Rescission of Insurance

Rescission of Insurance

Product DetailsRescission is an equitable remedy as ancient as the common law of Britain. When the United States was conceived in 1776 the founders were concerned with protecting their rights under British common law. They adopted it as the law of the new United States of America modified only by the limitations placed on the central government by the U.S. Constitution approved in 1789. The viability and ability to enforce contracts was recognized as essential to commerce. Courts of law were charged with enforcing legitimate contracts. Courts of equity were charged with protecting contracting parties from mistake, fraud, misrepresentation and concealment since enforcing a contract based on mistake, fraud, misrepresentation or concealment would not be fair. The common law developed rules that courts could follow to refuse to enforce the terms of a contract that was entered into because of mutual mistake of material fact, a unilateral mistake of material fact, the breach of warranty (a presumptively material promise to do or not do something), a material concealment, or a material misrepresentation. The remedy – called rescission – created a method to apply fairness to the insurance contract and allow an insurer to void a contract and allowed courts to refuse to enforce such a contract entered into by misrepresentation or concealment of material facts.

Available as a paperback.

Available as a Kindle book.

Read about this and other insurance books by Barry Zalma at http://zalma.com/zalma-books/

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Court Refuses to Make Policy Better than that Purchased

Policy Wording Transferred the Risk of Loss to the Insured After Delivery

Marine insurance is very broad and usually applies to cargo from departure to delivery. After the merchandise is delivered the coverage stops since the risks of transit has ended.

In Beauty Plus Trading Company, Inc. v. National Union Fire Insurance Company Of Pittsburgh, PA, Docket NO. A-3380-16T3, Superior Court Of New Jersey Appellate Division (August 14, 2018) Beauty Plus Trading Company, Inc. appealed from the March 7, 2017 Law Division orders granting summary judgment to defendant National Union Fire Insurance Company of Pittsburgh, Pennsylvania, and denying its cross-motion for summary judgment.

FACTS

Plaintiff is a wholesale distributor of hair extensions and similar products with a warehouse and offices in Moonachie, New Jersey. Plaintiff’s warehouse is open Monday through Friday until 6:00 p.m.

On November 10, 2014, a shipping container with 487 cartons of “human hair weaves” left the port of Qingdao, China, for plaintiff’s warehouse in Moonachie. The container arrived at Port Elizabeth, New Jersey, on December 9, 2014. Harbor Express Trucking Company picked up the container from Elizabeth at approximately 11:37 a.m. on Friday, December 12, 2014, and delivered it to plaintiff’s warehouse at 5:00 p.m. that day with the original seal intact.

With only one hour left before closing, warehouse managers determined they did not have enough time to unload the container because it would take over an hour to unload, and their employees were “particularly reluctant to work overtime on Fridays.” Therefore, the workers cut the seal on the container, opened the doors, and backed the container into the warehouse unloading bay, where they left it until they returned to work on Monday. However, when the workers arrived at work at about 7:00 a.m. on Monday, the container was missing. Warehouse surveillance video revealed that on Saturday, December 13, 2014, at approximately 9:00 p.m., someone drove a white truck “up to the container, hooked a tractor to the chassis, and drove away” with it. Plaintiff reported the theft to the police, who later recovered the chassis and container with 397 cartons of goods missing.

Plaintiff filed a claim with defendant under their marine cargo policy. The policy insured plaintiff against perils “of the seas and inland waters, fires, assailing thieves, jettisons, barratry of the Master and Mariners, and all other like perils, losses and misfortunes . . . except as may be otherwise provided . . . or endorsed” in the policy.

Under the policy’s “Warehouse to Warehouse” clause, insurance coverage “attache[d] from the time the goods [left] the warehouse and/or store at the place named in the policy for the commencement of the transit” and continued until the goods were “delivered to final warehouse at the destination named in the policy or until the expiry of the fifteen . . . days (or thirty . . . days if the destination to which the goods [were] insured [was] outside the limits of the port) whichever [should] first occur.”

After delivery, the policy’s “Loading and Unloading” clause extended coverage not to exceed seventy-two hours after arrival of the delivering conveyance at final destination but not later than twenty-four hours after the receiver had knowledge of the arrival of the delivering conveyance.

Defendant hired Global Marine Surveys, Inc. to investigate plaintiff’s claim. Relying on Global Marine’s investigation and the policy’s provisions, defendant denied coverage for the theft under the “Warehouse to Warehouse,” “Loading and Unloading,” and “Storage Coverage” clauses.

According to defendant, because “the [Warehouse to Warehouse clause] provide[d] coverage for [plaintiff’s] goods while such goods were in transit and end[ed] when the goods [were] no longer in transit[,]” there was no coverage “because the subject shipment . . . had reached [its] final destination” at the time of the theft. Defendant explained further that coverage under the policy’s “Loading and Unloading clause had also terminated . . . at the time the loss occurred” because “the theft . . . occurred more than [twenty-four] hours after [plaintiff] had knowledge of the arrival of the container at its premises.” Additionally, according to defendant, because “the subject goods were not being temporarily stored in the warehouse at the time they were stolen[,]” but “were outside [plaintiff’s] warehouse” instead, the “Storage Coverage” endorsement did not apply.

TRIAL COURT DECISION

Plaintiff filed a complaint against defendant, alleging breach of contract and seeking a declaratory judgment that its marine cargo policy covered its claim for the stolen goods. In his written statement of reasons accompanying the orders, the trial judge determined that there was no coverage under the policy’s “Warehouse to Warehouse” clause because “[that] clause only applie[d] while the goods [were] in transit or awaiting transit. Here, the goods were delivered and [plaintiff] exercised dominion and control over them.”

Additionally, the judge determined that the “Loading and Unloading” clause did not provide coverage for the loss because the clause “unambiguously provide[d] coverage for up to [twenty-four hours] after the goods [were] received at their final destination. Here, [plaintiff] received the goods and chose not to secure them within the [twenty-four-hour] period.” The judge explained that there is nothing inequitable about having plaintiff assume the risk of loss from Saturday at 5 p.m. onward. Rather, it is clear that the policy was written so that the risk of loss would pass back to the insured after the twenty-four hours had elapsed.

ANALYSIS

The appellate court agreed substantially with the trial court because an insurance policy is a contract that will be enforced as written when its terms are clear in order that the expectations of the parties will be fulfilled. Courts should interpret an insurance policy in accordance with the plain and ordinary meaning of its terms. In the absence of an ambiguity, courts should not engage in a strained construction to support the imposition of liability. They should also avoid writing for the insured a better policy of insurance than the one purchased.

The plain language of the policy is unambiguous. Under the policy’s “Warehouse to Warehouse” clause, coverage attached when the goods left Qingdao, China, on November 10, 2014, and terminated when the goods arrived at their final destination, plaintiff’s warehouse in Moonachie, at approximately 5:00 p.m. on December 12, 2014. Under the policy’s “Loading and Unloading” clause, the policy extended coverage for seventy-two hours after delivery, “but not later than” twenty-four hours after plaintiff had notice of delivery. Thus, under the plain language of the policy, the goods were insured until 5:00 p.m. on Saturday, December 13, 2014. Because the theft occurred at approximately 9:00 p.m. that day, the policy did not cover plaintiff’s loss.

The policy did not require plaintiff to perform an act, such as unloading the goods, within the twenty-four hours of extended coverage. Nor did the contract require any other event to occur within the designated period. Plaintiff was free to leave the goods in the container as it chose to do. Plaintiff’s decision did not, however, prevent the policy from lapsing and transferring the risk of loss back to plaintiff at 5:00 p.m. on Saturday, December 13, 2014. To rule otherwise would grant plaintiff “a better policy of insurance than the one it purchased.

The policy language is unambiguous and the “Loading and Unloading” clause is an expansion, not a limitation, on coverage.

ZALMA OPINION

The refusal of the employees to work overtime on a Friday cost the plaintiff more than $200,000. The risk of loss of the goods ended at 5:00 p.m. on December 13, 2014 and the theft was established, by security video, to occur four hours later while the plaintiff held the risk of loss. A clear and unambiguous policy must be enforced and a court should never rewrite the policy to make it better – by four hours – than that which the plaintiff acquired.

 


© 2018 – Barry Zalma

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

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

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

Books from Full Court Press

Insurance Law Deskbook: Learn the insurance basics that are essential to every civil practitioner. The Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, state appellate courts, and foreign courts that have molded the American insurance law, as well as vital explanatory chapters, historical context, form letters, and more.

California Insurance Law Deskbook: California has long led the way when it comes to insurance jurisprudence in the United States, and few know more about California insurance law than Barry Zalma. The California Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. Similar to Barry Zalma’s general Insurance Law Deskbook, this title focuses on the state where the author has long resided and practiced as an expert in California law. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, and California appellate courts, as well as vital explanatory chapters and historical context.

Insurance Bad Faith and Punitive Damages Deskbook: Understand the relationship between insurance, the tort of bad faith, and why punitive damages are awarded to punish insurers. Previously, a person suing an insurance company in the United States could only recover contract damages, but when the tort of bad faith was created by the courts contract law was enormously affected, allowing insureds to sue insurers for both contract and tort damages, including punitive damages. Read a thoughtful analysis of how punitive damages apply in the United States to insurance bad faith suits, and why some states allow judges and juries to award punitive damages against insurers in civil litigation.

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached 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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The Compact Books of Adjusting Claims

Do you have a staff of young, inexperienced claims adjusters and managers? Is your staff of claims personnel in need of the basics of insurance adjusting? The two books that follow provide the basics that every adjuster needs to properly perform the duty to keep the promises made by the insurance policy.

“The Compact Book on Adjusting Liability Claims: A Handbook for the Liability Claims Adjuster”

This Compact Book of Adjusting Liability Claims is designed to Product Detailsprovide the new adjuster with a basic grounding in what is needed to become a competent and effective insurance adjuster. It is also available as a refresher for the experienced adjuster.

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

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

Available as a Kindle book

Available as a paperback.

The Compact Book of Adjusting Property Insurance Claims: A Manual for the First Party Property Insurance Adjuster

The insurance adjuster is not mentioned in a policy of insurance. The The Compact Book of Adjusting Property Insurance Claims: A Manual for the First Party Property Insurance Adjusterobligation to investigate and prove a claim falls on the insured. Standard first party property insurance policies, based upon the New York Standard Fire Insurance policy, contain conditions that require the insured to, within sixty days of the loss, submit a sworn proof of loss to prove to the insurer the facts and amount of loss.

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

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

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

Available as a Kindle book.

Available as a paperback.

Read about these and other insurance books by Barry Zalma at http://zalma.com/zalma-books/

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Bankruptcy Court Injunction Protects Asbestos Insurer

Joining with Bankrupt Insured Protects Insurer of Derivative Action

Mass-tort liability of entities with asbestos operations typically results in their filing for bankruptcy protection. The Bankruptcy Code allows a court to supplement a confirmed plan of reorganization by entering an injunction that channels this liability to a trust set up to compensate persons injured by the debtor’s asbestos.

In certain circumstances, channeling injunctions can also protect the interests of non-debtors, such as insurers.

In In re: W.R. Grace & Co., et al, Reorganized Debtors, Continental Casualty Company; Transportation Insurance Company v. Jeremy B. Carr, et al. Jeremy B. Carr, et al., No. 17-1208, United States Court Of Appeals For The Third Circuit (August 14, 2018) the Plaintiffs are a group of individuals suffering from asbestos disease as a result of exposure to the asbestos mining and processing operations in Libby, Montana (the “Libby Facility”) of W.R. Grace & Co. and its related entities (collectively “Grace”). They seek to hold Grace’s insurers, Continental Casualty Company and Transportation Insurance Company (collectively “CNA”), liable der various state-law negligence theories for their injuries (the “Montana Claims”). CNA, however, seeks to enforce a third-party-claims channeling injunction (the “Injunction”) entered under Grace’s confirmed plan of reorganization (the “Grace Plan”) to bar the Montana Plaintiffs’ action.

Background

Channeling of Third-Party Claims in Asbestos Bankruptcy

Section 524(g) of the Bankruptcy Code authorizes bankruptcy courts to form a trust and issue an injunction to channel certain claims to that trust in conjunction with a confirmed plan of reorganization in asbestos bankruptcies. Congress intended § 524(g) to address the unique problems and complexities associated with asbestos liability, particularly the long latency period of many asbestos-related diseases, which typically creates a large pool of future claimants whose disease has not yet manifested.

Facts

CNA issued a variety of insurance policies to Grace between 1973 and 1985, including policies for workers’ compensation and employers’ liability (collectively the “Workers’ Compensation & Employers’ Liability Policies” or “CNA Policies”).

After Grace filed voluntary chapter 11 petitions in the District of Delaware, the Bankruptcy Court confirmed the Grace Plan. It included the Injunction under § 524(g) barring certain suits against third parties and instead channeling them to an asbestos personal injury trust (the “Asbestos PI Trust”) designed to compensate those injured by Grace’s asbestos.

Along with the Grace Plan, CNA and Grace entered into a settlement agreement (the “Settlement Agreement”) in which CNA agreed to contribute $84 million over a period of six years to the Trust, $13 million of which could be reimbursed for any payments CNA makes for asbestos personal injury claims that are not successfully channeled to the Trust.

Discussion

The Montana Plaintiffs’ argument that the Injunction does not, by its terms, bar the Montana Claims but the court concluded that the CNA Policies are among those covered by the Injunction’s terms, though buried in a befuddling maze of defined terms, and that the Montana Claims do not fall under the Injunction’s workers’ compensation exclusion.

Claims barred by the Injunction include tort claims made against certain protected third parties directly or indirectly resulting from personal injury and exposure to Grace’s asbestos. Third parties protected from these claims include CNA and other insurance companies who entered into settlement agreements with Grace. They are protected, however, only to the extent their policies are identified as subject to a settlement agreement.

Twenty-five CNA policies are identified in the Settlement Agreement, along with a catch-all for “all known and unknown policies, or portions of policies,” issued by CNA to Grace through June 30, 1985 that actually or potentially provide insurance coverage for asbestos-related claims of bodily injury. Excluded from protection are any rights or obligations that pertain solely to CNA’s coverage for state workers’ compensation benefits.

The Montana Plaintiffs argue the CNA Workers’ Compensation & Employers’ Liability Policies are not included among the 25 listed policies and thus are not covered by the Injunction. Our review, however, shows that CNA entered into a settlement agreement with Grace, that the catch-all for all “known and unknown policies” includes the CNA Policies, and that the CNA Policies provide coverage for bodily injuries caused by Grace asbestos. Hence they are covered by the Injunction though they are not specifically listed.

The Permissible Scope of the Injunction under Section 524(g)(4)

The parties do not dispute that CNA is identified as protected by the Injunction; this satisfies the first condition for coverage by a third-party-claims channeling injunction. The Third Circuit only assessed the second and third conditions for protection: whether the Montana Claims seek to hold CNA “directly or indirectly liable for the conduct of, claims against, or demands on” Grace, i.e., the “derivative liability” requirement, and whether CNA’s alleged liability “arises by reason of” its provision of insurance to Grace, i.e., the “statutory relationship” requirement.

The incentive for third parties, particularly insurers, to contribute to an asbestos personal injury trust is their diminished exposure to asbestos liability from the asbestos debtor’s conduct or claims against it. Protecting these third parties from derivative exposure resolves lingering uncertainty about their liability and sustains the trust’s ability to compensate current and future claimants.

Related to jurisdiction exists over actions against non-debtors involving contractual indemnity obligations between the debtor and non-debtor that automatically result in indemnification liability against the debtor. Such is the case here, as the Trust is obligated by contract to indemnify CNA up to $13 million for its asbestos personal injury liability within the meaning of § 524(g)(4). Hence the Third Circuit had no doubt that the Bankruptcy Court had jurisdiction to enforce the Injunction.

As a result the Third Circuit affirmed the Bankruptcy Court’s decision that the Montana Claims are included in the terms of the Injunction.

ZALMA OPINION

The Third Circuit made it clear that insurers of long tail claims like asbestosis should work to join with the insured into setting up a trust like was done on behalf of Grace and CNA. The incentive for insurers to contribute to an asbestos personal injury trust is their diminished exposure to asbestos liability from the asbestos debtor’s conduct or claims against it. By setting up a trust, even one with baffling and hard to understand language, cuts the long tail to a Doberman’s nub.


© 2018 – Barry Zalma

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

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

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

Books from Full Court Press

Insurance Law Deskbook: Learn the insurance basics that are essential to every civil practitioner. The Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, state appellate courts, and foreign courts that have molded the American insurance law, as well as vital explanatory chapters, historical context, form letters, and more.

California Insurance Law Deskbook: California has long led the way when it comes to insurance jurisprudence in the United States, and few know more about California insurance law than Barry Zalma. The California Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. Similar to Barry Zalma’s general Insurance Law Deskbook, this title focuses on the state where the author has long resided and practiced as an expert in California law. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, and California appellate courts, as well as vital explanatory chapters and historical context.

Insurance Bad Faith and Punitive Damages Deskbook: Understand the relationship between insurance, the tort of bad faith, and why punitive damages are awarded to punish insurers. Previously, a person suing an insurance company in the United States could only recover contract damages, but when the tort of bad faith was created by the courts contract law was enormously affected, allowing insureds to sue insurers for both contract and tort damages, including punitive damages. Read a thoughtful analysis of how punitive damages apply in the United States to insurance bad faith suits, and why some states allow judges and juries to award punitive damages against insurers in civil litigation.

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached 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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Ethics

Ethics for the Insurance Professional

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

Ethics is a process of systematically applying, using, defending and recommending concepts of right and wrong behavior. Ethical behavior is required of both parties to a contract of insurance for the system to work. Ethics is the essence of insurance. Ethical behavior is required of both parties to a contract of insurance for the system to work. If any party to the insurance contract acts unethically the ability of insurance to work effectively and profitably will fail. Ethics is the essence of insurance. Since insurance was first created it has been a business of utmost good faith. As a result, the insured and the insurer are expected to treat each other ethically.
Read about this and other insurance books by Barry Zalma at http://zalma.com/zalma-books/
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Freedom of Contract in Georgia

Insurance Policies are Construed as Written

Insurance is nothing more than a contract. The terms of the contract must be enforced by the courts as long as the wording is clear and unambiguous and the conditions do not violate the public policy of the state. In National Casualty Company v. Georgia School Boards Association – Risk Management Fund, S18Q0757, Supreme Court of Georgia (August 14, 2018) The United States District Court for the Northern District of Georgia asked the Georgia Supreme Court whether National Casualty Company (“National”), a commercial insurer, and defendant Georgia School Boards Association – Risk Management Fund (“Risk Fund”), an interlocal risk management agency, could avoid an “other insurance” clause. It was also asked if Georgia law or public policy precludes a commercial insurance policy that is excess to coverage provided under a Georgia statute.

FACTUAL BACKGROUND

National and Risk Fund provide overlapping liability coverage to members of the Professional Association of Georgia Educators (“PAGE”), a professional association of teachers and administrators. National issued insurance policies to PAGE that provide liability coverage to PAGE members:

The Policies also contain a provision limiting coverage for liabilities covered by “other insurance” (“Other Coverage Provision”).

Risk Fund’s risk-sharing arrangement is set forth in coverage agreements entered into by Risk Fund and its members (“Coverage Agreements”). Under the Coverage Agreements, Risk Fund provides liability coverage to members and their employees, including PAGE members. Risk Fund’s coverage includes liability coverage for personal injury, bodily injury, property damage, negligent acts, wrongful acts, and sexual abuse. Risk Fund is required to “pay [amounts a] Member becomes legally obligated to pay as damages” and to “defend … Member[s] against any ‘suit’ seeking those damages.” Risk Fund’s members are jointly and severally liable “for all legal obligations” arising under the Coverage Agreements.

From 2014 to 2016, several lawsuits were filed against PAGE members covered under the Policies and the Coverage Agreements (“Covered Members”). National refused to defend or indemnify these Covered Members until coverage under the Coverage Agreements was exhausted. National contended that the Other Coverage Provision in the Policies made it only an excess insurer. Because of National’s refusal to provide primary coverage, Risk Fund defended, indemnified and paid settlement amounts on behalf of the Covered Members, pending resolution of the present amended complaint for declaratory judgment filed by National.

DISCUSSION

“Other Insurance” provisions describe at which point each policy’s coverage attaches. And, if the two entities providing insurance, attempt to limit their liability to excess coverage if there is other insurance, then the clauses are irreconcilable, cancel each other out, and the liability is to be divided equally between them.

Of necessity, the initial inquiry is the meaning of the insurance policy provisions at issue. The interpretation of an insurance policy is subject to the relevant general rules of contract construction, the cardinal rule being to determine and carry out the intent of the parties. In making the determination of intent, a court is to consider the insurance policy as a whole, and a preferred construction will give effect to each provision, attempt to harmonize the provisions with each other, and not render any of the policy provisions meaningless or mere surplusage. Furthermore, the policy should be read as a layman would read it.

Georgia law provides that insurance companies are generally free to set the terms of their policies as they see fit so long as they do not violate the law or judicially cognizable public policy.

The question is whether there is any Georgia law or public policy justifying a departure from the basic rules of insurance contract construction. Risk Fund argued that the traditional analysis is not applicable when an interlocal risk management fund is involved because public policy dictates that, irrespective of the documents’ bargained-for contractual terms, commercial insurance always should exhaust before any publicly funded risk management monies are spent. But, there is no basis in Georgia law or public policy for such an approach. In fact, the law and public policy concerns dictate quite the contrary.

