes it mandatory as an option for all automotive insurance policies. For purposes of UM coverage protection, the term “uninsured motor vehicle” also includes insured vehicles where the liability limits are less than the amount of the claim of the person making a claim, otherwise known as under-insured vehicles. Any excess or umbrella policy is not included when determining the liability limits of a vehicle under the statutes.

The statute, however, states: “Provided, however, with respect to payments made by reason of the coverage described in subsection C of this section, the insurer making such payment shall not be entitled to any right of recovery against such tortfeasor in excess of the proceeds recovered from the assets of the insolvent insurer of said tortfeasor. Provided further, that any payment made by the insured tortfeasor shall not reduce or be a credit against the total liability limits as provided in the insured’s own uninsured motorist coverage. Provided further, that if a tentative agreement to settle for liability limits has been reached with an insured tortfeasor, written notice shall be given by certified mail to the uninsured motorist coverage insurer by its insured.” [emphasis by the court]

When a statute is unambiguous, its language will be applied without further inquiry as to its meaning. The Supreme Court has stated in the past that the intent of UM legislation is to provide the same protection for an insured person who is injured by an uninsured motorist as he or she would have if the uninsured motorist carried liability insurance.

The exception in the statute limits the UM carrier’s right to subrogation to recovery from the tortfeasor’s primary automotive liability insurer only and prohibits recovery against the tortfeasor in excess of the proceeds recovered from primary insurer or their assets. This exception only applies to UM payments made because of UM coverage described in subsection (C). Subsection (C) describes tortfeasor vehicles with insolvent liability insurers and under-insured vehicles as “uninsured” for purposes of UM coverage.

There is no language in the statute to indicate that the legislature contemplated UM carriers recovering from excess insurance policies of the tortfeasor. Instead, the legislature gave explicit instructions that UM carriers are not entitled to any right of recovery against the tortfeasor in excess of recovery from the insurer of the tortfeasor.

Contrary to Mercury’s claims, the Supreme Court concluded that Raymond is not receiving a windfall. Mercury was paid a premium for UM protection and Raymond recovered an amount not covering all of his damages within the limits of the primary liability policy and the UM policy. Raymond has also recovered an amount from the tortfeasor’s other assets that, combined with the liability and UM funds, covered his damages. It would be unjust to permit Mercury to avoid its liability with its claim that the tortfeasor’s other assets, that happened to be an excess liability policy, removed Mercury’s liability thus denying Raymond from receiving that for which Mercury was paid a premium.

In the present case, the tortfeasors carried $1,000,000 in primary automotive liability insurance. Because Raymond’s claim was clearly in excess of the liability limit, Mercury paid UM benefits under the definition of uninsured motor vehicle in the statute. The Supreme Court concluded that under the statute Mercury was limited to subrogation from the primary insurer and is not entitled to subrogation from any assets of the tortfeasor, including the excess liability policy.

CONCLUSION

As there is no right to subrogation by an UM carrier against an under-insured tortfeasor’s assets, Mercury did not have the right to subrogate the UM payment and we do not need to address the issue of attorney fees. The Court of Civil Appeals opinion is vacated and the judgment of the district court is reversed. The case is remanded with instructions to the District Court to release the $500,000 to the Appellant.

ZALMA OPINION

The Supreme Court’s decision correctly interpreted the statute. The problem is that Legislature, improperly deprived an UM/UIM insurer of the right of subrogation that is a right provided by contract and equity. The statute needs to be revised so that a UM/UIM insurer can subrogate against a tortfeasor since that is the purpose of the equitable remedy.

 

 

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I’m Dead – Really I Am!

Life Insurance Fraud Fails

Nigeria seems to be the birthplace of different types of fraud. Everyone in the U.S. has received a letter, e-mail or fax offering millions from some Nigerian prince or government official if only the recipient gives the person his bank account codes and numbers. In addition, many false life insurance claims based on accidental death in Nigeria are arriving with great volume.

In Abdul Salam Badmus v. Mutual Of Omaha Insurance Company, No. 17-20181, United States Court Of Appeals For The Fifth Circuit, (October 2, 2017) the Fifth Circuit was faced with such a case which – contrary to the court’s order to not formally publish the opinion – requires wide publicity.

FACTS

In August 2010, Mutual of Omaha Insurance Company (MOOIC) issued an Accidental Death Policy to Selem Babtunde Badmus (Selem), providing that it would pay a benefit of $750,000 in the event of Selem’s death if it was “caused by injury sustained while riding as a passenger in any public land, air or water conveyance provided by a ‘Common Carrier.'”

The policy named Selem’s brother, Abdul Salam Badmus (Badmus) as beneficiary. In March 2014, Badmus filed a claim with MOOIC seeking $750,000 under the policy, alleging that Selem died in an automobile accident in Lagos, Nigeria, on January 24, 2014. Badmus did not provide the requested documents.

Upon detecting numerous discrepancies and omissions in the forms Badmus submitted, MOOIC hired Worldwide Resources, Inc. (Worldwide) to investigate the claim. Worldwide ultimately concluded that most of the information Badmus submitted was suspect, and MOOIC denied the claim.

Badmus sued MOOIC in the United States District Court for the Southern District of Texas, acting as his own attorney, seeking payment under the policy and alleging (1) breach of contract; (2) unfair settlement practices and statutory bad faith; (3) misrepresentation of insurance policy; (4) violations of the Prompt Payment Statute and other provisions of the Texas Insurance Code; and (5) common law bad faith.

After the suit was served MOOIC uncovered a series of name-change forms indicating that “Selem Babatunde Badmus,” residing at Badmus’s address in Houston, Texas, applied for a name change to “Abdul Salam Badmus” on May 21, 2016, over two years after Selem’s alleged death in Nigeria. Shortly thereafter, Badmus was indicted for felony insurance fraud based on the insurance claim he filed with MOOIC.

Based on this information, the district court concluded that the insured was alive and granted summary judgment for MOOIC. Badmus appeals, challenging the district court’s grant of summary judgment for MOOIC as well as some of its evidentiary rulings.

ANALYSIS

The Fifth Circuit is required to review the district court’s evidentiary rulings under an abuse of discretion standard. Badmus argued that the district court erred in granting MOOIC’s motion to strike several exhibits he submitted with his summary judgment motion. These exhibits contain affidavits from two Nigerian witnesses that claimed to have witnessed the automobile accident and alleged that Selem died. The exhibits also contain a number of Internet and newspaper articles and websites as well as one scholarly article. The district court concluded that the exhibits must be excluded because they were inadmissible hearsay, irrelevant, and not in compliance with the Federal Rules of Civil Procedure.

Since the only argument Badmus raises on appeal is that the newspapers and periodicals contained in these exhibits are self-authenticating and relevant, there was no abuse of discretion in the district court’s exclusion of the evidence.

Badmus next argued that the district court erred in denying his motion to strike exhibits submitted by MOOIC. The exhibits in question include the indictment against Badmus for insurance fraud, Texas driver’s license records, name-change forms, and other evidence suggesting that one of Badmus’s witnesses knew the insured in 2005. The district court concluded that the forms were relevant to the question of whether the insured was alive.

The evidence at issue in Badmus’s motion to strike is highly relevant because it addresses a fact of enormous consequence in the litigation: whether the insured is alive or dead. Evidence is relevant if it has any tendency to make a fact more or less probable than it would be without the evidence and the fact made more or less probable is of consequences in determining the action.

To prevail under his claim for breach of contract under Texas law, Badmus must establish four elements: (1) the existence of a valid contract; (2) proof of the plaintiff’s performance; (3) evidence of the defendant’s breach; and (4) damages resulting from the breach. Badmus has failed to provide sufficient evidence to establish a genuine issue of material fact.

Badmus  failed to establish genuine issues of material fact with regard to any of his other claims. His claims of bad faith and violations of the Prompt-Payment Statute and other provisions of the Texas Insurance Code all depend on his ability to demonstrate a valid breach of contract claim. As discussed above, Badmus failed to prove that the insured has died under the circumstances required by the policy and that he is entitled to payment by MOOIC.

Finally, with regard to his claim of misrepresentation, Badmus fails to assert anything more than conclusory allegations that MOOIC inserted fake policy documents into its claims file in violation of Chapter 541 of the Texas Insurance Code. He does not present any evidence to support these allegations. Summary judgment was appropriate.

ZALMA OPINION

Those arrested for insurance fraud, like Badmus, have no shame. While under arrest for insurance fraud relating to the alleged death of the person he alleged to be his brother, Badmus had the unmitigated gall to sue MOOIC for the bad faith refusal to pay his claim. This case, and its ilk, is perfect evidence of the ongoing abuse of the tort of bad faith sufficient to cause the courts to reconsider the value of the tort.

© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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 Library, at 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 three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him 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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Incorrect Statement of Values Allows Rescission

Innocent Material Misrepresentation Sufficient to Allow Rescission

Insurance, as I have said over and over again, is a business of the utmost good faith that requires both parties to do nothing that will deprive the other of the benefits of the contract of insurance. An insurer has the unquestioned right to rely upon the person who seeks insurance for the information it needs to make a wise decision about whether to insure or not insure.

In AMI Stamping, LLC, v.  Ace American Insurance Company, No. 16-2341, United States Court Of Appeals For The Sixth Circuit, (October 5, 2017) was faced with a district court ruling that defendant ACE American Insurance Company was entitled to rescind plaintiff AMI Stamping, LLC’s insurance policy because AMI made a material misrepresentation regarding property value at the time it applied for coverage. The district court granted summary judgment in favor of ACE.

FACTS

AMI is a Michigan limited liability company. Insurance was acquired through insurance agency Todd Associates, Inc. Spankie Carolanne, who is licensed to sell property and casualty insurance “with the State of Ohio,” manages the account at Todd Associates. In that capacity, she “obtain[s] insurance based on the risk characteristics . . . and the exposures that [her clients] have[.]” She also handles client calls and correspondence, produces insurance proposals and applications, “counsel[s] the insured when they have questions about insurance[,]” and “market[s] [insurance accounts] to various companies” when the policies come up for renewal.

In 2009, a commercial properties policy was acquired from ACE issued by ACE’s managing general agent Starr Technical Risks Agency, Inc. The policy provided replacement cost coverage. The policy contained a Commercial Property Conditions provision that voided coverage if the insured “intentionally conceal[ed] or misrepresent[ed] a material fact concerning” the covered property. The policy was originally valid for a one-year term, but was renewed through January 18, 2012.

In early 2010, AMI acquired a security interest in a Detroit, Michigan building and in the equipment and machinery stored there. The insured asked ACE to add AMI and its new assets to the existing policy. Carolanne asked AMI’s representative to provide, among other information, an “[a]ppraisal of the buildings and personal business property” in order “[t]o determine the proper insurance values to report to [ACE].”

In response,  a document he described as an “[a]ppraisal of the equipment” that identified each piece, listed its value, and reported a total valuation of $138,100 was delivered to Carolanne. AMI did not share any of the earlier appraisals done for AMI that placed significantly higher values on the equipment in question.

Carolanne then reached out to Vito Maniaci, an underwriter for Starr, and asked him to add the property to the existing policy. She told Maniaci the building was valued at $1,920,000 and “the value of the personal property (per appraisal) is $138,100, which consists entirely of machinery and equipment.”

ACE endorsed the policy effective February 11, 2010 insuring against the risk of loss of the property to the schedule of insured locations for a pro-rata premium of $1,357. ACE renewed coverage for a premium of $1,499. At his deposition, Maniaci confirmed that he “relied on information from Carolanne,” including information regarding asset values, in preparing the Revstone policy. He clarified that the premium “depend[ed] on the value[]” of the property being insured. At her deposition, Carolanne similarly stated that the premium “is based on a rate times the value of the property.”

In early 2012, AMI discovered the equipment had been stolen.  A claims adjuster later contacted Smith on behalf of ACE to “finalize the claim” and confirm that “the exact amount you are claiming” was indeed $138,100. AMI responded that it was not and, because the policy provided for payment of the equipment’s replacement cost, he would be submitting a replacement cost valuation.

AMI commissioned an appraisal of the equipment’s replacement cost value, which the appraiser concluded was $1,907,000. AMI then submitted a proof of loss for that amount.

AMI filed suit.  ACE successfully moved for summary judgment and AMI appaled.

ANALYSIS

Summary judgment is proper only when 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.

The federal court, applying Michigan law, understood that Michigan courts have long recognized that a false representation in an application for insurance which materially affects the acceptance of risk entitles the insurer to cancellation as a matter of law. Michigan also concludes that a misrepresentation on an insurance application is material if, given the correct information, the insurer would have rejected the risk or charged an increased premium.

Rescission is justified “without regard to the intentional nature of the material misrepresentation,” as long as it is relied upon by the insurer. [Lakes State Ins. Co. v. Wilson, 586 N.W.2d 113, 115 (Mich. Ct. App. 1998) (emphasis added). The rationale for Michigan’s rule is obvious: the insurer, in making underwriting decisions and in setting premiums, has the right to rely on the information the insured provides as true and accurate.

Although AMI asserts it made no misrepresentation because Carolanne asked for an “appraisal” of the equipment’s value and that is exactly what AMI provided, this argument ignores the importance of accurate valuations to an insurer’s risk assessment and premium calculations. The appraisal provided did not specify what type of valuation the $138,100 figure represents, but as the district court aptly stated, it was a grossly inaccurate description of the equipment’s value “by any measure.”

AMI admitted “that it provided additional information to ACE regarding the value of the property.” AMI’s admission makes sense. When it applied for coverage in 2010, AMI had two other appraisals from 2006 in its records showing much higher orderly liquidation ($462,800), forced liquidation ($385,450), and fair market ($415,300) values for the equipment.

AMI submitted a proof of loss based on that latest appraisal’s replacement-cost-value determination of $1.9 million—an amount nearly fourteen times the valuation AMI submitted only three years earlier and upon which its premium was based.

The accuracy of the insured’s representations of value is crucial because the premium for the type of coverage AMI bought is based on the value of the property to be insured. Thus, as to materiality, had ACE known from the outset that AMI valued the equipment at approximately $1.9 million, or at any of the values from either 2006 appraisal, it would have charged AMI more than $1,499 a year to insure the property.

AMI conceded that if it “had made an unintentional [mis]representation,” contract provisions regarding misrepresentations do not operate as a waiver of common law rights regarding rescission. The appellate court agreed with the district court and concluded that AMI had not established a genuine dispute of material fact that it made a material misrepresentation in applying for insurance coverage upon which defendant relied.

Accordingly, ACE was entitled to rescind the policy as a matter of law regardless of whether AMI’s misrepresentation was innocent or intentional.

ZALMA OPINION

AMI saved a great deal of money by reducing falsely representing the values of the property at risk at the time it acquired the policy, saved almost $200,000 in premium each year. Of course, when the property was stolen, that saving was wiped out because the insurer was deceived and properly rescinded. Finding that the attempt to save some premium or innocently misrepresenting the true values, there was no coverage for its $1.9 million loss. The insured’s were their own worst enemy – they lied, were caught, admitted the lie, and deserved to lose the $1.9 million.

 

© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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 Library, at 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 three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him 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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The Duty to Select Type and Amount of Insurance Belongs to the Insured

Insurance Agent Only Required to Provide Insurance Ordered

Unless they take on a fiduciary obligation an insurance agent or broker is only required to provide the insurance it was asked to acquire. The agent or broker need not – unless paid for such a special service – advise the insured about the type or amount of coverage the insured needed. This is usually not a problem until the insured has a loss that was not covered by the policy it ordered so it sues the broker for not compelling the insured to buy the insurance it needed in the event of a loss.

In Advanced Radiographics, Inc. v. Colony Insurance Company, Et Al., 17-144, State Of Louisiana Court Of Appeal, Third Circuit (October 4, 2017) Advanced Radiographics attempted to force an insurance agent to pay for a loss not covered by the policy it acquired for the insured.

FACTS

The court of appeal was faced with a dispute over coverage after Plaintiff’s property was damaged by fire. Following the loss, Plaintiff submitted a claim to its insurer, who denied the claim. Plaintiff sued the insurance brokerage, and the broker, through whom it had purchased the insurance, for breach of fiduciary duty as agent.

Plaintiff, Advanced Radiographics, Inc. (“ARI”), who is in the business of storing medical records for health care providers in Lafayette, Louisiana, has ten locations eight of which are used to store medicals records. ARI purchased a commercial package policy that included both a general liability (“GL”) coverage part and a property insurance coverage part, from Colony Insurance Company (“Colony”). The GL coverage extended to all ten of ARI’s locations, including the warehouse, whereas the property coverage (which was limited to coverage for contents and business interruption/extra expense), extended only to ARI’s corporate office.

In November of 2014, a vehicle crashed into ARI’s warehouse, resulting in a fire. Following the loss, ARI submitted a claim to Colony, which Colony denied. As a result of Colony’s refusal to pay the claim, ARI filed suit against Colony. ARI also sued Brown and Brown of Baton Rouge, LLC, (“Brown & Brown”), and (now former) Brown & Brown insurance broker, Kellie Stein (“Stein”), the insurance brokerage (and broker) through whom ARI purchased the Colony Policy.

 

DISCUSSION OF THE MERITS

Exceptions of no cause of action present legal questions and are decided as if the appellate court is the trial court.

A cause of action, when used in the context of the peremptory exception, is defined as the operative facts that give rise to the plaintiff’s right to judicially assert the action against the defendant. The function of the peremptory exception of no cause of action is to test the legal sufficiency of the petition, which is done by determining whether the law affords a remedy on the facts alleged in the pleading. No evidence may be introduced to support or controvert an exception of no cause of action. Consequently, the court reviews the petition and accepts well-pleaded allegations of fact as true. The issue at the trial of the exception is whether, on the face of the petition, the plaintiff is legally entitled to the relief sought.

Louisiana has chosen a system of fact pleading. Therefore, it is not necessary for a plaintiff to plead the theory of his case in the petition. However, the mere conclusions of the plaintiff unsupported by facts does not set forth a cause of action.

Where there is an agreement to procure insurance, the Louisiana Supreme Court, in Isidore Newman Sch. v. J. Everett Eaves, Inc., 09-2161, pp. 6-7 (La. 7/6/10), 42 So.3d 352, 356-57) stated: “An insurance agent who undertakes to procure insurance for another owes an obligation to his client to use reasonable diligence in attempting to place the insurance requested and to notify the client promptly if he has failed to obtain the requested insurance. The client may recover from the agent the loss he sustains as a result of the agent’s failure to procure the desired coverage if the actions of the agent warranted an assumption by the client that he was properly insured in the amount of the desired coverage.”

An insurance agent has a duty of “reasonable diligence” to advise the client, but this duty has not been expanded to include the obligation to advise whether the client has procured the correct amount or type of insurance coverage. It is the insured’s responsibility to request the type of insurance coverage, and the amount of coverage needed. It is not the agent’s obligation to spontaneously or affirmatively identify the scope or the amount of insurance coverage the client needs.

Even if all of the allegations in the suit are taken as true, at no point does ARI allege that it requested certain insurance which Stein and/or Brown & Brown failed to procure. The supreme court of Louisiana has been clear in its direction that relying on an insurance broker/agent for advice and being disappointed by that advice is not a breach of the duty of “reasonable diligence” owed by an insurance agent/broker to a client.

The allegations in ARI’s petition attempt to impose a duty upon Stein and Brown & Brown to identify the type and amount of insurance coverage ARI needed for their property failed because Louisiana does not impose this duty upon the insurance agent or broker but, instead, upon the insured.

ZALMA OPINION

The insured in this case refused to accept responsibility for its error. It failed to order the coverage needed to protect the insurer for losses caused by the fire. The agent and the agency did what was required of it – it acquired the policy that was ordered and nothing more – and that coverage did not provide the coverage needed. This is a lesson to all businesses: hire an insurance consultant, risk manager or the like who can advise you what insurance is needed. Only rely on the agent or broker if they take on the responsibility to advise the coverages needed in writing.

 

© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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 Library, at 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 three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him 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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No Occurrence – No Fortuity – No Coverage for Defense or Indemnity

Lack of the Potential for a Covered Claim Defeats Bad Faith Suit

The ability to allege and prove a right to a defense under a liability insurance policy is usually fairly simple. All that is required of the insured is to prove that there is a potential for coverage for the allegations of the suit against the insured. Much to the surprise of most insureds, not every lawsuit raises a potential of coverage regardless of the wisdom and creativity of the insured’s lawyer.

In WAWGD, Inc. dba Foresight Sports v. Sentinel Insurance Company, Case No.: 16-cv-2917-CAB-BGS, United States District Court Southern District Of California, (September 29, 2017) Plaintiff WAWGD, Inc. d/b/a Foresight Sports (“Foresight”) asked the court to compel liability insurance coverage in connection with a third party complaint seeking defense and indemnification by the defendants in a patent infringement lawsuit filed against them.

BACKGROUND

In 2015, Max Out Golf, LLC (“Max Out”) filed a lawsuit in federal court in Texas against Roger Dunn, Inc., and GWNE, Inc. (together, “Dunn/GWNE”) alleging that Dunn/GWNE had infringed two of Max Out’s patents.

Max Out alleged that Dunn/GWNE’s “infringing activity has directly and proximately caused damage to Plaintiff Max Out Golf, including loss of profits from sales and/or licensing revenues it would have made but for the infringements.”

Dunn/GWNE filed a third-party complaint (“TPC”) against Foresight.The TPC alleged that Dunn/GWNE were bringing it “based on Foresight’s warranty of non-infringement and duty to indemnify [Dunn/GWNE] for Max Out Golf’s infringement claims under the applicable Commercial Code provisions.”

THE POLICY

Foresight sued its insurer seeking insurance coverage and bad faith damages contending that Sentinel has a duty to defend and indemnify Foresight in connection with Dunn/GWNE’s TPC pursuant to a Business Owners Policy (the “Policy”) Sentinel issued to Foresight.

The Policy also contains a breach of contract exclusion.

CALIFORNIA LAW ON THE INTERPRETATION OF INSURANCE POLICIES

Neither party disputes that California law governs this insurance coverage dispute. Under California law, the interpretation of an insurance policy is a question of law to be answered by the court. Interpretation of insurance contracts raise questions of law and thus are particularly amenable to summary judgment. The court must look first to the language of the contract in order to ascertain its plain meaning or the meaning a layperson would ordinarily attach to it.

However, if the terms are ambiguous [i.e., susceptible of more than one reasonable interpretation], courts interpret them to protect the objectively reasonable expectations of the insured. If the policy is ambiguous because it is reasonably susceptible to more than one interpretation, the ambiguity is construed in favor of coverage.

Because the duty to defend arises whenever a claim may potentially lead to indemnity and if there is no duty to defend, then there is also no duty to indemnify. The insured need only show that the underlying claim may fall within policy coverage; the insurer must prove it cannot.

DISCUSSION

To establish the existence of a duty to defend under the Policy Foresight has the burden of establishing the TPC alleges facts that potentially could lead to a covered claim.

Property Damage

The TPC does not allege that Dunn/GWNE suffered any property damage. The TPC simply asserts contractual indemnity claims, and the only damage it alleges is whatever Dunn/GWNE is ordered to pay Max Out on its patent infringement claims, along with its other costs and fees associated with Max Out’s lawsuit.

There is no allegation in the TPC that Foresight’s alleged express or implied agreement to indemnify Dunn/GWNE for patent infringement claims actually caused any damage to, or loss of use of, the Foresight products Dunn/GWNE had purchased. Rather, Dunn/GWNE seeks damages from Foresight for economic harm due to Max Out’s patent infringement claims and Foresight’s failure to indemnify Dunn/GWNE therefor. These economic injuries do no constitute property damage triggering coverage under the Policy.