In enacting OCGA § 20-2-990, et seq., which requires public schools to protect themselves from liability exposure through the purchase of liability insurance and/or contracts of indemnity, the General Assembly sought to address what it termed the “urgent crisis” confronting public education in Georgia. In order to address such crisis, boards of education are permitted to pool their general liability risks to form and become members of interlocal risk management agencies as an alternative to purchasing commercial liability insurance. As reflected in its findings, the General Assembly recognized that the expenditure of public funds to protect against education professionals’ liability, even as pooled in an interlocal risk management fund, is essential to quality education.

There is no requirement that either the insurance purchased or the risk management pool established apply only in excess of any available commercial insurance. The General Assembly expressly authorized the use of public funds for the exact purpose for which interlocal risk management agencies like Risk Fund are formed.

The public policy concerns were considered and addressed by the General Assembly in enacting the statutes. The express preservation of immunities is the way in which the “public purse” is protected.

There is no apparent public policy which would be furthered by the requirement that commercial insurance funds be exhausted before the legislatively mandated public funds set aside to protect education professionals against employment-related liability are used.

The bedrock public policy of freedom of contract would be frustrated if there were such a requirement. In addition, insurance policies are not only a matter of contract, they are also a matter of public concern because rulings in cases involving common policies obviously affect risk and associated insurance rates at a mass level.

Rendering meaningless the bargained-for “other insurance” provisions contained in commercial insurance policies in favor of contemplated publicly funded sources of insurance based on a public policy requiring the exhaustion of all commercial funds would interfere not only with an insurance company’s freedom to contract with its insureds but also undoubtedly adversely affect the premiums paid for liability policies to protect the education professionals of this State.

Insurance contracts are properly construed and applied as written unless prohibited by law or public policy. There is no law or public policy in Georgia which prohibits the found application of the “other insurance” policy provisions at issue and utilization of the priority of coverage analysis.

ZALMA OPINION

The US Constitution and the public policy of all sates allow insurers to bargain for specific terms of the contract of insurance. It is improper in Georgia, and everywhere else, to render meaningless a bargained for “other insurance” clause for any reason and specifically to protect the public purse that was protected by the Legislature. Georgia correctly protected the contract.


© 2018 – Barry Zalma

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

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

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

Books from Full Court Press

Insurance Law Deskbook: Learn the insurance basics that are essential to every civil practitioner. The Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, state appellate courts, and foreign courts that have molded the American insurance law, as well as vital explanatory chapters, historical context, form letters, and more.

California Insurance Law Deskbook: California has long led the way when it comes to insurance jurisprudence in the United States, and few know more about California insurance law than Barry Zalma. The California Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. Similar to Barry Zalma’s general Insurance Law Deskbook, this title focuses on the state where the author has long resided and practiced as an expert in California law. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, and California appellate courts, as well as vital explanatory chapters and historical context.

Insurance Bad Faith and Punitive Damages Deskbook: Understand the relationship between insurance, the tort of bad faith, and why punitive damages are awarded to punish insurers. Previously, a person suing an insurance company in the United States could only recover contract damages, but when the tort of bad faith was created by the courts contract law was enormously affected, allowing insureds to sue insurers for both contract and tort damages, including punitive damages. Read a thoughtful analysis of how punitive damages apply in the United States to insurance bad faith suits, and why some states allow judges and juries to award punitive damages against insurers in civil litigation.

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached 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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All California Claims People Must Comply by September 1

California Claims Regulations

Everyone who provides insurance in the state of California must fulfill the requirements of the California Fair Claims Settlement Practices Regulations and the California SIU Regulations no later than September 1, 2018. This means each claims person or integral anti-fraud-personnel must be trained on both sets of Regulations or sign a sworn document averring that they have read and understood the Regulations. The following two books – either paperback or Kindle – can ease the process and make it simple to comply with the Regulations.

California Fair Claims Settlement Practices Regulations

A Guide to Insureds, Public Insurance Adjusters, and Lawyers to Properly Investigate and Adjust Insurance Claims

This book was designed to assist insurance personnel who do business in the state of California. It will assist all insurance claims personnel, claims professionals, independent insurance adjusters, special fraud investigators, private investigators who work for the insurance industry, the management in the industry, the attorneys who serve the industry, public insurance adjusters, policyholders and counsel for policyholders working with insurers doing business in California. All insurers doing business in California must comply with the requirements of the Regulations or face the ire of, and attempts at financial punishment from, the CDOI. That punishment is now questionable and limited because some courageous insurers fought the CDOI and succeeded before an administrative law judge who limited the right to punish. Regardless of difficulties in assessing punishment the state of California requires all who are involved in the claims process — even if only tangentially — to be trained with regard claims handling in compliance with the Regulations and attest to completion of such training under oath. To avoid the annual training the claims person can submit a sworn document that avers that he or she has read and understood the Regulations. Reviewing this book and the Regulations set forth below should be sufficient to comply with the training requirements of the Regulations. It is necessary that insurance personnel who are engaged in any way in the presentation, processing, or negotiation of insurance claims in California be familiar with the Regulations. Counsel for insurers and policyholders should also be familiar with the Regulations since they set a minimum standard for claims handling in the state.

Available as a Kindle book.

Available as a paperback.

California SIU Regulations

The State of California Imposes Control on the Investigation of Insurance Fraud

California SIU Regulations: The State of California Imposes Control on the Investigation of Insurance FraudCalifornia SIU Regulations is designed to assist California insurance claims personnel, claims professionals, independent insurance adjusters, special fraud investigators, private investigators who work for the insurance industry, the management in the industry, the attorneys who serve the industry, and all integral anti-fraud personnel working with California admitted insurers to comply with the requirements of California SIU Claims Regulations.

The state of California, by statute, requires all admitted insurers to maintain a Special Investigative Unit (an “SIU”) that complies with the requirements set forth in the Special Investigative Unit Regulations (the “SIU Regulations”) and train all integral anti-fraud personnel to recognize indicators of insurance fraud.

Available as a Kindle Book.

Available as a paperback.

Read about these and other insurance books by Barry Zalma at http://zalma.com/zalma-books/

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Stupid Arsonist Convicted by Circumstantial Evidence

To Succeed at Arson-for-Profit Takes Skill and Intelligence

To successfully commit an arson-for-profit it is necessary to buy sufficient insurance, set a fire to occur when the arsonist has an alibi, leave no evidence of an intentionally set fire, and make a reasonable claim based upon the property actually destroyed. In State of Ohio v. Rickey Lamb, Jr., Court of Appeals No. F-17-002, 2018 Ohio 3089, Court Of Appeals Of Ohio Sixth Appellate District Fulton County (August 3, 2018) Ricky Lamb, Jr. proved he did not have the ability to fulfill the needs of a successful arson-for-profit.

Rickey T. Lamb, Jr., was found guilty of aggravated arson, insurance fraud, grand theft, communications fraud, and falsification in a theft.  He appealed to the appellate court to avoid jail.

FACTS

Aaron and Sarah Klopfenstein purchased a home at 104 Ash Street, Lyons, Fulton County, Ohio, as an investment property (the “Ash Street home”). On August 30, 2014, Lamb and his wife, Desteny Lamb, entered into a one-year lease agreement for the Ash Street home.

On December 22, 2014, Mr. Klopfenstein received a text message from Lamb indicating that the home’s utility room “smelled like natural gas.” Lamb indicated that he hired a “gas contractor” to check for leaks, but the contractor could not find any. So, they “aired out” the utility room. Mr. Klopfenstein offered to have his plumbing and heating contractor check for a leak, but Lamb indicated that the visit was not necessary; Lamb had purchased a “detector” and felt “safe.” At trial, Mr. Klopfenstein testified that the Lambs never asserted any other complaints about the condition of the Ash Street home.

The Man who Called 911

Scott Westbrook is the general manager of Aarons Sales and Lease, a rent-to-own company located in Wauseon, Ohio. On January 3, 2015, at approximately 5:20 p.m., Mr. Westbrook was driving north toward Lyons on County Road 10-3 when he noticed a red or maroon SUV driving recklessly in a southerly direction. He was approximately one mile outside of the Lyons city limits. When he arrived in Lyons moments later, Mr. Westbrook observed “flames coming out of the side of [a] house.” It was Lamb’s Ash Street home. Mr. Westbrook grabbed his phone and called 911.

News of the Fire and the Lambs Reaction to It

When the Lambs arrived at the house on the day of the fire, Lamb told firefighters that he had $20,000 in a metal box on the second floor in or near a dresser. Lamb also told firefighters that he had a number of firearms in the Ash Street home. Once the fire was under control, two firefighters searched the upstairs bedroom for Lamb’s metal box. They were unable to locate it.

Lamb’s Interactions with a Nationwide Insurance Adjustor

Tricia Huberty is employed as an adjustor at Nationwide Insurance. During an in-person interview, Lamb informed Ms. Huberty that, as a self-employed contractor, he made $82,000 in 2013 and $77,000 in 2014. He also informed Ms. Huberty that his wife and children were receiving Medicaid and “food stamps” and failed to mention that he earned too much to qualify for Medicaid.

Ms. Huberty read to the jury the extensive list of household and personal items the Lamb family claimed to have lost in the fire. The list included, $29,163 worth of Hallmark cards; $2,110 worth of DVDs; a $2,499 sectional sofa; a $2,000 Rolex; $3,000 worth of school books; a $6,000 camera; a $1,200 pressure washer; a $799 fridge; a $499 stove; a $200 washer; a $200 dryer; a $400 kayak; a $2,700 Vera Wang wedding dress; numerous guns; a $5,599 ring; $20,000 cash; and numerous other items. Lamb’s claimed losses totaled $110,000.

Shortly after the in-person interview, Ms. Huberty obtained a credit report and discovered that the Lambs had recently gone through bankruptcy. She also discovered that the fire occurred less than six months after the policy’s effective date. The presence of these indicators required Ms. Huberty to forward the file to Nationwide’s Special Investigative Unit.

Nationwide’s Special Investigative Unit

Christopher Lease is a special investigator for Nationwide’s Special Investigative Unit. Mr. Lease conducted two interviews with Lamb and attended Lamb’s examination under oath. All three events were recorded and transcribed.

During the examination, Lamb stated that he never informed Mr. Klopfenstein about the problems he was having with the breakers. He insisted that his rent had been paid through April 2015.

Robert Moody’s Investigation

Robert Moody is a fire investigator employed by Nederveld Engineering. He was retained by Nationwide Insurance, to conduct an “origin and cause” investigation at the Ash Street home.

After interviewing Lamb Mr. Moody began a physical examination of both the inside and the outside of the fire-damaged structure. Mr. Moody testified that they found what appeared to be remnants from a space heater and a single magazine to a small caliber hand gun. When Mr. Moody went to the upstairs bedroom, he found no evidence of the $20,000 in cash and no evidence of any other guns. The bedroom contents had suffered soot damage, most of the personal effects were not damaged by flame and were all readily identifiable.

VERDICT

The jury convicted Lamb on all but one count charged. At the sentencing hearing, Lamb was ordered to serve a term of six years in prison on Count 2, eleven months in prison on Count 4, eleven months in prison on Count 5, eleven months in prison on Count 6, and eleven months in prison on Count 7. The sentences were ordered to be served concurrently. The trial court also ordered Lamb to pay $8,381.07 in restitution to the State Fire Marshall’s Office and $18,500 in restitution to Nationwide Insurance.

ANALYSIS

One is qualified as an expert witness so as to properly provide expert testimony if the testimony provided exceeds the knowledge or experience possessed by a layperson, possesses specialized knowledge, skill, experience, training and education regarding the subject matter, and the testimony is based upon reliable specialized information.

Robert Moody is a fire investigator employed by Nederveld Engineering. Mr. Moody was qualified to testify as an expert fire investigator because of his specialized knowledge, skill, and experience regarding the subject matter.

It is clear that the experience and training of the expert witnesses who testified qualify them to testify as expert witnesses at trial. Each testified extensively as to their training and experience. Each were cross-examined on their opinions, methods, and observations.

The assumptions the arson investigator made when categorizing the fire as “incendiary” were based on his experience as a fire investigator and unique facts in the record. There is evidence that Lamb left his home no more than 20 minutes before a driver passing through town called 911 to report the fire. Also, a copy of Lamb’s phone bill was presented to the jury. The phone bill shows that calls were made between Lamb and his wife at the same time the two of them—according to Lamb’s timeline—were traveling to Toledo in the same vehicle

There was no direct evidence that Lamb intentionally started the fire. However, that deficiency does not preclude an arson conviction. The courts have consistently noted that arson prosecutions rely heavily on circumstantial evidence.

Much of the evidence produced at trial focused on the fraudulent insurance claim Lamb submitted to Nationwide Insurance. The state presented sufficient circumstantial evidence of Lamb’s guilt on the aggravated arson charge.

Lamb made numerous inconsistent statements to investigators on a number of topics. Lamb also made conflicting statements to others about when he discovered and to what extent he believed the fire was covered by insurance. Furthermore, Lamb’s statements about when he discovered and reported the cracks in the gas line were inconsistent with his wife’s testimony about when the cracks were discovered and reported.

It is clear from the evidence that Lamb had both a motive and an opportunity to start the fire. Lamb and his wife were experiencing financial difficulties. In 2013, Lamb and his wife filed Chapter 7 Bankruptcy. At the time of the fire, Lamb’s wife and children were receiving public assistance. Just days before the fire, Lamb indicated he would be late in making his $700 rent payment for January 2015 although  he claimed he had $20,000 in cash in the house. Lamb’s tenant insurance went into effect 64 days before the fire that destroyed the Ash Street home. Lamb’s wife testified that they purposely inflated the replacement value of their possessions.

A reasonable fact finder could have inferred, and found beyond a reasonable doubt, that Lamb set the fire that destroyed the Ash Street home. This is not the exceptional case in which the jury lost its way and created a manifest miscarriage of justice.

ZALMA OPINION

Lamb simply lacked the skill to succeed at a complex fraud scheme. He did not have the assets to support his claimed earnings and claimed loss because of the bankruptcy less than two years before the fire, he claimed a Rolex that would have reasonably gone to the bankruptcy trustee. He was the last at the house and did a fairly sloppy job of setting the fire, even leaving a match near the point of origin and claiming loss of cash from a room not damaged by the fire. He belongs in jail since his actions could have killed or injured neighbors or firefighters if a passer-by had not reported the fire shortly after it started.


© 2018 – Barry Zalma

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

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

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

Books from Full Court Press

Insurance Law Deskbook: Learn the insurance basics that are essential to every civil practitioner. The Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, state appellate courts, and foreign courts that have molded the American insurance law, as well as vital explanatory chapters, historical context, form letters, and more.

California Insurance Law Deskbook: California has long led the way when it comes to insurance jurisprudence in the United States, and few know more about California insurance law than Barry Zalma. The California Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. Similar to Barry Zalma’s general Insurance Law Deskbook, this title focuses on the state where the author has long resided and practiced as an expert in California law. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, and California appellate courts, as well as vital explanatory chapters and historical context.

Insurance Bad Faith and Punitive Damages Deskbook: Understand the relationship between insurance, the tort of bad faith, and why punitive damages are awarded to punish insurers. Previously, a person suing an insurance company in the United States could only recover contract damages, but when the tort of bad faith was created by the courts contract law was enormously affected, allowing insureds to sue insurers for both contract and tort damages, including punitive damages. Read a thoughtful analysis of how punitive damages apply in the United States to insurance bad faith suits, and why some states allow judges and juries to award punitive damages against insurers in civil litigation.

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached 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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Compact Books on Adjusting Claims

How to Adjust Property or Liability Claims

Are you new to insurance claims? Have you recently hired new insurance adjusters? Do you need to give your claims staff the basics of insurance adjusting? Do you want your claims staff to be competent to deal with property or liability insurance claims? If so you need to have available the compact books described below and available on Amazon.com.

“The Compact Book on Adjusting Liability Claims: A Handbook for the Liability Claims Adjuster”

This Compact Book of Adjusting Liability Claims is designed to Product Detailsprovide the new adjuster with a basic grounding in what is needed to become a competent and effective insurance adjuster. It is also available as a refresher for the experienced adjuster.

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

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

Available as a Kindle book

Available as a paperback.

The Compact Book of Adjusting Property Insurance Claims: A Manual for the First Party Property Insurance Adjuster

The insurance adjuster is not mentioned in a policy of insurance. The The Compact Book of Adjusting Property Insurance Claims: A Manual for the First Party Property Insurance Adjusterobligation to investigate and prove a claim falls on the insured. Standard first party property insurance policies, based upon the New York Standard Fire Insurance policy, contain conditions that require the insured to, within sixty days of the loss, submit a sworn proof of loss to prove to the insurer the facts and amount of loss.

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

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

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

Available as a Kindle book.

Available as a paperback.

Read about these and other insurance books by Barry Zalma at http://zalma.com/zalma-books/

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Responses to Fraud – A Checklist

  August 15, 2018 

This issue starts with a checklist created from the soon to be published “Zalma on Insurance Claims – Volume 10”. It is designed to help the insurance professional understand and clarify that his or her fraud investigation is complete.
Everyone involved in insurance – either as an insurer or as an insured – requires excellence in claims handling. Businesses need to deal with insurers who have an excellence in claims-handling mandate. Insurers who wish to profit need an excellence in property and/or liability claims-handling program. Everyone in business needs an insurer who has an excellence in property or liability claims-handling program in effect.
The checklist will help perform with excellence in claims handling. 

Zalma’s Insurance Fraud Letter, Volume 22, No. 16


The Current Issue Contains the Following

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.

© 2018 – Barry Zalma

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

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

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

Books from Full Court Press

Insurance Law Deskbook: Learn the insurance basics that are essential to every civil practitioner. The Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, state appellate courts, and foreign courts that have molded the American insurance law, as well as vital explanatory chapters, historical context, form letters, and more.

California Insurance Law Deskbook: California has long led the way when it comes to insurance jurisprudence in the United States, and few know more about California insurance law than Barry Zalma. The California Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. Similar to Barry Zalma’s general Insurance Law Deskbook, this title focuses on the state where the author has long resided and practiced as an expert in California law. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, and California appellate courts, as well as vital explanatory chapters and historical context.

Insurance Bad Faith and Punitive Damages Deskbook: Understand the relationship between insurance, the tort of bad faith, and why punitive damages are awarded to punish insurers. Previously, a person suing an insurance company in the United States could only recover contract damages, but when the tort of bad faith was created by the courts contract law was enormously affected, allowing insureds to sue insurers for both contract and tort damages, including punitive damages. Read a thoughtful analysis of how punitive damages apply in the United States to insurance bad faith suits, and why some states allow judges and juries to award punitive damages against insurers in civil litigation.

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached 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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“Insurance Fraud & Weapons to Defeat Insurance Fraud

“Insurance Fraud & Weapons to Defeat Insurance Fraud” In Two Volumes

Product DetailsThe issue most likely to eat into insurance company profits is insurance fraud taken by usually honest people who add a little to an honest claim to cover deductibles or premium payments. They are more effective in the long run than the rings of insurance criminals. The two volumes of “Insurance Fraud & Weapons to Defeat Insurance Fraud” give insurance professionals a chance to reduce the effect of insurance fraud on the profits of insurers.

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

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

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

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

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

the effort to stop insurance fraud against Medicare and Medicaid has increased.

Insurance Fraud & Weapons to Defeat Fraud - Volume Two: A Manual for Those Working to Defeat Insurance Fraud by [Zalma, Barry]This book contains appellate decisions regarding insurance fraud from federal and state appellate courts across the country and full text of many insurance fraud statutes.

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

Volume One available as a Kindle book and a paperback.

Volume Two Available as a Kindle book and a paperback

Read about these and other insurance books by Barry Zalma at http://zalma.com/zalma-books/


© 2018 – Barry Zalma

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

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

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

Books from Full Court Press

Insurance Law Deskbook: Learn the insurance basics that are essential to every civil practitioner. The Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, state appellate courts, and foreign courts that have molded the American insurance law, as well as vital explanatory chapters, historical context, form letters, and more.

California Insurance Law Deskbook: California has long led the way when it comes to insurance jurisprudence in the United States, and few know more about California insurance law than Barry Zalma. The California Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. Similar to Barry Zalma’s general Insurance Law Deskbook, this title focuses on the state where the author has long resided and practiced as an expert in California law. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, and California appellate courts, as well as vital explanatory chapters and historical context.

Insurance Bad Faith and Punitive Damages Deskbook: Understand the relationship between insurance, the tort of bad faith, and why punitive damages are awarded to punish insurers. Previously, a person suing an insurance company in the United States could only recover contract damages, but when the tort of bad faith was created by the courts contract law was enormously affected, allowing insureds to sue insurers for both contract and tort damages, including punitive damages. Read a thoughtful analysis of how punitive damages apply in the United States to insurance bad faith suits, and why some states allow judges and juries to award punitive damages against insurers in civil litigation.

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached 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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Don’t Jump In Car After Accident & Claim Injury

Insurance Fraud Conviction Upheld

Insurance fraud is a temptation difficult to resist, especially if you are a person with a history of criminal conduct. Even though insurance fraud is seldom prosecuted it is prosecuted and when it is, it is prosecuted with vigor.

One such temptation met its match in The People v. Deborah Carter, C083541, C084717, Court Of Appeal Of The State Of California Third Appellate District (Sacramento) (August 1, 2018) Deborah Carter was initially charged with several counts of insurance fraud and failing to appear. A jury found her guilty of the insurance fraud counts and the state eventually gave up the failure to appear charges.

BACKGROUND

Defendant was initially charged with five counts: three counts of insurance fraud (California Penal Code § 550, subds. (a)(1), (5), and (b)(1); counts 1-3); and two counts of failure to appear while released on bail (§ 1320.5; counts 4 & 5). The state dropped counts 4 & 5.

The insurance fraud counts arose from a car accident: a van hit a small sedan driven by defendant’s husband. Defendant claimed she was sitting in the front passenger seat at the time of the accident. As a result of the accident, defendant submitted an injury claim to the insurance company for the van. The sole contested issue was whether defendant was inside the sedan when it was hit. The accident occurred outside a day sanctuary for homeless people. Two witnesses testified to the accident: a security guard and a street monitor.

The security guard testified he was sitting on a front porch when he saw the sedan pull up in front of the women’s facility. He saw a “young lady” exit the sedan and walk into the women’s facility.

A van was also parked outside. The guard watched the van being loaded before it started to pull out. As the van moved, the sedan approached, stopping right behind the van. The van then backed into the sedan. After the accident, the security guard saw the same young lady come from the direction of the women’s facility and yell at the van driver.

At trial, the guard was asked if he saw the young lady in the courtroom and said, “It’s been so long, no.” The guard also testified he did not know how many people were in the sedan when he first saw it.

A street monitor also testified to seeing the accident. He saw the sedan parked in front of the women’s facility. Because the sedan was not supposed to be parked there, he approached and told the man in the driver’s seat to move the car. The monitor saw no one but the driver inside the sedan.

The street monitor then went into the kitchen. He recalled being in the kitchen for two minutes at most. When he came out, he saw a van had backed into the sedan — he did not see the actual collision.

He then saw a very upset woman coming out of the woman’s facility. She was yelling and waving her arms, saying the car was a rental.

Defendant was found guilty on all three insurance fraud counts. The trial court imposed a six-year aggregate term consisting of the five-year upper term on count one along with a one-year enhancement for defendant’s prior prison term.

DISCUSSION

The security guard’s description of the “young lady,” according to the Defendant, exiting the car did not match her description as she was 55 at the time. I don’t know how old the security guard was but I’m 76-years-old and, to me a woman only 55 is a “young lady.”

The basic substantial evidence test is well settled, requiring that ” ‘we review the whole record in the light most favorable to the judgment to determine whether it discloses substantial evidence—that is, evidence that is reasonable, credible, and of solid value—from which a reasonable trier of fact could find the defendant guilty beyond a reasonable doubt.’ ” (People v. Abilez (2007) 41 Cal.4th 472, 504; see People v. Raley (1992) 2 Cal.4th 870, 891 [substantial evidence ” ‘ “reasonably inspires confidence” ‘ “].)

The security guard saw a “young lady” exit the sedan for the women’s facility just before the accident. And just after the accident, he saw the same young lady walk to the van from the women’s facility. That testimony accords with the street monitor’s testimony that just before the accident, no one but the driver was inside the sedan. And just after the accident an upset woman came from the women’s facility.

From that, a jury could reasonably conclude defendant left the sedan just before the accident and returned just after. The fact that the security guard referred to the woman as a “young lady,” the fact he could not identify the woman in the courtroom, and the fact the street monitor was in the kitchen during the accident did not preclude a jury from reasonably concluding from the evidence as a whole that defendant was not in the sedan during the accident.

ZALMA OPINION

The U.S. is fast becoming a geriatric nation. People find it easy to steal from insurance companies. Judges, juries and seasoned citizens like your author, consider a 50 year old woman to be a “young lady.” Much to Ms. Carter’s surprise the insurance company and state investigated, found the two witnesses that established she was not in the car at the time of the accident, that her claimed injuries were false and fraudulent, and the state successfully prosecuted Ms. Carter who will serve six years in prison.


© 2018 – Barry Zalma

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

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

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

Books from Full Court Press

Insurance Law Deskbook: Learn the insurance basics that are essential to every civil practitioner. The Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, state appellate courts, and foreign courts that have molded the American insurance law, as well as vital explanatory chapters, historical context, form letters, and more.

California Insurance Law Deskbook: California has long led the way when it comes to insurance jurisprudence in the United States, and few know more about California insurance law than Barry Zalma. The California Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. Similar to Barry Zalma’s general Insurance Law Deskbook, this title focuses on the state where the author has long resided and practiced as an expert in California law. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, and California appellate courts, as well as vital explanatory chapters and historical context.

Insurance Bad Faith and Punitive Damages Deskbook: Understand the relationship between insurance, the tort of bad faith, and why punitive damages are awarded to punish insurers. Previously, a person suing an insurance company in the United States could only recover contract damages, but when the tort of bad faith was created by the courts contract law was enormously affected, allowing insureds to sue insurers for both contract and tort damages, including punitive damages. Read a thoughtful analysis of how punitive damages apply in the United States to insurance bad faith suits, and why some states allow judges and juries to award punitive damages against insurers in civil litigation.

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached 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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New Books from Full Court Press:

New Books from Full Court Press:

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

Barry Zalma practiced law in California for more than 44 years as an insurance coverage and claims-handling lawyer, and has spent more than 50 years in the insurance business. We welcome his deskbooks as the first published under our Full Court Press imprint. Three titles are available in ePub and MOBI format, as well as on the Fastcase legal research platform.

Insurance Law Deskbook: Learn the insurance basics that are essential to every civil practitioner.

California Insurance Law Deskbook: California has long led the way when it comes to insurance jurisprudence in the United States, and few know more about California insurance law than Barry Zalma.

Insurance Bad Faith and Punitive Damages Deskbook: Understand the relationship between insurance, the tort of bad faith, and why punitive damages are awarded to punish insurers.

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

All available at fastcase.com.

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Checklist — Responses to Fraud

Responses to Fraud

The following is a checklist created from the soon to be published “Zalma on Insurance Claims – Volume 10”. It is designed to help the insurance professional understand and clarify that his or her fraud investigation is complete.

Have I identified which of the three major types of insurance fraud is being attempted:

  • fraud in the inception? Yes      No
  • fraud in the presentation of a claim? Yes      No
  • fraud in the presentation of a claim by a claimant against the insured? Yes      No

Fraud in the Inception

If a fraud in the inception, have I:

  • determined if a fact was misrepresented in the application? Yes      No
  • determined if a fact was concealed from the underwriter? Yes      No
  • established that the fact misrepresented or concealed was material to the decision of the insurer to insure or not insure?                                                                 Yes      No
  • collected documents that will prove the fact was concealed or misrepresented? Yes      No
  • interviewed witnesses who can testify that the fact was concealed or misrepresented? Yes      No
  • Have I consulted with local counsel to determine if grounds exist to rescind the policy? Yes      No
  • Has counsel advised what is required to effect rescission? Yes     No
  • Do I need to return the premium? Yes      No
  • Do I only need to offer to return the premium? Yes  No
  • Have I consulted with local counsel to determine if the policy can be declared void under the “Fraud” provisions of the policy? Yes      No
  • Has counsel advised what is required to effect rescission? Yes      No
  • Do I need to return the premium? Yes      No
  • Do I only need to offer to return the premium? Yes  No
  • False Swearing
  • Did the insured make a statement under oath? Yes  No
  • Can I prove that any statement made by the insured under oath was false? Yes      No
  • Do I have documentary evidence that establishes the falsity of the statement? Yes      No
  • Do I have a statement from a witness that proves the falsity of an under oath statement of the insured? Yes  No
  • Have I collected public documents that will establish an under oath statement by the insured is false? Yes  No
  • Do I have evidence that the insured knew the statement was false when it was made? Yes      No
  • Do I have evidence that the insured should have known the statement was false when it was made? Yes      No

Grounds for Rescission

  • Have I established that all of the grounds required for rescission in my state exist? Yes      No
  • Have I consulted with local counsel to verify my conclusion? Yes      No
  • The Denial Letter

Before seeking permission to deny a claim, have I determined:

  • the claims file contains a complete, sworn proof of loss? Yes      No
  • if it is not complete, did I make sure that follow-up letters have been sent pointing out the deficiencies? Yes  No
  • that any records or documents, such as receipts, credit card slips, canceled checks, tax returns, or bank statements requested by the insurer’s investigators were provided?

Yes     No

  • If the insured did not comply with such request, did I advise the insured in writing of this inadequacy? Yes      No
  • that an examination under oath was taken? Yes  No
  • that the insured’s excuses for non-compliance were reasonable or unreasonable? Yes    No

Unfair Claims Practices Act

If the decision has been made to deny the claim, have I:

  • reviewed the Unfair Claims Practices Act and regulations established to enforce it so that the denial complies with the law and regulations? Yes      No
  • provided the insured with all advice required by the regulations, including:
  • statute of limitations? Yes      No
  • ability to seek help from the Department of Insurance? Yes      No

Contents of the Denial Letter

Did I make certain that the denial letter, before it is mailed, contains:

  • a statement of the insured’s failure to substantially comply with the policy conditions (if true) with a specific quotation of the policy language breached? Yes      No
  • if it can be proven, a statement that the claim is denied because the insured was responsible for causing the loss or because of intentional, material misrepresentations by the insured? Yes      No
  • a statement of each and every reason for denial? Yes  No
  • a quotation of the particular policy language upon which each reason for denial is based? Yes      No
  • a statement that the denial is unconditional? Yes  No
  • a statement that the denial is for the insured’s information only? Yes     No
  • a statement, if required by the state, that the decision of the insurer can be reviewed by the Department of Insurance?                                                                 Yes      No
  • a statement that if the insured has additional information or evidence, not previously disclosed or known to the insurance company that would support recovery, to immediately provide that information to the company so that it may consider and investigate the new facts? Yes  No
  • Settlement Offers

If a settlement offer is made, have I:

  • considered the effect on others if they learn I paid a fraudulent claim? Yes      No
  • explained to management the danger of paying a fraudulent claim? Yes      No
  • considered whether the cost of fighting the fraudulent claim is reasonable in light of the settlement offer and the cost of future fraudulent claims seeking settlement? Yes  No

Taking a Fraud Case to Trial

Did I make certain that trial counsel had available documentary evidence that will help prove fraud, including the following:

  • a copy of the policy file? Yes      No
  • a copy of the agent’s file? Yes      No
  • a copy of the police report? Yes      No
  • transcripts of recorded statements from the insured, claimant, and witnesses? Yes      No
  • itemized bills from the insured or claimant? Yes  No
  • accounting information? Yes      No
  • tax information? Yes      No
  • claimant’s computer equipment (e.g., floppy disks, CD‑ROM, or other digital media)? Yes      No
  • Use of an Expert

When you are involved in a potentially fraudulent claim, it is often necessary to call in specialists to complete the investigation.  Before retaining an expert, determine the following:

  • In consultation with claim counsel, have I established whether an expert is needed?                          Yes      No
  • Does the person retained have sufficient knowledge and background in the field? Yes      No
  • Does the expert have appropriate education and/or training? Yes     No
  • Does the expert have hands-on, in-the-field expertise? Yes      No

(A plumber with 20 years experience may be a more effective expert than a mechanical engineer who has never soldered a pipe.)

  • Has the expert testified in court on subjects relating to his or her field?                                                 Yes      No
  • – If yes, how often? ________________________
  • Has the expert published articles in his or her field? Yes      No
  • Has the expert published opinions that have been subjected to peer review by others in his or her field? Yes      No
  • Can the expert write intelligible and understandable reports? Yes      No
  • Have I reviewed reports written by the expert? Yes                 No
  • Have I contacted referees?                               Yes      No
  • Does the person work well with adjusters and SIU investigators?                                                           Yes      No
  • Have I checked with referees?                         Yes      No
  • Does the person have time to do the work promptly and thoroughly?                                                     Yes      No
  • Have I asked the expert about his or her case load?  Yes     No
  • Have I obtained his or her agreement as to when the work will be completed?                                     Yes      No
  • Have I checked with the referees the expert provided to determine if he or she reports promptly?   Yes      No

Will the expert require outside services?  For example:

  • A fire cause investigator may need the assistance of a laboratory? Yes      No
  • A forensic accountant may need to confer with multiple bookkeepers or an actuary? Yes      No
  • An accident reconstructionist may need the services of a computer programmer, a photographer, a pilot, an aerial photographer, etc.? Yes      No
  • An orthopedic physician may need to consult with a psychiatrist? Yes      No
  • Will an attorney be needed? If yes, ask the following questions: Yes      No
  • Does the lawyer—not the law firm—have experience concerning the type of fraudulent claim suspected by the adjuster? Yes      No
  • Do the lawyer’s referees—in his or her company or with other companies (confirm the lawyer’s skill in dealing with this type of claim)? Yes      No
  • Do the lawyer’s other reports, with names redacted to protect the attorney/client privilege, reveal a clear and logical writing style? Yes      No
  • Has the lawyer published any articles or books in his or her field? Yes      No
  • Have the lawyer’s published works been tested by peer review? Yes      No
  • Has the lawyer testified as an expert witness in other fraud cases? Yes      No
  • Have I checked how many cases the lawyer has tried to a verdict before a jury?  Yes     No
  • Before a judge without a jury? Yes      No
  • Have I checked the lawyer’s track record in trial? Yes      No
  • Have I prepared a budget? Yes      No
  • Have I obtained from the expert information that establishes he or she can testify: Yes    No
  • to a proven hypothesis that is subject to being tested, proved, or disproved by scientists engaged in the endeavor?                                                                 Yes      No
  • that accumulation of information is necessary to test the hypothesis utilizing scientifically valid or reliable protocols that follow acceptable scientific standards in the specific field?                                                                      Yes      No
  • As such is the data accurate and verifiable? Yes      No
  • that the information includes:
  • – controls and control groups?             Yes      No
  • – a sample of a statistically adequate size and composition?                                                         Yes      No
  • – a known, acceptable, and identifiable error rate?                                                                          Yes      No
  • that the data avoids bias and clearly identifies variables that can influence the data? Yes      No
  • that the expert has analyzed the data in a way that is scientifically valid or reliable, following acceptable standards within the particular field, and that it is capable of empirical testing and duplication by others? Yes  No
  • that the expert has formed a conclusion that either proves or disproves the hypothesis? Yes      No

Adapted from the soon to be published “Zalma on Insurance Claims – Volume 10” that will appear on Amazon.com soon.

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The Insurance Fraud Deskbook

The Insurance Fraud Deskbook
Author(s):  Barry Zalma
Sponsor(s):  Tort Trial and Insurance Practice Section
Publisher(s):   ABA Book Publishing

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

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

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

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

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

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

Read about this and other insurance books by Barry Zalma at http://zalma.com/zalma-books/

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Insurer Punished Because Client was a Total Boor

Lawyer Suspended for a Year For Abusing Paralegal

This case is only tangentially about insurance. It is really about the problem an insurer finds itself when it insures a lawyer who treats his staff like serfs, harassers his paralegal, and is excessively boorish. The insurer paid $300,000 (its limits) and the lawyer was suspended from practice for a year.

Disciplinary Counsel v. Skolnick, 2018 OHIO 2990, No. 2017-1735, Supreme Court Of Ohio (August 1, 2018)

FACTS

Howard Evan Skolnick, of Cleveland, Ohio, Attorney Registration No. 0061905, was admitted to the practice of law in Ohio in 1993. In a formal complaint filed with the Board of Professional Conduct on May 22, 2017, relator, disciplinary counsel, charged Skolnick with a single violation of Prof.Cond.R. 8.4(h) (prohibiting a lawyer from engaging in conduct that adversely reflects on the lawyer’s fitness to practice law) for verbally harassing his paralegal for more than two years.

Based on the parties’ stipulations and Skolnick’s hearing testimony, the board found that Skolnick had engaged in the charged misconduct and recommended that he be suspended from the practice of law for six months, with the entire suspension stayed on the condition that he engage in no further misconduct. No objections have been filed.

Misconduct

Almost immediately after L.D. began working as a paralegal at Skolnick’s law firm in August 2011, Skolnick began criticizing and verbally harassing her. He hurled insults and called her stupid, dumb, fat, “whorey,” and bitch. Skolnick also called L.D.’s husband a “douche bag” and made fun of her mother, though he had never met her. Uncomfortable with Skolnik’s behavior, L.D. soon began looking for a new job. As she could not afford to leave the firm until she had secured new employment, she responded to over 100 employment advertisements, but her job search was unsuccessful.

Skolnick’s verbal insults and harassment continued throughout L.D.’s nearly two-and-a-half-year tenure with the firm. At some point, L.D. began recording those interactions.

Skolnick sexually harassed L.D. While Skolnick drove L.D. and another female employee to lunch, he remarked that the two women should give him “road head” so that he could rate their performances on a scale from one to ten.

As a result of Skolnick’s harassment, L.D. suffered from anxiety, sleep disturbances, depression, and poor body image. Those symptoms persisted even after she left the firm to take a new job in January 2014. A clinical psychologist who evaluated L.D. the following October reported that her symptoms meet some of the criteria for a diagnosis of posttraumatic stress disorder.

Skolnick stipulated and the board found that his conduct adversely reflected upon his fitness to practice law in violation of Prof.Cond.R. 8.4(h).

Sanction

When imposing sanctions for attorney misconduct, the Supreme Court considers several relevant factors, including the ethical duties that the lawyer violated, the aggravating and mitigating factors listed in Gov.Bar R. V(13), and the sanctions imposed in similar cases.

The parties stipulated and the board found two aggravating factors: Skolnick engaged in a pattern of misconduct and caused harm to a vulnerable employee. As mitigating factors, the board found that Skolnick did not have a prior disciplinary record, presented evidence of his good character, cooperated in the disciplinary process, acknowledged his misconduct, and expressed remorse for his behavior.

Skolnick testified that after receiving a letter from L.D.’s counsel accusing him of sexual harassment, discrimination, and creating a hostile work environment, he agreed to mediate those claims. He never denied L.D.’s allegations and quickly settled her claims for $300,000—the limits of his insurance coverage—to avoid causing her any additional trauma. Skolnick also testified that he hired a human-resource specialist to revise the firm’s employee handbook and to provide sexual-harassment training to himself and his staff.

During L.D.’s two-and a-half-year tenure, Skolnick berated her for her physical appearance, dress, education, and parenting skills. He called her a bitch, a “hoe”, a dirtbag, and a piece of shit, and he told her that he hoped she would die. And because L.D. recorded her interactions with Skolnick on more than 30 occasions, the justices of the Supreme Court had the opportunity to hear Skolnick’s outbursts for ourselves.

In light of the longstanding and pervasive nature of Skolnick’s degrading verbal attacks against his paralegal, we believe that a sanction greater than the stayed six-month suspension recommended by the board is necessary not only to protect the public and the dignity of the legal system but also to deter future misconduct of this nature by Skolnick and other attorneys licensed to practice law in this state.

ORDER

Howard Evan Skolnick is suspended from the practice of law in Ohio for one year, with the final six months of the suspension stayed on the condition that he engage in no further misconduct. If Skolnick fails to comply with the condition of the stay, the stay will be lifted, and he will serve the full one-year suspension.

ZALMA OPINION

Not really an insurance case other than Skolnick was lucky that LD was willing to accept his available policy limits as a settlement. One would expect that he had personal assets.  I would expect that the insurer refused to renew his policy. The punishment, although greater than requested by the disciplinary counsel, was kind.


© 2018 – Barry Zalma

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

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

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

Books from Full Court Press

Insurance Law Deskbook: Learn the insurance basics that are essential to every civil practitioner. The Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, state appellate courts, and foreign courts that have molded the American insurance law, as well as vital explanatory chapters, historical context, form letters, and more.

California Insurance Law Deskbook: California has long led the way when it comes to insurance jurisprudence in the United States, and few know more about California insurance law than Barry Zalma. The California Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. Similar to Barry Zalma’s general Insurance Law Deskbook, this title focuses on the state where the author has long resided and practiced as an expert in California law. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, and California appellate courts, as well as vital explanatory chapters and historical context.

Insurance Bad Faith and Punitive Damages Deskbook: Understand the relationship between insurance, the tort of bad faith, and why punitive damages are awarded to punish insurers. Previously, a person suing an insurance company in the United States could only recover contract damages, but when the tort of bad faith was created by the courts contract law was enormously affected, allowing insureds to sue insurers for both contract and tort damages, including punitive damages. Read a thoughtful analysis of how punitive damages apply in the United States to insurance bad faith suits, and why some states allow judges and juries to award punitive damages against insurers in civil litigation.

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached 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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Property Investigation Checklists

Uncovering Insurance Fraud, 12th Edition


I have worked with Michael H. Boyer as the co-author of the 12th Edition of Property Investigation Checklists: Uncovering Insurance Fraud provides detailed guidance and practical information on the four primary areas of any investigation of suspicious claims and how to use them to defeat attempts at insurance fraud:

• Recognizing suspicious claims

• Proper investigation procedures

• Analysis of laws concerning fraudulent personal and real property claims

• Evaluating and settling claims

The book also examines recent developments in areas such as arson investigation procedures, bad faith, and extracontractual damages. The appendix includes the NAIC Insurance Information and Privacy Protection Model Act.

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Using ERISA Plan Benefits for paying Business Debts Wrongful

Defalcation of ERISA Plan Not Dischargeable

The United States Department of Labor (DOL) obtained a pre-bankruptcy judgment against debtor Michael Harris in federal district court. The judgment provided that, under the Employee Retirement Income Security Act of 1974 (ERISA), Harris breached his fiduciary duty when the company he managed as the chief executive officer (CEO) failed to remit funds withheld from its employees’ paychecks for their health insurance plan. The DOL filed an adversary proceeding in Harris’s Chapter 7 bankruptcy to have that judgment debt declared nondischargeable as a debt for defalcation while acting in a fiduciary capacity under 11 U.S.C. § 523(a)(4). The bankruptcy court granted summary judgment in the DOL’s favor, declaring the debt nondischargeable.

In In re: Michael P. Harris, As surety for Faribault Mills Inc., As surety for Faribault Woolen Mill Company Debtor, U.S. Department of Labor Appellee v. Michael P. Harris, No. 17-1261, United States Court of Appeals For the Eighth Circuit (August 3, 2018) Harris appealed the findings and claimed he could discharge the debt owed to the DOL.