The TPC, contrary to Foresight’s argument, does not allege loss of use of the Foresight products or seek any damages for any loss of use of the Foresight products (or any other property for that matter); it only seeks defense and indemnification from Foresight.

Foresight is not entitled to justify an argument for coverage based on speculation about claims that have not been alleged or asserted. For a duty to defend to exist, the actual allegations in the TPC itself must actually create the potential for coverage. Otherwise, every complaint ever filed would create a duty to defend because it is always possible that the complaint could be amended to create the potential for coverage.

Occurrence

Moreover, even if the injury for which Dunn/GWNE sought recovery from Foresight in the TPC constituted “property damage,” such property damage was not caused by an “occurrence.” An accident or occurrence is never present when the insured performs a deliberate act unless some additional, unexpected, independent, and unforeseen happening occurs that produces the damage.  Here, any injury was caused by Foresight’s manufacture and sale of products to Dunn/GWNE and alleged breach of its warranty to Dunn/GWNE that the products Foresight sold do not infringe any patents and alleged agreement to indemnify Dunn/GWNE for infringement claims.

Foresight’s manufacture and sale of the products were deliberate and intentional acts, and there was no additional, unexpected, independent, and unforeseen happenings that caused the infringement alleged by Max Out or the indemnity obligation. The court concluded that the conduct giving rise to the underlying action against Foresight was not an “accident” nor an “occurence” within the coverage provision. Because there is no potential basis for coverage, there is no duty to defend.

Intellectual Property Exclusion

Having found that there is no potential for coverage based on the insuring agreement, the Court need not consider any policy exclusions.

The policy language is clear and explicit and is, therefore, dispositive. More specifically, this exclusion clearly and unambiguously communicates that:

(1)  personal and advertising injury arising out of any actual or alleged infringement or violation of any intellectual property right is excluded from the policy;

(2) a [patent] is considered intellectual property; and

(3) any injury or damage alleged in a suit that also alleges an infringement or violation of an intellectual property right is also excluded.

The exclusion is valid and enforceable. Accordingly, the intellectual property exclusion is another reason why Sentinel did not have a duty to defend Foresight.

While an insurer’s duty to defend is broad in scope proper coverage analysis begins by considering whether the policy’s insuring agreements create coverage for the disputed claim. If coverage exists, then the court considers whether any exclusions apply. If coverage does not exist, the inquiry ends. The exclusions are no longer part of the analysis because they cannot expand the basic coverage granted in the insuring agreement. The rule is no different for exceptions to exclusions.

Because the TPC did not allege any facts that created the potential for a covered claim, Sentinel had no duty to defend Foresight from Dunn/GWNE’s claims or to indemnify Foresight for its settlement of those claims.

In addition, because Sentinel did not breach any coverage obligation, it did not breach the implied covenant of good faith and fair dealing.

ZALMA OPINION

No insurance policy covers every possible loss. Insurance, by definition, only exists if the loss claimed is contingent or unknown. An intentional act, like the manufacture and sale of a product that infringes on another’s patent, coupled with a promise to indemnify any suit for infringement, is an intentional act that can never be insured against. This wasn’t even a good try. It was a waste of time and money.

© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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 Library, at 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 three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him 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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Restoration of Ill Gotten Gains Not Insurable – Fraud Doesn’t Pay

Neither an Intentional Nor a Criminal Act is Fortuitous

From the first insurance coverage issued on a clay tablet in ancient Sumeria every insurance claim required a fortuitous loss – one that is either contingent or unknown at the time of the loss. People who are insured prefer to be paid regardless of their conduct and when an insurer refuses to pay will invariably sue.

In Philadelphia Indemnity Insurance Company, a foreign corporation v. Sabal Insurance Group, Inc., a foreign corporation and Ian Marshall Norris, Case No. 16-62168-Civ-COOKE/TORRES, United States District Court Southern District Of Florida (September 28, 2017) the USDC for the Southern District of Florida was asked to compel an insurer to provide indemnity to an insured who settled a claim with the State of Florida for money taken by the insured by fraud. The parties disputed whether a Stipulated Settlement Agreement between Defendants and the State of Florida stemming from an alleged grand theft is covered under the insurance policy Defendants have with Plaintiff.

BACKGROUND

Plaintiff issued to Defendants a Private Company Protection Plus Liability Policy (“Policy”), which included Directors and Officers (“D&O”) liability insurance that was effective at the time of this action.

The Policy covered certain losses from claims made against Defendants for wrongful acts. A “D&O Wrongful Act” included an “act, error, omission, misstatement, misleading statement, neglect, or breach of duty committed or attempted by” either Defendant. “[A] criminal proceeding commenced by the return of an indictment” counted as a “Claim,” and a “Loss” included “Damages” and “Defense Costs.” “Damages” were defined as “any monetary judgment . . . or monetary settlement, including the punitive, exemplary or multiple portion of any judgment (to the extent such damage is insurable under law . . .),” while “Defense Costs” encompassed most “reasonable and necessary legal fees and expenses incurred in the defense of a Claim . . . .”

The policy barred payments “arising out of, based upon or attributable to” Defendants for either “gaining any profit, remuneration or advantage to which [Defendants] were not legally entitled,” or “any dishonest or fraudulent act or omission or any criminal act or omission by [Defendants].” These exclusions only applied, however, “if a final and non-appealable judgment or adjudication establishes the Insured committed such act or omission.”  The Policy also did not consider “criminal or civil fines or penalties imposed by law” a covered “Loss,” nor did “Loss” include matters deemed uninsurable under the law.

The State of Florida (“State”) charged Defendants with five counts of grand theft related to alleged overcharging of the Miami-Dade Aviation Department (“MDAD”) for worker’s compensation and general liability insurance that MDAD pays on behalf of Quality Aircraft Services (“QAS”), its baggage handler. Defendants allegedly fraudulently obtained over $416,000.00, though the amount of fraud purportedly within the statute of limitations was $180,807.87.

By February 2016, Defendants entered into a Stipulated Settlement Agreement with the State, where the State agreed to nolle prose [where the prosecutor in a criminal prosecution undertakes not to continue the action or prosecution] all charges and Defendants agreed to pay a “settlement sum” of $303,807.97.

This sum consisted of a “Payment” to the MDAD for $183,807.87; a “Donation” to a victims’ assistance fund for $100,000.00; and “Costs of Investigation” payable to the MDAD for $20,000.00.  Further, Defendants agreed to pay for an independent monitor, to institute an internal training program, and to refrain from engaging with MDAD for a period of time. The state court ratified the agreement in February 23, 2016.

Plaintiff issued a reservation of rights at three different times before the Stipulated Settlement Agreement. Plaintiff’s last reservation of rights letter in January 2015 stated that the “alleged miscalculations as to your client’s revenues insurance costs are within the definition of D&O Wrongful Acts,” and that it would “advance fees and reasonable/necessary expenses incurred in the defense of this matter.” The letter also cautioned “the fact that certain provisions have been excerpted here does not mean that all portions of the policy are not important,” and that the “reservation of rights is intended for your information and guidance and is based on the materials presented to date. [Plaintiff] fully reserves all its rights under the policy . . . .”  At one point, Plaintiff advised defendant’s defense counsel that the Policy would not cover payments of any “restitutionary amount” Defendants made to the State.

DISCUSSION

Florida law mandates that courts interpret insurance contracts under their plain meaning, without need for extrinsic evidence. Florida courts start with the plain language of the policy, as bargained for by the parties. . . . Policy terms are given their plain and ordinary meaning and read in light of the skill and experience of ordinary people. A court must construe every insurance contract according to the entirety of its terms and conditions.

The Policy Language

Both exclusionary provisions state that they “only apply if a final and non-appealable judgment or adjudication establishes the [Defendants] committed such act or omission.” While the language is clear that the exclusions do not apply without a judgment or adjudication, it is equally clear that the exclusions do not apply if there is not first a covered “Loss.” The language of the Policy is clear and consistent with Florida law: the exclusions do not come into play unless the Stipulated Settlement Agreement constitutes a “Loss.”

The Stipulated Settlement Agreement is not a covered “Loss”

As a matter of law, “Loss” does not include the “restoration of ill-gotten gains.” It is axiomatic in the insurance industry that one should not be able to insure against one’s own intentional misconduct. The return of money received through a violation of law, even if the actions of the recipient were innocent, constitutes a restitutionary payment, not a “loss.” It is immaterial whether the defendant committed fraud.

The payments in the Stipulated Settlement Agreement are clearly restitutionary in nature. The case was initiated via a subpoena, followed by an information charging five counts of grand theft against both Defendants. Payments made to resolve this claim can only be said to disgorge Defendants of property to which they were allegedly not legally entitled.

The court concluded that the payments made in the settlement are restitutionary in nature.

The court concluded that there is no ambiguity in the Policy and the payments Defendants agreed to pay as part of the Stipulated Settlement Agreement are restitutionary in nature regardless of whether there is an admission of guilt or a final adjudication.

CONCLUSION

Plaintiff established that its Policy did not apply to the Stipulated Settlement Agreement. No genuine issue of material fact exists regarding the Policy. Plaintiff is not obliged to indemnify Defendants for the Stipulated Settlement Agreement. Accordingly, summary judgment in favor of Plaintiff is appropriate.

ZALMA OPINION

It is contumacious conduct to bring a suit seeking payment from an insurer of money obtained by theft and paid back to the state of Florida to stop a criminal prosecution. The loss here was not fortuitous, it was an lost as a result of an intentional criminal act. The suit should have been dismiss as frivolous regardless of the cases the defendants cited indicating a potential for coverage.

 

© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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 Library, at 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 three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him 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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Who Pays Black Lung Victim When His Employer and Its Insurer are Insolvent?

Guaranty Fund Is More Responsible than the Federal Black Lung Trust Fund

Island Fork Construction v. Jimmy Bowling; Director, Office Of Workers’
Compensation Programs, No. 16-4319, United States Court Of Appeals For The Sixth Circuit (September 29, 2017)

Jimmy Bowling worked as a coal miner for almost 30 years. There is no dispute that he is eligible for benefits under the Black Lung Benefits Act. The question is who should pay the benefits to this disabled miner given that the responsible mine operator and the company that insured that operator are both insolvent. Two options exist — the federal Trust Fund and the Kentucky Insurance Guaranty Association (KIGA). The administrative law judge (ALJ) and Benefits Review Board (Board) both concluded that KIGA should provide benefits.

BACKGROUND

Bowling worked as a coal miner for over 29 years. He spent most of that time as a foreman and substantially all of his work was underground. Bowling’s last job was working for Island Fork Construction in a Kentucky mine where he moved belt lines, took out steel track, and produced coal. The parties do not dispute the facts underlying Bowling’s claims or his eligibility for benefits.

In 2002, Bowling filed a claim for benefits under the Black Lung Benefits Act. An Administrative Law Judge (ALJ) denied the claim in 2005, finding that Bowling was totally disabled, but that he had failed to establish that he had pneumoconiosis (black lung), or that pneumoconiosis caused his total disability. In 2010, Bowling filed the current claim for benefits. During the time intervening between these claims, a provision of the Affordable Care Act amended the Black Lung Benefits Act to reinstate a rebuttable presumption that claimants with respiratory disabilities and 15 years or more of underground coal-mining work experienced those disabilities as a result of pneumoconiosis. Bowling sought benefits pursuant to this presumption.

In April 2011, the District Director issued a Proposed Decision and Order that awarded Bowling benefits. Island Fork requested de novo review by an ALJ.

At the hearing before the ALJ in December 2014, counsel informed the ALJ that both Island Fork and its insurer, Frontier Insurance, were insolvent. Frontier declared insolvency in November 2012, after the Proposed Decision and Order had been issued. Once the claim reaches the ALJ stage, there is no mechanism to designate a different responsible operator.

The Trust Fund was created by the Black Lung Benefits Act and provides benefits when there are no responsible operators available, including when an operator is deemed at the ALJ stage not to be financially capable of paying benefits. KIGA is a nonprofit body created by the Kentucky Insurance Guaranty Association Act (Guaranty Act) to provide benefits when a member insurance company is insolvent. KIGA argued that the exceptions to the Guaranty Act apply and the benefits should instead be provided by the Trust Fund.

After briefing, the ALJ decided that Island Fork was still the responsible operator because benefits could be paid by KIGA. Island Fork “as insured by” KIGA, and represented by common counsel, petitioned for review of the ALJ Decision and Order by the Board.

DISCUSSION

KIGA did not have a direct interest in the claim until Frontier became insolvent, which was after the District Director issued a Proposed Decision and Order and the claim file had been sent to the ALJ. At that time, KIGA filed a letter that stated: “all of [Frontier’s] claims have been turned over to KIGA.”

KIGA also indicated that it “had received a notification letter advising of potential liability as a result of the insolvent carrier. In response, KIGA made an entry of appearance and defended the case while it investigated whether Claimant was eligible for assistance under the Kentucky guarantees law.” At the hearing before the ALJ, counsel stated that she was making an appearance “on behalf of Island Fork Construction which was previously insured by Frontier Insurance Company which is now insolvent so my client in fact at this point is KIGA.”

The Guaranty Act that created KIGA excludes “[o]cean marine insurance” and “[a]ny insurance provided, written, or reinsured, or guaranteed by any government or governmental agencies.” Ky. Rev. Stat. § 304.36-030(1)(f),(h).

KIGA argues that insurance for black lung benefits should be considered “[o]cean marine insurance” based on the broad definition for that term used in the Guaranty Act. “Ocean marine insurance” is defined as “any form of insurance . . . that insures against maritime perils or risks and other related perils or risks, that are usually insured against by traditional marine insurance such as hull and machinery, marine builders risk, and marine protection and indemnity.” Ky. Rev. Stat. § 304.36-050(10). It was obvious to the court that an underground coal mine had no relevance to “ocean marine” insurance since it was not even near an ocean let alone an operation dealing with an ocean or marine activities.

The committee that created the model law on which the Guaranty Act was based intended for the provision to exclude flood and crop insurance that are covered by government guaranty programs. These federal programs do involve formal arrangements between insurance companies and the government. The Black Lung Benefits Act instead seeks to require private mine operators to pay benefits to the maximum extent feasible. It only provides for the Trust Fund to assume liability when there is no operator who is liable for the payment of such benefits.

The Trust Fund has not “guaranteed” the Black Lung Benefits Act coverage under Kentucky law. The KIGA exception for claims “guaranteed by . . . governmental agencies” therefore does not apply.

CONCLUSION

Since the court had personal jurisdiction over KIGA and address the merits of its claims. The exclusions in the Guaranty Act do not apply because the Black Lung Benefits Act coverage in this case is not “ocean marine insurance” nor is it “guaranteed by . . . governmental agencies.” KIGA, therefore is liable for coverage issued by Frontier, the now-insolvent insurer.

ZALMA OPINION

The Black Lung Benefits Act requires private mine operators to pay benefits to the maximum extent feasible. It only provides a Trust Fund to assume liability when there is no operator who is liable for the payment of such benefits. The operator purchased insurance to protect it from that exposure and the insurer contributed to the KIGA fund to protect its insureds in the event of its insolvency. Since an underground coal mine had no relevance to “ocean marine” insurance, not being near an ocean, let alone an operation dealing with an ocean or marine activities, and  since KIGA is guaranteed and funded by insurers, not a governmental agency, KIGA was responsible for the loss.

© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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 Library, at 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 three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him 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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Why Pennsylvania Made it Easier to Prove Insurer Bad Faith

No Need to Prove Ill-Will or Self-Interest to Prove Bad Faith

Since its creation as a tort in the 1950’s and 1960’s the tort of bad faith required proof the the insurer will do nothing which will injure the right of the insured to receive the benefits
of the agreement. The basic definition of the tort of bad faith just looks to the actions of the insurer in dealing with an insured without any further evidence that the injury caused to the insured was due to an act of bad faith.

The Supreme Court of Pennsylvania, Western District, found that neither self-interest nor ill will is necessary to a finding of bad faith. In so doing, in Matthew Rancosky, Administrator DBN of The Estate Of Leann Rancosky And Matthew Rancosky, Executor Of The Estate Of Martin L. Rancosky v. Washington National Insurance Company, As Successor By Merger To Conseco Health Insurance Company, Formerly Known As Capital American Life Insurance Company, J-27-2017, No. 28 WAP 2016, Supreme Court Of Pennsylvania Western District (September 28, 2017) made it easier for a plaintiff to sue an insurer for bad faith by removing an earlier requirement that there must be proof of ill-will or self-interest.

Justice Wecht of that court wrote a concurring opinion, to the majority opinion of the Supreme Court of Pennsylvania, Western District, joining the Majority Opinion in full while explaining why it is important in Pennsylvania to eliminate the need for a plaintiff to prove self-interest or ill-will to establish a case of bad faith.

PROOF OF BAD FAITH

As a matter of statutory interpretation, the Majority demonstrated astutely that “proof of the insurer’s subjective motive of self-interest or ill-will, while perhaps probative of the previous tests of bad faith, is not a necessary prerequisite to succeeding in a bad faith claim. If the plaintiff can prove that the insurer acted to deprive the insured of the benefits of the policy to which the insured was entitled, should be sufficient to prove the tort.

It bears emphasizing that “self-interest” and “ill will” are not part of Section 8371 as enacted by the General Assembly. This is unsurprising, inasmuch as such strains of overt malfeasance often will be lacking and, in any event, will seldom be susceptible to establishment by competent proof of record. That is to say, with apologies to the drafters of the 1990 edition of Black’s Law Dictionary, those terms not only are non-mandatory under Pennsylvania’s bad faith statute; they generally are analytically unhelpful as well.

Justice Wecht pointed out that many species of bad faith may flourish notwithstanding the absence of either “self-interest” or “ill will.” For example, he explained that:

  • Shoddy claims-handling,
  • lack of diligence,
  • non-responsiveness,
  • haphazard investigation,
  • unreasonable denials, and the like

are sufficient to prove that the insurer acted in bad faith since all can come within the statutory definition of bad faith while nonetheless falling short of the “self-interest”/”ill will” threshold.

“Ill will” suggests an unduly personal or vindictive motive, something that is (and indubitably should be) exceptionally rare.

In the universe of bad faith insurance claims, “ill will” is more often than not a red herring. It is a waste of court time to deal with an unnecessary and useless item of evidence. “Self-interest” suggests that an adjuster or other claims-handler perceives some personal financial benefit that will follow from denial of a claim, something that, while plausible in theory, certainly is far from universal in bad faith cases.

In any event, these terms cannot be permitted to devour the definition of bad faith as a whole. Knowing or reckless claims-handling leading to objectively unreasonable denial of benefits, if proven by clear and convincing evidence, embodies the principle that a patent absence of good faith is tantamount to the presence of bad faith.

Unless the Pennsylvania General Assembly intervenes to supersede the Majority’s understanding of the legislative will, this is the rule that our courts must apply.

ZALMA OPINION

I have no love for the tort of bad faith. I personally believe it is a breach of the ancient division between contract and tort. In most cases the insurance adjuster deals fairly and in good faith with the insureds with whom the adjuster comes in contact. He or she receives no personal financial benefit other than the salary agreed to before a claim was filed. Adjusters are hired to fulfill the promises made by the insurance policy. When the adjuster fails the insured has the right to seek contract damages.

Making it easier to sue insurers for bad faith will cure no ills other than to increase the earnings of the plaintiffs’ lawyers. However, if there must be a tort of bad faith, then the rule stated by Pennsylvania is appropriate since neither ill will nor self interest are required to determine whether the insurer did something to prevent the insured from receiving the benefits of the policy.

 

© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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 Library, at 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 three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him 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 – October 1, 2017

Zalma’s Insurance Fraud Letter

Barry Zalma, Inc.

The Essential Resource For The Insurance Fraud Professional

Thirty eight years ago today I left the world of the employed and became an entrepreneur by opening my own law firm that was incorporated shortly thereafter as Barry Zalma, Inc. When I opened for business on October 1, 1979, I had no clients other than my sister, and no certainty that I would have any in the future.
21 years ago I started Zalma’s Insurance Fraud Letter. I hope you find this issue interesting and useful.

Zalma’s Insurance Fraud Letter, Volume 21, No. 19

  • October 1, 1979 – October 1, 2017 – Another Anniversary
  • Become a Certified Expert in Corporate Property Insurance and a Certified Expert in Corporate Liability Insurance
  • If you do the Crime You Must Do the Time
  • California Workers’ Comp Division Suspends 6 Medical Providers for Fraud
  • It’s Not Nice to Lie to Your Insurer
  • DOJ Announces Hurricane Fraud Units In Effect
  • The Zalma Insurance Claims Library
  • Good News From the Coalition Against Insurance Fraud
  • Health Insurance Fraud Convictions
  • Other Insurance Fraud Convictions

 Zalma on Insurance – A Blog

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

 Zalma’s Insurance 101

I have completed a video blog called that consist of 1022 three to four minute videos starting with “What is Insurance” and moving forward to insurance fraud investigations explaining the basics of insurance and insurance claims handling in a painless fashion that can be viewed every morning with the first cup of coffee at  Zalma’s Insurance 101.

The videoblog is adapted from my book, Insurance Claims: A Comprehensive Guide available at the Zalma Insurance Claims Library.
If you start at Volume 1 at the bottom of the blog’s first page and view one or two videos a day you will have approximately 12 to 24 hours of training a year until you get to the last video.

 New Blog: 

Insurance Law Commentary

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“Arson for Profit” and“Murder & Insurance Fraud Don’t Mix”
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20 Years after Notice of Claim Violates Notice Condition

Service Of a Lawsuit Requires Prompt Notice to Liability Insurer

The reason insurance companies put a notice requirement in a liability insurance policy is to protect the insurer against stale claims and fraud. Everyone who has ever run a business that has liability insurance know, or should know, that notice of a claim or a potential claim, must report the claim to the insurer so it can investigate and defend the claim. No insured likes the requirement and will attempt to explain a late report.

In J. Peter McPartlon v. Continental Casualty Company; Continental Casualty Company v. J. Peter McPartlon, 1:15-cv-299 (GLS/CFH), 1:15-cv-1520 (GLS/CFH), United States District Court Northern District Of New York (September 26, 2017) an insured did not report a potential suit, a threatened suit and an actual suit within one to five years. The Insured, McParton, sued because the insurer refused coverage seeking damages for an alleged breach of an insurance contract.

His insurer Continental Casualty Company (CCC) defended the claim for damages and a declaratory judgment ordering CCC to indemnify and defend him against claims in an underlying state court personal injury lawsuit. McPartlon also alleges that CCC acted in bad faith.

CCC, thereafter, commenced a related action seeking a declaration that it has no duty to indemnify or defend McPartlon in a separate but related underlying state court personal injury lawsuit.

BACKGROUND

McPartlon has owned numerous rental properties in the City of Albany and the greater Capital District area, including 72 Park Avenue, Albany, New York, which is the property at issue. McPartlon operated his rental property business under various business organizations. By approximately 2005, McPartlon had delegated the day-to-day business operations to his son, Michael McPartlon, and he consented to be bound by his son’s deposition testimony in the actions before this court.

CCC issued insurance policies to McPartlon on his rental properties that were in effect during relevant times.

CCC’s insurance policies place a duty on McPartlon to notify CCC in the event of an “occurrence” or “suit” against him “as soon as practicable.” Under the policy, an “occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

Following a 1993 environmental investigation at 72 Park Avenue, Albany, New York, the Albany County Department of Health (DOH) notified Donna Witko of Parkland Management that “an elevated blood lead level has been verified in a child.”

The affected child was Rashiek Haynes, who is the plaintiff in one of the underlying state court lawsuits. Rashiek Haynes is a sibling of Nakira Haynes, the plaintiff in the other underlying state court lawsuit. McPartlon did not disclose the results of this investigation to CCC until approximately August 2015.