BACKGROUND

Healthcare Plan

In 2001, Harris became CEO, President, and Chairman of the Board of Directors of Faribault Woolen Mills Company (“Faribault”), a blanket manufacturer. He owned 0.3 percent or less of Faribault’s outstanding stock and had common options.

Faribault sponsored the Faribault Woolen Mills, Inc. Fully Insured Hospital Life Welfare Plan (“Plan”) to provide health insurance for its employees. The Plan contracted with HealthPartners Health Insurance Company (“HealthPartners”) to provide healthcare benefits for Plan participants. Employee contributions funded 100 percent of the health insurance premiums. The premiums were due to HealthPartners on the first of every month to provide insurance coverage for that month. Faribault withheld the health insurance premiums from the employee-participants’ paychecks and then remitted the amount owed to HealthPartners from its general operations account on the first of each month. (Faribault also paid its general corporate expenditures from the same general operations account.) Harris knew that the payments were due monthly.

On at least two occasions in 2008—January 29 and November 26—Faribault issued checks to HealthPartners that Harris had signed that were subsequently returned by Faribault’s bank to HealthPartners due to insufficient funds. Following the return of those checks, Faribault ultimately remitted payment of the insurance premiums to HealthPartners without loss of Plan insurance coverage.

Faribault issued a check on January 27, 2009, signed by Harris, to HealthPartners for $22,593.02 to pay Plan premiums owed for January 2009. That check also bounced. In a letter dated February 28, 2009, HealthPartners advised it would cancel the Plan if Faribault did not pay in full.

Meanwhile, on February 27, 2009, Faribault issued a check that Harris signed to HealthPartners for $19,466.91 to pay the February 2009 Plan premiums. HealthPartners returned the February 27 check to Faribault. In an accompanying letter dated March 3, 2009, HealthPartners informed Dorr, Faribault’s CFO, that it would accept only wire payments due to Faribault’s prior insufficient-funds checks.

When Faribault did not remit the overdue payments, HealthPartners canceled the Plan’s insurance policy on April 1, 2009, retroactive to January 31, 2009, due to non-payment of premiums. Faribault thus never remitted $55,040.61 withheld from its employees’ paychecks for insurance premiums from January 9, 2009, to March 20, 2009. Also, from January to March 2009, Faribault issued checks to other creditors from the general operations account containing commingled Plan premiums.

District Court Proceedings

On December 12, 2012, the DOL filed a complaint against Harris in federal district court, alleging that he violated ERISA. Specifically, the DOL asserted Harris failed to remit the $55,040.61 in withheld employee earnings to pay for the Plan’s healthcare premiums to HealthPartners. The DOL alleged that Harris’s failure to use the employees’ withheld wages to pay the HealthPartners premium breached his duty of loyalty to the Plan participants, in violation of ERISA § 404(a)(1)(A), 29 U.S.C. § 1104(a)(1)(A).

Following a bench trial, the district court held that Harris breached his fiduciary duty of loyalty under ERISA. The district court first determined that Harris acted as an ERISA fiduciary. According to the court, the amounts withheld from Faribault employees’ paychecks for Plan premium payments became “‘plan assets,’ and they became so as of the date on which the employees’ wages were paid (i.e., the date on which the employees’ contributions were withheld).”

Second, the district court found “that Harris breached his duty of loyalty to the Health Plan by failing to remit plan assets to the Health Plan and instead using those assets to pay corporate creditors and personal expenses.”

The district court determined that Harris’s fiduciary breach caused the $55,040.61 in losses that the Plan suffered. The court characterized the evidence as showing “that an amount of money significantly higher than the amount of premiums that was due to HealthPartners was removed from the account from which premiums were paid and was neither paid to HealthPartners nor returned to the employees, but instead was used to pay other corporate expenses or debts.” The district court found Harris liable to the Plan for $55,040.61 in restitution and, with prejudgment interest, awarded a total of $67,839.60. Harris did not appeal.

Bankruptcy Proceedings – 1. Bankruptcy Court

Harris sought bankruptcy to avoid the debt to the DOL who then filed an adversary proceeding in Harris’s Chapter 7 bankruptcy to have the judgment debt declared nondischargeable. The DOL wanted Harris’s debt to be considered the result of defalcation while acting in a fiduciary capacity under 11 U.S.C. § 523(a)(4).

The DOL moved for summary judgment, arguing that (1) the collateral-estoppel doctrine gave preclusive effect in the bankruptcy case to the district court’s factual and legal determinations, and (2) Harris’s debt was nondischargeable because it arose from “defalcation while acting in a fiduciary capacity” based on those factual and legal determinations.

The bankruptcy court granted summary judgment in the DOL’s favor, declaring the debt nondischargeable.

Finally, the bankruptcy court determined that Harris had committed defalcation under § 523(a)(4). According to the court, “several undisputed facts suggest that [Harris] was willfully blind to a substantial and unjustifiable risk that his conduct will turn out to violate a fiduciary duty, thereby qualif[ying] his conduct as defalcation under section 523(a)(4).”

The bankruptcy court thus held that Harris’s ERISA judgment debt was nondischargeable under § 523(a)(4).

Bankruptcy Appellate Panel

The BAP first determined that the money withheld from the employees’ paychecks constituted a trust res because “Faribault was holding funds that actually belonged to someone else . . . and it had a duty to use the employees’ money to make the premium payments.”

The BAP determined that Harris committed defalcation as to the Plan funds based on the undisputed facts. Specifically, the BAP concluded that Harris acted either intentionally or with gross recklessness under § 523(a)(4).

Harris’ failure to offer a justifiable reason for his decision not to use the remaining funds for the benefit of the employees for whom they were held in trust, the BAP held that the Bankruptcy Court properly concluded that there was no genuine issue of material fact as to his intent, and that DOL was entitled to judgment as a matter of law.

DISCUSSION

Harris argued that, based on the undisputed facts, he was not acting in a fiduciary capacity under § 523(a)(4) when the alleged defalcation occurred.

Fiduciary Capacity

Here, Harris does not challenge the district court’s factual findings that (1) “a plan asset was created once employee funds were withheld for insurance payments on January 9, 2009, and that, since [Harris] had authority regarding those assets, he was an ERISA fiduciary,” and (2) Harris “exercised authority over the plan assets in March of 2009.”

The stipulated facts, as well as the unchallenged facts found by the district court, show that Harris exercised control over Plan assets before he diverted any employee contributions; therefore, the fiduciary relationship preexisted the debt.

Accordingly,the appellate court affirmed the bankruptcy court’s conclusion that Harris had fiduciary obligations regarding the funds that had been withheld from wages for payment to HealthPartners.

Defalcation

Defalcation under § 523(a)(4) requires “a culpable state of mind” with a “knowledge of, or gross recklessness in respect to, the improper nature of the relevant fiduciary behavior.”

Harris knew he had an obligation to remit the withheld employee contributions to HealthPartners but instead chose to prioritize payments of corporate expenses and creditors, including payments on his own personal line of credit.

Harris was not in contact with Faribault’s employees about the health insurance premiums; they had no knowledge that Faribault had fallen behind in paying those premiums. Harris prioritized bills in his own favor, paying his own line of credit before paying anything toward the health insurance premiums

Harris misused the Plan’s assets for his own and Faribault’s purposes. Harris committed defalcation in late March 2009 when he chose to use plan assets to pay himself and other corporate expenses instead of remitting those assets to HealthPartners.

ZALMA OPINION

What Harris did as an ERISA fiduciary was evil. He took money from his employees, held it for his own purposes, paid company bills with it, and then, with utmost “chutzpah” sought to discharge the debt with bankruptcy. It is amazing to me that the court did not refer him to the Department of Justice for prosecution of his act of theft and defalcation of funds belonging to the ERISA Plan.


© 2018 – Barry Zalma

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

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

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

Books from Full Court Press

Insurance Law Deskbook: Learn the insurance basics that are essential to every civil practitioner. The Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, state appellate courts, and foreign courts that have molded the American insurance law, as well as vital explanatory chapters, historical context, form letters, and more.

California Insurance Law Deskbook: California has long led the way when it comes to insurance jurisprudence in the United States, and few know more about California insurance law than Barry Zalma. The California Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. Similar to Barry Zalma’s general Insurance Law Deskbook, this title focuses on the state where the author has long resided and practiced as an expert in California law. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, and California appellate courts, as well as vital explanatory chapters and historical context.

Insurance Bad Faith and Punitive Damages Deskbook: Understand the relationship between insurance, the tort of bad faith, and why punitive damages are awarded to punish insurers. Previously, a person suing an insurance company in the United States could only recover contract damages, but when the tort of bad faith was created by the courts contract law was enormously affected, allowing insureds to sue insurers for both contract and tort damages, including punitive damages. Read a thoughtful analysis of how punitive damages apply in the United States to insurance bad faith suits, and why some states allow judges and juries to award punitive damages against insurers in civil litigation.

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached 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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Insurance Law Books by Barry Zalma at Discounted Prices

“Insurance Law”

Quick Overview

Insurance Law is the most comprehensive, and yet practical, Product Detailsinsurance law authority available today. Written by nationally-renowned insurance coverage expert Barry Zalma, an insurance coverage attorney, consultant, expert witness and blogger, Insurance Law introduces the new insurance professional to the fundamental principles of insurance and provides the experienced litigator analyses of today’s leading insurance law decisions nationwide.

Insurance Law is the most comprehensive, and yet practical, insurance law authority available today.

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

In addition to case law, the author has provided countless citations to relevant statutory, regulatory, and judicial sources which are guaranteed to kickstart your research.

Price Reduced from $196- Send Check for $75.00 to ClaimSchool, Inc., 4441 Sepulveda Blvd., Culver City, Ca 90230 and the book will be mailed to you.

Mold Claims Coverage Guide

Today, mold claims are common, but they continue to grow in complexity, involving not only property damage but bodily injury as well. Mold-related lawsuits have dramatically increased over the past few years, and tProduct Detailshe numbers continue to rise. Coverage requirements—and related issues—can be complicated and confusing.  This resource will remove the complexity and allow the insurer, insured, property owner or developer and their counsel to deal with mold quickly and effectively and, if possible, avoid unnecessary litigation.

Price Reduced – Send Check for $50.00 to ClaimSchool, Inc., 4441 Sepulveda Blvd., Culver City, Ca 90230 and the book will be mailed to you.

Construction Defects Coverage Guide

This insightful and practical two volume resource was envisioned anProduct Detailsd written by nationally renowned expert Barry Zalma, and it thoroughly explains how to identify construction defects and how to insure, investigate, prosecute, and defend cases that result from construction defect claims.

Construction Defects Coverage Guide was designed to help property owners, developers, builders, contractors, subcontractors, insurers, and lenders, as well as their risk managers and lawyers rapidly resolve construction defect claims when they arise and avoid construction litigation.  If litigation becomes necessary it will help the prosecution or defense of construction defect suits effectively.

Price Reduced from $196 – Send Check for $75.00 to ClaimSchool, Inc., 4441 Sepulveda Blvd., Culver City, Ca 90230 and the book will be mailed to you.

Insurance Claims: A Comprehensive Guide

Insurance contracts and clauses are specific in nature—but the manner in which insurance claims are pursued and resolved can be remarkably different.  Mistakes in handling a claim can undermine the outcome—and ultimate value—of the claim itself.

Insurance Claims: A Product DetailsComprehensive Guide is the one resource that enables insurance professionals, producers, underwriters, attorneys, risk managers, and business owners to successfully handle insurance claims from start to finish—employing proven, practical techniques and best practices every step of the way.

Price Reduced from $196 – Send Check for $75.00 to ClaimSchool, Inc., 4441 Sepulveda Blvd., Culver City, Ca 90230 and the book will be mailed to you.

For details about these and other books by Barry Zalma go to http://zalma.com/zalma-books/

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Be Careful When Trying to Rescind in Illinois

Increase in Premium Without Actual Evidence of an Increased Risk Defeats Rescission

Rescission is an equitable remedy that allows an insurer who is deceived into issuing an insurance policy to declare it void from its inception. However, the law of rescission is applied differently in different states. For example, in Illinois, in Direct Auto Insurance Company v. Andrew Koziol, No. 1-17-1931, 2018 IL App (1st) 171931, Appellate Court Of Illinois First Judicial District Fifth Division (August 3, 2018) Direct Auto Insurance Company (DAI) appealed from orders of the trial court which denied its motions for summary judgment and reconsideration, and entered judgment in favor of defendant Andrew Koziol based on stipulated facts in a declaratory judgment action.

BACKGROUND

DAI filed a declaratory judgment action to determine whether it owed coverage to Koziol for a claim arising out of an accident on July 21, 2013, when a vehicle operated by Koziol came into contact with a utility pole. The car that Koziol was driving, a 2008 Dodge Charger, was insured by DAI under a policy taken out by Koziol on April 8, 2013.

DAI filed a declaratory judgment action seeking a declaration that it did not owe coverage to Koziol based on an alleged material misrepresentation on his application for insurance coverage with DAI that was discovered during its investigation of the accident. DAI alleged in its complaint that the material misrepresentation made the policy void ab initio.

DAI filed a motion for summary judgment, raising many of the same allegations it stated in its initial complaint. In the motion, DAI argued that during the course of the claims investigation into Koziol’s accident, DAI learned that Koziol failed to disclose the existence of a 2002 Ford Explorer XLS that was registered to, and kept at, his home address by his parents at the time of his electronic insurance application which was submitted through his agent, Insure on the Spot. Additionally, DAI contended in its motion that Koziol falsely responded to the following question on his insurance application: “Any other cars in the household other than those listed on the application?” Koziol answered “no.”

The DAI policy also contained a statement regarding “fraud and misrepresentation.”

Rosa Miranda, DAI’s Underwriting Manager, submitted an affidavit in support of the motion for summary judgment in which she averred that “had DAIC been advised that Koziol had additional vehicles residing at his household at the time of his application, such information would have affected the rating or the acceptability of the risk under the policy.” DAI contended that had Koziol’s omission been disclosed, the policy would have been issued with a substantially higher premium (specifically a $477 increase).

In his response to DAI’s motion for summary judgment, Koziol contended that the decision in Direct Auto Ins. Co. v. Beltran, 2013 IL App (1st) 121128 applied. He contended that his parents resided in the same building, not the same unit and that the information had been clearly disclosed and that they were specifically excluded from the policy. Koziol further noted that DAI only claimed that this information would have raised his insurance rate, not erase liability for coverage for the vehicle that DAI insured.

In its written memorandum opinion and order of September 15, 2016, the trial court cited the two-prong test from Beltran, 2013 IL App (1st) 121128, for determining whether, under section 5/154, the policy may be rescinded where there has been a misrepresentation. Under the test, the trial court was required to determine whether the statement was false and whether Koziol intended to deceive DAI on his insurance application or the statement materially affected the acceptance of the risk or hazard assumed by the insurer.  The trial court concluded that at minimum, there was a material issue of fact regarding whether Koziol had intent to deceive when he omitted his parents’ vehicle from the application to insure his 2008 Charger.

The trial court concluded that because DAI presented no evidence as to how the additional people residing with Koziol along with the additional vehicle actually increases the risk being insured against and Miranda’s affidavit was insufficient, that DAI had failed to demonstrate that there was a material misrepresentation.

Subsequently, DAI and Koziol agreed to resolve the consolidated action without a full trial. On July 28, 2017, the trial court entered a written stipulation and judgment order.  Judgment was entered in favor of Koziol on DAI’s declaratory judgment and Koziol’s remaining counter-complaint. The parties further agreed and stipulated, and the trial court found, that the value of Koziol’s claim was $11,573.55, and judgment was entered in favor of Koziol and against DAI for that amount.

ANALYSIS

Entry of Judgment for Koziol

DAI next contends that the trial court erred in entering judgment for Koziol based on its interpretation of the Beltran decision. DAI restates its argument raised on its motion to reconsider before the trial court, namely that there would have been a 35% increase in premium had the 2002 Ford been disclosed on the insurance application, thus Koziol’s misrepresentation was material and authorized rescission under the Code.

Section 154 of the Code states as follows, in pertinent part: “No misrepresentation or false warranty made by the insured or in his behalf in the negotiation for a policy of insurance, or breach of a condition of such policy shall defeat or avoid the policy or prevent its attaching unless such misrepresentation, false warranty or condition shall have been stated in the policy or endorsement or rider attached thereto, or in the written application therefor. No such misrepresentation or false warranty shall defeat or avoid the policy unless it shall have been made with actual intent to deceive or materially affects either the acceptance of the risk or the hazard assumed by the company. * * * ”

Section 154 establishes a two-prong test for determining if the policy may be rescinded. Under the first prong, the statement must be false; and under the second prong, the statement must have been made with an actual intent to deceive or either the statement must “materially affect the acceptance of the risk or hazard assumed by the insurer.” The Illinois supreme court has interpreted section 154 as permitting rescission for an innocent misrepresentation if it materially affects the insurer’s acceptance of the risk.

A material misrepresentation in an application for insurance is a statement of something as a fact which is untrue and affects the risk undertaken by the insurer. Whether an insured’s statements are material is determined by whether reasonably careful and intelligent persons would have regarded the facts stated as substantially increasing the chances of the events insured against, so as to cause a rejection of the application

In establishing the materiality of a misrepresentation, an insurer may rely on the underwriter’s testimony or the testimony of its employees.

In this case the appellate court concluded that there was very little evidence presented by DAI to satisfy the two-prong test of section 154.

There is no dispute that Koziol failed to disclose his parents’ 2002 Ford vehicle in his application for insurance with DAI for his 2008 Charger. There is also no dispute that the vehicle was separately insured by a different insurance company (State Farm). Nor is there any dispute that had DAI known of the additional vehicle, it would have charged Koziol an additional $477 for his premium.

Here, as in Beltran, DAI has again presented nothing in its pleadings and affidavits to support its conclusion that additional people residing with Koziol who were not drivers of the 2008 Dodge, the DAI-insured vehicle, along with the additional vehicle, which was insured by another carrier and not driven by Koziol, actually increased the risk being insured against. Thus, there was no evidence presented, except for the increased premium, as justification for the rescission and the court concluded that the omission of the additional vehicle was not a material misrepresentation as contemplated by section 154 of the Code.

The court of appeal concluded that an increase in premium, standing alone, without any actual evidence of an increased risk to the insured, is insufficient to justify rescission of an automobile insurance policy under section 5/154 of the Code.

ZALMA OPINION

Usually, an increase in premium because of a false statement or concealment of a fact, should be sufficient to support a rescission. This $11,500 case has changed the law and concludes that just an increase in premium is not enough to support rescission. It should have been obvious to the court that the existence of another car in the location could increase the risk faced by the insurer and that is why they asked the question in the application. The insurer needed to explain why the premium was increased.


© 2018 – Barry Zalma

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

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

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

Books from Full Court Press

Insurance Law Deskbook: Learn the insurance basics that are essential to every civil practitioner. The Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, state appellate courts, and foreign courts that have molded the American insurance law, as well as vital explanatory chapters, historical context, form letters, and more.

California Insurance Law Deskbook: California has long led the way when it comes to insurance jurisprudence in the United States, and few know more about California insurance law than Barry Zalma. The California Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. Similar to Barry Zalma’s general Insurance Law Deskbook, this title focuses on the state where the author has long resided and practiced as an expert in California law. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, and California appellate courts, as well as vital explanatory chapters and historical context.

Insurance Bad Faith and Punitive Damages Deskbook: Understand the relationship between insurance, the tort of bad faith, and why punitive damages are awarded to punish insurers. Previously, a person suing an insurance company in the United States could only recover contract damages, but when the tort of bad faith was created by the courts contract law was enormously affected, allowing insureds to sue insurers for both contract and tort damages, including punitive damages. Read a thoughtful analysis of how punitive damages apply in the United States to insurance bad faith suits, and why some states allow judges and juries to award punitive damages against insurers in civil litigation.

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached 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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Five True Crime Stories About Insurance Fraud

Fictionalized True Crime Books from Barry Zalma’s Insurance Claims Practice

Over the last 50 years I have worked in insurance I have run up against some rather evil people and some just plain difficult insurance criminals. The five books are true stories where the names and places were changed to protect the guilty.

“Candy and Abel: Murder for Insurance MoneyProduct Details

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

Available as a Kindle Book.

Available as a paperback.

“Murder And Insurance Fraud Don’t Mix”

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

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

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

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

Available as a Kindle book.

Available as a paperback

Murder & Old Lace: Solving Murders Performed for Insurance Money

 

Product Details

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

Available as a Kindle book.

Available as a paperback.

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

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

Available as paperback.

Available as a Kindle Book.

M.O.M. & The Taipei Fraud: How an Experienced Adjuster Defeated a $7 Million Fake Burglary Claim

 

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

 

Available as a paperback.

Available as a Kindle book.

Read about these and other insurance books by Barry Zalma at http://zalma.com/zalma-books/

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Lawyer Failed to Properly Protect Himself with Malpractice Insurance

Lawyer did not Read his Malpractice Policy

I have purchased legal malpractice insurance for more than 30 years. Each year my broker made me read and respond to all the questions on the policy application, advised me of the coverages available and obtained for me the insurance I ordered. We have a good business relationship but since I am an insurance coverage lawyer I never relied upon any special relationship I had with my agent. Many lawyers believe they will never be sued for malpractice and, as a result giver perfunctory attention to the acquisition of insurance. Those of us who understand reality take great care in acquiring a policy.

In Kenneth Perreault v. AIS Affinity Insurance Agency Of New England, Inc., No. 17-P-1139, Appeals Court of Massachusetts (August 2, 2018) attorney Simon Mann (Mann) dealt with his malpractice insurance as an afterthought.