On or about July 24, 2013, McPartlon was served in the underlying state court lawsuit commenced by Nakira Haynes. Among other things, Nakira Haynes alleged that McPartlon was negligent in failing to abate lead paint hazards, which caused her injuries.

McPartlon did not notify CCC about the underlying lawsuit until June 17, 2014 by letter from his corporate counsel addressed to “CNA Insurance.” As a result of McPartlon’s untimely notice, CCC denied coverage as to Nakira Haynes’ underlying state court lawsuit.

After service of Nakira Haynes’ lawsuit, McPartlon’s son, Michael, realized that he had not kept the pertinent insurance policies. In order to identify his then-unknown insurance carrier, Michael testified that a “week or two” after being served: (1) he searched McPartlon’s property for boxes labeled “do not destroy,” which would likely contain the oldest corporate documents; (2) he contacted a former business colleague and Witko; (3) he telephoned three out of five of his insurance brokers; and (4) McPartlon searched his personal records. All attempts were unsuccessful.

Ultimately, by June 2014, Michael remembered that another family business had insurance through CNA, an affiliate of CCC, and this prompted his letter tendering a claim to CCC about the underlying Nakira Haynes state court lawsuit.

Rashiek Haynes filed suit against McPartlon in December 2014 for personal injuries related to lead exposure.

Because of the 1994 DOH report in or around August 2015, CCC sought a declaration that it has no duty to indemnify or defend McPartlon in Rashiek Haynes’ lawsuit since waiting 20 years after notice to McParlton was not reporting as soon as practicable.

DISCUSSION
Nakira Haynes’ Underlying State Court Lawsuit

CCC argued that it does not have a duty to defend or indemnify McPartlon in the underlying state court lawsuit brought by Nakira Haynes because he failed to provide timely notice of the 1994 DOH report, which is an “occurrence” under the policy. CCC also argued that McPartlon failed to provide timely notice of Nakira Haynes’ lawsuit itself. Specifically, CCC contends that McPartlon’s failure to provide notice of the 1994 DOH report for approximately twenty years or of Nakira Haynes’ lawsuit for almost eleven months bars his insurance coverage as to that suit. Additionally, CCC asserts that McPartlon has failed to satisfy his burden that his untimely notice was justified or excused.

An insurance contract stating that the insured must notify the insurer of an occurrence or claim “as soon as practicable” requires that notice be provided within a reasonable time under the circumstances. Failure to give timely notice vitiates the contract as a matter of law.

An insured has a duty to give notice when he or she “could glean a reasonable possibility of the policy’s involvement” based on “the information available relative to the accident.” Paramount Ins. Co. v. Rosedale Gardens, Inc., 293 A.D.2d 235, 239-40 (1st Dep’t 2002). Although a delay may be excused in some circumstances, the insured bears the burden of proof.

McPartlon argued that the 1994 DOH report did not specifically identify information that would put him on notice of a potential claim. Contrary to the claim, the 1994 DOH report specifically identified a minor with an elevated blood lead level who resided at the apartment and conditions that violated Public Health Law. Further, the report required that repairs to remedy the violations be completed within fourteen days or “legal action w[ould] be initiated by [DOH].”

Undoubtedly, the 1994 DOH report allowed McPartlon to “glean a reasonable possibility of the [insurance] policy’s involvement.” Paramount Ins. Co., supra. Accordingly, the 1994 DOH report was an “occurrence” under the policy, which would trigger McPartlon’s notice requirements to CCC.

Furthermore, McPartlon failed to satisfy his burden to present a question of fact regarding whether his late notice was justified. All of these excuses rest on the premise that an insurer bears the burden of an insured’s own negligence in maintaining his records and, therefore, fail as a matter of law. Indeed, it is the responsibility of the insured, not the insurance company, to keep track of which carriers have provided it with liability insurance.

At no point before his tender letter did McPartlon consult counsel or an insurance broker.  McPartlon failed to raise a question of fact that he made reasonably diligent efforts to ascertain whether coverage existed.
Rashiek Haynes’ Underlying State Court Lawsuit

As with Nakira Haynes’ lawsuit, CCC contended that it does not have a duty to defend or indemnify McPartlon in the underlying state court lawsuit brought by Rashiek Haynes because McPartlon failed to provide timely notice of the 1994 DOH report, which is an “occurrence” under the policy.
BAD FAITH

McPartlon claims that CCC acted in bad faith in denying coverage as to the underlying state court lawsuit brought by Nakira Haynes. CCC argues that McPartlon’s bad faith claim fails as a matter of law because there is no cognizable claim for the denial of insurance in New York where an insurer has an arguable basis to disclaim coverage. McPartlon cited no evidence that CCC lacked an arguable basis to disclaim coverage or otherwise acted in bad faith.

CCC had a basis to deny coverage regarding Nakira Haynes’ underlying lawsuit because McPartlon failed to provide timely notice of the suit. CCC also had a basis to deny coverage based on McPartlon’s failure to provide timely notice of an “occurrence.”

The court concluded that CCC is entitled to summary judgment on McPartlon’s bad faith claim.

ZALMA OPINION

The suit brought by the McParlton’s was obviously inadequate verging on silly. Expecting a defense almost 20 years after notice is clearly in breach of the notice condition requiring notice as soon as practicable nor is waiting a year after being served with a suit in compliance with the “as soon as practicable” notice requirement. A person, like McParlton, who sits on his rights loses them. There was no need for the insurer to show prejudice since a 20 year delay makes the fact of prejudice obvious.

© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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 Library, at 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 three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him 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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He Who Represents Himself in Court Has a Fool For a Client

Facts Stating a Cause of Action Required to Stay in Court

Normally, I digest reported decisions to make them easier to digest. Today, in Harold Greene v. USAA Casualty Ins. Co., et al., Civil No. JKB-17-1854, United States District Court For The District Of Maryland, (September 25, 2017) I post the entire case because it is clear, brief, and cogent.

Plaintiff Harold Greene filed suit pro se on May 19, 2017, in the District Court of Maryland against USAA Casualty Insurance Company (“USAA”), Thomas E. Price, M.D., Secretary of the United States Department of Health and Human Services, and the Centers for Medicare and Medicaid Services (the latter two Defendants referred to collectively as “the Government”). The stated causes of action were contract, replevin, and bad faith insurance claim. Greene alluded to “extortionate government subrogation” and wanted “pain and suffering settlement . . . funds” from USAA to be paid into the court’s registry “to protect MEDICARE.”

The Government removed the case to this Court because of its jurisdiction over cases against federal agencies. Subsequently, USAA moved to dismiss the complaint for failure to state a claim, to which Greene filed his response in which he complained that USAA had “low balled” his car damage claim.

The Court granted the motion to dismiss and concurrently dismissed sua sponte the complaint against the Government; the Court concluded that, even after liberally interpreting Greene’s complaint, it was unable to discern a viable cause of action in the case. Consequently, the case was dismissed for failure to state a claim.

Now pending before the Court is Greene’s motion for reconsideration, which complains the “court’s ruling was improvidently based upon its construing an interpleader petition as a ‘complaint’ asserting ‘claims.'” What Greene filed is, in fact, appropriately construed as a complaint since it is so labeled, since it purports to assert causes of action of contract, replevin, and bad faith insurance claim, and since it asks the court to award damages. However, it fails to include sufficient factual content to permit an inference of wrongdoing by either USAA or the Government.

Accordingly, IT IS HEREBY ORDERED that Greene’s motion for reconsideration is GRANTED, that the Court has reconsidered its ruling, and that the Court AFFIRMS its dismissal of this case for failure to state a claim for relief. The Clerk SHALL SEND a copy of this memorandum and order to Plaintiff.

DATED this 25th day of September, 2017.

BY THE COURT:

James K. Bredar

United States District Judge

ZALMA OPINION

Pro se plaintiffs take up the time of US Courts by filing documents that, like this case, make no sense, allege no appropriate facts sufficient to state a cause of action and mix oranges with pomegranates. The plaintiff included a claim on his damaged auto with a suit against the Secretary of Health and Human Services about the failure of Social Security. Since it made no sense and failed to state any cause of action it was dismissed.

 

 

© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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 Library, at 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 three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him 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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Bankruptcy is Not a Cure of Mortgagor’s Failure to Pay Insurance Premiums

Never Lie to a Judge

Mortgages invariably require the property owner to buy, and name as loss payee, the mortgagee. When premiums are not paid and a policy is cancelled the mortgagee has the right to force place insurance to protect its security, and if not paid for by the mortgagor, foreclose on the property. Bankruptcy puts a hold on the foreclosure until the court rules.

In In Re: John Harrison Scott, Debtor, John Harrison Scott v. Nationstar Mortgage, LLC, CASE NO. 15-33611-BJH-13, Adversary No. 16-3106-BJH, United States Bankruptcy Court For The Northern District Of Texas Fort Worth Division, (September 22, 2017) trial was held in Bankruptcy Court to resolve a dispute over foreclosure for failure to insure.

FACTUAL BACKGROUND

Plaintiff and his current non-debtor spouse (together, “Borrowers“) took out a home equity loan from Lender secured by the Property in the amount of $183,200.00.

The Note required Borrowers to make monthly payments of $1,188.23 on the first day of each month beginning May 2005. If Borrowers failed to pay the full amount of each monthly payment on or within fifteen days of the monthly due date, Borrowers would become obligated to pay a late charge.

When Defendant began to act as servicer for Lender in December 2013, Borrowers were in default under the Loan Documents because of a prior late payment.

Insurance Escrow Disputes

The Security Instrument requires Borrowers to keep the Property insured against loss. If Borrowers fail to maintain the required insurance coverage on the Property, the Security Instrument permits Lender to establish an escrow account and to obtain force-placed insurance coverage for the Property, at Borrowers’ expense (and such costs constitute additional debt under the Loan Documents). Plaintiff’s principal disputes with Lender and Defendant can be traced to the lapse of insurance coverage on the Property due to Borrowers’ failure to pay insurance premiums to their insurance company MetLife.

Plaintiff’s testimony and the documentary evidence demonstrate that Borrowers’ insurance on the Property lapsed or was cancelled on at least two occasions between August 2012 and April 2013.

As a result of the lapse of insurance coverage on the Property, Defendant mailed a letter on March 29, 2014 to Borrowers at the Property address, notifying Borrowers that (a) Defendant’s records indicated Property insurance had expired; (b) Defendant planned to buy force-placed Property insurance at Borrowers’ expense; (c) Borrowers were to immediately provide proof of insurance; and (d) if Borrowers did not provide proof of insurance, Defendant would establish an escrow account for the Note and obtain force-placed insurance coverage on the Property.

As a result of Borrowers’ failure to respond to multiple letters, Defendant obtained force-placed insurance for the Property and notified Plaintiff of the force-placed insurance.  Defendant included a “TEXAS NOTICE OF PLACEMENT OF INSURANCE” with the letter stating, in part, that the insurance premium of $3,073.87 “will be charged to your escrow account. If you do not have an escrow account, one will be established for you or you will be billed directly for the insurance premium paid by us.”

According to Plaintiff, his insurance broker allegedly told him that the homeowners policy had not actually lapsed, but the court concluded “incredibly, his insurance broker allegedly told Plaintiff to take out a second insurance policy on the Property ‘to be safe.'”

Plaintiff’s testimony about the Borrowers’ alleged timely payments to MetLife (without providing any documentary evidence to corroborate Plaintiff’s testimony); Borrowers’ alleged nonreceipt of Defendant’s letters; and Plaintiff’s alleged conversations with his insurance broker was, in the words of the court: “not believable or credible and was contradicted by credible documentary evidence.”

Plaintiff’s testimony that he did not realize the escrow account was being closed was inconsistent and contrary to the documentary evidence, which calls into question the reliability and credibility of Plaintiff’s testimony.

As of the Petition Date, Borrowers were at least seven months in arrears on their payments.

The Court found that (a) Defendant was entitled under the Loan Documents to hold and “suspend” payments received from Borrowers until Defendant received sufficient funds to apply to a full monthly payment due under the Note; (b) Defendant was entitled to require Borrowers to pay the Escrow Items under the Loan Documents; (c) Defendant gave proper written notice that it would require Borrowers to pay the Escrow Items; and (d) Defendant did nothing improper with respect to its filed proof of claim.

Chapter 13 Bankruptcy

Plaintiff filed his Chapter 13 petition with this Court on September 1, 2015, preventing Defendant from foreclosing on the Property. Defendant—on behalf of Lender—filed a proof of claim in the bankruptcy case on November 20, 2015, asserting a secured claim of $166,248.05, including arrearages as of the Petition Date of $14,361.03. The Confirmation Order provided that the Trustee’s Recommendation Concerning Claims (“TRCC“) would be binding on all parties concerning allowance and treatment of claims in the absence of an objection.

On March 18, 2016, the Trustee filed his TRCC, which had a proposed claim amount for Lender of $166,248.05, to be paid directly to Lender by Plaintiff with only the proposed arrearages of $14,361.03 to be paid through the Trustee. No one objected to the TRCC.

Adversary Proceeding

Plaintiff testified on his own behalf. Plaintiff initially came across as very credible, but as he testified, his testimony contradicted the documentary evidence on several key issues and ultimately was not credible or persuasive. The witnesses’ respective credibility was critical to the Court in rendering its alternative ruling on the merits.

LEGAL ANALYSIS

Res judicata may be raised by the court where both actions were brought in courts of the same district. Second, res judicata may be applied when all relevant data and legal records are before the court and the demands of comity, continuity in the law, and essential justice mandate judicial invocation of res judicata.

A bankruptcy judgment bars a subsequent suit when (a) both cases involve the same parties; (b) the prior judgment was rendered by a court of competent jurisdiction; (c) the prior decision was a final judgment on the merits; and (d) the same cause of action is at issue in both cases.

Because the Court raised res judicata on its own, and because all of the elements of res judicata are present, Plaintiff’s claims against Defendant are barred.

Plaintiff’s claims are barred by res judicata because such claims should have been, but were not, raised in connection with the TRCC Order that allowed Defendant’s claim. Even if the Court were to reach the merits of Plaintiff’s claims, they fail for the reasons set forth above.

ZALMA OPINION

Insurance protecting the mortgagee’s interest in property is important to the mortgagee. State law allows it to force place insurance – at the mortgagor’s expense – if the mortgagor fails to maintain insurance and add the cost to the mortgage. The Mortgagor was in arrears on both the mortgage payments and payments for insurance and the mortgagee properly foreclosed. Testifying falsely to the Bankruptcy Court simply added to the mortgagor’s problems and caused a loss.

 

© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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 Library, at 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 three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him 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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It’s Not Nice to Lie to Your Insurer

A Livery Vehicle is not an “Automobile” for No Fault Insurance Purposes

When an insured, operating a livery and taxi service obtains an insurance policy covering one of its vehicles as a private passenger vehicle knowing that its application for insurance was false found itself without insurance of any kind. The lies, even insuring the property in the name of a person who neither owned nor operated the vehicle was egregious and fraudulent.

In 21ST Century Insurance Company, individually, and as attorney in fact for Myriam Ledee, v. Felipe Express; Felipe Sanchez Jr.; Felipe Sanchez Sr.; Edward Santana; Perfecto Hernandez; Lucia Hernandez; and Milton Saeteros; et al., Civil Action No. 15-7075 (FLW) (DEA), United States District Court District Of New Jersey (September 22, 2017) the USDA was asked to declare the policy void and not compel the insurer to pay innocent passengers under New Jersey’s Deemer statute.

FACTS

Following an automobile accident on the New Jersey turnpike, Plaintiff 21st Century Centennial Insurance Company (“21st Century” or “Plaintiff”) initiated this action (the “21st Century case”) against various defendants. The present dispute centers on 21st Century’s claims against Felipe Sanchez, Sr., Felipe Sanchez, Jr., and Felipe Express (collectively, the “Felipe Defendants”) for insurance fraud under the Insurance Fraud Prevention Act (“IFPA”), N.J.S.A. 17:33A-1 et seq. and common law fraud, as well as its claim seeking a declaration that 21st Century has no coverage obligations under a policy of insurance that it issued to Myriam Ledee.

The relevant 21st Century policy of insurance (the “Policy” or “21st Century Policy”) lists Myriam Ledee, an Ohio resident and the ex-wife of Felipe Sanchez, Jr., as the named insured. Defendants Felipe Sanchez, Sr. and Felipe Sanchez, Jr. are the owners of Felipe Express, a transportation company that operates out of Silver Springs, Maryland. Felipe Express provides transportation and taxi services, for a fee, to members of the public between the Washington, D.C. and New York City areas, including New Jersey.

The underlying facts concerning the accident are undisputed. On March 6, 2015, Defendant Edward Santana, an employee of Felipe Express, was driving the Van on the southbound side of the New Jersey Turnpike, during the course of his employment, when he collided with a vehicle driven by a representative of the New Jersey Turnpike Authority. Perfecto Hernandez and Lucia Hernandez were passengers in the Van at the time of the accident. Lucia alleges that she sustained personal injuries, requiring medical treatment, as a result of the accident.

Ledee testified that she did not submit an application for the Policy, did not give anyone, including Felipe Express, Felipe Sanchez, Jr., and Felipe Sanchez, Sr., permission to obtain the Policy in her name, and was not aware that the Policy had been applied for or obtained prior to the accident.

According to the testimony of Diana Yeager, an underwriting staff consultant for 21st Century, 21st Century conducted business in New Jersey during the relevant policy period, including the date of the subject accident. Yeager testified that during all relevant periods, 21st Century did not issue commercial policies, including policies covering taxis, buses, or delivery vehicles.

The 21st Century policy specifically excluded coverage for liability arising out of the use of a vehicle for commercial purposes.

DISCUSSION

The Court found that default judgment is appropriate against the Felipe Defendants on all counts, because Plaintiff has established a prima facie case for relief.

The New Jersey Legislature enacted the IFPA to “confront aggressively the problem of insurance fraud in New Jersey.” N.J.S.A. 17:33A-2. The Legislature added the crime of “insurance fraud” in 2003, as part of a “a comprehensive set of solutions to the automobile insurance availability and affordability challenges facing insurers, consumers and regulators in New Jersey.”

Unlike common law fraud, proof of fraud under the IFPA does not require proof of reliance on a false statement or resultant damages. “The applicable burden of proof to prove a violation of the IFPA is a preponderance of the evidence.” Certain Underwriters at Lloyd’s of London v. Alesi, 843 F. Supp. 2d 517, 530 (D.N.J. 2011).

The unchallenged facts in this case demonstrate that the Felipe Defendants knowingly made false representations to 21st Century in order to obtain the Policy. In that regard, it is undisputed that the Felipe Defendants submitted an online application to 21st Century for a personal insurance policy in the name of Myriam Ledee, knowing that that policy procured would be used to cover the Van. In his deposition, Felipe Sanchez, Jr. admitted wrongdoing in procuring a personal policy in the name of Ledee, despite knowing that the Policy would be used for commercial purposes to insure the Van.

Because 21st Century has been prejudiced by the Felipe Defendants’ failure to defend this action, and no facts suggest that the Felipe Defendants would have a meritorious defense against the common law fraud claim. Accordingly, the Court finds that default judgment against the Felipe Defendants as to liability for common law fraud is appropriate.

RESCISSION

Within the field of insurance, rescission has long been recognized as an available and necessary remedy to combat fraudulent behavior by an insured.

Here, the Felipe Defendants made material and fraudulent misrepresentations by applying for a personal policy of insurance using the identity of Ledee. By failing to disclose their true identities, the Felipe Defendants deprived 21st Century of the opportunity to examine the driving histories and other relevant records of the Felipe Defendants.  Under New Jersey law, the Court found that 21st Century is entitled to rescind the Policy as it pertains to the Felipe Defendants, precluding the Felipe Defendants from seeking any coverage as insureds.

21ST CENTURY’S COVERAGE OBLIGATIONS FOR THE PASSENGERS

Notwithstanding the Court’s entry of judgment against the Felipe Defendants, and declaration that the Policy is void ab initio, the Court must determine whether 21st Century has any coverage obligations to the Passengers, who were innocent third-party victims in the accident. In that regard, as discussed in greater detail below, it is well-established under New Jersey law that innocent third-party victims of automobile accidents can, under certain circumstances, recover benefits under a policy that is declared void ab initio on the basis of fraud by the named insured.

By 1985, New Jersey was confronted with a growing number of cases where New Jersey residents were injured in accidents caused by out-of-state drivers whose insurance coverage was less than New Jersey’s statutory requirements. The New Jersey Legislature enacted N.J.S.A. 17:28-1.4, commonly referred to as the “deemer statute,” as part of the state’s no fault insurance plan. If the Van qualifies as an “automobile,” New Jersey’s policy of compensating innocent third-party victims of automobile accidents would require 21st Century to provide the Passengers with the minimum statutory insurance requirements set forth in the deemer statute.

The deemer statute provides, in pertinent part, that automobile insurers, such as 21st Century, who issue policies outside of New Jersey, but are authorized to issue automobile insurance policies within the state, “shall include in each policy coverage to satisfy at least the liability insurance requirements of [the No Fault Act] . . . , whenever the automobile . . . insured under the policy is used or operated in this State.” N.J.S.A. 17:28-1.4. The deemer statute incorporates the following definition of “automobile,” requires it to be a “private passenger automobile of a private passenger or station wagon type that is owned or hired and is neither used as a public or livery conveyance…”

Because the Van was used as a public or livery conveyance, and customarily used in the occupation, profession or business of the insured, the Court found that the Van does not constitute an “automobile,” regardless of whether it falls under the first or second vehicle classification set forth in N.J.S.A. 39:6A-2.

At time of the accident, Santana was employed as a driver for Felipe Express, and the Van was customarily used as a transportation vehicle for Felipe Express. Because the Van was customarily used in the occupation, business, or profession of Santana, it does not qualify as an automobile under the deemer statute. Because the deemer statute only applies policies covering “automobiles,” the Court’s finding that the Van is not an automobile is fatal to the Passengers’ attempt to seek coverage under the deemer statute.

The Court concluded that it could not extend the deemer statute and to cover the innocent Passengers and that they are not entitled to coverage despite their status as innocent third-party victims of the accident, because the deemer statute is not triggered where the vehicle in question is not an “automobile.”

ZALMA OPINION

Although it is sad that the innocent passengers are unable to collect from 21st Century Insurance to compel the insurer to pay when it was the victim of fraud would have been unconscionable. The owners and operators of the vehicle will be held responsible and required to use its assets to pay for the injuries suffered by the innocent victims of the accident.

 

© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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 Library, at 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 three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him 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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A Jury is not Allowed to Speculate About Damages

When Seeking Coverage Of A Settlement Of Covered and Not Covered Losses the Insured Must Prove Allocation

When an insured seeks coverage for a multi-lawsuit settlement where one plaintiffs action is covered by the policy and the other is not, it is the duty of the insured to prove the allocation between covered and not covered losses. Failure to do so can, and in UnitedHealth Group Incorporated, a Minnesota corporation v. Executive Risk Specialty Insurance Company; First Specialty Insurance Corporation; Starr Excess Liability Insurance International Limited; National Union Fire Insurance Company of Pittsburgh, PA, No. 15-1076, United States Court of Appeals For the Eighth Circuit (September 7, 2017) did, cost the insured covereage.

FACTS

UnitedHealth Group sued several insurers in the District of Minnesota, seeking indemnity and defense costs for underlying litigation settlements under its professional liability excess insurance policies. UnitedHealth appeals the district court’s grant of summary judgment in favor of four insurance companies.

UnitedHealth reached a single lump-sum settlement for the two actions together. There was potential insurance coverage for claims in one lawsuit but not for claims brought in the other. A dispute then arose over how to allocate the settlement amount between the covered and non-covered claims.

UnitedHealth settled the the various lawsuits resolving the AMA and Malchow suits for $350 million. The settlement agreement did not state how the $350 million was to be allocated between the AMA plaintiffs and Malchow plaintiffs.

The AMA and Malchow plaintiffs moved to be certified as a settlement class before Judge McKenna in New York. The court reviewed the settlement agreement and held a seven-day evidentiary hearing to determine whether the settlement was fair and reasonable. In October 2010, Judge McKenna certified the settlement class, approved the $350 million settlement, and dismissed the AMA suit. Following the court’s approval, and in accordance with the settlement agreement, the Malchow plaintiffs stipulated to the dismissal of the Malchow suit in New Jersey.

After signing the settlement agreement, UnitedHealth filed an amended complaint in this ongoing lawsuit in the District of Minnesota against its professional liability excess insurers. UnitedHealth sought damages for the insurers’ failure to indemnify it for the costs to defend and the $350 million gross settlement.

After several years of litigation, four excess insurers remain in this action: Executive Risk Specialty Insurance Company, First Specialty Insurance Corporation, Starr Excess Liability Insurance International Limited, and National Union Fire Insurance Company (collectively, the “Insurers”). Executive Risk holds the first excess insurance policy relevant to this appeal; coverage attaches at $95 million in damages. The others provide coverage at higher levels of damages.

The Insurers moved for partial summary judgment.  The trial court ruled that UnitedHealth had the burden to allocate the settlement between the potentially covered AMA claims and the non-covered Malchow claims.

The trial court ruled that UnitedHealth failed to meet its burden to present sufficient evidence to support an allocation between the potentially covered AMA claims and the non-covered Malchow claims. The court also ruled that the Insurers were entitled to summary judgment on UnitedHealth’s claim for defense costs in the AMA suit.

ANALYSIS

UnitedHealth argues that it had no duty to allocate between the covered and non-covered claims under the plain language of its insurance policies. Second, it argues that under Minnesota law, it had no burden to allocate between the covered and non-covered claims and it was required to show only that it suffered a loss that would trigger coverage.

The company contends that under the Antitrust Endorsement of the policy issued by the primary insurance carrier Lexington, which it asserts is incorporated into the excess insurance policies, UnitedHealth is entitled to coverage for the entire $350 million settlement so long as the settlement included covered antitrust claims. The trial court determined that this argument was untimely and meritless. In its amended complaint, UnitedHealth sought indemnity for only the “portion” of the $350 million settlement attributable to the AMA suit. Its claim that it can recover the entire $350 million, including the amount attributable to the Malchow suit, was not timely advanced and was ignored by the appellate court.

The AMA suit qualifies for coverage under the Antitrust Endorsement. The Endorsement provides that notwithstanding any other provisions of the policy, the Insurers must pay for UnitedHealth’s “claims that directly or indirectly result from or are related to, a Wrongful Act consisting or allegedly consisting in whole or in part of anti-trust, price fixing or restraint of trade activities.” But the Malchow claim was separate from the AMA claim, so the Endorsement generates coverage only for the AMA claim.

The excess insurance policies provide coverage described in the Endorsement only insofar as the coverage would not conflict with a provision of the excess policies. And it is undisputed that the excess policies did not cover the Malchow claims, because the defendant in Malchow, a predecessor-in-interest of UnitedHealth, was never an insured under those policies. UnitedHealth is therefore not entitled to the portion of the settlement that is allocated to the Malchow lawsuit.

Under Minnesota law, the initial burden is on the insured to prove prima facie coverage of a third-party claim under a liability insurance policy. If the insured meets its burden of establishing coverage of the claim, the burden shifts to the insurer to prove the applicability of an exclusion under the policy as an affirmative defense. Although this general burden-shifting scheme is clearly established, the Minnesota Supreme Court has not squarely addressed who bears the burden to allocate between covered and non-covered insurance claims.

The appellate court concluded it is not enough under Minnesota law for UnitedHealth to show simply that its $350 million settlement included a covered claim of an unspecified amount. UnitedHealth bears the burden to allocate the settlement between the potentially covered AMA suit and the non-covered Malchow suit with enough specificity to permit a reasoned judgment about liability.

To prove allocation, parties can present testimony from attorneys involved in the underlying lawsuits, evidence from those lawsuits, expert testimony evaluating the lawsuits, a review of the underlying transcripts, or other admissible evidence. To survive summary judgment, an insured need not prove allocation with precision, but it must present a non-speculative basis to allocate a settlement between covered and non-covered claims. The district court concluded that UnitedHealth failed to provide non-speculative evidence to allocate the $350 million settlement between the potentially covered AMA suit and non-covered Malchow suit.

The allocation inquiry examines how a reasonable party in UnitedHealth’s position would have valued the covered and non-covered claims. In evaluating the claims, the appellate court looked to what the parties knew at the time of settlement. In determining what claims were settled, it is appropriate to consider the circumstances and events leading up to the settlement. Events and circumstances happening after settlement are relevant only insofar as they inform how a reasonable party would have valued and allocated the claims at the time of settlement.

A jury may not base its damages award on speculation. The evidence presented by UnitedHealth fails to give a jury more than a speculative basis on which to allocate the $350 million settlement between the AMA and Malchow suits.

These were complex lawsuits involving different claims and legal theories. Allocation required either contemporaneous evidence of valuation or expert testimony on relative value to provide a reasonable foundation for a jury’s decision. Without more evidence about the relative value of the claims, a reasonable jury could only speculate as to how the settlement should be allocated.

UnitedHealth made strategic decisions to invoke attorney-client privilege and work-product protection to avoid presenting evidence from its own representatives about contemporaneous valuations of the settlement. UnitedHealth had an opportunity to raise its objection to the district court’s summary-judgment procedure before it stipulated to the entry of final judgment.

ZALMA OPINION

Hoist on its own petard, UnitedHealth refused to present the evidence it had that wold allow a jury to hear sufficient evidence about how the $350 million settlement should be allocated. To do so they needed the testimony of their lawyers and experts not a blatant demand for the full settlement without providing evidence. As a result they lost the right to hold the excess insurers.

 

 

 

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Insured v. Insured Exclusion Defeats Claim

Again an Assignment of Claim Is a Loser

When will litigants learn that it is not always profitable to take an assignment from tortfeasors. If the tortfeasor has sufficient assets to pay a judgment there is no reason to enter into a deal with the tortfeasor to get a chance at obtaining punitive damages from an insurer. Giving up a bird in hand for millions in the bush is a fools errand.

That lesson as learned by the plaintiffs in Intelligent Digital Systems, LLC, Russ & Russ Pc Defined Benefit Pension Plan, Jay Edmond Russ, all individually and as assignees of Jack Jacobs, Robert Moe, Michael Ryan and Martin cFeely, and Jason Gonzalez, Plaintiffs-Appellants v. Beazley Insurance Company, Inc., United States Court Of Appeals For The Second Circuit, 16-3548-cv, (September 19, 2017).

Intelligent Digital Systems, LLC (“IDS”), Russ & Russ PC Defined Benefit Pension Plan (the “Plan”), and Jay Edmond Russ, all individually and as assignees of insured individuals Jack Jacobs, Robert Moe, Michael Ryan, Martin McFeely, and Jason Gonzalez, appealed from the district court’s judgment dismissing the amended complaint and resolving this insurance action in favor of Beazley Insurance Company, Inc. (“Beazley”).

The primary issue is Beazley’s disclaimer of coverage for Russ’s claims against the insured directors of Visual Management Systems, Inc. (“VMS”).

BACKGROUND

Russ is a New York attorney who founded IDS, a technology company in the digital recording industry. Directly and indirectly (through another wholly-owned company), Russ is the sole officer of IDS. He is also the fiduciary of the Plan.

IDS agreed to sell its assets to non-party VMS, a company, now dissolved, in the video technology business. VMS agreed to pay IDS $1.5 million over time and issued a promissory note to that effect, and it agreed also to add Russ to its Board of Directors and to hire him as a consultant.

The VMS Board of Directors met and, after a motion was made and seconded, approved the transaction and Russ’s appointment, conditioned upon completion of the transaction. The transaction closed and VMS’s general counsel confirmed to Russ that Russ would be a director as of its May 2008 meeting. Russ participated in three board meetings and was paid for his services as a board member.

Beazley provided insurance coverage to VMS under a directors and officers liability insurance policy (the “Policy”). The Policy provides that “[t]he Insurer shall pay on behalf of the Directors and Officers all Loss which is not indemnified by the Company resulting from any Claim first made against the Directors and Officers during the Policy Period for a Wrongful Act.” The Policy defines “Directors and Officers” to include “all persons who were, now are, or shall be duly elected or appointed directors.” Section III(F) of the Policy contains what the parties refer to as an “insured v. insured exclusion,” which excludes coverage for “any Claim . . . by, on behalf of, or at the direction of any of the Insureds, except and to the extent such Claim . . . is employment-related and brought by or on behalf of any of the Directors and Officers.”

The Policy defines “Insureds” as “the Directors and Officers and the Company.”

Russ later announced that he was resigning from the board and might sue VMS for payments owed under the promissory note. Plaintiffs initiated an action against VMS and the other five directors in March 2009.

Beazley denied VMS coverage under the Policy and cited the insured v. insured exclusion. The litigating parties settled the action, with four directors agreeing to pay a total of $75,000, all five directors agreeing to the entry of judgments against them in amounts exceeding $2 million, plaintiffs agreeing to “unconditionally forbear collection” of the judgments against the five directors, and all five directors assigning their rights under the Policy to plaintiffs.

Plaintiffs sued Beazley and sought indemnification for the unpaid amounts of the judgments. After trial the jury found that Russ had been duly elected or appointed within the meaning of the Policy. Final judgment was entered in Beazley’s favor.

DISCUSSION

Two principal issues are presented:

(1)           whether the insured v. insured clause applies to this case, and

(2)           assuming it does, whether Russ was duly elected or appointed a director.

Under New York law, which the parties agree applies to the Policy, “insurance policies are interpreted according to general rules of contract interpretation.” This initial interpretation of the contract and whether its terms are ambiguous are questions of law for the court and so the appellate court must review the district court’s interpretation of the contract and its terms as if heard for the first time. The court must interpret the contract to give effect to the intent of the parties as expressed in the clear language of the contract and give words and phrases in the contract their plain meaning.

By limiting the trial to the issue of whether Russ was duly elected or appointed, the district court essentially ruled as a matter of law that the insured v. insured clause applied to this case, rejecting plaintiffs’ contention that at a minimum there was ambiguity in the clause and that the exclusion could be read as applying only to claims brought by directors in their capacities as directors.

The insured v. insured exclusion, on its face, exempts from coverage “any” claim brought by, on behalf of, or at the direction of an insured director, unless the claim is employment-related. The exclusion is not limited to claims brought by an insured in his “capacity” as a director. On its face, the exclusion applies to all claims (except employment-related claims) regardless of whether the director brings the claims in an individual or fiduciary capacity. Moreover, the employment-related exception to the exclusion applies only to claims brought by employees – not by consultants, like Russ. Indeed, his consultant’s agreement specified that he was an independent contractor and not an employee.

Accordingly, plaintiffs’ challenge to the application of the insured v. insured exclusion to Russ’s claims fails on the merits.

Assuming the insured v. insured clause applies, the court needed to determine whether Russ was “duly elected or appointed” as a director within the meaning of the Policy. While this question was put to the jury and the jury resolved it against plaintiffs, plaintiffs argue in essence that summary judgment should have been granted in their favor.

The Second Circuit’s review indicated that no ambiguity exists in the Policy. The plain meaning of the phrase “duly elected or appointed” in the Policy’s definition of “Directors and Officers” is that directors must be duly selected, by vote or appointment, in accordance with proper procedures.

Under Nevada law, which the parties agree applies to the bylaws, whether a contract is ambiguous is a question of law that the court may decide on summary judgment. While the bylaws provide that the number of directors was to be determined by the Board “from time to time,” the bylaws do not specify that a formal vote was needed to set or change the number.

By voting unanimously to appoint Russ as its sixth director, the board implicitly – if not explicitly – “determined,” that it would increase its membership to six. Contrary to plaintiffs’ suggestion, the bylaws reference to “newly-created directorships resulting from any increase in the authorized number of directors,” does not explicitly require more formal action by the board.

All of the parties treated Russ as a duly elected or appointed director accordingly the Second Circuit affirmed the judgment of the district court.

ZALMA OPINION

Greed may be good on Wall Street but it has no place in insurance litigation. The policy in this case was clear and unambiguous. The case against the corporation and other directors may have been good since they agreed to large judgments in favor of the plaintiffs as long as the plaintiffs agreed to not collect on those judgments from anyone other than the insurer. Since the insurer owed nothing the tortfeasors walked free from the exposure and the plaintiffs gained nothing giving up their right to collect from the tortfeasors. Greed took away good judgment.

ZALMA-INS-CONSULT © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant 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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business. Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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 Library, at 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 three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him 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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Serial Insurance Criminal Ineffectively Tries to Avoid Waiver of Rights

Insurance Criminal Stays in Jail for Five Years

If nothing else, insurance criminal have chutzpah – unmitigated gall – when it comes to their sentences for fraud. When the jury was deliberating whether to convict or acquit Chellyn Jones, she agreed with the trial judge to waive her right to a jury trial on her prior convictions only to complain, when the jury convicted her, of the enhanced sentence imposed because of her multiple prior convictions.

In The People v. Chellyn Jones, D071746, Court Of Appeal, Fourth Appellate District Division One State Of California, (September 18, 2017) the California Court of Appeal was asked to change her sentence.

FACTS

A jury convicted Chellyn Jones of multiple counts of insurance fraud (Ins. Code, § 1871.4, subd. (a)(1); counts 3-8, 11-20) and grand theft (Pen. Code, § 487, subd. (a); count 21). Jones waived a jury trial and admitted she had served three prior prison terms (Pen. Code, §§ 667.5, subd. (b), 668) and suffered a prior strike conviction (Pen. Code, §§ 667, subds. (b)-(i), 1170.12 and 668). She thereafter pleaded guilty to failing to appear at her sentencing hearing (Pen. Code, § 1320, subd. (b)), and admitted an allegation that she had committed the crime while out on bail (Pen. Code, § 12022.1, subd. (b)). On Jones’s motion the trial court struck her strike prior conviction. It exercised its discretion to also strike her prior prison terms and the on-bail enhancement. The court sentenced Jones to a five-year prison term on count 3, concurrent three-year midterms on counts 4 through 8 and 11 through 20, and concurrent two-year terms on count 21 as well as on her failure to appear conviction.

Jones contends that the trial court failed to fully advise her of her rights; that while the court advised her of her right to a jury trial on the alleged prior convictions, it failed to advise her of her constitutional rights against self-incrimination and confrontation before she admitted the priors. She maintains that her jury trial waiver after the court’s perfunctory advisement at sentencing does not establish she was aware of or understood her other rights with respect to her prior convictions, and there was no evidence her counsel discussed all of these constitutional rights with her, rendering her admissions invalid.

Jones’s jury trial took place over the course of nine days in October 2015. After the jury commenced its deliberations, the court brought up the subject of bifurcating Jones’s prior convictions, and defense counsel advised the court that Jones would admit to the priors. The court then obtained Jones’s waiver of a jury trial.

DISCUSSION

Before accepting a criminal defendant’s admission of a prior conviction, a trial court must advise the defendant of the right to a jury trial on the prior, the right to remain silent, and the right to confront adverse witnesses. A proper advisement and defendant’s waiver of  the right to a jury trial on the priors, in the record establish that the defendant’s admission of the prior conviction was voluntary and intelligent.

A court’s failure to give explicit advisements or obtain the defendant’s waiver is not reversible per se. Instead, the test for reversal is whether the record affirmatively shows that [the admission] is voluntary and intelligent under the totality of the circumstances. In making the decision the appellate court looks to whether the defendant’s previous experience in the criminal justice system demonstrates his or her knowledge and sophistication regarding the legal rights. Thus, where, as here, the transcript does not reveal complete advisements and waivers, the appellate court is required to go beyond the courtroom colloquy to assess the defendant’s claim of error and examine the record of the entire proceeding to determine whether the defendant’s admission of the prior conviction was intelligent and voluntary.

Jones concedes that the appellate court must apply the totality of the circumstances test since this was not a so-called “silent record” case.

Under the circumstances of this case precedent requires that the appellate court affirm the judgment. Immediately after Jones’s trial concluded and the jury was sent out to deliberate, the court advised her of her right to jury trial on her prior convictions, and Jones explicitly waived that right. She had just completed a multi-day trial in which her counsel confronted and cross-examined witnesses, and she chose not to testify or present evidence. Jones had suffered multiple prior convictions, and at least one of them alleged to be a prison prior — a 2005 conviction for identity theft — was the result of a guilty plea, at which she would have received the same warning she claimed she did not get at this trial.

Given these circumstances Jones knew she did not have to admit the prior convictions but could have had a jury or court trial, had just participated in a jury trial where she had confronted witnesses and remained silent, and had experience in pleading guilty in the past, namely, the very conviction that she was admitting.

The fact she waived her jury trial right, even after having just completed a lengthy trial, does not establish she was aware of or understood her other rights with respect to her prior convictions.

The appellate court was required, by precedent, to examine the circumstances of Jones’s experience in the criminal justice system, including Jones’s prior guilty plea, that she in fact understood the nature of her rights.

Accordingly, though trial courts are required to give full advisements and obtain express waivers of all such rights  under the totality of the circumstances in this case, Jones voluntarily and intelligently admitted her prior convictions despite being advised of and having waived only her right to jury trial.

ZALMA OPINION

“Chutzpah” is best defined by the example of a person who murders his parents and then pleads for mercy because he is an orphan. In this case, Jones, a serial criminal who has been convicted of multiple crimes, has pleaded guilty to a crime, and has spent much time in court rooms, and who committed an additional crime while out on bail, could not convince the court she was deceived when asked to waive her right to a jury trial about prior convictions she knew the state would have no problem proving. She wasted the court’s time and will serve five years.

ZALMA-INS-CONSULT © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant 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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business. Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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 Library, at 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 three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him 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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L’Shana Tova

Happy new year to all who practice Judaism.

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Charging Fraud Without Sufficient Evidence Is Fatal to the Charge

Inadequate Evidence Requires Fraud Charges to be Dismissed

I wrote an article at http://zalma.com/blog/its-sinful-to-defraud-church-mutual/ that I called “It’s Sinful to defraud Church Mutual” where, in my digest of the case where I opined:

Church Mutual has done something that should be emulated by all insurers faced with a false and fraudulent claim – act proactively to take the profit out of the fraud. It should be obvious to the court that a public adjuster taking 25% contingency fee would, even if the claim is paid in full, would make it impossible for the church to perform the needed repairs unless they inflated the claim excessively. They tried and failed. They should be held to pay for all damages incurred by Church Mutual and the local prosecutors should take note of the criminal aspects of the claims presented by the public adjusters and lawyers.

If the lawyers and adjusters had – as Church Mutual alleged – committed fraud my opinion was correct. Church Mutual, however, was unable to prove what it alleged against the defendants. Church Mutual appealed its loss and has now lost again at the Third Circuit Court of Appeal now available as a non precedential case.

My opinion that attempts at fraud should be fought vigorously remains the same but that, before doing so it must have evidence sufficient to prove the case. When the evidence is not there it is counter-productive to assert fraud and a waste of legal and court time.

Attorney Joseph Zenstein wrote to me and provided a copy of the decision of the Third Circuit stating:

The reason I am sending the opinions to you is because I would hope that by writing your article that you would be interested in the outcome of the case.  I also believe when someone is writing an article and placing it online for all the world to see, it is important to get the other side of the story before assigning guilt and condemnation.  Further, I do not believe in making assumptions that a church and an insurance company were defrauded and demonizing public adjusters and lawyers, without knowledge of all the facts.

It was not my intent to assume anything, especially that public adjusters and attorneys were fraudsters. If the evidence existed the perpetrators should be punished. If not, the lawyers who brought the case should be concerned that they did not well serve their client by not presenting sufficient evidence to prove their allegations.

As Mr. Zenstein pointed out to me asking that I review the Third Circuit’s decision:

I understand your article was based on the facts as set forth in the Complaint drafted by the insurance company’s attorney, but most of the facts were wrong, including the allegation that the church was an unwitting participant in presenting its claims and that it had no idea of the claims being presented on its behalf.  Some critical facts that the insurance company chose to ignore and misrepresent in its complaint (that you relied upon) was that the church and its personal legal counsel, directly hired my firm, signed a written fee agreement with my firm, reviewed and verified both complaints in the underlying actions prior to filing, and provided written direction to my firm to file them.  Up until the church retaining my firm, we had no involvement with the underlying claims.  Ultimately, the insurance company could not produce one single fact that the lawyer defendants committed fraud or conspired to commit fraud.  For these reasons and many others, the insurance company’s case against my firm, myself and another lawyer here, was doomed from the start.

When I digest cases I rely on the facts alleged and reported in the opinion. I had no intention to misrepresent anything.

The Third Circuit concluded:

Church Mutual had alleged that the defendants “acted in concert with the common purpose of submitting fraudulent claims.” (App. 88 ¶ 137.) Church Mutual also asserted that the defendants “acted maliciously with the intent of injuring” the company. (App. 89 ¶ 139.) As the District Court noted, the evidence upon which Church Mutual primarily relied was the close business relationships between the defendants. The defendants served as referral sources and worked together on prior unrelated insurance actions. The lawyers were also previously tenants of the adjusters and the lawyers and adjusters employed the same people at different times. Finally, the parties were financially intertwined, with payments exchanged informally on a case by case basis.

We agree with the District Court, however, that, in the absence of other evidence of concerted action and malice, summary judgment was appropriate. Accordingly, we will affirm the District Court’s summary judgment ruling on the civil conspiracy claim.

Clearly, a mere association of the parties working in the same area is not sufficient to support a case for fraud.

I thank attorney Zenstein for allowing me to report on the final decision and the reason for the loss – a lack of evidence.

ZALMA OPINION

As I have said in various publications it is inappropriate to accuse a person of fraud without first obtaining sufficient evidence to prove beyond a preponderance that the person accused committed fraud.

 

ZALMA-INS-CONSULT © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant 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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business. Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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 Library, at 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 three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him 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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If you do the Crime You Must Do the Time

Once Convicted Criminals Refuse to Accept the Sentence Rendered

People who conspire to distribute the deadly opiods with physicians who defraud insurers, Medicare and Medicaid, are vicious and responsible for many over dose deaths of those to whom the opiods are provided. When convicted and sentenced the convicted criminals try to avoid the sentence.

In United States Of America v. Rickie Horvath, United States District Court District Of New Jersey, Criminal No. 15-0400 (ES), (September 13, 2017) the USDC, New Jersey, refused to fall for the attempt.

BACKGROUND

Defendant Rickie Horvath moved for bail pending appeal. The Government opposes Mr. Horvath’s Motion. The Court declined to hold oral argument.

Horvath is a 56-year-old man suffering from multiple health impairments, including a severe heart condition. On May 25, 2016, Mr. Horvath pleaded guilty to conspiring and agreeing with others to distribute oxycodone (“Plea Agreement”). At the time of his plea agreement, Mr. Horvath was imprisoned as a state prisoner in connection with theft and insurance-fraud charges unrelated to the federal matter. Mr. Horvath was released from state prison on July 8, 2016, and immediately transferred into federal custody.

Mr. Horvath requested release from federal prison due to his deteriorating health condition.

The Court evemtia;;u sentenced Mr. Horvath after granting him bail for four months. In doing so, the Court adopted Mr. Horvath’s Presentence Report (“PSR”) without changes. Based on calculations in the pre-sentence report, Mr. Horvath faced an advisory guidelines sentencing range of 46 to 57 months’ imprisonment.

At the sentencing hearing, Mr. Horvath moved for a downward departure due to his medical condition and his prior confinement in Union County Jail. The Court granted a downward variance and sentenced Mr. Horvath to 41 months’ imprisonment. The Court analyzed the factors on the record at length.