FACTS

Kenneth Perreault, sued his former attorney, Simon Mann, for legal malpractice. Mann settled with Perreault and, as part of the settlement, assigned his rights against his malpractice insurance provider, Liberty Insurance Underwriters, Inc. (Liberty), and its broker, AIS Affinity Insurance Agency of New England, Inc. (AON), to Perreault. Perreault then brought a claim against AON for negligence, breach of contract. Perreault appealed from the grant of summary judgment in favor of AON. At issue is whether Perreault presented sufficient evidence from which a finder of fact could conclude that a special relationship existed between Mann and AON, such that AON had a duty to make certain that Mann had adequate malpractice liability insurance to cover all of Mann’s work as an attorney.

  1. Legal malpractice insurance policies.
    1. There are three relevant insurance policies, covering three firms with which Mann was involved during the relevant time period. All of these policies were “claims made and reported” policies. The parties agree that coverage was available only when both the alleged misconduct and resulting claim arose during a policy period.
      1. A&G policy. In 2006, Mann was an associate at the law firm of Arnowitz & Goldberg (A&G). He did not review the A&G policy, did not discuss the policy with Arnowitz or Goldberg, and had limited communication with AON regarding the A&G policy.
      2. AGM policy. In 2007, Arnowitz, Goldberg, & Mann LLC (AGM) was formed. Mann, now one of three managing members of AGM, contacted Kathleen Burns at AON in August, 2007, to obtain insurance coverage for AGM. Burns sent Mann an application and helped him fill out pertinent information to complete the application. Although Mann claims that he “relied exclusively on [Burns’s] advice and recommendation as to different types of policies,” Burns did not evaluate AGM’s particular coverage needs and was not asked to provide risk management services or consultation regarding the scope of insurance that AGM might need. AON placed AGM’s malpractice insurance policy with Liberty.
      3. Mann Firm policy. In late December, 2009, Mann left AGM. Mann opened the Law Offices of Simon Mann (Mann Firm) and contacted Burns to obtain a new malpractice policy for the Mann Firm. Mann instructed Burns to purchase a new policy for the Mann Firm with a starting date of January 4, 2010. Mann did not disclose the Perreault claim on the application, but he told Burns that he “needed coverage for all my past work since I first became an attorney in 2006.” On December 15, 2009, Burns responded, “Please make [the AGM policy] payment so that [it] does not cancel so we can offer you prior acts.” Mann then sent AON the AGM policy payment.
    2. On December 24, 2009, Mann sent instructions to Burns via electronic mail message (e-mail) to cancel the AGM policy. On December 28, 2009, Burns responded, “I just need this request on firm letterhead with the date to cancel. Please let the other attorneys know they will not have any coverage. Mann did not purchase extended reporting coverage for the Mann Firm. Immediately thereafter, Burns responded, “We received the request and will cancel the [AGM] policy 12/31.
    3. Commencement of the malpractice action. In March, 2010, Perreault sent a statutory demand letter to Mann. Mann sought coverage for the malpractice action from Liberty. Liberty declined coverage under two of the three policies at issue: The AGM policy because it was cancelled, pursuant to Mann’s request, on December 31, 2009; and the Mann Firm policy because it was not in effect until January 4, 2010, and did not have prior acts coverage before that date, or a tail.
    4. Liberty agreed to provide a defense under the A&G policy. Mann hired new counsel and reached a settlement with Perreault, assigning his rights to any claims against Liberty and AON to Perreault.

ANALYSIS

There is no general duty of an insurance agent to ensure that the insurance policies provide coverage that is adequate for the needs of the insured. However, an insurance agent may acquire a greater duty of investigation, advice, and assistance to an insured by reason of special circumstances.

Factors creating special circumstances include (1) a prolonged business relationship; (2) the complexity and comprehensiveness of the customer’s coverages; (3) the frequency of contact between a customer and agent to attend to the customer’s insurance needs; and (4) the extent to which a customer relies on the advice of the agent by reason of the complexity of the policies

Viewing the undisputed facts in the light most favorable to the plaintiff, no rational finder of fact could conclude that special circumstances existed such that AON owed Mann a duty of care. Although Burns had worked with A&G since 2005, Mann did not have a prolonged business relationship with AON and had no involvement in acquiring or purchasing the A&G professional liability policy. Mann did not communicate personally with AON until 2007, when he sought professional liability coverage for AGM, and then again in 2009, to place the Mann Firm coverage.

Mann’s insurance needs were not complex but, rather, were limited to basic malpractice liability insurance coverage. Burns told Mann that he needed to keep the AGM policy in force if he (or other members of the firm) wanted to be offered prior acts coverage in the future. She did not promise to provide prior acts coverage, advise him regarding eligibility, or advise him regarding his insurance needs.

Mann then departed from the path laid out in Burns’s e-mail and directed that the AGM policy lapse no later than December 31, 2009. He then manually checked a box on the Mann Firm policy application setting the prior acts coverage date of January 4, 2010. He did not request a tail, despite the fact that Burns told him to read the pertinent clause regarding coverage extensions. When Mann received the Mann Firm policy it specifically stated that it had a prior acts date of January 4, 2010. In the absence of a special relationship, Mann was obligated to review the Mann Firm policy before signing.

Summary judgment was properly granted on the negligence claim as a matter of law because Perreault did not demonstrate that there were facts in dispute that would establish a duty running from AON to Mann.

In the absence of a special relationship, there is no merit to Mann’s claim.

ZALMA OPINION

It is axiomatic that a shoemakers children go barefoot. Here, Mr. Mann, as a lawyer failed to do the actions necessary to protect himself and his firm as he would try to protect his clients.


© 2018 – Barry Zalma

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

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

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

Books from Full Court Press

Insurance Law Deskbook: Learn the insurance basics that are essential to every civil practitioner. The Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, state appellate courts, and foreign courts that have molded the American insurance law, as well as vital explanatory chapters, historical context, form letters, and more.

California Insurance Law Deskbook: California has long led the way when it comes to insurance jurisprudence in the United States, and few know more about California insurance law than Barry Zalma. The California Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. Similar to Barry Zalma’s general Insurance Law Deskbook, this title focuses on the state where the author has long resided and practiced as an expert in California law. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, and California appellate courts, as well as vital explanatory chapters and historical context.

Insurance Bad Faith and Punitive Damages Deskbook: Understand the relationship between insurance, the tort of bad faith, and why punitive damages are awarded to punish insurers. Previously, a person suing an insurance company in the United States could only recover contract damages, but when the tort of bad faith was created by the courts contract law was enormously affected, allowing insureds to sue insurers for both contract and tort damages, including punitive damages. Read a thoughtful analysis of how punitive damages apply in the United States to insurance bad faith suits, and why some states allow judges and juries to award punitive damages against insurers in civil litigation.

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached 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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Random Thoughts on Insurance

“Random Thoughts on Insurance Volume V: Digests from Barry Zalma’s Blog: ‘Zalma on Insurance’”

Product DetailsAfter more than 50 years acting as a claims person and insurance coverage lawyer I enjoy reading court decisions concerning insurance. The idea of my blog, Zalma on Insurance, is to find new cases that are interesting to me and then write a summary. Some of the cases reviewed will be important. Some may be of first impression. Others will be totally unimportant. All will be interesting. The following books include the more than 2200 case digests I have written.

The case digests and articles in this book 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.

Available as a Kindle book.

Available as a paperback.

Random Thoughts on Insurance Volume IV

After more than 50 years acting as a claims person and insurance coverage lawyer I enjoy reading court decisions concerning insurance. The idea of this blog is to find new cases that are interesting to me and then write a summary. Some of the cases reviewed will be important. Some may be of first impression. Others will be totally unimportant. All will be interesting.

The case digests and articles in this book 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.

Total Volume IV Available as a Kindle Book

2014-2015 Available as a paperback

2014-2015 Available as a Kindle Book

Random Thoughts on Insurance Volume III: From Barry Zalma’s Blog – “Zalma on Insurance” for the period from August 2013 to February 2015

Since 2010 I have been writing a blog post at least five days a week. Random Thoughts on Insurance Volume III: From Barry Zalma's Blog - "Zalma on Insurance" for the period from August 2013 to February 2015This book is a collection of those posts that reveal my interest in insurance case law. Some of the cases reviewed were important. Some were of first impression. Others will be totally unimportant. All were interesting to me and I hope are interesting to the reader.

Available as a Kindle book.

Available as a paperback.

Random Thoughts on Insurance Volume II: Articles from the blog “Zalma on Insurance” from August 2012 – August 2013

Since 2010 I have been writing a blog post at least five days a week. This book is a collection of those posts that reveal my interest in insurance case law. Some of the cases reviewed were important. Some were of first impression. Others will be totally unimportant. All were interesting to me and I hope are interesting to the reader.

Available as a Kindle book.

Available as a paperback.

Random Thoughts on Insurance – Volume I

Case Digests from Barry Zalma’s blog: “Zalma on Insurance”

Since 2010 I have been writing a blog post at least five days a week. This e-book is a collection of those poRandom Thoughts on Insurance - Volume One: Case Digests from Barry Zalma's blog: "Zalma on Insurance"sts that reveal my interest in insurance case law. Some of the cases reviewed were important. Some were of first impression. Others will be totally unimportant. All were interesting to me and I hope are interesting to the reader. This is the first of Five Volumes.

Available as a Kindle Book.

Available as a paperback.

Read about these and more insurance books by Barry Zalma go to http://zalma.com/zalma-books/

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Exclusion by Endorsement Controls Over Main Policy Wording

Part Time Residence Requires Protection from Water Leaks

Vasilli Katopothis and Francesca Dahlgren (the “Dahlgrens”) own a beach home that flooded in a plumbing accident while they were away. They sued their insurance company for breach of contract when it refused to cover the damage. The district court granted summary judgment in favor of the insurance company based on the plain language of the Dahlgrens’ insurance policy and transferred the claims against the cleaning-and-restoration company to the district court in Delaware for lack of personal jurisdiction.

In Vasilli Katopothis And Francesca Dahlgren v. Windsor-Mount Joy Mutual Insurance Co. And R.W. Home Services, Inc., Doing Business As Gale Force Cleaning And Restoration, No. 16-7132, United States Court of Appeals For The District Of Columbia Circuit (July 31, 2018) the D.C. Circuit Court of Appeal was asked to emasculate an endorsement defeating coverage for a water leak.

FACTS

In May 2000, the Dahlgrens, who reside in the District of Columbia, purchased a beach home in Rehoboth Beach, Delaware, where they spend most of their weekends. At all times relevant to this litigation, the house was a second residence and remained fully furnished with the accessories of daily life, such as furniture, clothes, food, toiletries, and medicine. When not at their beach home, the Dahlgrens routinely left the heat on to prevent the pipes from freezing and asked a friend to check on the house and retrieve the mail. They did not, however, shut off the water supply.

In February 2013, Ms. Dahlgren returned to the beach home to find two inches of standing water throughout the main level and additional water “gushing” from the ceiling overhead. The Dahlgrens had been away for ten days, and, in their absence, a pressurized hot water pipe in the upstairs bathroom had separated at the joint and flooded the house.

The Dahlgrens timely filed an insurance claim with Windsor-Mount to cover the damage from the accident. The insurance company denied the claim because, while they were away, the Dahlgrens had failed to shut off the water where it entered the house.

The Dahlgrens sued Windsor-Mount for breach of contract. The district court determined that the Dahlgrens could not recover under the clear terms of their insurance policy and granted summary judgment against them on that issue.

The Dahlgrens appeal, arguing the district court misconstrued their insurance policy under Delaware law and erroneously transferred the claims against Gale Force.

THE POLICY

The Dahlgrens’ homeowners insurance policy is a twenty-seven page standard contract produced by the American Association of Insurance Services. It provides coverage for damage to both real and personal property resulting from accidental discharge or leakage from the plumbing, subject to specific exclusions. The cover page of the policy also lists a number of endorsements included with the standard contract to amend the terms of coverage. ML-508D is one of those endorsements. ML-508D was approved by the Delaware Insurance Commissioner and printed on a blue sheet of paper to stand out from the rest of the policy.

It reads in full:

ADDITIONAL EXCLUSIONS FOR UNOCCUPIED

RESIDENCES

In addition to exclusions found elsewhere in your policy, if the insured residence is vacant, unoccupied (meaning an absence in excess of 72 hours), or under construction and unoccupied, the insured must:

Maintain heat in the residence and shut off the water supply where it enters the residence. If the residence is heated by a hot water system, the water supply to the heating system must be maintained and the water supply to the rest of the residence must be shut off.

OR

Shut off the water supply where it enters the residence and completely empty liquids from any plumbing, heating, air conditioning system, water heater, or domestic appliance.

If this is not done, we do not pay for loss caused by freezing of or discharge, leakage, or overflow from any plumbing, heating, or air conditioning system or any appliance or other equipment attached to it.

The endorsement required homeowner to either leave the heat on and shut off the water where it enters the house or shut off the water where it enters the house and drain any remaining liquid from the plumbing. Otherwise, ML-508D voids coverage for any damage caused by plumbing discharge, leakage, or overflow.

ANALYSIS

According to Delaware law, “[W]here the language in insurance contracts is unambiguous, the language is given its plain and ordinary meaning.” A contract is only ambiguous when the provisions in controversy are reasonably or fairly susceptible to different interpretations and not simply because the parties do not agree on the proper construction. Where the language of a policy is clear and unequivocal, the parties are to be bound by its plain meaning.

The Dahlgrens cannot recover under the clear and unambiguous terms of their insurance policy. If their house remained unoccupied “in excess of 72 hours,” the Dahlgrens were required to “[m]aintain heat in the residence and shut off the water supply where it enters the residence,” or else the plain language of ML-508D excludes coverage for “loss caused by . . . discharge, leakage, or overflow from any plumbing . . . system.” There is no dispute the Dahlgrens were away from their beach home for ten days and failed to shut off the water supply where it entered the house. There is no question that the damage for which they now seek coverage was caused by flooding from the plumbing.

By definition, endorsements amend the terms of an insurance policy. That’s their very purpose. A policy is not ambiguous or contradictory just because an endorsement amends its provisions.

It does not matter that other exclusions also apply to the Dahlgrens’ house because ML-508D operates in addition to whatever other exclusions exist. By its terms, ML-508D expressly forecloses recovery for all loss associated with plumbing accidents, including damage to real and personal property, unless certain requirements are met.

The D.C. Circuit could see nothing hidden or deceptive about ML-508D. It was written in plain language and listed on the cover page of the insurance policy as an applicable endorsement. And, to further draw attention to its terms, the endorsement was printed on blue paper to stand out from the rest of the policy. Windsor-Mount in no way disguised the endorsement or the conditions it imposed on coverage.

Any reading of the contract results in the conclusion that the purpose of the provision in question is to protect the insurance company from the increased risk that accompanies insuring a house that does not have an occupant. An unoccupied house presents a significant risk that leaking water will go unnoticed for some time, dramatically increasing the likelihood of extensive damage to property. What might be only a minor incident in an occupied house could escalate quickly into major damage if left unchecked, which is exactly what happened in this case.

The Dahlgrens essentially asked the DC Circuit to destroy or twist policy language under the guise of construing it. But creating an ambiguity where none exists could, in effect, create a new contract with rights, liabilities and duties to which the parties had not assented.

ZALMA OPINION

Insurance policies are contracts. When the conditions, limitations or conclusions are clear and unambiguous a court must enforce it since, to do otherwise, would be to rewrite the contract in violation of the U.S. Constitution’s contract provision. Had the Dahlgrens’ read the policy and the clear and unambiguous exclusion they would have turned off the water. Since they did not they appropriately lost their case.


© 2018 – Barry Zalma

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

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

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

Books from Full Court Press

Insurance Law Deskbook: Learn the insurance basics that are essential to every civil practitioner. The Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, state appellate courts, and foreign courts that have molded the American insurance law, as well as vital explanatory chapters, historical context, form letters, and more.

California Insurance Law Deskbook: California has long led the way when it comes to insurance jurisprudence in the United States, and few know more about California insurance law than Barry Zalma. The California Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. Similar to Barry Zalma’s general Insurance Law Deskbook, this title focuses on the state where the author has long resided and practiced as an expert in California law. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, and California appellate courts, as well as vital explanatory chapters and historical context.

Insurance Bad Faith and Punitive Damages Deskbook: Understand the relationship between insurance, the tort of bad faith, and why punitive damages are awarded to punish insurers. Previously, a person suing an insurance company in the United States could only recover contract damages, but when the tort of bad faith was created by the courts contract law was enormously affected, allowing insureds to sue insurers for both contract and tort damages, including punitive damages. Read a thoughtful analysis of how punitive damages apply in the United States to insurance bad faith suits, and why some states allow judges and juries to award punitive damages against insurers in civil litigation.

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached 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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“HEADS I WIN, TAILS YOU LOSE”

“HEADS I WIN, TAILS YOU LOSE”

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

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

Available as a Kindle Book.

Available as a paperback.

Read about this and more insurance related books by Barry Zalma at http://zalma.com/zalma-books/

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Liars Never Prosper

Insured Must Report all Potential Claims or Lose Coverage

Every claims made policy requires, before the policy comes into effect, that the insured report all current claims and potential claims. Failure to disclose a potential claim will invariably cause the insurer to reject a claim reported after the policy came into effect but was know before.

In Alterra Excess & Surplus Co. v. Excel Title Agency, Western American Properties, No. 17-2186, United States Court Of Appeals For The Sixth Circuit (July 26, 2018) an insurance company sold a professional-liability insurance policy to a title and escrow agency, under which the insurance company would not cover claims that were known or foreseeable to the agency at the time of the policy’s inception. The insurance company subsequently declined to pay a claim arising from the agency’s erroneous transfer of an investor’s funds because, before the agency bought the policy, that investor had sent an email threatening to sue the agency for this transfer.

FACTS

Alterra Excess & Surplus Insurance Company sold insurance policies against claims of professional liability. One customer for its services was the Excel Title Agency. On March 22, 2010, Excel submitted an application for professional liability indemnity, in an amount up to $1 million. This policy had a “claims made” period running from April 10, 2010 to April 10, 2011, with a February 15, 2006 “retroactive date,” and covered “damages arising out of or resulting from the performance or failure to perform ‘Professional Services.'”

The one limitation relevant in this appeal is the so-called “Known Circumstances Exclusion,” which excluded coverage for any “‘Professional Service’ performed and those services that should have been performed or were omitted prior to the effective date of the Policy if any ‘Insured’ knew or could have reasonably foreseen that the ‘Professional Service’ could give rise to a ‘Claim.'” Therefore, if before April 10th, 2010 Excel knew or could have reasonably foreseen that Excel would be the subject of a professional-services claim, then Alterra was not obliged to indemnify Excel for that claim.

In the summer of 2008, Excel had accepted large amounts of funds from investors in the real estate schemes of one Corey Howard. Under the plan that Howard had promised to those investors. Excel’s role was to serve as an escrow agent holding investor funds as earnest-money deposits, and then transfer funds to Howard when the properties closed. When Howard was able to acquire only a fraction of the properties he had promised to obtain, Excel on the direction of Howard nonetheless transferred large sums of the investors’ money to Howard, in amounts well in excess of that necessary to pay for the properties that Howard had secured.

Once the investors realized what Excel and Howard had done, they grew distressed. Beginning in September 2008, one investor, the Mt. Tai Asset Management Corp., contacted Excel and Howard to demand the return of the funds it had entrusted to Excel. Two other investors, Hanover Exchange and Lincoln Properties, did the same. All three of these investors ended up suing Howard and Excel; all three suits were resolved, and they are not directly at issue in this appeal.

This suit instead relates to the final investor in Howard’s scheme, Western American Properties (WAP), and its principal, James Perley.  Perley sent the following email addressed to, among others, Howard and three Excel principals—Janel Chipman, Judy Stirnemann, and Jenny Kinnard:

I want you to know that unless suitable inventory or funds are returned by October 22, 2009, I will take all action available against you. There will be no extensions on the 90 days; you have to either deliver the suitable inventory or the money owed to me. … I will begin to proceed with all civil and criminal action, both state and federal, against you, Metro Equity Group, Peter Floratos, Kimiko Leong, Excel Title and Escrow, Janel Chipman, Judy Stirnemann, Jenny Kinnard … among others.

Perley’s demands did not achieve the return of funds he had sought. Instead, on December 10, 2009, WAP and Perley sued for misappropriation of funds in the U.S. District Court for the Central District of California against, among others, Howard, Excel, and the Excel principals. On September 12, 2012, the court granted an unopposed motion for summary judgment against Excel, and subsequently entered judgment against Excel in the amount of $1,546,986. Excel does not contest that it owes this liability to WAP.

ANALYSIS

Alterra, the insurer, responded to the suit by filing the action below, a request for a declaratory judgment that it was not obliged to so pay under the policy. Alterra then moved for summary judgment, and the district court granted that motion. The court below reasoned that Alterra was not required to indemnify Excel if the Known Circumstances Exclusion applied, and Perley’s threats to sue, as well as the similar threats made by other investors, made it clear that Excel did know of or could reasonably have foreseen a claim.

The district court properly granted summary judgment to Alterra. Under the Known Circumstances Exclusion to the indemnification policy—determined by the district court to be unambiguous and unchallenged in this respect by WAP on appeal—Alterra was not obliged to indemnify Excel for any claims known or reasonably foreseeable to Excel on April 10, 2010. That Perley and WAP might sue Excel was clearly such a foreseeable prospect at that time. In December 2009, Perley had followed through on his threat and sued Excel for exactly the things promised in his email.

Even if Excel only possessed the email, however, the clear threat of litigation expressed in the July 28, 2009 email unquestionably made WAP’s  successful suit foreseeable prior to April 2010.