On August 26, 2017, Mr. Horvath received a notice to surrender to the Bureau of Prisons (“BOP”) at Butner Low FCI in Butner, North Carolina, on September 5, 2017. On August 28, 2017, Mr. Horvath requested that this Court stay his surrender for thirty days to allow him to continue to recuperate from his heart surgery and so that his anticipated application for bail pending appeal may be argued and considered by the Court.

DISCUSSION

Congress enacted the Bail Reform Act of 1984 to create a presumption in favor of post-conviction detention. Under this statute, a defendant must establish:

(1)           that [he or she] is not likely to flee or pose a danger to the safety of any other person or the community if released;

(2)           that the appeal is not for purpose of delay;

(3)           that the appeal raises a substantial question of law or fact; and

(4)           that if that substantial question is determined favorably to the defendant on appeal, that decision is likely to result in reversal or an order for a new trial of all counts on which imprisonment has been imposed.

In addition, a defendant convicted of an offense within the Controlled Substances Act punishable by more than 10 years must clearly show that there are exceptional reasons why such person’s detention would not be appropriate.

Relevant here, under the third prong’s substantial-question analysis, a court must determine that the question raised on appeal is a substantial one, that is, it must find that the significant question at issue is one which is either novel, which has not been decided by controlling precedent, or which is fairly doubtful. To that end, a defendant must demonstrate that the issues are debatable among jurists of reason; that a court could resolve the issues in a different manner; or that the questions are adequate to deserve encouragement to proceed further.

Because a defendant must demonstrate that the appeal raises a substantial question of law or fact, the district court must look to the applicable standard of review when assessing the third prong.

The abuse-of-discretion standard applies to both the procedural and substantive reasonableness inquiries. Furthermore

ANALYSIS

Mr. Horvath raises the following allegedly substantial question on appeal: “whether a sentence of 41 months, a significantly longer term than any prior sentence experienced by the defendant, without adjustment for all time already served while suffering from the advanced stages of congestive heart failure and while financially unable to post a $75,000.00 bail, is excessive and fundamentally unfair.” Mr. Horvath argues that his sentence is excessive because it constitutes a “substantial increase in punishment for a low-level drug offense similar to any offense previously committed by Mr. Horvath.” In particular, he points out that each of his “prior periods of detention for low-level state offenses is less than the time served already for the present offense (18-months combined in the Union County Jail and Essex County Correctional Center).”

Mr. Horvath also argues that his medical history and characteristics warrant a substantially reduced sentence.

The Court concluded that Mr. Horvath has not met his burden of demonstrating a substantial question of law or fact. As an initial matter, Mr. Horvath does not contend that his allegedly substantial question is novel; rather, he argues that his 41-month sentence is a “fairly debatable sentence ripe for appellate review.” The Court disagreed.

Although nearly all of Mr. Horvath’s arguments concern the substantive reasonableness of his sentence, he also contends that the Court committed procedural error. As the Government correctly notes, Mr. Horvath does not explain how the Court gave “undue weight” to the Sentencing Guidelines.

Without more, Mr. Horvath has failed to show that this issue—whether the district court committed procedural error constituting an abuse of discretion—is “fairly debatable.”

Mr. Horvath primarily argues that his 41-month sentence, in light of his deteriorating medical condition and prior incarceration, is “excessive and unfair.” This argument, as the Government observes, goes to whether the Court’s sentencing decision was substantively reasonable. Thus, Mr. Horvath must show that it is “fairly debatable” that the Court abused its discretion and imposed a sentence that no reasonable sentencing court would have imposed on him for the reasons the Court provided at the sentencing hearing.

The Court thoroughly considered and discussed his arguments over the course of two and a half hours. Moreover, the Court granted Mr. Horvath a downward variance and sentenced him below the advisory guideline range. The Court also advised Mr. Horvath that it balanced his sentence against the sentences imposed on other members of the conspiracy.

Because Mr. Horvath cannot satisfy the four factors required by the statute the Court must deny his Motion.

ZALMA OPINION

Mr. Horvath was an evil man. He stole from insurers, Medicare and Medicaid to provide dangerous drugs to addicts under the guise of medical treatment, was possibly responsible for the death of many users, was convicted of multiple state and federal crimes, and now seeks mercy and a minimal sentence because he is sick. He did the crime. He asked to court to keep him from serving the time. The USDC refused to buy his argument. He must do the time.

ZALMA-INS-CONSULT © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant 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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business. Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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 Library, at 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 three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him 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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It Pays to Write a Clear & Unambiguous Policy

No Insurance Policy Covers Every Possible Eventuality

Everyone who buys insurance wants it to cover every possible eventuality where a suit may be brought against it. Of course, that belief is as accurate as the claim that Elvis lives as an old man in Las Vegas.

In Aaron Ambulance Medical Transportation, Inc., and Joseph Thomas, v. Certain Underwriters At Lloyd’s, London (erroneously sued herein as “Hiscox Insurance”), United States District Court District Of New Jersey, Action No. 16-cv-04564 (CLW), (September 14, 2017) Aaron Ambulance attempted to obtain defense and indemnity from its professional liability insurer for actions that had nothing to do with the the professional services of the ambulance company and that was clearly and unambiguously excluded.

BACKGROUND

Plaintiffs were sued in relation to alleged sexual harassment and discrimination. The plaintiff in the underlying action was employed by Plaintiffs from August 2013 to May 2014 as a receptionist and administrative assistant, after which time she “was forced to resign” because “she was subjected to continuous sexual harassment and abuse at the Hackensack and Lyndhurst office by” Plaintiffs herein. She also alleges that “sexually offensive conduct and remarks were made to ridicule and to humiliate [her] and to cause her infliction of emotional distress.” The plaintiff in the underlying action thereby asserted numerous counts concerning or claiming, inter alia, “sexual harassment and discrimination[,]” “verbal and physical assaults and batteries and offensive physical contact[,]” “intentional and/or negligent infliction of emotional distress[,]” a “hostile work environment[,]” and constructive discharge.

The defendant refused to defend since it stated there was no coverage for the claim and/or that such coverage as might otherwise be available is precluded by operation of the terms and provisions of the Policy.

Defendant moved for judgment on the pleadings, arguing that because Plaintiffs purchased a professional services liability policy that covers claims arising from the performance of ambulance services, there is no coverage for suits concerning sexual harassment in the workplace. In opposition, Plaintiffs cite the separately-purchased Endorsement 7 as providing the basis for coverage of the underlying action and otherwise maintain that the language of Endorsement 7 created a reasonable expectation of coverage and that it creates ambiguity such that it should be construed in Plaintiffs’ favor.

THE POLICY

The insuring agreement provides: “Underwriters will pay on behalf of the Insured all Damages and Claim Expenses in excess of the Deductible and subject to the applicable Limit of Liability that the Insured becomes legally obligated to pay as a result of any covered Claim …”

The Policy sets forth certain exclusions: “This Policy does not apply to any Claim: * * * E. based upon or arising out of any sexual misconduct, sexual abuse, and/or child abuse; * * * I. brought by one Insured or Affiliate against another Insured or Affiliate[.]”

And, of particular import here, Endorsement 7 provides coverage for sexual harassment while acting in its professional capacity.

DISCUSSION

Basic Rules of Contract Interpretation

Since the parties concur that New Jersey law governed the Motion, a few well-established principles inform the Court’s analysis. First, the scope of an insurance contract’s coverage is a question of law properly decided by the Court. The Court accordingly compares the allegations in the complaint with the language of the insurance policy and the Court is guided by the plain language of the policy such that, if the terms are clear then they are given their plain, ordinary meaning. Importantly, the Court should interpret the policy as written and avoid writing a better insurance policy than the one purchased. When there is ambiguity in an insurance contract, courts interpret the contract to comport with the reasonable expectations of the insured, even if a close reading of the written text reveals a contrary meaning. And a genuine ambiguity only exists where the phrasing of the policy is so confusing that an average policyholder cannot make out the boundaries of coverage.

ANALYSIS

The Court understood Plaintiffs’ concern for clarity in reading the Policy, particularly regarding the role of endorsements in modifying the main body of the Policy. However, the court concluded that a plain reading of the Policy supports the interpretation offered by Defendants.

When read in conjunction, the Insuring Agreement, Exclusions, and Definitions clearly demonstrate the following: the Policy insured Plaintiffs as well as their former employee, the plaintiff in the underlying action. In addition, the Policy covered wrongful acts committed in the performance of professional services, with coverage excluded for such acts as sexual misconduct, discrimination, bodily injury (including mental anguish and emotional distress), and those claims arising between insureds. Thus, because the underlying action presents claims brought by one insured against another premised upon sexual assault, discrimination, emotional distress, and wrongful termination, the Policy plainly disclaims the coverage sought by Plaintiffs.

Moreover, there is no basis in the Policy terms to conclude that the actions alleged in the underlying complaint occurred in the performance of emergency/non-emergency services as an ambulance. Rather, the underlying events allegedly occurred between employees in company offices.

On this point, the Court endorsed Defendant’s distinction that the Policy is one that provides professional liability insurance, as opposed to employment practices liability insurance, and that the underlying allegations do not arise out of the rendering of professional services. New Jersey law distinguishes professional liability policies from other policies because, for example, professional services that entail specialized learning specific to a profession are distinguishable from business or commercial activities such as billing practices.

Critically, insofar as Endorsement 7 deletes the exclusion of claims arising out of “sexual misconduct, sexual abuse, and/or child abuse,” there is no language to negate the other clear disclaimers of coverage because the terms of Endorsement 7 make clear only that Absent express reference to other provisions of the Policy, the Court was disinclined to construe the Policy as expansively as Plaintiffs suggest.

It would be a generous interpretation indeed to read Endorsement 7 to expand coverage beyond professional services and into the realm of sexual harassment and discrimination—all without using or defining such terms or referring to related definitions, declarations, or exclusions.

A plain reading, rather, recognizes that the Policy says what it means through well-defined and consistently-employed terms. Such a reading also supports the conclusion that, as Defendant persuasively argues, sexual misconduct is insured against not in the sense of sexual harassment or in the context of an office environment, but simply in rendering professional ambulatory services—a situation not raised by the allegations of the underlying complaint.

Plaintiffs availed themselves of an insurance broker to insure a commercial enterprise and secured insurance coverage for clearly-defined circumstances. Plaintiffs did not secure coverage for every eventuality, however, as the Policy unambiguously excludes coverage for claims presented in the underlying complaint.

ZALMA OPINON

Employment liability insurance is available in the marketplace. A professional liability policy clearly provides insurance for breach of the professional obligation of an ambulance service. It doesn’t apply to sexual harassment of an employee in the company’s offices. The ambulance company decided not to buy that coverage and by its suit attempted to change a professional policy into something the insurer did not agree to insure.

ZALMA-INS-CONSULT © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant 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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business. Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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 Library, at 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 three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him 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 – September 15, 2017

 Zalma’s Insurance Fraud Letter

Volume 21, No. 18

Evil Incarnate – Stealing Life Insurance Proceeds from Beneficiaries of the Elderly

In the last 50 years that I have been in the business of insurance I have learned the one thing that is a certainty: the quality of insurance fraud perpetrators is almost non-existent. It is so easy to steal from insurance companies that amateurs with no skills are jumping into the business of defrauding insurers. Catastrophes, like Hurricane Harvey and Hurricane Irma will draw amateur and professional fraudsters who are seeking to peel off some of the $300 billion that will be needed to rebuild Houston and Florida. People suffering catastrophic losses will work with the fraudsters to take as much as possible from the insurance industry and FEMA.

If the insurance industry and FEMA learn enough about insurance fraud and defeats the claims of the amateurs the professional fraud perpetrators will go away and work easier crimes. If not, they will continue to bleed the insurance industry.

It has been my desire, for the last 21 years that I have published Zalma’s Insurance Fraud Letter to help in the effort to make insurance fraud more difficult for the perpetrators and reduce what fraud takes from the insurance industry. To help anyone interested to be an insurance professional I have created two courses for Illumeo.com.

 The Current Issue Contains the Following

  • Evil Incarnate – Stealing Life Insurance Proceeds from Beneficiaries of the Elderly
  • Insurance Fraud
  • Prosecutors Immune From Suit for Charging Police Officers With Fraud
  • Hard Fraud vs. Soft Fraud
  • Hard Fraud
  • Claims in a Catastrophe
  • Good News From the Coalition Against Insurance Fraud
  • Health Insurance Fraud Convictions
  • Other Insurance Fraud Convictions
  • Books from the American Bar Association
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Nothing is Certain or Immutable in the Law

Depriving Criminal Defendant of Fifth Amendment Right Not Subject to Insurance

The U.S. Constitution prohibits requiring a person to testify against himself. When a person is deprived of his Fifth Amendment rights and is, as a result, wrongfully convicted, he may sue the entity that deprived him of that right.

In Westport Insurance Corporation v.  City Of Waukegan, Lucian Tessman, Donald Meadie, Fernando Shipley, Howard Pratt, Richard Davis, Phllip Stevenson, Terry House, Robert Repp, Burton Setterlund, Estate Of Dennis Cobb, and Juan A. Rivera, Jr., United States District Court For The Northern District Of Illinois Eastern Division, Case No. 14-cv-419 (September 13, 2017) the City of Waukegan sought insurance protection against the suit brought by the wrongfully convicted person.

The insurer refused and Westport Insurance Corporation (“Westport”) sued 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.

Judge Darrah, the judge to whom this case was previously assigned, ruled in 2014 that Rivera’s lawsuit against Waukegan—in particular, his claim that Waukegan violated his Fifth Amendment self-incrimination rights pursuant to 42 U.S.C. § 1983 by using a coerced confession against him at his second trial in 1998—triggered Westport’s duty to defend stemming from the 1998 policy Westport issued to Waukegan.

DISCUSSION

Westport moved judge Alonzo, who replaced Judge Darrah to reconsider Judge Darrah’s trigger ruling in light of a subsequent case of the Illinois Appellate Court, Indian Harbor Insurance Co. v. City of Waukegan, 33 N.E.3d 613 (Ill. App. Ct. 2015). On reconsideration, this Court reaffirmed Judge Darrah’s trigger ruling, concluding that recent Illinois cases such as Indian Harbor addressing trigger of coverage in the context of malicious prosecution claims or prosecutorial due process claims do not necessarily control this case.

The Court reasoned that the “essence” of a § 1983 claim for violation of Fifth Amendment self-incrimination rights, or the conduct that essentially causes the “injury,” in the language of the policy, is courtroom use of the coerced confession, which occurs at a different time from the essential tortious acts underlying malicious prosecution or Brady claims, and therefore triggers insurance coverage at a different time.

The parties have now filed cross-motions for summary judgment. After full briefing on the motions, Westport alerted this Court to a new Illinois Appellate Court decision that Westport argues is controlling. St. Paul Fire & Marine Insurance Co. v. City of Waukegan, 2017 IL App (2d) 160381, ¶¶ 44-48 another case, like this one and Indian Harbor, concerning the proper trigger of coverage for Rivera’s lawsuit against Waukegan.

In its most recent filing, Westport argues that based on this new authority, this Court must abandon Judge Darrah’s reasoning and the reasoning this Court employed in its reconsideration ruling, and instead apply the Illinois Appellate Court’s decision in St. Paul, which would require this Court to hold that Westport owes no duty to defend or indemnify Waukegan for Rivera’s lawsuit.

ANALYSIS

The Court agreed with Westport. Illinois law governs this insurance coverage dispute. The Court is bound to follow a decision of the Illinois Appellate Court on an issue of Illinois law in the absence of any strong, direct indication that the Illinois Supreme Court would not.

In this case, there is no “persuasive data” in other decisions of Illinois courts that might induce this Court to conclude that the Illinois Supreme Court would not follow St. Paul. Cf. Acuity v. Lenny Szarek, Inc., 128 F. Supp. 3d 1053, 1061 (N.D. Ill. 2015). As far as this Court is aware, St. Paul is the only Illinois decision to directly address trigger of coverage for a Fifth Amendment self-incrimination clause civil rights claim. It did so in a case that involved coverage for the exact same claim of the exact same underlying action that also underlies this case, under circumstances that were essentially indistinguishable.

Waukegan’s proposed rationale is foreclosed by County of McLean v. States Self-Insurers Risk Retention Group, Inc., 33 N.E.3d 1012 (Ill. App. Ct. 2015), in which the policy used the term “offense” rather than “wrongful act,” but the Illinois Appellate Court nevertheless followed the Indian Harbor decision in holding that coverage for a malicious prosecution claim is triggered at the time the malicious prosecution was initiated, not at the time the tort accrues.

The Illinois Appellate Court has held that the misconduct that led to Rivera’s conviction in 1992 is the essential cause of the injury arising out of the violation of his Fifth Amendment self-incrimination rights. Westport’s motion for summary judgment was granted and Waukegan’s motion for summary judgment was denied. Westport does not owe reimbursement to Waukegan for any portion of its defense costs incurred in Rivera’s underlying lawsuit, and Westport does not have a duty to indemnify Waukegan for its settlement of Rivera’s underlying lawsuit.

In order to avoid any confusion that may arise from the inconsistency of today’s ruling and Judge Darrah’s trigger ruling, and in light of the fact that Waukegan has had an opportunity to address the impact of the Illinois Appellate Court’s decision in St. Paul, the Court vacates Judge Darrah’s order to the extent that it declared that Westport had a duty to defend Waukegan in Rivera’s lawsuit.

ZALMA OPINION

The acts of the city were contumacious and in contempt of the U.S. Constitution by forcing a person to confess a crime and deprive him of his Fifth Amendment Rights. It is the type of even that was not fortuitous and, therefore, no coverage. Judge Alonzo, based on recent Illinois decisions, changed the decision made by Judge Darrah and proved that nothing is certain or immutable in the law.

ZALMA-INS-CONSULT © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant 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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business. Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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 Library, at 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 three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him 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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Catastrophe Claims

Claims In A Catastrophe

© 2008 Barry Zalma
ClaimSchool, Inc.

In 2008 I wrote this article to help those faced with catastrophic losses. I reprint it here because of Hurricane Harvey and Irma in hopes it will help those victims of the catastrophes deal with their claims.

Presenting a Claim

If your house was damaged or destroyed by the fire, windstorm, or flood as a result of state declared catastrophes and you had a fire, homeowners, flood insurance, tenant’s homeowners or condominium policy you will be dealing with an insurance adjuster. You should recognize that dealing with an insurance adjuster in a catastrophe is usually fairly easy because of the number of claims the adjuster is required to deal within a short time.

Insurers will be in a very generous mood. They will be seeking good publicity by taking care of victims of the catastrophe quickly and fairly. To make the claims process go easily the insured person must understand that both the insured and the adjuster have duties when damage-caused by fire, windstorm, flood or other insured perils are discovered. The following list outlines the most important of these duties:

  1. You should be sure there is no unnecessary delay in reporting the fact of the discovery of damage to your insurer as a claim.
  2. You and the adjuster should establish that there is no unnecessary delay in responding to any fire, firefighting, flood or water-related cause of loss where “mold” may result as a natural result of water, warmth, and existence of mold spores in all building.
  3. You may be asked to sign a non-waiver agreement.
  4. You may receive a reservation of rights letter advising you of your duties under the policy, the conditions that apply or might apply, and the exclusions that may apply to the facts of the loss.
  5. You, as the insured, should readily, and without objection, sign the non-waiver agreement or accept the reservation of rights as an expression of the status quo.
  6. The adjuster should remind you, as part of the reservation of rights letter and explanation of the duties of the insured, to preserve and protect the damaged property and to mitigate the loss with due diligence and dispatch.
  7. You can request from the adjuster the identity of respected, competent, and professional contractors experienced in fire reconstruction or the drying out of buildings and the prevention or restriction of further loss including mold growth.
  8. You should follow up regularly with the adjuster to ensure that he or she is meeting contractual obligations since a catastrophe often makes communications difficult.
  9. If you have failed to protect the property from further loss, the adjuster must remind you, in writing, of your failure and how that could effect your claim.
  10. The adjuster should consider advance payments to avoid any unnecessary difficulties so that you and your family will have a place to live while your house is being rebuilt.
  1. You can expect an advance of $10,000 to $20,000 if your house is destroyed to carry you over
    1. Even if your house was not damaged you are entitled to additional living expense payments if you were ordered out of your house by the state government, federal government
    2. Homeland Security, or the local fire department.
    3. Remember that additional living expense coverage does not pay all of your post loss expenses, only those over and above your normal expenses.

Insurance claims require personal attention to detail by the insured. You and the adjuster must meet in person. If the claim is to be resolved expeditiously and fairly, both you and the adjuster should work to establish a personal relationship and to resolve, if coverage is available, the problems caused by the damage to the dwelling or business structure.

Once the rights, obligations, and duties of the insured and the insurer have been stated, and the initial investigation is complete, the insurer is obligated to conduct a prompt analysis of the policy wording and the law to determine whether coverage exists for the damage claimed. Once the investigation is complete and the decision made, it is the adjuster’s obligation to advise you, promptly and in detail, of the decision of the insurer. If coverage is available, it is also the obligation of the adjuster to advise you of your duties and obligations to obtain complete indemnity from the insurer and to protect the property from further loss.

The Notice of Loss

If you believe that your property was damaged or destroyed by a peril insured by your policy you should call or write the insurance agent, broker or insurer immediately (or as soon as practical) to report your claim. Follow up the phone call with a fax, an email, and a letter. If the house was not destroyed but a great deal of firefighting water or subsequent rain or flood water entered the property try to get a remediation team into the home or business within the first 48 hours to begin drying out the property. If you do not know one ask your insurer for a referral. This is crucial to preventing or containing mold growth and rot. If the agent, insurance company, independent adjuster, or restoration company delays the claim, follow up with a fax, an email, and a letter confirming their delay in responding. It would be helpful to send copies of the follow-up letters to the consumer protection unit of the state’s Department of Insurance. Take detailed notes of every conversation, including the name, company, phone number, address, and job title of every insurance adjuster, representative, consultant, and contractor you deal with. Confirm all agreements in writing and insist that appointments and deadlines be honored. Keep a log of all notes and letters and ask for and keep business cards from everyone involved in your claim.

Immediately after the telephone call, write a letter to the broker or agent, with a copy to the insurer, providing the same information. The letter need not be formal. It can be handwritten on any available paper. Make a photocopy.

The notice of loss should include the following information:

  • Your full name.
  • The location of the property.
  • The policy number.
  • The effective dates of the policy.
  • The date when damage first occurred.
  • The type of property damage.
  • The cause or causes of the damage.
  • How the adjuster can contact you.
  • That you need immediate contact from the adjuster.

By providing the information to the agent, the broker and/or the insurer you have fulfilled the first obligation under the policy: to provide immediate notice of loss to the insurer.

If the insurer is working effectively and has a catastrophe team of adjusters in place you should receive contact from an adjuster within 24 hours of the notice. The first call should arrange an appointment to inspect the property. You should arrange for inspection as soon as possible and have the entire property available for the inspection if possible. If emergency efforts are required, you should so advise the adjuster so that he or she can help you take emergency measures to protect against further loss.

If possible, you or the adjuster should arrange to have one or more contractors present at the first meeting to determine the extent of the damage. If the damage is extensive, consider retaining the services of a public insurance adjuster [if you determine a public insurance adjuster would be helpful, it is appropriate to seek one who is a member of the National Association of Public Insurance Adjusters (NAPIA), a professional membership organization that seeks to instill professionalism in the trade] or an attorney experienced in representing policyholders in the claims process to represent your interest. The lawyer will usually work on an hourly fee basis while the public insurance adjuster will expect a percentage of the amount paid by the insurer. You must recognize that the public insurance adjuster will ask for a 10 – 15% negotiable fee. Do not hesitate to negotiate with the public insurance adjuster. Never pay the first fee quoted. Considering the volume of work in a catastrophe, you should be able to negotiate a fee between 3% and 10%.

Insurance Company Response

Your insurer should respond to typical catastrophe claims by written or verbal contact within 24 hours of your notice of the claim. The insurer should share information regarding emergency repairs, additional living expenses, temporary advance payments and prevention of further loss with you.

Your insurer should, and in California is obligated to, advise you of your responsibilities under the policy. Many require their representatives to be at your home within 24 to 72 hours of notice of claim. If you explain that your fire loss is severe, the insurer should attempt to have a representative at your house within 24 hours.

The insurer is obligated by statute, state administrative regulations, or by the terms of the policy to determine whether your claim is covered and provide an initial estimate of damage within seven to 14 days after the insurer’s first on-site visit. This first estimate is subject to change. Within the same time frame, your insurer should attempt to provide you with a written statement confirming or denying coverage. These time limits are usually waived in catastrophes and may be impossible to meet with regard to Hurricane Katrina event and other massive catastrophes. You should expect your insurer to return all phone calls within 24 hours. Initial contact may be with your insurance agent or broker or a claims office or the toll-free phone number included in the policy. Because of the volume of claims after a catastrophe like those in the 2005 hurricane season and the 2008 California wild fire season, this time frame will probably not be feasible.

First Contact with the Adjuster

Your first contact with the adjuster is usually an informative meeting where you discuss the cause of the loss, the type of loss, when the loss was discovered, and make an initial effort to agree on a tentative scope of loss.
You should expect the adjuster to do the following:

  1. ask for a walk-through inspection of the entire dwelling or building.
  1. You should make every effort to point out each item of damage or suspected damage during the walk-through inspection
    1. You, or your representative, should assist the adjuster in viewing both the damage and the source of the damage;
  1. ask you to submit to a recorded statement;
  2. ask you for the identities of each family member or vendor who can give the adjuster information about the loss;
  3. ask for the recorded statements of the persons identified;
  4. ask permission to allow experts retained by the insurer to inspect the property and do minor destructive testing to establish the appropriate methods of reconstruction and repair; and
  5. ask permission to contact others who know information about the loss and to obtain from those people within your control a detailed recorded statement and documents relating to their knowledge of the loss and the extent of the loss.

First Meeting with the Adjuster

An adjuster is a person professionally trained to assess the damage to your property. He or she will probably visit your home or business before you are asked to complete any forms. The more information you have about your damaged home or business and belongings, the sooner your claim will be settled. Your adjuster generally will come prepared to do a thorough and complete evaluation of the damage to your property. If the adjuster is unable to complete a thorough inspection due to time constraints or the extent of damage, he or she should prepare a scope of the loss report. This is a brief listing of the findings of damage determined at the initial inspection of the damage. The adjuster should ask you to agree to the scope of loss. Agreeing to a scope of loss is not presenting a claim. It is understood by the adjuster that the scope is incomplete and will be added to as new damage is discovered. It is usually supplemented with a second visit after the reports of experts are received to complete the inspection.

The “scope of loss” should include the following:

  • degree of damage;
  • a description of each location where damage was observed;
  • a description of the adjuster’s and your own best estimates of the type of damage observed;
  • a list of all personal property damaged or destroyed;
  • quality of the materials and workmanship; and
  • measurements needed to calculate quantities, including length, width, and height of rooms and the number of “openings” (windows and doors) in each room.

The scope of loss, usually referred to by claims people as the “scope,” differs from the finished estimate in two ways the scope does not necessarily list any prices, although prices can be used to describe quality
the scope does not list the calculated quantities; it includes just the raw counts and measurements needed to calculate quantities for the estimate.

Protect All Property from Further Damage

Every policy requires that the insured protect the property from further loss. Therefore, you should turn off any water flow to broken appliances or pipes, arrange to have openings in roofs or walls covered to protect from rain damage, and seek help from the adjuster to further protect your property from losses of all types.

Take any necessary emergency measures to protect the building and personal property from any further damage. Do not throw anything away until permission of the insurance company is obtained in writing and you have documented its condition unless the damaged property presents a hazard to the health or safety of your family or others.

If the insurer delays or refuses to authorize measures to prevent further loss, confirm the insurer’s delay in a fax, email, and a letter, and take whatever reasonable measures you can afford to protect the property. If your loss is covered, the insurance company should also cover the cost of any reasonable emergency measures you took to protect your property. It is not unusual for an insurer to deny coverage for damage resulting after the initial claim on the grounds that an insured failed to comply with the policy condition to protect the property from further damage.

Document the Loss

If you were prudent and prepared, before the catastrophe, an inventory of your contents or took pictures of your contents, provide the adjuster with the inventory and photographs or videotape. Photograph, videotape, and inventory all damaged property after the loss. Make sure you record the date of the photos and videotape. It is important to document the source and the extent of damage whether by fire or water intrusion.

In most states, a material misrepresentation, concealment, or omission made in connection with the claim will give the insurer a valid reason to reject the entire claim. For example, claiming that an item was destroyed that really wasn’t or substantially overstating the value of a damaged item is fraud. In most states insurance fraud is a felony that can place you in state prison if convicted. No catastrophe is so bad as to cause you to attempt to defraud your insurer to make up for uninsured losses. You should never exaggerate, speculate, or guess about the loss or value of any particular piece of property. Make it clear to your insurer when recollection may not be accurate, when you are estimating value, and the basis for your estimate. For the value of items you are not sure about on a claim presentation, use the phrase “To Be Determined.” If you do not have receipts to show the price of an item, information can be found in catalogs, statements from retail clerks, bank statements, credit card statements, or statements from family members or friends.

If all else fails, a formal appraisal can be obtained from a professional personal property appraiser. Save this as a last resort, since the insurer will usually refuse to reimburse you for the costs of hiring an appraiser, but may hire one at no cost to you if asked courteously.

You Must Cooperate with the Insurance Company’s Investigation and Handling of the Claim

You have a contractual obligation to cooperate with the insurer in its investigation and handling of the claim. However, you never have an obligation to allow yourself to be abused. In most states the insured and the insurance company have a mutual obligation to act in good faith and deal fairly with each other to investigate and process the claim. This means that both should avoid taking any unreasonable position or doing or saying anything that would in any way frustrate each other’s rights under the policy. The insurer may require one or more recorded statements from you. Always request a copy of the tape and a transcript of the statement to review. When the recording is complete, ask the adjuster to break out the tab so that nothing can be recorded over the tape and place your signature and date on the tape label. Ask the adjuster to similarly place his or her signature on the tape. You have a right to review and correct the transcript of any recorded statement.

You may also be required to appear for an “Examination Under Oath” (EUO). The insurer may, but is not required to, hire an attorney to take the EUO to represent the insured. Since a lawyer is not required, however, the insurer will not pay for the attorney that is representing you. The EUO is a contractual obligation and there is usually no clause in the insurance policy promising to pay a lawyer to help the insured make a claim against an insurer. You should not appear for an EUO until you understand all rights, the insurance coverage, and the full extent of the claim, or until counsel is retained. Do not refuse to appear at an EUO or the insurer may reject the claim because such refusal is a breach of a material condition of the policy. You may reasonably request a delay in appearance at an EUO to obtain the services of counsel or a public insurance adjuster.

The insurer may ask you to make available various documents related to the claim, including banking statements, investment reports, receipts, and other personal financial documents. You are required to produce any documentation reasonably related to the insurer’s investigation of the claim that can include tax returns. In some states, tax returns are considered privileged and the insured cannot be compelled to produce them, while in other states the failure to produce tax returns is sufficient cause to deny the claim. [See Barry Zalma, Insurance Claims: A Comprehensive Guide, (Specialty Technical Publishers, 2002): Chapter II-5.] The insurer can require you to produce these kinds of documents as long as they are reasonably related to its investigation. You should not provide these documents to the insurer until you understand the rights, duties, and obligations imposed by the insurance coverage and the full extent of the claim. You should never refuse to produce documents unreasonably since the requirement for document production is a condition precedent to the insurer’s obligation to provide a defense and/or indemnity to you.

Proof of Loss Requirement

Most first party property policies require that you submit a sworn proof of loss form to the insurer within a certain amount of time, either after the loss or after being provided the proof of loss form. During a catastrophe, especially when total losses are involved, insurers will often waive this requirement.

Flood insurance policies require the proof of loss within sixty days of the loss and are applied in a draconian fashion. If you cannot produce a proof of flood loss within 60 days of the loss obtain an extension of time, in writing from the adjuster, or you will lose all rights under the policy to indemnity.

The National Flood Insurance Program, on September 21, 2005, announced that it is waiving proof-of-loss requirements for victims of Hurricane Katrina and will instead rely on claims adjuster reports, aerial photography, and information on water depths to help expedite the process of paying claims, the Federal Emergency Management Agency said.

According to the NFIP, information from underwriting files will be used in concert with photographic and topographical data to determine where it is readily apparent that a covered property’s flood damage has exceeded the amount of coverage purchased. The process would allow claims to be paid on homes that have been washed off their foundations, have been inundated by standing water for extended periods of time, or where only a slab or the home’s pilings remain, even where no formal site visit has been conducted.

In most states you are contractually obligated to submit the sworn proof of loss within the time limit (usually 60 days from the date of request), or at least to substantially comply with the requirement, unless the insurer agrees to dispense with the sworn proof of loss or extend the time. You should not submit the sworn proof of loss to the insurer until you understand all of the rights and obligations imposed by the policy, the insurance coverages, and the full extent of the claim. It is not unusual for an insurer to consider mistakes in the sworn proof of loss (since they are sworn to under oath) as intentional misrepresentations sufficient to allow it to reject coverage for a claim. A statement made under oath cannot, by definition, contain an innocent misrepresentation. Never sign a sworn proof of loss, even if your lawyer or professional public insurance adjuster prepares it, until you have carefully read every word and are certain that the statements made are true.

Some insurers believe that, at some point, you will refuse to comply with their requests. If you refuse to comply with reasonable requests for a recorded statement, an EUO, a sworn proof of loss, or documents reasonably related to the insurer’s investigation, you may give the insurer a valid excuse to deny the claim based on your breach of the duty to cooperate. If you believe that any requests made by the insurer are unreasonable, ask the insurer to explain the reason(s) for the requests in writing. Err on the side of caution and provide all documents that have some reasonable connection to the policy or loss. Before giving an insurer a reason to deny a claim because of your failure to cooperate, consult with a policyholder attorney, a public adjuster, or the state Department of Insurance before refusing a request that may, in retrospect, turn out to have been reasonable.

Get a Second Opinion

Many insureds believe that insurers make a practice of making inadequate (sometimes called “lowball”) offers of settlement. They are wary of what they think are estimates from insurance-company-friendly contractors. Whether true or not, it is a good practice to get a second, or even a third, written estimate to repair and replace damaged property from reputable, independent professionals that you would hire to do the repairs if there was no insurance. You are entitled to have the damaged property replaced with “like kind and quality.” This means that you should insist that the amount determined to be the amount of loss is sufficient to replace the property with property of like kind and quality to the damaged property. When you cannot match the remaining undamaged tile, wallpaper, carpeting, or other portions of undamaged property, you are usually entitled to have the entire “line of sight” replaced to match. For example, if a broken water pipe destroys the hardwood floor in a kitchen and does no damage to the contiguous hardwood floor in the adjoining family room, the insurer is required to replace both the damaged and undamaged floors so that they match as long as they are in a continuous line of sight.

Some losses are paid on an actual cash value (ACTUAL CASH VALUE) basis, which in some states means either the fair market value of the property at the time of loss unless the policy defines ACTUAL CASH VALUE differently. Many policies will define ACTUAL CASH VALUE as replacement cost less physical depreciation for age and wear and tear. Some losses are paid out on a replacement cost value (REPLACEMENT COST VALUE), where the insured is paid the difference between actual cash value and replacement cost value after the insured has actual sums necessary to complete the replacement. You may collect the ACTUAL CASH VALUE loss immediately and advise the insurer you intend to make claim for the difference between ACTUAL CASH VALUE and REPLACEMENT COST VALUE when the structure is rebuilt. If your policy has a time-limit for rebuilding be sure to get a written extension of time since, after a catastrophe, the rebuilding process is often severely delayed.

When fire and water-damage reconstruction contractors write estimates for insurance companies they always add at the end of their estimate a sum equal to 10% of the basic contract price for “overhead,” and an additional 10% of the basic contract price for “profit.” This technique is a fiction believed only by contractors and adjusters. Knowledgeable construction people know that no contractor could survive on 10% profit and that contractors build overhead and profit into their basic unit costs (paint, plaster, roofing, etc.) and add the “profit and overhead” numbers as a fee for the extra service they provide to insurers. In recent years, some insurers have attempted to withhold 20%, an amount equal to the contractor’s “profit and overhead” numbers to arrive at an ACTUAL CASH VALUE amount. There is no basis in the policy that allows withholding profit and overhead as a means of calculating ACTUAL CASH VALUE. In fact, ACTUAL CASH VALUE is defined either as the difference in the fair market value of the property before the loss and the fair market value of the property after the loss or the full cost of replacement using like kind and quality, less physical depreciation. You should insist that any amounts withheld from payment pending completion of the work, be documented in writing and justified by the adjuster objectively. Policyholder attorneys and some insurance regulators have successfully prevented insurers from withholding these amounts.

Investigate Contractors

Thoroughly investigate the qualifications, license, and references of your insurance company’s approved contractor before agreeing to hire them to perform the repairs. The State Contractors Licensing Board will usually provide the consumer, by telephone or over the Internet, with the contractor’s license status and history of discipline. At a minimum, the licensing entity and a reference should be checked before a contract is signed. You do not have to use consultants or contractors recommended or approved by the insurer to perform repairs. Approved contractors are typically contractors who have agreed to discount their labor and costs and follow insurer guidelines in exchange for a volume of business from the insurance company. If your insurer promises to guarantee the approved contractor’s work, the guarantee is generally limited to replacing any defective materials or correcting faulty workmanship. The insurer is not insuring against any contractor delays, negligence, or liability. Accordingly, do not use the approved contractor unless it is a contractor that you would independently hire to do the work after a thorough screening. Check that each contractor’s license is valid and for any complaints against the license. Ensure that the contractor is bonded and insured.

Seek Proper Legal Advice

Never sign a release, waiver, indemnity, or “hold harmless” agreement without proper legal advice. If the insurer, adjuster, consultant, or contractor asks you to sign a release, waiver, indemnity, or hold harmless agreement, ask them to explain why in writing. These kinds of agreements can be used to deprive an insured of rights and benefits and may obligate you to pay thousands of extra dollars for issues that arise. Consult a policyholder attorney to determine your rights before signing any such agreement.

Seek professional help, if needed. If you reach an impasse with the insurer, document the dispute fully in writing. Explain your position and why the insurance company’s position is unreasonable. If the dispute does not require legal advice, you may be able to resolve it by calling the California Department of Insurance at 1-800-387-HELP or by hiring a lawyer or public adjuster. If the dispute does require legal advice, contact a lawyer who is experienced and specializes in representing policyholders. There are many consultants who claim to be “insurance claims experts” who do not have adequate training, skill, or experience. Before you retain one investigate the person diligently by contacting licensing bodies and references.

Be Aware of Deadlines

Make sure you know all the deadlines that may cut off the right to file a lawsuit. California has a four-year statute of limitations for breaches of written contracts but most insurance policies require suit within one or two years of the loss or the denial of a claim. If your claim is denied seek legal advice promptly.

In most states the insurance company is required to tell you, in writing, that the claim is denied, and that the limitations clock is running. That is, if you disagree with the insurer’s conclusion to deny your claim you have a limited time to file suit. Make sure you understand all possible deadlines. Consult with a policyholder attorney as soon as possible. The time limitation can be as short as one year from the date the loss occurred and can be put on hold by actions of the insurer. If you wish to sue, it is best to contact counsel as soon as possible before the expiration of the time limit.

Report all Unfair Claims Handling to the Department of Insurance or an Insurance Regulator

The state Insurance Department tracks policyholder complaints about their insurers and compiles the results. Most states have proactive consumer advocates in their insurance departments who will jump in to help you if they believe the insurer is not treating you fairly.

Conclusion

Many insurers involved in Catastrophes provide their adjusters with policy limits authority and instruct the adjuster to be generous. If your house was one of those totally destroyed and coverage is available there is a good probability that you will receive the full policy limits immediately.

If you did not carry sufficient insurance to totally rebuild your house and replace your contents consider the acquisition of a factory built home which can be trucked to your site and completed, with all appliances included, for much less than a conventionally constructed home.

Almost all claims will be handled promptly and fairly. A person knowledgeable about insurance claims can better deal with an insurance company. Don’t take advantage of your insurer and don’t let an insurer take advantage of you. You are entitled to indemnity. You and your insurer should work together to make you whole.

[Adapted from Barry Zalma’s book, “Insurance Claims: A Comprehensive Guide” and his book “Mold: A Comprehensive Claims Guide” published by the National Underwriter Company.]

 

ZALMA-INS-CONSULT © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant 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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business. Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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 Library, at 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 three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him 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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New Jersey Finds Broker Has Fiduciary Duty to Insured

Broker’s Failure to Properly Value Property Liable to Insured for Losses

An insurer’s basic duty is to transact insurance with an insurer on behalf of the insured as ordered by the insured. Neither the broker nor the insurer are obligated to advise the insured of the amount of insurance the insured needs unless the broker holds himself out as an expert and gives the advice.

In New Jersey, in Loyle, LLC and Elyol, Inc., t/a Loyle Lanes Bowling Center, v. Greater New York Mutual Insurance Company and Brouwer, Hansen & Izdebski Associates, and John H. Izdebski, Inc. v. Greater New York Mutual Insurance Company, Superior Court Of New Jersey Appellate Division, DOCKET NO. A-2221-15T4 (September 5, 2017) the Appellate Division found the defendant broker to be a fiduciary whose advice was wanting and affirmed the jury’s verdict in favor of the insured.

FACTS

Following a 2010 arson fire that destroyed the bowling alley they owned and operated, plaintiffs discovered they were underinsured for the property and business interruption losses they sustained. Plaintiffs successfully claimed their insurance broker, defendant Brouwer, Hansen & Izdebski, Inc. (BHI), negligently advised them concerning the insurance coverage limits required to replace the bowling alley building and its contents in the event of a total loss and to reimburse plaintiffs for losses due to business interruption. The matter proceeded to trial and the jury agreed, resulting in the entry of a $1,998,808.77 judgment against BHI.

The bowling center was insured under a policy with Greater New York Mutual Insurance Company (GNY) that became effective on April 1, 2009 (2009 policy). The policy provided replacement cost coverage for the building with a limit of $3,425,000, replacement cost coverage for the building’s contents with a limit of $200,000, and business interruption coverage with a limit of $400,000.

An appraisal conducted after the fire, however, revealed that the building’s actual replacement cost was $6,395,247.32, and the replacement costs of the contents exceeded the policy limits. GNY paid plaintiffs the full payment of the coverage limits under the policy, together with adjustments, for a total of $4,070,000.

While GNY sued those it claimed responsible for the fire the plaintiffs filed a separate complaint alleging insurance broker malpractice against BHI, claiming BHI negligently advised plaintiffs concerning the amount of insurance required to provide replacement cost coverage for a complete loss of the bowling center building and its contents and, as a result, plaintiffs’ 2009 policy had grossly deficient coverage.

THE TRIAL

A BHI employee, broker David Stanton, sold plaintiffs the 2009 policy. In their complaint, plaintiffs alleged that BHI, through Stanton, negligently provided erroneous advice that the 2009 policy limits were sufficient to cover the full replacement cost of the bowling center building and its contents in the event of a total loss.

PLAINTIFFS’ EXPERT

Plaintiffs presented the testimony of William C. Stewart, Jr., an expert on insurance producer and broker conduct. Stewart testified during the hearing that based on his review of the 1998 notes, he believed Stanton wrongfully discounted the Loyle-Thompson appraisal valuing the building at “3.6 million” in favor of his personal appraisal of “2.7 million.” He opined: “[I]t was incorrect advice for [] Stanton to recommend [$]2.7 million in coverage because if you accepted the $3.6 million appraisal, [eighty] percent . . . would have been [$]2.88 million. . . . Stanton was, therefore, recommending underinsurance and a coinsurance penalty because the property would have not been insured to [eighty] percent of its value.”

Stewart also testified that Stanton erred in March 2009 by advising Michael that plaintiffs did not require additional insurance coverage as a result of the 2008 renovations. Stewart admitted it was not the job of a licensed insurance broker to determine the replacement value of a building, but testified that if a client asks a broker whether more insurance is needed, the broker “has an obligation to give an accurate answer because . . . he’s inviting reliance on his answer.”

THE VERDICT

The jury returned a verdict finding BHI negligent, and that BHI’s negligence proximately caused plaintiffs’ damages. The jury found plaintiffs’ total loss from the fire was $6,840,000, representing the sum of its findings as to building loss ($5,600,000), business interruption ($750,000), and contents loss ($490,000). The court molded the verdict by deducting the sums paid by GNY under the policy ($4,070,000), and the amounts recovered by plaintiffs from Safe & Sound and S.S. Sprinkler ($950,000) from the amount of plaintiffs’ total loss ($6,840,000) for a damage award of $1,820,000. The court also awarded $178,808.77 in prejudgment interest and costs for a total judgment of $1,998,808.77.

ANALYSIS

A trial judge may only grant a motion for a new trial if, having given due regard to the opportunity of the jury to pass upon the credibility of the witnesses, it clearly and convincingly appears that there was a miscarriage of justice under the law. A miscarriage of justice may occur where there is a manifest lack of inherently credible evidence to support the jury’s finding, or where it is obvious the jury overlooked or undervalued crucial evidence.

An insurer and its agents have no common law duty to advise an insured concerning the possible need for higher policy limits upon renewal of the policy. If such a duty would be in the public interest, it is better established by comprehensive legislation, rather than by judicial decision.

However, it has been held that brokers are liable for the negligent procurement of insurance on behalf of an insured where the broker agrees to procure a specific insurance policy for another but fails to do so.

Liability resulting from the negligent procurement of insurance is premised on the theory that the broker ordinarily invites reliance on his expertise in procuring insurance that best suits their requirements. Because of the complexity of the insurance industry and the specialized knowledge required to understand all of its intricacies, the relationship between an insurance agent or broker and a client is often a fiduciary one. The fiduciary duty exists in part because an agent or broker is sophisticated in the field of insurance and the client is not.

The undisputed evidence showed that at all times relevant to the issuance of the 2009 policy, BHI and Stanton acted as independent insurance brokers. Generally, so separate are the broker and the insurer that when the insured recovers against the broker, the broker may not obtain indemnification from the insurer. The insurer, GNY, did nothing to set a value of the property on which the insured or broker relied.

ZALMA OPINION

The broker lost because it took on the obligation to value the property – an obligation for which he was not qualified – without sending the insured to a professional who could properly value the property. In so doing the broker made his duty to the insured a fiduciary duty which he clearly and obviously failed to fulfill.

ZALMA-INS-CONSULT © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant 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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business. Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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 Library, at 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 three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him 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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Conviction Stands for Care Giver’s Stealing from Old & Sick

Evil Incarnate – Stealing Life Insurance Proceeds from Beneficiaries of the Elderly

When we get old and sick, close to death, the family turns over care of the elderly relatives to professional care givers who are expected to care for the best interests and concerns of the elderly. The relatives, concerned, use a professional organization and believe that care givers are vetted carefully, are honest, and professional. When one of those care givers takes advantage of the elders in their care the punishment must be as severe as the law allows and claims of error in an appeal must be proved without doubt.