Because WAP’s claims were foreseeable, they are excluded by the policy’s Known Circumstances Exclusion. Michigan law makes clear that a claim by WAP was reasonably foreseeable to Excel. Perley’s email presented to Excel and its principals the very same facts and alleged violations of law forming the claim on which Perely later successfully sued Excel.

Even if the claim had yet to germinate—in the sense that Perley was not filing immediate suit at the time of the email and it was possible that the litigation might not ultimately commence—a claim was at least foreseeable at the time of the email, since all the things necessary for that claim were there.

That Perley suggested that there was a possibility in which he would not bring suit does not mean Excel could not at least foresee that a suit could well occur, since it was entirely foreseeable that the conditions under which Perley would be satisfied might not (and likely would not) be met. The fact that the district court hearing WAP’s subsequent suit against Excel did indeed determine that Excel was liable for its actions.

ZALMA OPINION

There is no conceivable reason to lie to an insurer about a potential claim. It only means the new insurer will exclude that claim and the existing insurer will be required to pay. The lie cost the insured more than a million dollars and the plaintiff lost the ability to collect the judgment since the only reason to sue the insurer was the fact that the insured lacked the assets to pay the judgment.

 


© 2018 – Barry Zalma

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

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

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

Books from Full Court Press

Insurance Law Deskbook: Learn the insurance basics that are essential to every civil practitioner. The Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, state appellate courts, and foreign courts that have molded the American insurance law, as well as vital explanatory chapters, historical context, form letters, and more.

California Insurance Law Deskbook: California has long led the way when it comes to insurance jurisprudence in the United States, and few know more about California insurance law than Barry Zalma. The California Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. Similar to Barry Zalma’s general Insurance Law Deskbook, this title focuses on the state where the author has long resided and practiced as an expert in California law. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, and California appellate courts, as well as vital explanatory chapters and historical context.

Insurance Bad Faith and Punitive Damages Deskbook: Understand the relationship between insurance, the tort of bad faith, and why punitive damages are awarded to punish insurers. Previously, a person suing an insurance company in the United States could only recover contract damages, but when the tort of bad faith was created by the courts contract law was enormously affected, allowing insureds to sue insurers for both contract and tort damages, including punitive damages. Read a thoughtful analysis of how punitive damages apply in the United States to insurance bad faith suits, and why some states allow judges and juries to award punitive damages against insurers in civil litigation.

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached 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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Firestorms and Other Catastrophes

Claims In A Catastrophe

Last year I wrote an article on how to deal with a claim in a catastrophe for the CPA Journal. It is excerpted below with a final link to the full article.

At the request of the editors of the CPA Journal, insurance expert, Barry Zalma updated his blog for the benefit of our readers. In 2008, he wrote this article to help those faced with catastrophic losses. It is reprint 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 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 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. This can be done directly to the insurer or through your insurance agent or broker.
  2. You and the adjuster should establish that there is no unnecessary delay in responding to any fire, fire fighting, 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. You give up nothing by doing so and are only recognizing that the insurer’s investigation of your loss does not waive any of the rights the insurer has under the terms and conditions of the policy.
  6. The adjuster should remind you, immediately of your duties as the insured, to preserve and protect the damaged property and to mitigate the loss with due diligence and dispatch.
  7. The adjuster will advise you of the coverages available and the limits of liability of the policy you purchased.
  8. 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.
  9. 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.
  10. 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.
  11. The adjuster will probably 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.
    2. 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, Homeland Security, or the local fire or police 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.
    4. Keep receipts and have evidence of all expenses incurred after the loss.

Insurance claims require personal attention to detail by you, the insured. You and the adjuster should 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 after moving yourself and your family to a safe place) 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 fire fighting 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’s adjuster 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 initial telephone call and all subsequent telephone calls write a letter or e-mail 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 and a photocopy should be kept. If you use e-mail to communicate keep copies of all e-mails and, when possible, print out each e-mail and response.

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.

If your policy has been destroyed by the catastrophe you can obtain the information needed, and obtain the assistance of, the insurance agent or broker who helped you obtain the policy. If the agent or broker is also a victim of the catastrophe the same information can be obtained directly from the insurer.

By providing the information the agent, the broker and/or the insurer will have the information needed to establish that you, as the insured, 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. Public insurance adjusters are licensed by your state and allowed to charge a percentage of recovery for their fee. As a result, if the public insurance adjuster obtains a settlement for the amount necessary to rebuild your house and replace the contents you will need to use your own funds to cover the reduction in your recovery from the insurer that is paid to the public adjuster.

If you determine a public insurance adjuster would be helpful it is appropriate and necessary 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.

The statutory and regulatory time limits are usually waived in catastrophes and may be impossible to meet with regard to the Northern California wildfires, Hurricanes Harvey and Irma or any other catastrophic event. 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 2017 hurricane season and 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 remaining after the catastrophe.
    1. You should make every effort to point out each item of damage or suspected damage during the walk-through inspection.
    2. You, or your representative, should assist the adjuster in viewing both the damage and the source of the damage;
  2. ask you to submit to a recorded statement;
  3. ask you for the identities of each family member or vendor who can give the adjuster information about the loss;
  4. ask for the recorded statements of the persons identified;
  5. 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
  6. 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 determined at your first meeting. Agreeing to a scope of loss is not presenting a claim nor are you compelled to the scope of loss. As time passes after the catastrophe it is common to find additional losses and damages.

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: (1) the scope does not necessarily list any prices, although prices can be used to describe quality and (2) 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.

You, as the insured, are expected to 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. You need not keep any damaged property that presents a hazard to the health or safety of you, 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. If your photos or videos are electronic be sure to store the records off site, in the cloud, or with entities like DropBox, Box.com, etc.

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 or underinsured 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, statements from family members or friends, GOOGLE, Bing.com, Amazon.com or other internet sources.

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.

Full article available at the CPA journal, https://www.cpajournal.com/2017/09/26/claims-in-a-catastrophe/


© 2018 – Barry Zalma

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

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

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

Books from Full Court Press

Insurance Law Deskbook: Learn the insurance basics that are essential to every civil practitioner. The Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, state appellate courts, and foreign courts that have molded the American insurance law, as well as vital explanatory chapters, historical context, form letters, and more.

California Insurance Law Deskbook: California has long led the way when it comes to insurance jurisprudence in the United States, and few know more about California insurance law than Barry Zalma. The California Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. Similar to Barry Zalma’s general Insurance Law Deskbook, this title focuses on the state where the author has long resided and practiced as an expert in California law. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, and California appellate courts, as well as vital explanatory chapters and historical context.

Insurance Bad Faith and Punitive Damages Deskbook: Understand the relationship between insurance, the tort of bad faith, and why punitive damages are awarded to punish insurers. Previously, a person suing an insurance company in the United States could only recover contract damages, but when the tort of bad faith was created by the courts contract law was enormously affected, allowing insureds to sue insurers for both contract and tort damages, including punitive damages. Read a thoughtful analysis of how punitive damages apply in the United States to insurance bad faith suits, and why some states allow judges and juries to award punitive damages against insurers in civil litigation.

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached 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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Zalma’s Insurance Fraud Letter – August 1, 2018

 


August 1, 2018 

Poor people who get services from state health care agencies like California’s Medi-Cal have little choice from whom they obtain medical and dental services. As a result the providers – who agree to take less than market value for the services – are sorely tempted to cheat so that the earnings are closer to the fair market value.

Natalie Lynn Brindos-Watters was so tempted and, because she gave in to the temptation, she found herself in court being sentence to serve time in prison. In The People v. Natalie Lynn Brindos-Watters, C084769, Court Of Appeal Of The State Of California Third Appellate District (Sacramento) (July 23, 2018) the California Court of Appeal dealt with an appeal after a jury found defendant Brindos-Watters guilty of grand theft, two counts of healthcare insurance fraud, and two counts of submitting fraudulent Medi-Cal claims. The trial court imposed a split jail term on one of the convictions for insurance fraud and stayed the remaining counts.

  Zalma’s Insurance Fraud Letter, Volume 22, No. 15 


  • If you do the Crime, You must do the Time
  • Become a Certified Expert in Corporate Property Insurance and a Certified Expert in Corporate Liability Insurance
  • Barry Zalma Speaks at Your Request
  •  The Maryland Insurance Administration Continues Efforts to Stop Insurance Fraud
  • Insurer ReliaMax Surety Co. Insolvent
  • Good News From the Coalition Against Insurance Fraud
  • Health Insurance Fraud Convictions
  • Restitution Important to Insurer Victims of Crime
  • Other Insurance Fraud Convictions
  • Books by Barry Zalma


    New Insurance Books by Barry Zalma

 
Now available as Kindle or paperback books are the following non-fiction texts for insurance professionals:

  • Insurance Fraud & Weapons to Defeat Insurance Fraud – Volumes One and Two
  • Rescission of Insurance
  • Ethics for the Insurance Professional
  • Random Thoughts on Insurance – A Collection of Blog Posts from Zalma on Insurance)
  • The Insurance Examination Under Oath
  • The Compact Book on Adjusting Liability Claims
  • The Compact Book on Adjusting Property Claims
  • The California Fair Claims Settlement Practices Regulations.
  • The California SIU Regulations.
  • Passover Seder for Americans” An All English – Easy to Perform – Passover Seder Paperback
  • Heads I Win, Tails You Lose
  • Arson for Profit
  • Murder & Old Lace
  • Murder and Insurance Fraud Don’t Mix
  • Candy & Able – Murder for Insurance Money
  • The Runt – a short story
 
Insurance Law Deskbook
California Insurance Law Deskbook
Insurance Bad Faith and Punitive Damages Deskbook
 
Property Investigation Checklists: Uncovering Insurance Fraud, 12th

     * Recognizing suspicious claims
* Proper investigation procedures
* Analysis of laws concerning fraudulent personal and real property claims
* Evaluating and settling claims 

 
The book also examines recent developments in areas such as arson investigation procedures, bad faith, and extracontractual damages.  
 
The appendix includes the NAIC Insurance Information and Privacy Protection Model Act.
Written by Michael H Boyer and Barry Zalma  
Available here. 

See all Barry Zalma Books Available on Amazon here.

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

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.

Are you a lawyer, law firm, independent insurance adjuster or insurer who would you to promote yourself or your firm to more than 200 daily visits by insurance professionals or the more than 2000 subscribers to ZIFL?
If you are, an ad on the blog Zalma on Insurance or Zalma’s Insurance Fraud Letter, to such a selective audience of insurance professionals and management can be more effective than any other form of advertising.
For only $100 a month on the blog or $100 an issue on ZIFL your ad will be permanent and effective.
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The Insurance Examination Under Oath

The Most Effective Tool Against Property Insurance Faud

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

The EUO is a tool used sparingly by insurers in the United States when a thorough claims investigation raises questions about the application of the coverage to the facts of the loss, the potentiality that a fraud is being attempted, or to assist the insured in the obligation to prove to the insurer the cause and amount of loss. Although rarely used the EUO is an important tool needed by insurers when there is a question of coverage.

The Reason for the Examination Under Oath

Courts that construe submission to an EUO as a condition precedent to recovery generally do not require the insurer to prove that it suffered actual prejudice from an insured’s unexcused refusal to submit to an examination. Lorenzo–Martinez v. Safety Ins. Co., 58 Mass. App. Ct. 359, 790 N.E.2d 692, 695–96 (2003). The EUO provides a mechanism for the insurer to corroborate the claim by obtaining information that is primarily or exclusively within the possession of the insured.

The adjuster, the independent adjuster, the Special Investigation Unit (“SIU”) investigator, the independent insurance adjuster and, in complex cases, the attorney retained to represent the insurer questions the person interviewed in a manner similar to a deposition in a legal proceeding. Because of the formality of the proceeding — it includes an oath, and the presence of a certified shorthand reporter — the task of establishing rapport with the person interviewed so that relevant information may be obtained from the insured is more difficult than in an informal interview. Unlike legal proceedings where questions are limited to those seeking a “yes” or “no” or brief answer the EUO seeks narrative responses from the person questioned.

The person taking the EUO, therefore, must be capable of transitioning from lawyer like questions in litigation to the broad, inquisitive, narrative seeking questioning. An EUO should never be conducted as if it is an adversarial activity but merely a fact seeking activity that is directed to the needs of an insurance policy and the need to prove a loss is either compensable or not.

Because the EUO is a tool for gleaning the maximum amount of information the EUO is an effective weapon against insurance fraud. This is because the person taking the EUO is knowledgeable about insurance and insurance law while the person being questioned is only aware of the claim presented and the fraud he or she may be attempting.

Often, however, the purpose of the EUO is not to stop fraud but to allow an insured the opportunity to prove his or her claim of loss in cases where evidence has been destroyed by a casualty or is otherwise unavailable.

The authority to take an EUO is provided by the insurance contract and exists, as a result of statutes, establishing a state mandated fire insurance policy that must be incorporated in every policy in the state that insures against the peril of fire. For example, the New York Standard Fire Policy provides as follows:

The insured, as often as may be reasonably required, shall exhibit to any person designated by this company all that remains of any property herein described and submit to EUO by any person named by this compa­ny, and subscribe the same; and as often as may be reason­ably required, shall produce for examination and copying all books of account, bills, invoices, and other vouchers… (Emphasis added)

Although the EUO is a formal proceeding it is not part of a judicial process. The EUO is not controlled by the rules of civil procedure. In most states it is considered a condition precedent to recovery under a policy of insurance. The EUO is not limited by any statute relating to civil discovery. Some states have enacted regulations that try to limit insurers taking of the EUO and place certain requirements upon the insurer to chill the desire to take an EUO.

An insurer’s right to ask questions at EUO is basically unlimited.

As early as 1884, the U.S. Supreme Court explained the purpose of the EUO, as follows:

The object of the provisions in the policies of insurance, requiring the assured to submit himself to an EUO, to be reduced to writing, was to enable the company to possess itself of all knowledge, and all information as to other sources and means of knowledge, in regard to the facts, material to their rights, to enable them to decide upon their obligations, and to protect them against false claims. And every interrogatory that was relevant and pertinent in such an examination was material, in the sense that a true answer to it was of the substance of the obligation of the assured. A false answer as to any matter of fact material to the inquiry, would be fraudulent. If it made, with intent to deceive the insurer, would be fraudulent. If it accomplished its result, it would be a fraud effected; if it failed it would be a fraud attempted. And if the matter were material and the statement false, to the knowledge of the party making it, and willfully made, the intention to deceive the insurer would be necessarily implied, for the law presumes every man to intend the natural consequences of his acts. No one can be permitted to say, in respect to his own statements upon a material matter, that he did not expect to be believed; and if they are knowingly false and willfully made, the fact that they are material is proof of an attempted fraud, because their materiality, in the eye of the law, consists in their tendency to influence the conduct of the party who has an interest in them, and to whom they are addressed. [Claflin v. Commonwealth Ins. Co., 110 U.S. 81, 3 S.Ct. 507, 28 L.Ed. 76 (1884)] (Emphasis added)

The position taken by the U.S. Supreme Court in Claflin has been upheld by every court that has considered it to date. For example, in Gipps Brewing Corp v. Central Manufacturers Mutual Insurance Co., 147 F.2d 6, 13 (C.A. 7, 1945) the Seventh Circuit stated:

We think there is no escape from the conclusion that these witnesses purposefully refused to answer ques­tions upon EUO which were materi­al to the inquiry. We see no basis for refusal to answer upon the ground that they were controversial or that the answers thereto might have been used for the purpose of impeachment. Such a limitation would seriously impair and perhaps destroy defendants’ right under this provision of the policy.  We would think that defendants had a right to examine as to any matter material to their liability, as well as to its extent. (Emphasis added)

It is well settled in other jurisdictions that noncompliance with a provi­sion in an insurance policy requiring the insured to submit to an EUO precludes recovery by the insured.

The failure to appear at EUO was held to be an absolute defense in Lentini Brothers Moving & Storage Co., Inc. v. New York Property Insurance Underwriting Assoc., 428 N.Y.S.2d 684 (1980) affirmed 51 N.Y.2d 740 (1981). The court stated:

Compliance with the policy provisions is a condition precedent to recovery. No compliance with the provisions as to written proof of loss or sworn examination occurred. Thus, recovery is barred.

Insurers use the right to EUO seldom and only when its investigation requires sworn testimony from an insured to make an intelligent and well-reasoned decision regarding the claim presented. It is an essential tool in those rare cases where fraud is suspected, where there is a coverage issue that requires a finding of the reasonable expectations of the insured, or when there is no other way for the insured to present the proof needed to allow an insurer to determine that an insurer is obligated to indemnify the insured and the extent of the indemnity owed.

“The Insurance Examination Under Oath”

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

Available as a Kindle book.

Available as a paperback. 

Read about this and more insurance books by Barry Zalma at http://zalma.com/zalma-books/

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Rescission of Insurance

Rescission of Insurance

Product DetailsRescission is an equitable remedy as ancient as the common law of Britain. When the United States was conceived in 1776 the founders were concerned with protecting their rights under British common law. They adopted it as the law of the new United States of America modified only by the limitations placed on the central government by the U.S. Constitution approved in 1789. The viability and ability to enforce contracts was recognized as essential to commerce. Courts of law were charged with enforcing legitimate contracts. Courts of equity were charged with protecting contracting parties from mistake, fraud, misrepresentation and concealment since enforcing a contract based on mistake, fraud, misrepresentation or concealment would not be fair. The common law developed rules that courts could follow to refuse to enforce the terms of a contract that was entered into because of mutual mistake of material fact, a unilateral mistake of material fact, the breach of warranty (a presumptively material promise to do or not do something), a material concealment, or a material misrepresentation. The remedy – called rescission – created a method to apply fairness to the insurance contract and allow an insurer to void a contract and allowed courts to refuse to enforce such a contract entered into by misrepresentation or concealment of material facts.

Available as a paperback.

Available as a Kindle book.

Read about this and more insurance books by Barry Zalma at http://zalma.com/zalma-books/

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Appraiser Disqualified for Contingent Fee

Appraiser & Umpire Must be Impartial and Fair

 Appraisal awards, like arbitration awards, are difficult if not impossible to set aside. It is only when the parties fail to disclose conflicts or the appraisers or umpire are found to be biased, the award will invariably be upheld by a reviewing court.

In Copper Oaks Master Home Owners Association, a Colorado corporation v. American Family Mutual Insurance Company,  In The United States District Court For The District Of Colorado, the difficult was established when the court ordered the appraisal award vacated.

FACTS

Copper Oaks Master Home Owners Association (“Copper Oaks”) is the manager of sixteen residential buildings and a pool house located in Lakewood, Colorado. It was the insured on a casualty insurance policy issued by American Family (the “Policy”). The Amended Complaint in this action states four claims: 1) a request for declaratory judgment as to the appraisal process and award; 2) a request to compel an appraisal award in accordance with process specified in the Policy; 3) breach of contract in failing to pay the amounts owed under the Policy; and 4) unreasonable delay in payment.

The appraisal process occurred in this case throughout most of 2016, but in January 2017,the parties announced that they had a dispute over the validity of the appraisal award.

Thereafter, Copper Oaks filed a motion for Partial Summary Judgment  seeking to enforce the appraisal award. American Family responded with a Motion to Vacate Appraisal Award.

Upon consent of the parties, the sufficiency of the appraisal was tried in a multi-day bench trial.

FINDINGS OF FACT

Copper Oaks has a homeowner’s association administered by a Board of Directors (“the Board”). For most of the time pertinent to this case, the Board retained 4 Seasons Management & Realty Group (“4 Seasons”) to manage the property. 4 Seasons assigned this responsibility to Mark Richardson.

On September 9, 2013, Copper Oaks was subject to an afternoon thunderstorm. At the time of the storm, Copper Oaks was insured under the Policy issued by American Family.

Immediately following the storm, Mr.Richardson saw leaves and debris scattered about the complex. He contacted Derek O’ Driscoll of Impact Claim Services, LLC, requesting that Mr. O’Driscoll conduct a free inspection of the building roofs. At the Board meeting in November 2013, Mr. O’Driscoll discussed his roofing evaluations and offered to represent Copper Oaks as public adjuster on its anticipated claim to American Family.

American Family promptly inspected the property and estimated the damage to be $620,979 at replacement cost value (“RCV”). In July 2014, American Family issued a check to Copper Oaks in the amount of $497,765.43, which reflected Actual Cash Value (“ACV”) of the loss – the RCV less depreciation and deductible.

Later that year, Mr. O’Driscoll opined that the Copper Oak’s loss was substantially more than American Family had paid – $3,599,707.13. Mr. O’Driscoll urged the Board to supplement its claim. The Board agreed, and retained 4 Seasons to provide management support services during the anticipated repairs for a contingent fee of 2.5% of any insurance award. Mr. O’Driscoll advised the Board that this fee could be built into the ultimate claim award.

When advised of Mr. O’Driscoll’s estimate of Copper Oak’s loss, American Family retained Madsen, Kneppers & Associates (“MKA”) to appraise the loss. The firm inspected the property and issued a report estimating the total RCV loss at $608,398.49.

Requirements for the Appraisal Process

The Policy sets out the appraisal process to be used in the event that the parties cannot agree on the amount of a loss. The Policy contains no definition of “competent” or “impartial.”

Copper Oaks selected George Keys and his company, Keys Claims Consultants, Inc. (“KCC”) to act as its appraiser. American Family selected James R. Whipple. Mr. Whipple and Mr. Keys then selected Mr. Norton as the umpire.

The parties agreed to proceed in accordance with a Department of Insurance DORA Bulletin that requires that an umpire be “fair, competent and impartial.” To this end, the Bulletin requires the umpire to “remain neutral” and prohibits the umpire from having “any communication with an appraiser” without participation by both parties and/or their representatives.