In State Of Ohio v. Lisa Marcum, Court Of Appeals Of Ohio Second Appellate District Montgomery County, 2017 Ohio 7517, CASE NO. 27059 (September 8, 2017) Marcum appealed from her March 28, 2016 Judgment Entry of Conviction, following a bench trial, on one count of insurance fraud ($7,500.00 or more and less than $150,000.00), in violation of R.C. 2913.47(B)(1), a felony of the fourth degree; one count of theft from an elderly person (beyond the scope of consent) ($7,500.00 or more, less than $37,500.00) in violation of R.C. 2913.02(A)(2), a felony of the third degree; one count of tampering with records, in violation of R.C. 2913.42(A)(2), a felony of the third degree; one count of theft (checks), in violation of R.C. 2913.02(A)(1), a felony of the fifth degree; and one count of bribery, in violation of R.C. 2921.02(C), a felony of the third degree.

Marcum was sentenced to 18 months for insurance fraud, 36 months for theft from an elderly person, 36 months for tampering with evidence, 12 months for theft, and 36 months for bribery, all terms to be served concurrently. The court ordered restitution in favor of Scott Schaurer in the amount of $28,220.67.

FACTS

The bench trial began on November 16, 2015. Multiple witnesses were called and they proved that Marcum, assigned to care for Willa and William Stamback, from whom she stole and made claims that she was the beneficiaries of the Stambacks life insurance policy. The niece of the Stambacks had their power of attorney which, at the urging of Marcum, was removed and put in Marcum’s hand.

Marcum was employed by Right at Home (a in home care organization) and that she initially met her when Marcum brought William to the hospital to visit Willa.

Marcum began working part-time at Right at Home at the end of 2009, and that she became a subcontractor with the company in 2011. He testified that she was a State Tested Nurses’ Aide. Marcum was one of the caregivers assigned by Right at Home to care for the Stambacks.

Rachel Ferrara testified that she is an associate attorney at Smith, Rolfes and Skavdahl Company LPA in Cincinnati, practicing “mostly insurance defense.” Ferrara stated that Marcum “presented a claim under an insurance policy and I took examination under oath testimony from her.” She stated that the policy was issued by the National Mutual Insurance Group, which is a subsidiary or affiliate of Ferrara’s client, Celina Insurance. Ferrara stated that Marcum filed a “theft-loss claim for personal property.” According to Ferrara, Marcum was residing at 16 West Walnut Street at the time, and “she was seeking coverage for these personal property items that were stolen from the residence she was residing in.”

Ferrara stated that the named insureds on the policy were Willa and William Stamback. Ferrara stated that Marcum “described [the Stambacks] as her parents and she was their daughter and that her daughter, Christina was their granddaughter.” Ferrara testified that Marcum “provided several different stor[ies] with regard to how she became acquainted first with the Stambacks and then took over their healthcare needs.”

Ferrara testified that Marcum “said she was not paid by the Stambacks when she was providing care for them herself. She was paid in some shape or form by Right at Home when she was in their employ but was not paid by the Stambacks.”

According to Ferrara, in the course of her examination, she learned that Marcum obtained the Stambacks’ powers of attorney. When asked if she spoke to Marcum about William’s relationship to Willa, Ferrara stated that Marcum “said that it was very clear William loved Willa very much and that he would sign anything if he thought it was for Willa. You could use his wife to get him to do anything.” According to Ferrara, Marcum stated that she did not become aware that she was the contingent beneficiary on the Stambacks’ wills until after the estate was submitted to probate.

ANALYSIS

An appellate court applies the same standard when reviewing the denial of a Crim.R. 29(A) motion as is used to review a sufficiency of the evidence claim. In contrast, a weight of the evidence argument challenges the believability of the evidence and asks which of the competing inferences suggested by the evidence is more believable or persuasive. When evaluating whether a conviction is against the manifest weight of the evidence, an appellate court must review the entire record, weigh the evidence and all reasonable inferences, consider witness credibility, and determine whether, in resolving conflicts in the evidence, the trier of fact clearly lost its way and created such a manifest miscarriage of justice that the conviction must be reversed and a new trial ordered.

Because the trier of fact sees and hears the witnesses at trial, the court must defer to the factfinder’s decisions whether, and to what extent, to credit the testimony of particular witnesses. The fact that the evidence is subject to different interpretations does not render the conviction against the manifest weight of the evidence.

INSURANCE FRAUD

The trial court clearly credited the testimony of the multiple witnesses over the testimony of Marcum, and, therefore, the appellate court deferred  to the trial court’s assessment of credibility. Doing so, the applellate court concluded that the trial court did not err in overruling Marcum’s motion for acquittal, and that Marcum acted with a purpose to defraud, and knowing that she was facilitating a fraud, in presenting the claims for the proceeds of Williams’ life insurance policy and for the items allegedly stolen from the Stambacks’ home, in violation of R.C. 2913.47(B)(1).

Having thoroughly reviewed the entire record, the court also concluded that Marcum’s conviction for insurance fraud is supported by sufficient evidence and not against the manifest weight of the evidence and affirmed the judgment of the trial.

ZALMA OPINION

My mother, for the last 15 years of her life, was cared for 24/7 by a wonderful woman who never took more than the amount she agreed was her salary for the service. Before mother died they were close friends and I showed my appreciation with a bonus sufficient for the care-giver to complete the home she and her husband were building. Marcum, on the other hand, did not care for the elders in her care but attempted to steal from them and the beneficiaries of their life insurance. Her sentences should have been consecutive rather than concurrent. She should never leave jail.

 

 

 

ZALMA-INS-CONSULT © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant 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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business. Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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 Library, at 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 three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him 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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Insured’s Agreement to Endorsement Adding Exclusion Is Fatal to Its Assets

Insured Saved Premium by Agreeing to Loading Exclusion & Must Defend Itself

People who are not insurance professionals think the price of insurance is more important than the coverages provided. As a result they are often willing to limit the coverage available to save a few dollars of premium. This is usually unwise and often much more expensive than the premium money saved.

In Homeland Insurance Company Of New York v. A Tec Ambulance, Inc, Michelle Rhody, Michael Bachta, And Donna Lenzi As Independent Administrator Of The Estate Of Glen Lenzi, Deceased, United States District Court Northern District Of Illinois Eastern Division, No. 15 C 11086,  (September 6, 2017) the insured ambulance company agreed to an endorsement adding an exclusion for losses caused while loading or unloading its ambulance.

FACTS

While Michelle Rhody and Michael Bachta were moving Glen Lenzi (“Glen”) on a stretcher to an ambulance for A Tec Ambulance (“A-Tec”), Glen fell from the stretcher and later died. A-Tec’s insurer Homeland Insurance Company of New York (“Homeland”), seeks a declaratory judgment that it has no duty to defend or indemnify A-Tec, Rhody, or Bachta in a lawsuit by Glen’s wife, Donna Lenzi (“Donna”).

Before Glen died, his lawyer contacted A-Tec. A-Tec then contacted its insurer, Homeland. Homeland investigated and discovered that while Rhody and Bachta were taking Glen on a stretcher to the ambulance, he fell from the stretcher and hit his head. Rhody and Bachta then gathered Glen and took him to his appointment. He later developed a brain hemorrhage.

Glen died from the hemorrhage, and Donna sued A-Tec in Illinois state court, later amending her allegations to add Rhody and Bachta as defendants. In her fourth amended complaint, Donna allegeD that after Rhody and Bachta put Glen on the stretcher, he fell off on the way to the ambulance and hit his head. She also alleges that Rhody and Bachta failed to properly examine and treat Glen and failed to inform medical workers at the dialysis appointment that Glen had fallen. Donna alleges Rhody and Bachta failed to follow safety protocols and violated A-Tec policies and procedures, making them liable for medical negligence.

A-Tec’s insurance policy (the “Policy”) with Homeland provides coverage for Professional Services Wrongful Acts, which are defined as “any actual or alleged act, error or omission, or series . . . by an Insured in rendering, or failing to render, Professional Services” or “any actual or alleged act, error or omission, or series . . . by any person other than an Insured in rendering, or failing to render, Medical Services, but only for an Insured’s vicarious liability with regard to such Medical Services.”

The Policy has exclusions of coverage including that the Policy “does not apply to, and [Homeland] will not pay Loss or Defense Expenses, for any Claim based upon, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving any actual or alleged: Bodily Injury or Property Damage arising out of… arising out of the ownership, maintenance, use, operation or entrustment to others of any aircraft, Auto or watercraft or the loading or unloading thereof. For purposes of this Exclusion (D)(5), “loading or unloading” includes, but is not limited to, the Insured’s handling or placement of any individual into, onto or from any such aircraft, Auto or watercraft[.]”

ANALYSIS

In Illinois the interpretation of an insurance contract like the Policy is a question of law. The Federal Court follows the law of the Illinois Supreme Court and, in the absence of such precedent, uses its best judgment to decide how the Illinois Supreme Court would construe the law. Although the duty to defend is much broader than the duty to indemnify the obligation to defend is not unlimited. The duty to defend only arises when the damages alleged in the underlying complaint fall within or potentially within the insurance policy’s coverages.

The Policy’s Exclusion (D)(5), as amended by Endorsement No. 9, states that the Policy does not cover loading and unloading of a patient. The parties do not dispute that Glen fell from the stretcher during the loading of the ambulance or that the ambulance is an Auto as defined in the Policy.

Under Illinois law, the facts of the complaint control coverage, with coverage found in multiple source cases if one source of injury is covered and arises separately and “wholly independent” of any source of injury that is not covered. If the other alleged sources of the injury are intertwined with an excluded liability, then there is no coverage, but if the events of an injury can be separated from the exclusion, then there is coverage because the covered source is not connected to the exclusion.

Contrary to the allegations of Donna, there was no “separate or independent compensable injury” because Rhody and Bachta’s alleged failings, which the underlying complaint and Defendants/Counter-Plaintiffs characterize as medical negligence, still arose from the fall and Glen’s injury was directly linked to the fall. Donna alleged that Rhody and Bachta let Glen fall and then continued to fail him in relation to the fall until Glen’s injuries grew to include death. Rhody and Bachta’s “additional wrongdoing,” and argued are independent acts that created a new injury, intertwined with the fall rather than severable.

Glen’s injuries arose from an excluded liability and are not subject to coverage because they are all intertwined with Glen’s fall during the loading of the ambulance. Therefore, Homeland is entitled to a declaratory judgment that it has no duty to defend the underlying complaint and, because the duty to defend is broader than the duty to indemnify, no duty to indemnify either.

ZALMA OPINION

A-Tec saved some premium when it agreed to the endorsement excluding coverage for loading patients into their ambulance and lost the ability to have an insurer defend and indemnify it from the allegations A-Tec was responsible for Glen’s death. By agreeing to the endorsement to remove coverage Homeland was willing to provide it, A-Tec placed its assets at risk.

 

 

ZALMA-INS-CONSULT © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant 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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business. Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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 Library, at 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 three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him 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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Summary Judgment Hard to Obtain

Excess Insurer Loses Claim of Lack of Exhaustion of Primary Insurance

Excess insurance policies are designed to function only in catastrophes and have no obligation until the primary insurance policies are exhausted. In addition the insured is required to advise the excess insurer once it determines there is a potential that the primary policies may be exhausted well before they are exhausted.

When there are multiple layers of primary insurance and multiple claims because of potential widespread, multiple state pollution events, calculating what is covered and how much has been expended by the various primary insurers, before the excess insurer is required to respond.

In Velsicol Chemical, LLC v. Westchester Fire Insurance Company, as successor in interest to International Insurance Company, No. 15-CV-2534, United States District Court Northern District Of Illinois Eastern Division (September 7, 2017) Velsicol Chemical, LLC sued Westchester seeking contractual damages and to enforce its rights to defense and indemnity under an excess insurance policy (the “Policy”) issued to it by International Insurance Company the predecessor to Westchester.  The insurer sought  summary judgment in its favor to not pay defense or indemnity.

BACKGROUND

Velsicol is a limited liability company and until September 30, 2008, Velsicol was known as Velsicol Chemical Corporation. International Insurance Company (“International”) now Westchester, issued the Policy to Velsicol for the period of January 1, 1983 to January 1, 1986. Pursuant to an Assumption and Indemnity Reinsurance Agreement effective January 1, 1993, the Policy was reinsured by Westchester, with Westchester assumed all of the rights and obligations of International under the Policy.

The Policy

During the pertinent time period, Velsicol had two underlying primary comprehensive general liability insurance policies. Under the terms of the Policy, Westchester is not responsible for claims until the underlying primary coverage is exhausted.

Factual Background

On October 15, 1998, Velsicol filed a Second Amended Complaint in the Circuit Court of Cook County captioned “Fruit of the Loom, Inc. and Velsicol Chemical Corporation v. Admiral Insurance Company, et al.,” (the “Illinois State Court Action”), against International, among others. In the Illinois State Court Action, Velsicol alleged claims for declaratory judgment and/or breach of contract against, among others, International and sought defense and indemnity coverage under the Policy for numerous sites, including certain sites at issue in this suit.

Damages occurred at nine different sites.

Primary Policy Exhaustion

From 1995 through 1997, Stephanie McLaughlin was employed as an environmental claims specialist and, in that capacity, was the adjustor responsible for the handling of Velsicol’s claims on behalf of Westchester. On January 6, 1997, McLaughlin created a “Strategic Plan” for the Velsicol account. McLaughlin’s January 6, 1997 Strategic Plan indicated that she had received a report from a law firm representing London Market Claims Services advising that Velsicol had incurred $95,129,111 in total costs associated with sites for which it had made insurance claims as of December 31, 1995. McLaughlin’s January 6, 1997 Strategic Plan included a report, also from the law firm representing London Market Claims Services, stating that the costs incurred by Velsicol in connection with its claims, as well as anticipated costs associated with those claims in which the costs incurred, exceeded $70,000,000.

Westchester maintains that the underlying primary policies are not exhausted under the terms of the Policy, and that Velsicol has not met its burden of proving primary coverage exhaustion.

ANALYSIS

Under Illinois law, an insurer has a duty to indemnify when the insured becomes legally obligated to pay damages in the underlying action that gives rise to a claim under the policy. Once the insured has incurred liability as a result of the underlying claim, an insurer’s duty to indemnify arises only if the insured’s activity and the resulting loss or damage actually fall within the CGL policy’s coverage.

Westchester moves for summary judgment on each remaining count, arguing that Velsicol’s claims are not covered by the Policy. Westchester specifically argues that Velsicol’s notice of claims was untimely as a matter of law for the claims involving the various claims. Finally, Westchester argues that Velsicol has failed to show the exhaustion of all triggered primary policies.

Breach of Notice

Westchester argues that Velsicol’s notice of the claims for the seven of the sites where claims were made were untimely as a matter of law.

Under Illinois law, insurance policy notice provisions impose valid prerequisites to insurance coverage. Illinois courts examine reasonable notice differently in the context of excess insurance policies. An excess policy generally requires notice of an occurrence or suit ‘when it appears likely’ that the excess policy will be implicated. Illinois courts consider when a reasonable person would have believed it reasonably likely that the claim would implicate the excess insurance.

The notice provision at issue states: “Upon the happening of an occurrence reasonably likely to involve the company hereunder, written notice shall be given as soon as practicable to the company or any of its authorized agents.” (Emphasis added) The question, therefore, is when a reasonable person would have believed it reasonably likely that the claim would implicate the excess insurance.

Because Velsicol presented evidence creating a genuine dispute as to material facts for trial, the Court denied Defendant’s summary judgment motion based on breach of notice as to the seven sites.

Pollution Exclusion

While insurers have the burden of proving that an exclusion applies, insureds, in turn, have the burden to prove that an exception to an exclusion restores coverage.

Velsicol demonstrated genuine issues of material fact pertaining to the pollution exclusion with respect to its application to claims arising from permitted uses. Velsicol also demonstrated genuine issues of material fact pertaining to whether all primary policies have been exhausted.

ZALMA OPINION

When hundreds of millions of dollars have been paid or are anticipated for an excess insurer to avoid its obligation to step in and provide defense and indemnity after primary exhaustion it must be a very high layer and must be able to show that there was still available insurance below the excess insurer’s requirement to proceed. Westchester tried but found that the insured was able to raise a question of fact sufficient to avoid summary judgment. Trial may allow Westchester to avoid the exposure but, as these cases tend to grow exponentially, probably not.

 

ZALMA-INS-CONSULT © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant 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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business. Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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 Library, at 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 three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him 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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Insured Must Meet Burden or no Coverage

Insured Obligated to Prove Loss Is Due to Covered Peril

Insurance companies have no interest in insuring against losses due to wear and tear or deferred or incompetent maintenance because such losses are not fortuitous. Losses that are caused by the inadequacy of the insured in failing to protect its property is usually, if not always, excluded by a property policy.

In Travelers Property Casualty Company Of America v. Brookwood, LLC, 2:15-cv-01016-KOB, United States District Court For The Northern District Of Alabama Southern Division (September 6, 2017) the USDC was asked to resolve whether a commercial insurance policy covers water damage from a leaking roof.

ISSUES

Brookwood, LLC owns a building that suffered water damage from a leak. The leak damaged the building and a tenant’s property. Brookwood made claims under its insurance policy with Travelers Property Casualty Company of America, and Travelers denied those claims.

Travelers makes three arguments in support of its request for a declaratory judgment:

  1. It asserts that the damages are not covered because the policy excludes coverage for all of the possible causes of the leak.
  2. Its policy does not provide coverage for Brookwood’s economic losses, including repairs to the building and the loss of rental income from its tenant.
  3. Travelers asserts that its policy does not provide coverage for damages to personal property owned by Brookwood’s tenant because the lease between Brookwood and its tenant allocates to the tenant the risk of loss to the tenant’s property, and thus it is not damage Brookwood is legally obligated to pay.

FACTS

Defendant Brookwood owns the Raymond James building, located at 2900 U.S. Highway 280 in Birmingham, Alabama.

The parties do not dispute that the roof of the Raymond James building leaked, causing damage to the building and to a tenant’s property, on or about November 16, 2014, when the Birmingham area received approximately 2.43 inches of rain and experienced winds of up to 24 miles per hour. Specifically, rain entered the roof through openings in the roof’s EPDM membrane.

On September 19, 2014, prior to the leak, Mr. Tyler Hixson of Hixson Consultants inspected the Raymond James building’s 18-year-old roof and provided a report to Brookwood with his findings and recommendations. The report noted that the EPDM roofing membrane had disbonded in several places, such that “[s]ignificant water entry can occur”; that the EPDM membrane was denatured, patched, and, in multiple locations, open where it met the base flashing; that bridging membrane had been employed; that the ballast had been displaced in some locations, exposing the membrane to accelerated UV deterioration; and that certain areas were unsealed or incompletely sealed.

Brookwood hired Leak Solutions to perform the recommended work. On November 4, 2014, Brookwood’s building engineer, Marlon McElroy, observed Leak Solutions employees using metal shovels to scrape ballast on the roof in the area where the leak at issue in this case later occurred. Upon their departure on November 7, Leak Solutions employees left the EPDM membrane unrepaired and exposed in multiple areas.

On or about November 16, Birmingham received nearly two-and-a-half inches of rain. On November 17, 2014 the roof leaked. The engineer hired by Travelers opined that the removal of the ballast would have made the membrane more susceptible to temperature changes and UV degradation and that UV exposure and wind could have damaged the seams. Further, he stated that shoveling the ballast could have created openings in the membrane through which water entered into the building’s interior.  The engineer testified that that based on his personal experience, “the wind speeds [of up to 24 miles per hour] were not sufficient to have caused any type of uplift on this roof.”

The engineer concluded that Leak Solutions’s substandard repair work enabled rain to enter the building through the EPDM membrane and damage the interior. Based on the engineer’s report and information from Brookwood, Travelers denied Brookwood’s claim under the Property Policy on December 16, 2014.

The insured’s expert testified that Leak Solutions’s using metal shovels to move ballast and then leaving the membrane exposed amounted to a failure of Leak Solutions to perform their work in a manner that’s representative of the industry and the standard of care the industry uses.

After Travelers denied Brookwood’s claim under the Property Policy, Brookwood submitted to Travelers a claim for coverage under the CGL Policy on December 19, 2014.

DISCUSSION

Exceptions to coverage are interpreted as narrowly as possible to maximize coverage, and are construed strongly against the insurance company that issued the policy. But if there is no ambiguity, courts must enforce insurance contracts as written and cannot defeat express provisions in a policy by making a new contract for the parties.

The Property Policy is an “all-risk” policy, meaning that it provides coverage for all physical damage to covered property unless a cause of loss is specifically excluded or limited.

Travelers points to the Rain Limitation in section D. Limitations 1.c.(1) that excludes coverage for rain damage to the interior of the covered building or personal property unless the building first sustains damage by a covered loss to its roof. The Rain Limitation provides that interior damage caused by rain is covered if “[t]he building or structure first sustains damage by a Covered Cause of Loss to its roof or walls through which the rain . . . enters[.]”

Travelers has established that the damage to McWane’s space and property was caused by rain, so the damage is excluded unless Brookwood shows that the interior rain damage was caused by a covered cause.

To the extent faulty workmanship, inadequate maintenance, and/or wear and tear caused the roof damage, they are excluded causes of loss. Leak Solutions’s actions leaving the job site without restoring ballast, may be the primary cause of the roof damage.

Neither faulty workmanship nor inadequate maintenance could have caused either thermal shock or wind. Although a construction defect, itself, is not covered by the policy, if the defect causes (i.e. ‘results in’) a Covered Cause of Loss, and that Covered Cause in turn results in property damage, the resulting property loss is covered.

The mere existence of a scintilla of evidence in support of the plaintiff’s position will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff. Neither expert investigated wind as a cause of the membrane damage.

Because Brookwood failed to meet its burden to produce evidence on which a jury could find that a covered cause of loss produced the leak through which the rain entered, thus establishing the applicability of an exception to the Rain Limitation, it cannot recover under the Property Policy any damages incurred as a result of the November 16, 2014 roof leak.

Coverage Under CGL Policy

Section 2.j.(1) excludes from coverage property damage to property Brookwood “own[s], rent[s], or occup[ies], including any costs or expenses incurred by [Brookwood], or any other person, organization or entity, for repair, replacement, enhancement, restoration or maintenance of such property for any reason, including prevention of injury to a person or damage to another’s property . . . .”

The rental agreement allocates the risk of loss to McWane’s furniture to McWane. Thus, by the terms of the rental contract, Brookwood is not “legally obligated to pay” for damages to McWane’s personal property caused by the leak on or about November 16, 2014.

CONCLUSION

Because Brookwood has failed to meet its burden to establish that an exception to the Rain Limitation applies, the Property Policy does not provide coverage for damages stemming from the Raymond James building’s roof leak on or about November 16, 2014. Nor does the CGL policy provide coverage for those damages. Given that its Travelers policy does not provide coverage, Brookwood’s counterclaims fail as a matter of law.

ZALMA OPINION

Because no one actually reads their insurance policy – even after a loss – they expect every possible loss due to every possible cause to be covered by their insurance policy. As the District Court made clear, that assumption is without a basis in truth. Rather, it is the duty of the insured to provide proof that a covered cause of loss resulted in damage. Brookwood failed in its obligation.

ZALMA-INS-CONSULT © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant 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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business. Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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 Library, at 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 three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him 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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Representing Insureds in a Catastrophe

Available from the American Bar Association at https://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=218303&term=zalma

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No Case Against Prosecutors for Malicious Prosecution

Prosecutors Immune From Suit For Charging Police Officers With Fraud

When a prosecutor obtains a grand jury indictment for fraud only to later learn than there was inadequate evidence to prove a case against them and dismisses the charges, the prosecutor did both in good faith. A suit for malicious prosecution requires malice by the person bringing the charge, not just a failure to prove its case.