Keys’ presentation to the Board before his appointment espoused views favorable to insurance policyholders and touted success based upon Mr. Keys’ prior experience as an insurance adjuster, which gave him “the edge” in getting the highest claim awards for his clients.

At the June 2015 Board meeting, Mr. O’Driscoll explained Keys’ Appraisal and Consultant Agreement the agreement required Copper Oaks to pay a fee calculated at “$350.00 per hour plus expenses, not to exceed 10% of the total of the insurance funds received.” It contained no terms specifying what services would be provided, who would perform the services, or any hourly rate other than $350. There was no provision for periodic billing or review of charges incurred. Indeed, only paragraph 5 addressed payment, specifying that KCC would be “paid as a joint payee by the insurance company.”

In the ensuing months, several judicial opinions in unrelated cases involving the same Policy language i) found that Mr. Keys was not sufficiently “impartial,” ii) disqualified him as an appraiser, and iii) vacated appraisal awards where he had been an appraiser.  It does not appear that Mr. O’Driscoll disclosed to the Board that he had a referral arrangement with Mr. Keys, nor that Mr. Mammel and Mr. Keys had a long-standing business and personal relationship.

Although the initial fee agreement called for Keys to bill its services by the hour, subject to a “cap” that ensured that Copper Oaks would never be obligated to keys for more than 10% of the appraisal award, the Court found that, in reality, the parties understood and acted as though the “cap” was simply a promise that Keys would be paid 10% of the appraisal award, similar to O’Driscoll and 4 Seasons’ contingent fees. The Court also found that Copper Oaks never intended to pay Keys on an hourly basis.

In its literal sense, the phrase has a conditional meaning – that payment of the fee is “contingent” upon some specific event (such as a verdict favorable to the person receiving the services) occurring. If that event does not occur, no fee is charged.

Mr. Whipple, Mr. Keys and Mr. Norton agreed to comply with the impartiality and neutrality requirements and required disclosures set forth in the DORA Bulletin.

At no time did Mr. Keys disclose:

  • the existence or terms (including the 10% fee cap) of the initial Appraisal and Consulting Agreement, or that his agreement with Copper Oaks was an amendment agreement that eliminated the fee cap.
  • The existence or contents of court decisions issued during the appraisal process in which courts disqualified Mr. Keys and vacated the appraisal award upon findings of his lack of impartiality and failure to disclose pertinent facts. -AXIS Surplus Insurance Co. v. City Center West LP, 2015CV30453 (Weld County Dist. Ct. Mar. 14, 2016) (# 80-70); – Auto-Owners Ins. Co. v. Summit Park Townhome Ass’n, No. 14-cv-03417-LTB, 2016 WL 1321507, at *3-4 (D. Colo. Apr. 5, 2016); – Church Mutual Ins. Co. v. Broadmoor Cmty. Church, 2015CV32454 (Colo. Dist. Ct. El Paso County July 6, 2016) (# 80-71);
  • That Mr. Keys had a long-standing personal and professional relationship with Mr. Mammel, who was a principal in the lawfirm retained by the Board at the recommendation of Mr. Keys and Mr. O’Driscoll.
  • That Mr. Keys had a long-standing referral relationship with Mr. O’Driscoll.

Whether Mr. Keys and Mr. Norton were “impartial”

The Court found that Mr. Keys was not “fair and competent” because he had a “direct material interest in the amounts determined by the appraisal process” and because he did not disclose “facts that a reasonable person would consider likely to affect the appraisers interest in the amounts determined by the appraisal process.”

Financial interest

The Court also found that Keys’ agreement with Copper Oaks tied Keys’ fee directly to the appraisal award. The parties understood and agreed that Keys’ fee would be fixed at 10% of the final appraisal award, with “hourly” billing being irrelevant.

The percentage cap gave Keys a material interest in the appraisal award preventing him from being “fair and competent” in accordance with the DORA Bulletin, and therefore “impartial” under the Policy.

In addition “the Court finds that Mr. Keys’ partiality resulted in him submitting an inflated appraisal based on assumptions about hail damage for which he had no support. Mr. Keys’ appraised Copper Oaks’ loss at $5,066,238.99, almost 50% greater than the estimate by Copper Oaks’ own public adjuster, Mr. O’Driscoll ($3,599,707.13).” Notably, the conclusion that all building walls were damaged was based on the remarkable proposition that the hail storm in question was able to cause impact damage from at least two opposing directions during the same weather event, rather than along a single storm path.

In addition Mr. Keys’ testimony at the bench trial was often evasive, ambiguous, and largely incredible. In response to many questions by the Court and counsel, Mr. Keys never described any methodology that he used to determine the scope of the hail damage.

The outcome, which the Court found to have been a fundamentally unfair appraisal, can most likely be explained by Mr. Keys’ partiality and material interest in inflating the outcome of the appraisal process.

In conclusion Mr. Keys engaged in actions that rendered him not “fair and competent” and Mr. Norton engaged in actions that rendered him not “fair, competent and impartial.” The Court further found that both engaged in conduct that prejudiced the appraisal process and distorted the final award.

ZALMA OPINION

Insurance appraisers are – in many states – arbitrators who have the same ethical requirements as a judicial officer. For a judicial officer – or an appraiser – to have a financial  interest in the outcome of a case is contumacious, wrong, and unethical.  Mr. Keys – because of his contingent fee situation – has been disqualified in this and many other cases. Parties to insurance claims where appraisal is demanded should be concerned about allowing Mr. Keys or Mr. Norton to serve on an appraisal panel.


© 2018 – Barry Zalma

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

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

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

Books from Full Court Press

Insurance Law Deskbook: Learn the insurance basics that are essential to every civil practitioner. The Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, state appellate courts, and foreign courts that have molded the American insurance law, as well as vital explanatory chapters, historical context, form letters, and more.

California Insurance Law Deskbook: California has long led the way when it comes to insurance jurisprudence in the United States, and few know more about California insurance law than Barry Zalma. The California Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. Similar to Barry Zalma’s general Insurance Law Deskbook, this title focuses on the state where the author has long resided and practiced as an expert in California law. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, and California appellate courts, as well as vital explanatory chapters and historical context.

Insurance Bad Faith and Punitive Damages Deskbook: Understand the relationship between insurance, the tort of bad faith, and why punitive damages are awarded to punish insurers. Previously, a person suing an insurance company in the United States could only recover contract damages, but when the tort of bad faith was created by the courts contract law was enormously affected, allowing insureds to sue insurers for both contract and tort damages, including punitive damages. Read a thoughtful analysis of how punitive damages apply in the United States to insurance bad faith suits, and why some states allow judges and juries to award punitive damages against insurers in civil litigation.

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached 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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Ethics & Insurance

Ethics for the Insurance Professional

Insurance without people who deal ethically and with utmost good faith will always be successful. Insurance personnel who deal with insureds and claimants unethically and with bad faith, should and will fail.

In the new book, Ethics for the Insurance Professional, Barry Zalma presents methods for Insurers and their Personnel to Act with the Utmost Good FaithProduct Details

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

 

Available as a paperback.

Available as a Kindle book.

Read about this and other insurance books by Barry Zalma at http://zalma.com/zalma-books/

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If you do the Crime, You must do the Time

Cheating Government Health Plans Is a Serious Crime

Poor people who get services from state health care agencies like California’s Medi-Cal have little choice from whom they obtain medical and dental services. As a result the providers – who agree to take less than market value for the services – are sorely tempted to cheat so that the earnings are closer to the fair market value.

Natalie Lynn Brindos-Watters was so tempted and, because she gave in to the temptation, she found herself in court being sentence to serve time in prison. In The People v. Natalie Lynn Brindos-Watters, C084769, Court Of Appeal Of The State Of California Third Appellate District (Sacramento) (July 23, 2018) the California Court of Appeal dealt with an appeal after a jury found defendant Brindos-Watters guilty of grand theft, two counts of healthcare insurance fraud, and two counts of submitting fraudulent Medi-Cal claims. The trial court imposed a split jail term on one of the convictions for insurance fraud and stayed the remaining counts.

On appeal, defendant contends the trial court violated her right to due process in abandoning its neutral role through facilitating the admission of prosecution documentary evidence, the prosecutor committed misconduct in closing argument, an instruction on consciousness of guilt was not warranted, and the trial court identified an unwarranted aggravating factor.

FACTUAL BACKGROUND

Defendant had been a licensed dental hygienist authorized to work independently of dental supervision. She ran a business in which she and other independent hygienists (as independent contractors) provided Denti-Cal services at about 17 skilled nursing facilities.

A random audit of defendant’s accounts indicated she was the 12th largest biller in the Denti-Cal program. There were a number of days on which it appeared that she was seeing an extremely large number of patients for any one person to manage and was claiming to treat patients in a single day at facilities 250 miles apart. The auditor thus referred the matter to a criminal investigator.

Pursuant to a warrant, the investigator placed a GPS tracker on defendant’s car. The investigator kept track of defendant’s whereabouts in October and November 2014. The investigator then compared defendant’s billings for that period and determined that neither defendant nor any of her associates had appeared or performed services at the billed facilities. The investigator also identified instances of defendant billing for a higher level of service than was actually provided. The investigator identified roughly $38,000 in overbilling.

After her license was suspended, defendant sought to sell her contracts with facilities to one of her associates and receive a portion of the proceeds earned, which was not lawful. When the associate balked, defendant suggested the associate could launder the money through a third party’s account to conceal the source of payments.

DISCUSSION

Defendant has Forfeited her Claim of Prosecutorial Misconduct

At the conclusion of his argument, the prosecutor alluded to the associate’s testimony about defendant suggesting that the associate could launder Denti-Cal proceeds through a third party in order to pay defendant a share, ending with, “Motive, cavalier attitude, steal with impunity, then try to cover your tracks. [¶] That’s what she’s all about.” Defense counsel did not object.

On appeal, defendant labels this argument “highly prejudicial,” because it invited the jury to convict her based on her bad character, and thus we should address her claim of prosecutorial misconduct even absent objection in the trial court because a limiting instruction on the use of evidence of uncharged crimes was not included in the charge to the jury. Defendant also asserts in off-hand fashion that defense counsel could not possibly have had any tactical reason for failing to object, and thus provided ineffective assistance of counsel.

Failure to lodge a contemporaneous objection and a request for an admonition forfeits any claim of prosecutorial misconduct, except where a defendant affirmatively establishes on appeal that it was irremediable or it was futile to object, with more than a “ritual[ized] incantation” to this effect. Defendant has not established futility on the present record, nor does she particularize the reasons why these statements could not have been the subject of an effective admonition.

Defendant’s attempt to reach the issue under the guise of ineffective assistance of trial counsel fails in two regards:

  1. Direct appeal is almost inevitably the inappropriate forum for establishing that the inherently tactical choice of failing to raise an objection to misconduct fell below reasonable professional standards.
  2. Defendant does not provide anything more than a perfunctory analysis of how the failure to object did not meet objective professional standards. That does not suffice.

If, in fact, trial counsel did not have any strategic basis for failing to object, defendant has a remedy in habeas corpus (if she can establish resulting prejudice).

Instructing on Consciousness of Guilt was not Prejudicial

One associate testified that she could not remember if she ever saw the documents from Denti-Cal that detailed the services for which it was paying. Another associate testified that she never saw them when she worked for defendant, who told her that the statements of benefits listed multiple associates and she did not want them to see each other’s records or patient information.

Based on this testimony, the prosecution sought the instruction on consciousness of guilt from hiding evidence of her fraud. Defense counsel thought this was too tenuous to support the instruction. The trial court agreed to give the instruction, pointing out to defense counsel that he was free to make his objection in the form of argument to the jury.

At great length, defendant argues the evidence was insufficient to support the instruction, and in abbreviated fashion asserts that the “inference it created” of a plan to hide evidence was “inflammatory,” in the absence of which she would have obtained a more favorable result at trial.

The instruction does not “create” an inference. It does not act to a defendant’s detriment. It merely states the obvious proposition that if the jury believed there was evidence of concealment it could draw such an inference if the circumstances warranted it. Thus, even if defendant were correct that the evidence in the present case was insufficient to support the instruction, at worst it was superfluous and immaterial in the face of strong evidence of guilt, and thus not a basis for reversing the judgment.

In preparing to sentence defendant, the trial court recited three additional factors in aggravation not appearing in the probation report. Among these was its express finding that defendant induced others to participate in wrongdoing, premised on the testimony regarding her efforts to persuade her former associate to launder money.

Defendant completely ignores the other two factors that the court identified at the hearing (vulnerability and abuse of a position of trust), as well as the two in the probation report (sophistication and taking a large sum of money). Only a single aggravating factor is necessary to support imposing the upper term, and therefore a more favorable sentence is not reasonably probable in the absence of the allegedly improper factor.

ZALMA OPINION

Ms. Brindos-Watters  was tempted by the ease she found when cheating the government. It was too easy so she became greedy billing for services performed in the same day more than 250 miles apart. It was the greed that got her caught and then, after she was convicted, she had the unmitigated gall to accuse her lawyer of being incompetent and the trial judge of being unfair. The sentence will stand.

 


© 2018 – Barry Zalma

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

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

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

Books from Full Court Press

Insurance Law Deskbook: Learn the insurance basics that are essential to every civil practitioner. The Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, state appellate courts, and foreign courts that have molded the American insurance law, as well as vital explanatory chapters, historical context, form letters, and more.

California Insurance Law Deskbook: California has long led the way when it comes to insurance jurisprudence in the United States, and few know more about California insurance law than Barry Zalma. The California Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. Similar to Barry Zalma’s general Insurance Law Deskbook, this title focuses on the state where the author has long resided and practiced as an expert in California law. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, and California appellate courts, as well as vital explanatory chapters and historical context.

Insurance Bad Faith and Punitive Damages Deskbook: Understand the relationship between insurance, the tort of bad faith, and why punitive damages are awarded to punish insurers. Previously, a person suing an insurance company in the United States could only recover contract damages, but when the tort of bad faith was created by the courts contract law was enormously affected, allowing insureds to sue insurers for both contract and tort damages, including punitive damages. Read a thoughtful analysis of how punitive damages apply in the United States to insurance bad faith suits, and why some states allow judges and juries to award punitive damages against insurers in civil litigation.

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached 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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Comply With California Claims Regulations Before September 1, 2018

The state of California requires that every claims handler, adjuster, claim representative, claim supervisor and claims manager be trained about the California Fair Claims Settlement Practices Regulations and the California SIU Regulations annually, no later than September 1 of each year. In lieu of training the claims person may sign a sworn declaration that he or she has read and understands the regulations. Barry Zalma has written two short books to make compliance with the Regulations easy and understandable.

California Fair Claims Settlement Practices Regulations

A Guide to Insureds, Public Insurance Adjusters, and Lawyers to Properly Investigate and Adjust Insurance Claims

This book was designed to assist insurance personnel who do business in the state of California. It will assist all insurance claims personnel, claims professionals, independent insurance adjusters, special fraud investigators, private investigators who work for the insurance industry, the management in the industry, the attorneys who serve the industry, public insurance adjusters, policyholders and counsel for policyholders working with insurers doing business in California. All insurers doing business in California must comply with the requirements of the Regulations or face the ire of, and attempts at financial punishment from, the CDOI. That punishment is now questionable and limited because some courageous insurers fought the CDOI and succeeded before an administrative law judge who limited the right to punish. Regardless of difficulties in assessing punishment the state of California requires all who are involved in the claims process — even if only tangentially — to be trained with regard claims handling in compliance with the Regulations and attest to completion of such training under oath. To avoid the annual training the claims person can submit a sworn document that avers that he or she has read and understood the Regulations. Reviewing this book and the Regulations set forth below should be sufficient to comply with the training requirements of the Regulations. It is necessary that insurance personnel who are engaged in any way in the presentation, processing, or negotiation of insurance claims in California be familiar with the Regulations. Counsel for insurers and policyholders should also be familiar with the Regulations since they set a minimum standard for claims handling in the state.

Available as a Kindle book.

Available as a paperback.

California SIU Regulations

The State of California Imposes Control on the Investigation of Insurance Fraud

California SIU Regulations: The State of California Imposes Control on the Investigation of Insurance FraudCalifornia SIU Regulations is designed to assist California insurance claims personnel, claims professionals, independent insurance adjusters, special fraud investigators, private investigators who work for the insurance industry, the management in the industry, the attorneys who serve the industry, and all integral anti-fraud personnel working with California admitted insurers to comply with the requirements of California SIU Claims Regulations.

The state of California, by statute, requires all admitted insurers to maintain a Special Investigative Unit (an “SIU”) that complies with the requirements set forth in the Special Investigative Unit Regulations (the “SIU Regulations”) and train all integral anti-fraud personnel to recognize indicators of insurance fraud.

Available as a Kindle Book.

Available as a paperback.

Read about these and other insurance books written by Barry Zalma at http://zalma.com/zalma-books/

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Restitution Important to Insurer Victims of Crime

Restitution Required of Defendant Convicted of Insurance Fraud

California, like most states, requires that a person convicted of a crime against persons or property make restitution to the victims of the crime, including insurance companies as victims of insurance fraud.

In The People v. Cynthia Ann Smith, A153490, Court of Appeal of The State of California First Appellate District Division Five (July 16, 2018) Cynthia Ann Smith pled no contest to workers’ compensation fraud (Ins. Code, § 11760, subd. (a)) and to failure to collect, account, or pay unemployment insurance tax amounts (Unemp. Ins. Code, § 2118.5). The agreed sentence included a requirement that she pay restitution in an amount to be determined by the court. Smith stipulated to restitution amounts awarded to three of four victims. She contested restitution claimed by the fourth victim. Following an evidentiary hearing, the court ordered Smith to pay $14,200 plus interest to that individual.

BACKGROUND

Smith owned and operated a flower shop in Menlo Park. In 2015, a multi-agency task force investigated Smith’s business, which revealed she failed to pay correct workers’ compensation insurance premiums and related payroll taxes over the course of several years. Smith was charged by information with workers’ compensation fraud; insurance fraud; failure to make unemployment insurance contributions; failure to file a tax return, report, or statement with intent to evade tax; failure to collect, account, or pay over required tax amounts; grand theft of labor; and grand theft of personal property.

Pursuant to a negotiated disposition, Smith pled no contest to counts 1 and 14. Under the terms of the plea agreement it was agreed she would not be sentenced to state prison; she would be granted probation with a maximum of 90 days to be served in county jail; all other counts and allegations would be dismissed; the amount of restitution would be reserved and determined by the court; and the court would consider reducing felony counts 1 and 14 to misdemeanors and terminating probation upon full payment of restitution.

At sentencing, the trial court suspended imposition of sentence, placed Smith on formal probation for five years, with terms and conditions including 90 days in county jail and imposition of statutory fines and fees. Smith objected to the restitution report and requested a restitution hearing.

At the hearing, Smith stipulated to restitution amounts awarded to the California Employment Development Department ($41,187 plus interest); to FTD Company ($61,783 plus interest); and to State Farm Insurance Company ($12,998 plus interest) Smith contested amounts claimed by James Waldschmidt. Waldschmidt asserted a restitution claim for over $100,000.

Waldschmidt testified at the restitution hearing that he met Smith in a bar in San Carlos in 2014. She offered him a place to live at her home in Menlo Park, a full-time job as a driver, and a rate of pay starting at $10 per hour. Waldschmidt totaled his work hours weekly and gave Smith a copy of the wage statement. He was never paid and claimed $45,000 for unpaid work and overtime. His calendars and wage statements were admitted into evidence. Waldschmidt acknowledged he never paid Smith any rent, although he had a written lease agreement calling for rent of $800 per month. Waldschmidt also had previously reported to police he was missing $400 in cash he kept in Smith’s home.

The court ordered Smith to pay Waldschmidt $15,000 in restitution for unpaid wages including overtime hours, less an offset of $800 in unpaid rent, for a total of $14,200 plus interest.

DISCUSSION

Smith’s notice of appeal challenges only the “sentence or other matters occurring after the plea.” No cognizable issues relate to Smith’s guilt or to her plea. Her sentence was consistent with the agreed terms of her plea bargain. The only contested element of Smith’s sentence was the restitution order to Waldschmidt.

Victim restitution is mandated by the California Constitution. It is the intent of the Legislature that a victim of crime who incurs any economic loss as a result of the commission of a crime shall receive restitution directly from any defendant convicted of that crime. At a victim restitution hearing, a prima facie case for restitution is made by the People based in part on a victim’s testimony on, or other claim or statement of, the amount of his or her economic loss.

The prosecution and defense appeared to agree Waldschmidt’s records showed a total of 1,119 unpaid hours. Smith’s counsel contended Waldschmidt’s records showed, applying a compensation rate of $10 per hour with $15.00 per hour for overtime, a maximum of $14,560 in unpaid compensation. The court found $10 per hour in base compensation to be the appropriate rate. The People’s calculation of the amount due was $16,365 and conceded a rental offset of at least $800. Despite finding the records “a mess,” the court ultimately set restitution at $15,000, with an $800 rental offset.

A court may use any rational method of fixing the amount of restitution which is reasonably calculated to make the victim whole and which is consistent with the purpose of rehabilitation. Even though the amount was contested, the record does not indicate the court awarded anything in excess of the victim’s actual economic losses. Since no evidence was presented to the contrary the order of restitution was allowed to stand.

ZALMA OPINION

This case makes clear the importance of restitution to every insurer, and every other victim of a crime, and that the insurer, as did State Farm, must demand restitution. Since restitution is ordered as a condition of probation it is usually paid because the failure to do so will result in incarceration.