In Philip Blessinger, et al. v. City Of New York, et al., 17cv47, 17cv108, United States District Court Southern District Of New York (September 1, 2017) the City of New York, District Attorney Cyrus Vance, and five Assistant District Attorneys, moved to dismiss a federal civil-rights action by retired police officers who were indicted in a massive Social Security fraud.

BACKGROUND

Plaintiffs Philip Blessinger, John Byrne, Scott Greco, and Darlene Ilchert were indicted in a sweeping investigation by the Manhattan DA into a large-scale Social Security Disability insurance fraud. The masterminds of the scheme, the “Lavallee Group,” approached retired police officers like Plaintiffs and offered to prepare fraudulent applications for Social Security Disability Insurance (“SSDI”) in exchange for cash kickbacks from the resulting SSDI benefits.

The Lavallee Group sent Plaintiffs to selected mental-health professionals who provided documentation of psychiatric conditions such as post-traumatic stress disorder, anxiety disorder, and depression. Plaintiffs allegedly used these diagnoses to file fraudulent SSDI applications, which were prepared by the Lavallee Group and contained substantively identical claims. Once they obtained the SSDI benefits, Plaintiffs paid the Lavallee Group in cash increments of less than $10,000.

In January 2014 a Manhattan grand jury indicted Plaintiffs (along with more than one hundred other individuals), charging them with Grand Larceny and Criminal Facilitation. They were subsequently arrested on warrants issued under the indictments. ADA Bhatia also filed civil asset forfeiture proceedings against Plaintiffs, alleging that the proceeds of the scheme were subject to forfeiture. Three of the Plaintiffs filed motions to dismiss their indictments for lack of evidence and improper venue; the presiding New York Supreme Court justice denied each motion. Following the indictments, the District Attorney’s office continued to investigate the charges by, inter alia, sending investigators to speak to Plaintiffs’ family members, neighbors, and friends.

In August 2016 ADA Santora moved to dismiss the charges against each Plaintiff, citing “additional information and records . . . includ[ing] psychiatric reports, additional medical records, [and] work history reports, each of which was not available to the People at the time the Grand Jury voted the Indictment.” In light of “this and other newly discovered information,” Santora stated, “the People believe they are unable to prove the cases against these four defendants beyond a reasonable doubt.” The District Attorney also stipulated to a dismissal of the civil forfeiture proceedings the following day.

DISCUSSION

Defendants argued that the claims for false arrest, malicious prosecution, unreasonable asset seizure, and abuse of process under § 1983 are barred by the Eleventh Amendment (with respect to claims brought against the DA Defendants in their official capacities) and the doctrine of absolute prosecutorial immunity (with respect to claims brought against the DA Defendants in their individual capacities).

The District Court, therefore, concluded that plaintiffs’ claims against the DA Defendants in their official capacities are plainly barred by the Eleventh Amendment which, with few exceptions, bars federal courts from entertaining suits brought by a private party against the state in its own name.

Plaintiffs alleged that the DA Defendants violated their constitutional rights by indicting and arresting them, freezing their assets as possible proceeds of fraud, and later dismissing the charges. All of this conduct is part and parcel of a district attorney’s role, in prosecuting (or deciding whether to continue to prosecute) a crime on behalf of the state.

Accordingly, these claims cannot form the basis for liability against the DA Defendants in their official capacities.

Similarly, the claims against the DA Defendants in their individual capacities are barred by the doctrine of absolute immunity. Plaintiffs’ claims against the DA Defendants in their individual capacities are based on conduct that falls squarely within the scope of absolute immunity.

Accordingly, the plaintiffs’ claims cannot form the basis for liability against the DA Defendants in their official capacities.

Similarly, the claims against the DA Defendants in their individual capacities are barred by the doctrine of absolute immunity. Plaintiffs’ claims against the DA Defendants in their individual capacities are based on conduct that falls squarely within the scope of absolute immunity.

ZALMA OPINION

Although the plaintiffs were properly charged by the grand jury the prosecutors, much to their honor, continued their investigation and discovered that as to the plaintiffs they could not prove beyond a reasonable doubt that the plaintiffs’ were guilty. This is not a finding that they were innocent. They should have accepted the dismissal and return of their funds happily, decided to never attempt fraud again, and not be so greedy as to attempt to punish the prosecutors who did nothing more than their duty.

ZALMA-INS-CONSULT © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant 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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business. Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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 Library, at 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 three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him 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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Insured Must Prove That Claim Falls Within Insuring Agreement

Insured Learns No Insurance Policy Insures Against Every Risk

People who buy liability insurance want it to cover every possible risk faced by the insured. When a loss or claim occurs the read the policy, perhaps for the first time, only to find the policy does not cover every possible risk and that, to get coverage, the insured is obligated to prove that the policy’s insuring agreement agreed to defend or indemnify the insured against the suit brought against the insured.

In W.G. Hall, LLC v. Zurich American Insurance Company, United States District Court Northern District Of California, Case No. 17-cv-00646 NC (August 31, 2017) W.G. Hall, LLC (WGH), a staffing services company, settled a wage and hour class action lawsuit. Before and after settling the class action, WGH sought coverage from its professional liability insurer, Zurich American Insurance Company for the amount it would pay out in the settlement agreement. Zurich refused to reimburse WGH for the settlement amount on several grounds, and WGH sued Zurich for breach of contract and derivative claims.

WGH seeks summary judgment on its claims for breach of contract and declaratory relief, as well as a judgment from the Court that none of five affirmative defenses raised by Zurich are applicable in this case. Zurich opposes WGH’s motion and seeks summary judgment on its behalf as to the entire case.

BACKGROUND

On November 27, 2013, Zurich issued to WGH an insurance coverage package effective from December 1, 2013, through May 19, 2015.  That package contained Professional Liability coverage.

WGH is a staffing services company, which hires and trains staffing services workers and furnishes them to its clients. Even when its employees are working directly for WGH’s clients, WGH remains the employer of record for its employees and provides payroll services for its clients for the work its employees perform. In 2014 and 2015, Danny Isquierdo and Freddy Robledo filed putative class actions against WGH, which were later consolidated in July 2015 (Isquierdo and Robledo litigation).

The alleged actions giving rise to these claims were that WGH failed to compensate its employees “for internal orientations, client orientations, reporting and consultations, post-assignment termination meetings, client interviews, related travel and other work off the clock. . . .”  WGH and the class reached a settlement, and the court preliminarily approved the class action settlement. Both parties agree that WGH reach a settlement without Zurich’s consent.

DISCUSSION

The burden is on the insured to bring the claim within the basic scope of coverage, and (unlike exclusions) courts will not indulge in a forced construction of the policy’s insuring clause to bring a claim within the policy’s coverage.  The burden falls upon the insurer to phrase exceptions and exclusions in clear and unmistakable language.

The Disputed Policy Text

The insurance policy at issue here provides the following: “We will pay those sums that the insured becomes legally obligated to pay as ‘damages’ because of any ‘claim’ arising from a ‘wrongful act’ to which this insurance applies. The ‘wrongful act’ must take place: a. During the policy period; and b. In the ‘coverage territory.'”

Construction of “Wrongful Act”

In both motions, the parties dispute whether the allegations in the underlying class action litigation fall under the policy’s coverage of “wrongful acts.” The meaning of “wrongful act” is key in this case because if there is no “wrongful act” within the meaning of the policy, Zurich is not required to provide coverage.

Under the policy, “wrongful act” means “any actual or alleged act, error, or omission, misstatement, or misleading statement in the course of providing ‘staffing services’ to your clients by you or by any person for whose acts you are legally responsible.” WGH asserts that the claims in the underlying litigation relating to unpaid wages constitute “wrongful acts.”

Failure to pay wages would be considered by any layperson an error or omission. Nonetheless, the law on this point favors Zurich. An insured’s alleged or actual refusal to make a payment under a contract does not give rise to a loss caused by a wrongful act.

WGH was required to pay employees’ wages. WGH has never claimed that no employment contract existed between itself and the plaintiffs in the underlying litigation, and indeed concedes that at least oral contracts existed with the plaintiffs. WGH did not meet its burden to show it was entitled to coverage. The Court granted Zurich’s motion for summary judgment on the first (breach of contract, second (breach of contract/duty to defend), and fourth (declaratory relief) claims for relief.

In addition, in its motion for summary judgment, Zurich argued convincingly that WGH’s third claim for bad faith/breach of the implied covenant of good faith and fair dealing claim fails because no coverage is due under the policy.

The Contract Exclusion Bars Coverage.

The policy states that Zurich need not cover “any ‘claim’, based upon or arising out of, in whole or in part: I. Any liability assumed by an insured under any contract or agreement, unless such liability would have attached to the insured by law in the absence of such contract or agreement.” Zurich contended that none of the claims against WGH would exist absent an employment contract, so the exclusion applies.

The exclusion here applies to “Any liability assumed by an insured under any contract or agreement, unless such liability would have attached to the insured by law in the absence of such contract or agreement.” In the policy, the phrase “arising out of” connotes a broad definition for the type of contract that will be excluded from coverage, as does the extension of the contract exclusion to “[a]ny liability assumed by an insured under any contract . . . .”

Absent an employment contract between the class plaintiffs and WGH, this case would not exist.

The Settlement Does Not Constitute “Damages.”

The parties dispute whether the settlement constitutes “damages” under the policy.

WGH admitted no liability in the underlying litigation. However, the plain language of the settlement agreement demonstrates that the manner in which the settlement proceeds were allocated precludes the settlement being considered “damages” under the policy.

As relevant here, the policy provides that settlements are covered as damages unless the purported damages are for personal profit or advantage which the insured is not legally entitled to or criminal or civil fines, penalties, fees, or sanctions. The Court found this is the only reasonable interpretation of the disputed language.

Zurich, therefore, is not obligated to cover WGH’s settlement in the underlying litigation because the claims against WGH and the settlement do not fall within the basic coverage provision of the policy.

ZALMA OPINION

The District Court gave consideration to every claim by the insured, none of which deserved its time and trouble, only to conclude as it was required to, that the claims against WGH were contract breach claims, not tort claims, that those claims did not fall within the insuring agreement and, in addition, were clearly and unambiguously excluded. In the end there was a waste of the time of the court and the litigants.

 

ZALMA-INS-CONSULT © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant 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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business. Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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 Library, at 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 three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him 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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Hurricane Harvey & Work to Defeat Anticipated Fraud

Hurricane Harvey & Fraud

The following was published in the September 1, 2017 issue of Zalma’s Insurance Fraud Letter available, free, at – http://www.zalma.com/ZIFL-CURRENT.htm.

If you are working with insurers dealing with damage due to Hurricane Harvey you should find this article useful.

Estimates show that insured losses from Harvey will range from $10 billion to $20 billion and losses up to $190 billion. Since most people in Houston did not have flood insurance or the flood insurance they had was inadequate, government money will probably exceed the insurance losses by a factor of five to ten.

Although most contractors, builders, and public adjusters are honest and professional this amount of money is just too great a temptation for fraud perpetrators, dishonest contractors and unlicensed and unscrupulous public insurance adjusters.

Adjusters involved in storm duty in the Gulf Coast of Texas must be prepared to deal with, detect and defeat attempts at fraud.
Over the past few decades fraud has become an ever escalating problem. It is part of the CODB equation and quickly becomes just one more cost to be passed on to the insurance buying public. When a catastrophe hits everyone suffers. The victims of the catastrophe suffer. The insurers whose staff is not adequately trained to investigate and adjust claims and recognize fraud compounds the suffering of the victims and costs the insurer.
Some examples an insurer may encounter in a catastrophe situation include the following.

1. Peter and Wendy Pan were evacuated from their home just hours ahead of the fires. When they were eventually allowed to return, they found only a pile of charred rubble. The inferno had claimed everything. In the coming months, throughout the difficult claims adjustment process, many things will be tested. Among those things are the honesty of the system, the honesty of the Poways and the process behind it all. Did Wendy really lose 50 pairs of shoes purchased from Nordstom’s and Sak’s or did she really lose 12 pairs of PayLess shoes? Did Peter have a $500 fishing pole or a $25 fishing pole?


2. The adjusters: Is Willie Adjuster specifically steering business to his brother-in-law Charlie Contractor?


3. The contractors – Does Charlie then figure out a creative way to reward Willie by cutting corners and using inadequate or substandard materials?


4. Public adjusters – Are they more interested in a quick settlement and their contingency fee rather than indemnity for the insured?


5. Companies – Is there any creative policy language interpretation occurring? Are they refusing to pay covered claims?


The list is nearly endless. Every person and every entity involved in this tragedy will make their own choice as it relates to the honesty of the overall process. The perception is one of victimless crimes. It somehow makes a difference within the realm of situational ethics that individuals do not have to pay. It’s easier if to defraud if only the trillion-dollar insurance pool is tapped. The wildfires are simply a convenient example. Similar problems arise after earthquakes, hurricanes, tornadoes or tsunami.


The reality is that policyholder fraud is also pervasive throughout every layer of the insurance marketplace.

1. Underwriting Fraud – Betty Buyer says she only drives her car back and forth to church each Sunday even though she really drives it about 100 miles per day within the scope of her business.

2. Rating Fraud – She also uses her Indio, California cottage address as her home address instead of her real Central Los Angeles address, saving herself $1,200 a year in premium payments.

3. Premium Fraud – the High Rise Window Washing Company reports to its workers’ compensation insurer that it has two employed window washers and 28 clerical employees – when the reverse is true.

4. Nondisclosure Fraud – Andy Agent sells an 88-year-old widow a variable annuity.

5. Claims Fraud – Paper accidents, inflated claims, owner give ups, kickback schemes, crooked adjusters, bad doctors/lawyers, etc.

6. Identity Fraud – Do we really know with whom we are dealing at any step along the way?

Once again the list is nearly endless.

Catastrophe Fraud Schemes

Some schemes an insurer or FEMA employee may see after the claims come in as a result of the Harvey catastrophe include:

• False or exaggerated claims by policyholders.

• Misclassification of flood damage as wind, fire, or theft.

• Claims filed by individuals residing hundreds of miles outside the disaster-zone.

• Bid-rigging by contractors, falsely inflating the cost of repairs.

• Contractors requiring upfront payment for services, then failing to perform the agreed upon repairs.

• Charity fraud scams designed to misappropriate funds donated for disaster relief.

• Public Insurance Adjusters promising insureds that their services will allow the insured to profit from the disaster.

A Proposal

If the insurance industry either desires, or is forced, to put the skids on fraud, the single obvious answer is education and training. Every individual who is trusted the duty and/or privilege of working in or for the insurance industry must be educated in both the process and the products. This would result in an atmosphere of “no excuses.” It is important that insurers take proactive approach rather than a reactive approach.

To be certain that the public receives the indemnity to which they are entitled and to be certain that fraud fails, insurance regulatory agencies must, before the next catastrophe, ascertain the abilities of the insurers who do business in their jurisdiction to properly indemnify their insureds and compel every insurer to train their personnel up to competence.

It does little good for an adjuster to sit in a training class after the fact, to scratch his head and realize that he paid many bogus claims as part of the overwhelming confusion and workload associated with a catastrophe. Being proactive, managing the need immediately, is the far better answer.

It should be the duty of insurance regulatory agencies to require insurers, their claims personnel, independent insurance adjusters and public insurance adjusters, to be licensed, competent and well trained on insurance, insurance claims handling, fraud recognition techniques, and enough of the law of the state to competently adjust claims and recognize and defeat fraud. In that regard it is necessary that each person involved in the claims process – from the clerk who takes in the first notice of loss to the executive who has the final say on the largest claim paid – be trained and knowledgeable in the following subjects:

A. Insurance, its history and modern application.

B. The Fair Claims Settlement Practices law of the state and Regulations imposed to enforce the law.

C. How to read, understand and interpret insurance contracts.

D. Investigation techniques including, but not limited to, interviewing, photography of loss scenes, use of independent experts, use of private investigators and use of claims counsel.

E. Insurance fraud and fraud recognition, the operation and use of the SIU, and a thorough understanding of reporting to the Fraud Bureau or Fraud Division.

F. The special fraud investigative unit laws and the Regulations enacted to enforce them.

G. The law of contracts and torts needed by claims professionals to competently adjust claims.

Compliance with the training requirements should be more than a requirement that the claims personnel attend training. It must include a requirement that the participants actually understood what they are learning. The obligation to train need not be onerous or even take the claims person away from work for an extensive period of time. Modern computer-based training programs can be taken incrementally by the student while she or he drinks that first cup of morning coffee.

The learning results are measurable and can be monitored by testing. The insurer, and its Regulators, can electronically receive a record of the time spent by the claims person in the training plus the results of the tests.

A claims person who uses computer-based training three minutes a day, five days a week and fifty weeks a year will receive 12.5 hours of training while the claims person who spends six minutes a day will receive 25 hours of training.

Another bonus to the insurer from this approach is that ongoing training keeps the subject matter fresh and in the forefront of the mind.

Training is not a panacea. It is a beginning. Regulators must audit and enforce the requirement that claims personnel are trained and then utilize that training to provide the indemnity promised by the insurance policy. Such is the surest answer to our ability to be able to protect both the insured and the insurer.

A Regulatory Approach to Fraud After a Catastrophe

After a catastrophe Regulators are faced with a dilemma. They must draw the fine line between protecting insured victims who have suffered a loss and must be fairly compensated while recognizing that fraud will be rampant and the insurers must thus also be protected. For example, while the wild fires of October 2007 were still burning, California regulators authorized insurers to bring in unlicensed adjusters from out of state to serve the thousands of victims and, at the same time, created a fraud task force to hold down fraud. Texas is doing the same after Hurricane Henry.

The California Regulators recognized that after a catastrophe billions of dollars of insurance money floods into the location to indemnify policyholders, insurers send in teams of insurance adjusters to help those whose property has been damaged or destroyed, and fraud perpetrators send in teams of criminals to milk as much of the money from the insurers as they possibly can. They also recognized that it’s anybody’s guess which group moves the fastest, but that the crooks had the distinct advantage because companies are so intent on providing excellent service to policyholders that they momentarily lower their fraud defense shields in the interest of expediency.

Insurance Regulators are charged by their states with a duty to protect the public. This obligation is amplified by a catastrophe. The Regulators must be prepared to deal with the inability of insurers to adequately serve the public who will present a high volume of claims, approve adjusters who are not licensed in the state, and police vendors, inadequate or incompetent insurance claims adjusters and unscrupulous public insurance adjusters. Simultaneously the Regulators must protect the insurers from insurance fraud which history teaches us will consume between 10% and 30% of the claims paid in a catastrophe (CAT) loss.

As fires swept through Southern California, Texas, New Mexico, Oregon and other states the vast majority of those watching the horrors on television were thinking about the people, the homes and the immense tragedy. Viewers see lost pets, charred toys, tear-stained faces and whole neighborhoods burned to the ground. At the same time, those closer to the insurance industry, worked to adequately staff their claims operation in the area where the CAT occurred while considering how to have the catastrophe teams think about arson, crime, and fraud while providing immediate relief to the honest victims of the fires. It indeed presented a conundrum.

The entire concept of insurance, the spreading of the risk of loss, is a mystery to most. Many view insurance as akin to a pull on a slot machine. Money in, pull, and see if anything pours out. Most will not hear the bells ring nor get any return at all, some will get a small payoff, and a rare few will receive what could be described as a jackpot.

What the public does not understand (and, to be honest, what many in the actual business of insurance do not understand either) is that there is little risk in the equation of insurance. With potential loss probabilities computed on astronomical amounts of data and absolute cost of doing business (CODB) numbers, insurers are seldom surprised on long term projections. What should be understood by all is that insurance companies are essentially money managers, spreading the losses of a few over the ability of the many to pay.

The lion’s share of carrier profit is derived from investments, not from underwriting profit.

Red Flags Of Catastrophe Claims

The National Insurance Crime Bureau publishes the following red flags of Catastrophe Insurance fraud that should help determine what claims require further scrutiny allowable considering the volume and need of the people who have suffered legitimate losses. Some of the red flags catastrophe adjusters and FEMA should consider include:

• Insured declares extensive losses without physical evidence.

• Items claimed do not match claimant’s life-style, decor, house, occupation or income.

• Items claimed cannot physically fit in existing floor space.

• Lack of carpet indentation from alleged large furniture or appliance.

• Extensive commercial losses occur at site where few or no security measures are in effect.

• Insured is unusually knowledgeable regarding insurance terminology and the claims settlement process.

• Insured is overly pushy for quick settlement.

• Insured is willing to accept an inordinately small settlement rather than document all claim losses.

• On scene investigation reveals no remains of the items claimed and normally found in a home or business, i.e., kitchen-major and minor appliance, etc.

• Investigation reveals absence of family photographs, heirlooms or items of sentimental value.

Insured’s Without Catastrophe Insurance Coverage

• Affected area as not evacuated.

• Lack of security in the area,

• No other homes were damaged or destroyed in the area.

• Name or address on receipt does not match insured’s information.

• Insured has no documentation or receipts.

• Insured submits a theft claim as a result of looting.

• Insured had all cash purchases.

• Insured claims items were new.

• Insured can’t properly describe items function or features.

• Property was in poor condition prior to loss.

Contractors or other providers:

• Does not maintain a local office or have a local telephone number.

• Are not able to provide references.

• Want payment up front.

• Have inadequate equipment to perform job.

• Arrive at loss site without being solicited.

• Offer below market prices.

• Offer cash incentives to get the job.

• Estimate is very general – a lump sum.

• Are not bonded or are underinsured and are not licensed or newly licensed.

• Multiple contractors using same licence.

Claims people dealing with a catastrophe, like Henry, must serve those insured fairly, quickly and with good faith. That does not mean that the claims person must ignore the indicators of fraud.

The insurance industry and the federal government can expect, as history of other catastrophes have proved, that about ten percent of all claims will include some indication of fraud.

Problems with Public Adjusters in Texas Before Harvey

Elvira Chandler was charged by a Travis County, Texas, grand jury in the last week of August with filing fraudulent insurance claims following a series of hail storms that hit the Rio Grande Valley. The 61-year-old was charge with first degree insurance fraud, a felony offense that carries a potential sentence of five years to life in prison and up to a $10,000 fine.

According to the indictment, Chandler submitted 14 claims to property insurers alleging hail damage that either didn’t exist or was not caused by hail.

After the 2012 Hidalgo County hailstorms, estimates flooded in that bore no relation to what was actually damaged in the hailstorm or the actual cost to repair. This indictment shows that the Texas Department of Insurance (TDI) Fraud Unit considers the gross exaggeration of a damage estimate to be actionable insurance fraud.

Lawsuits arising out of Hurricane Harvey will be litigated under new legislation, HB 1774, passed earlier this by the Texas legislature. That under the new legislation, if a lawyer uses an inflated estimate in a pre-suit demand letter, that lawyer’s attorneys’ fees will be at risk at trial.

Recent cases against a hail attorney and roofing contractor reveal a crackdown on disaster-related fraud. The improper solicitation of clients by attorneys and their case runners became a major problem after the 2012 Hidalgo County hail storms according to the TDI.

The recent indictment of attorney Kent Livesay on numerous counts of felony insurance fraud and barratry should, but probably will not, temper the inevitable feeding frenzy to sign-up Hurricane Harvey clients.

Another case, a pending class action lawsuit against Lon Smith Roofing, is a warning to other roofing and storm restoration contractors who act as public adjusters illegally. Texas law prohibits contractors from taking assignments of benefits or powers of attorney. Doing either will subject contractors to criminal penalties for engaging in the unauthorized practice of public adjusting and the unauthorized practice of law.

You have my permission to pass this on to anyone you think may find it useful.

 

 

ZALMA-INS-CONSULT © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant 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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business. Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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 Library, at 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 three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him 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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