© 2018 – Barry Zalma

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

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

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

Books from Full Court Press

Insurance Law Deskbook: Learn the insurance basics that are essential to every civil practitioner. The Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, state appellate courts, and foreign courts that have molded the American insurance law, as well as vital explanatory chapters, historical context, form letters, and more.

California Insurance Law Deskbook: California has long led the way when it comes to insurance jurisprudence in the United States, and few know more about California insurance law than Barry Zalma. The California Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. Similar to Barry Zalma’s general Insurance Law Deskbook, this title focuses on the state where the author has long resided and practiced as an expert in California law. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, and California appellate courts, as well as vital explanatory chapters and historical context.

Insurance Bad Faith and Punitive Damages Deskbook: Understand the relationship between insurance, the tort of bad faith, and why punitive damages are awarded to punish insurers. Previously, a person suing an insurance company in the United States could only recover contract damages, but when the tort of bad faith was created by the courts contract law was enormously affected, allowing insureds to sue insurers for both contract and tort damages, including punitive damages. Read a thoughtful analysis of how punitive damages apply in the United States to insurance bad faith suits, and why some states allow judges and juries to award punitive damages against insurers in civil litigation.

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached 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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Needed by Every Adjuster

How to Easily Train Your Claims Staff

Every new adjuster needs to learn about insurance and insurance claims to begin the profession and then how to actually adjust claims. The two compact books provide the basics needed by every first party and third party adjuster. It should be on every insurer’s intranet or at the desk of every adjuster across the country. Priced reasonably any insurance adjusting firm or insurer can afford to have a professional claims staff.

“The Compact Book on Adjusting Liability Claims: A Handbook for the Liability Claims Adjuster”

This Compact Book of Adjusting Liability Claims is designed to Product Detailsprovide the new adjuster with a basic grounding in what is needed to become a competent and effective insurance adjuster. It is also available as a refresher for the experienced adjuster.

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

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

Available as a Kindle book

Available as a paperback.

The Compact Book of Adjusting Property Insurance Claims: A Manual for the First Party Property Insurance Adjuster

The insurance adjuster is not mentioned in a policy of insurance. The The Compact Book of Adjusting Property Insurance Claims: A Manual for the First Party Property Insurance Adjusterobligation to investigate and prove a claim falls on the insured. Standard first party property insurance policies, based upon the New York Standard Fire Insurance policy, contain conditions that require the insured to, within sixty days of the loss, submit a sworn proof of loss to prove to the insurer the facts and amount of loss.

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

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

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

Available as a Kindle book.

Available as a paperback.

Read more about these two books and other insurance books by Barry Zalma at http://zalma.com/zalma-books/

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Michigan Supreme Court Failed to Apply the Wisdom of Solomon

No Fault Policy Rescinded but Court Must Balance Equities Between Two Innocents

When a policy is rescinded in the eyes of the law it never existed. That is so in Michigan except when dealing with no fault auto insurance policies.

No fault insurance policies require payment of the cost of treatment of injuries regardless of fault. When a person is injured, even if he is 100% at fault he will collect under the policy. Insurance contracts, unlike common run-of-the-mill commercial contracts, are considered to be contracts of utmost good faith” and that each party to the contract of insurance is expected to treat the other fairly in the acquisition and performance of the contract. Therefore, when a policy is acquired by fraud the insurer has the right to rescind and declare the policy void from its inception.

In Ali Bazzi, and Genex Physical Therapy, Inc., and Elite Chiropractic Center, PC, and Transmedic, LLC v. Sentinel Insurance Company, and Citizens Insurance Company, and Hala Baydoun Bazzi and Mariam Bazzi, No. 154442, State Of Michigan Supreme Court (July 18, 2018) the Supreme Court of Michigan reached a Solomon-like decision allowing rescission but then sending the case back to the trial court to determine which of the innocent parties – the driver or the injured person – if any, was allowed the benefits.

Plaintiff Ali Bazzi, was injured while driving a vehicle owned by his mother, third-party defendant Hala Baydoun Bazzi, and insured by defendant Sentinel Insurance Company (Sentinel).

The car driven by Ali was insured by a policy obtained by the fraud of his mother, Hala Bazzi.  The court, Lita M. Popke, J., entered a default judgment against Hala and Mariam rescinding the policy. The Supreme Court concluded that an insurer is not entitled to automatic rescission of a policy with regard to a third party even though the policy was procured by the insured through fraud. In this case, Sentinel Insurance could raise the defense of fraud to plaintiff’s action for PIP benefits. The Court of Appeals erred when it concluded that Sentinel Insurance was automatically entitled to rescission of the contract with regard to plaintiff.

Although an innocent third party might have a reasonable right to expect that other drivers have the minimum coverage required by the no-fault act (like PIP benefits), the innocent party does not have an absolute right by operation of law to hold an insurer liable for the fraud of the insured.

In general, fraud in the inducement to enter a contract renders the contract voidable at the option of the defrauded party. Accordingly, an insurance policy procured by fraud may be declared void ab initio at the option of the insurer, with the effect being that the contract is considered never to have existed.  A trial court must balance the equities to determine whether a party is entitled to the rescission the party seeks, and the remedy should not be granted when the result would be unjust or inequitable. In other words, the trial court must determine which party should assume the loss when both parties affected are equally innocent and blameless.

In light of the fact that equity allows complete justice to be done in a case by adapting its judgments to the unique circumstances of each case, an insured’s fraud in an application of insurance does not automatically allow the insurer to rescind the policy with respect to third parties.

RESCISSION IS AN EQUITABLE REMEDY, NOT AN ABSOLUTE RIGHT

Generally, “[f]raud in the inducement to enter a contract renders the contract voidable at the option of the defrauded party . . . .” For that reason, an insurance policy procured by fraud may be declared void ab initio at the option of the insurer. [Barry Zalma, LexisNexis Legal Newsroom, The Equitable Remedy of Rescission: A Tool to Defeat Fraud,  https://www.lexisnexis.com/legalnewsroom/insurance/b/insurancelaw/archive/2015/04/21/the-equitable-remedy-of-rescission-a-tool-to-defeat-fraud.aspx> (posted April 21, 2015) (accessed June 11, 2018) (stating that “[i]nsurance contracts, unlike common run-of-the-mill commercial contracts, are considered to be contracts of utmost good faith” and that “[e]ach party to the contract of insurance is expected to treat the other fairly in the acquisition and performance of the contract”).]

Rescission abrogates a contract and restores the parties to the relative positions that they would have occupied if the contract had never been made.

Accordingly, although the policy between Sentinel and the insured, Mimo Investment is void ab inito due to the fraudulent manner in which it was acquired, the trial court must now determine whether, in its discretion, rescission of the insurance policy is available as between Sentinel and plaintiff.

The Supreme Court ordered that the trial court must determine whether rescission is available as an equitable remedy as between Sentinel and plaintiff.

The Dissent

The dissent argued cogently that it was futile to attempt to balance the equities between innocent third parties.

Rescission of third-party PIP benefits makes financial sense only if the insurer stands to prevent the claimant from receiving PIP benefits entirely, thus reducing the insurer’s proportion of the costs. If the claimant is a third party and otherwise eligible for PIP benefits, such a result is impermissible under the statute. And so the innocent-third-party doctrine is consonant with (or a useful shorthand for) that statutory requirement. The no-fault act is a comprehensive statutory scheme in which the Legislature established a clear intent to mandate PIP coverage for all eligible claimants.

The majority’s decision to permit rescission litigation when that remedy is inconsistent with the Act is a victory only for lawyers. Innocent third parties must be covered one way or another because the statute requires it and the equitable balancing cannot impose a remedy contrary to law. Insurers lose too. Sentinel’s “win” in today’s innocent-third-party rescission litigation will be another insurer’s loss when the MACP assigns it to pick up the tab. Lawyers, on the other hand, have lots of new litigation to pursue.

ZALMA OPINION

The court, trying to please by splitting the baby – as did King Solomon – helped no one and killed the baby. It declared the policy void from its inception as to the named insured but not void as to the permissive driver and the injured party requiring the trial court to determine which should pay. In essence the insurer will always be obligated to pay, even on a void policy, since it will invariably be found to be less innocent than an injured person. The Supreme Court quoted an article I wrote and then refused to follow it by refusing to acknowledge that when a policy is acquired by fraud it is void from its inception as to everyone since it never really existed.


© 2018 – Barry Zalma

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

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

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

Books from Full Court Press

Insurance Law Deskbook: Learn the insurance basics that are essential to every civil practitioner. The Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, state appellate courts, and foreign courts that have molded the American insurance law, as well as vital explanatory chapters, historical context, form letters, and more.

California Insurance Law Deskbook: California has long led the way when it comes to insurance jurisprudence in the United States, and few know more about California insurance law than Barry Zalma. The California Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. Similar to Barry Zalma’s general Insurance Law Deskbook, this title focuses on the state where the author has long resided and practiced as an expert in California law. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, and California appellate courts, as well as vital explanatory chapters and historical context.

Insurance Bad Faith and Punitive Damages Deskbook: Understand the relationship between insurance, the tort of bad faith, and why punitive damages are awarded to punish insurers. Previously, a person suing an insurance company in the United States could only recover contract damages, but when the tort of bad faith was created by the courts contract law was enormously affected, allowing insureds to sue insurers for both contract and tort damages, including punitive damages. Read a thoughtful analysis of how punitive damages apply in the United States to insurance bad faith suits, and why some states allow judges and juries to award punitive damages against insurers in civil litigation.

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached 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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“Insurance Fraud & Weapons to Defeat Insurance Fraud”

“Insurance Fraud & Weapons to Defeat Insurance Fraud” In Two Volumes

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

Insurers and government backed pseudo-insurers can only estimate the extent they lose to fraudulent claims. Lack of sufficient investigation and prosecution of insurance criminals is endemic. Most insurance fraud criminals are not detected. Those that are detected do so because they became greedy, sloppy and unprofessional so that the attempted fraud becomes so obvious it cannot be ignored.

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

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

the effort to stop insurance fraud against Medicare and Medicaid has increased.

Insurance Fraud & Weapons to Defeat Fraud - Volume Two: A Manual for Those Working to Defeat Insurance Fraud by [Zalma, Barry]This book contains appellate decisions regarding insurance fraud from federal and state appellate courts across the country and full text of many insurance fraud statutes.

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

Volume One available as a Kindle book and a paperback.

Volume Two Available as a Kindle book and a paperback

Read about these and other insurance books by Barry Zalma at http://zalma.com/zalma-books/

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No Cover Because Suicide Before Policy’s Second Year Anniversary

Suicide is a Selfish Act That Harms Others

Suicide is an act that harms everyone involved with the person who commits the deadly act. It is never well planned. It is never done to help anyone else. It is designed to make someone else take on the troubles of the suicide and clean up the mess.

In Kim Lauga v. Applied Cleveland Holdings, Inc., Et Al, Civil Action No: 16-14022 Section: “H”(3), United States District Court Eastern District Of Louisiana (July 20, 2018) Glen Lauga was unwilling or unable to wait a few weeks to kill himself so that his widow could collect on the life insurance policy. By not waiting he deprived her of the benefits of the policy.

BACKGROUND

Kim Lauga sued because of the denial of life insurance benefits under a group life insurance policy (“the Plan”) governed by the Employee Retirement Income Security Act of 1974 (“ERISA”). Kim’s husband, Glenn Lauga (“Glenn”), purchased life insurance coverage as part of the benefits offered by his employer, Applied-Cleveland Holdings, Inc. and Applied Consultants, Inc (collectively, “Applied”), and administered by Defendant Metropolitan Life Insurance Company (“MetLife”). The Plan named Plaintiff as the primary beneficiary.

Glenn initially requested the coverage in March 2013 but it did not become effective until August 2013. On July 9, 2015 (23 months and a few days before the policy was in effect two years), Glenn committed suicide. Plaintiff’s claim for benefits under the Plan was denied because the Plan excludes payment in the event that the insured commits suicide within two years of the date the insurance took effect.

The purchase of the life insurance was convoluted with the first attempts starting in February 2013 during the open enrollment period for the March 1, 2013 plan year, Glenn completed Applied’s online enrollment form requesting $400,000 in life insurance coverage. As part of the application, Glenn was required to complete a Statement of Health form. The form instructed the employee to fill in the remainder of the form and send it directly to MetLife. Glenn filled out a Statement of Health form on March 13, 2013. Glenn’s form requested only $200,000 of coverage and was missing information from the Insurance Information section, including his date of hire and annual salary. Glenn submitted the form to Applied. The same day, Applied submitted the form to MetLife, which received it on March 14, 2013.

MetLife’s application process required that Glenn undergo a paramedical exam, which was scheduled by a third-party provider. Glenn’s application was terminated in Applied’s system on June 18, 2013 for the failure to complete a paramedical exam. On July 5, 2013, the paramedical exam was completed. MetLife received the results on July 10, 2013. On July 11, 2013, MetLife approved Glenn for $200,000 of coverage. Glenn’s application to Applied was reinstated on July 18, 2013 upon approval from MetLife. The insurance coverage was given an effective date of August 1, 2013. During the 2015 open enrollment period, Glenn obtained an additional $240,000 in coverage, just a few months before he killed himself by suicide on July 9, 2015.

Plaintiff submitted a claim for life insurance benefits to MetLife on July 10, 2015. MetLife issued a denial of benefits on December 18, 2015 based on the Plan’s two-year suicide exclusion. MetLife completed the administrative appeal of Plaintiff’s claim on June 3, 2016, upholding the denial of benefits. In such an event, the Plan requires that all premiums paid be refunded. MetLife refunded the premiums paid toward Glenn’s coverage in two parts, a check issued to Applied in July 2016 and a credit on Applied’s August 2016 invoice. Applied refunded the premium amounts paid by Glenn to Plaintiff on November 11, 2016.

THE CLAIMS

The Plaintiff sought 1) equitable relief as a remedy for breach of fiduciary duty under 29 U.S.C. § 1132(a)(3) in failing to timely bind coverage at the requested amount; 2) for benefits under the terms of the plan pursuant to 29 U.S.C. § 1132(a)(1)(B), either as reformed following a grant of equitable relief on Claim 1 or as written; 3) for penalties pursuant to 29 U.S.C. § 1132(c)(1) for Defendants’ failure to furnish plan documents upon request; and 4) for attorney’s fees pursuant to 29 U.S.C. § 1132(g)(1).

LAW AND ANALYSIS

Plaintiff’s Claim for Breach of Fiduciary Duty

Plaintiff identifies several equitable remedies available to her: reformation, surcharge, and equitable estoppel. Reformation requires a plaintiff to show either a mutual mistake of both parties or the mistake of one party coupled with fraud or inequitable conduct by the other. Surcharge requires a plaintiff to show that a) the defendant owed the plaintiff a fiduciary duty, b) the defendant breached that duty, c) plaintiff suffered actual harm, and d) defendant’s breach of duty was the cause of plaintiff’s harm. Equitable estoppel requires a plaintiff to prove “(1) a material misrepresentation; (2) reasonable and detrimental reliance upon the representation; and (

Previously, the Court held that the substance of the relief that Plaintiff seeks—redress for the failure of Defendants to timely bind the insurance policy—is equitable in nature and separate from that available under the Plan. Nothing in the evidence submitted changes that conclusion.

Defendant Applied’s Breach of Fiduciary Duty

Plaintiff specifically alleges that Defendant Applied breached its duties to Plaintiff as a Plan fiduciary by: 1) failing to fill in Glenn’s employment start date and salary information on the first Statement of Health form, 2) failing to notify MetLife that Glenn had applied for $400,000 in coverage through the online system, and 3) failing to take corrective measures to bind life insurance in the amount of $400,000 as Glenn originally requested.

Here, Applied did not take on the role of intermediary between the employee and insurance provider, did not make any misrepresentations, and did not perform the function of evaluating whether coverage had been bound. Because Applied was performing a clerical function, rather than exercising discretion, Applied owed Plaintiff no fiduciary duty.

Assuming that nothing else changed and the entire timeline of Glenn’s application moved forward by eight days, MetLife would have approved the coverage on July 3, 2013. In that case, the coverage would still have become effective on August 1, 2013, the first day of the month after the application was approved. Plaintiff argues that the delay was actually 24 days, the time from when Glenn submitted his initial Statement of Health form to when he submitted the complete version.

Defendant MetLife’s Breach of Fiduciary Duty

Plaintiff specifically alleges that Defendant MetLife breached its duties to Plaintiff as a Plan fiduciary by: 1) failing to make a reasonable effort to obtain the missing information on the Statement of Health form, and 2) failing to process the application in a timely manner.

MetLife does not owe a fiduciary duty in the processing of enrollment applications because such an action is clerical, not discretionary. The actions of MetLife were classic clerical functions that do not give rise to a fiduciary duty.

Since Plaintiff admits “there is a complete absence of any evidence of the cause of the delay”  and since Plaintiff bears the burden to establish that MetLife’s conduct caused Plaintiff’s harm, she offered nothing beyond speculation. Accordingly, Defendant MetLife is entitled to summary judgment on Plaintiff’s claim against it for breach of fiduciary duty.

Plaintiff was not successful on any of her claims asserted in this lawsuit.

ZALMA OPINION

It appears, especially since he doubled the limits shortly before the suicide that Glenn intended to have Met Life pay his spouse after his suicide. However, since he did not read the policy, did not wait three or four weeks until the policy was two years old, he not only harmed his spouse by committing suicide his actions deprived her of the benefits of the life insurance policy and got her nothing more than an unsuccessful lawsuit. Suicide, in this case, established that it is a selfish act.


© 2018 – Barry Zalma

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

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

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

Books from Full Court Press

Insurance Law Deskbook: Learn the insurance basics that are essential to every civil practitioner. The Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, state appellate courts, and foreign courts that have molded the American insurance law, as well as vital explanatory chapters, historical context, form letters, and more.

California Insurance Law Deskbook: California has long led the way when it comes to insurance jurisprudence in the United States, and few know more about California insurance law than Barry Zalma. The California Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. Similar to Barry Zalma’s general Insurance Law Deskbook, this title focuses on the state where the author has long resided and practiced as an expert in California law. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, and California appellate courts, as well as vital explanatory chapters and historical context.

Insurance Bad Faith and Punitive Damages Deskbook: Understand the relationship between insurance, the tort of bad faith, and why punitive damages are awarded to punish insurers. Previously, a person suing an insurance company in the United States could only recover contract damages, but when the tort of bad faith was created by the courts contract law was enormously affected, allowing insureds to sue insurers for both contract and tort damages, including punitive damages. Read a thoughtful analysis of how punitive damages apply in the United States to insurance bad faith suits, and why some states allow judges and juries to award punitive damages against insurers in civil litigation.

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached 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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Zalma’s Insurance Claims Library

Insurance Claims Library

The library is now available at an enormously reduced price. To obtain any one or all of the following four books get details from http://zalma.com/zalma-books/ and send a check to ClaimSchool, Inc. for the price stated, more than half off the original publication price.

“Insurance Law

 

Insurance Law is the most comprehensive, and yet practical, Product Detailsinsurance law authority available today. Written by nationally-renowned insurance coverage expert Barry Zalma, an insurance coverage attorney, consultant, expert witness and blogger, Insurance Law introduces the new insurance professional to the fundamental principles of insurance and provides the experienced litigator analyses of today’s leading insurance law decisions nationwide.

Insurance Law is the most comprehensive, and yet practical, insurance law authority available today.

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

In addition to case law, the author has provided countless citations to relevant statutory, regulatory, and judicial sources which are guaranteed to kickstart your research.

Price Reduced from $196- Send Check for $75.00 to ClaimSchool, Inc., 4441 Sepulveda Blvd., Culver City, Ca 90230 and the book will be mailed to you.

“Mold Claims Coverage Guide”

Today, mold claims are common, but they continue to grow in complexity, involving not only property damage but bodily injury as well. Mold-related lawsuits have dramatically increased over the past few years, and tProduct Detailshe numbers continue to rise. Coverage requirements—and related issues—can be complicated and confusing.  This resource will remove the complexity and allow the insurer, insured, property owner or developer and their counsel to deal with mold quickly and effectively and, if possible, avoid unnecessary litigation.

Price Reduced – Send Check for $50.00 to ClaimSchool, Inc., 4441 Sepulveda Blvd., Culver City, Ca 90230 and the book will be mailed to you.

Construction Defects Coverage Guide

This insightful and practical two volume resource was envisioned anProduct Detailsd written by nationally renowned expert Barry Zalma, and it thoroughly explains how to identify construction defects and how to insure, investigate, prosecute, and defend cases that result from construction defect claims.

Construction Defects Coverage Guide was designed to help property owners, developers, builders, contractors, subcontractors, insurers, and lenders, as well as their risk managers and lawyers rapidly resolve construction defect claims when they arise and avoid construction litigation.  If litigation becomes necessary it will help the prosecution or defense of construction defect suits effectively.

Price Reduced from $196 – Send Check for $75.00 to ClaimSchool, Inc., 4441 Sepulveda Blvd., Culver City, Ca 90230 and the book will be mailed to you.

Insurance Claims: A Comprehensive Guide

Insurance contracts and clauses are specific in nature—but the manner in which insurance claims are pursued and resolved can be remarkably different.  Mistakes in handling a claim can undermine the outcome—and ultimate value—of the claim itself.

Insurance Claims: A Product DetailsComprehensive Guide is the one resource that enables insurance professionals, producers, underwriters, attorneys, risk managers, and business owners to successfully handle insurance claims from start to finish—employing proven, practical techniques and best practices every step of the way.

Price Reduced from $196 – Send Check for $75.00 to ClaimSchool, Inc., 4441 Sepulveda Blvd., Culver City, Ca 90230 and the book will be mailed to you.

Details at http://zalma.com/zalma-books/

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