True Crime Videos About Insurance Fraud Number 6

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The Case of the Art Flambé

See the full video at https://rumble.com/vt9q78-true-crime-videos-about-insurance-fraud-number-6.html and at https://youtu.be/en6Lp33YkvM

Barry Zalma, Esq., CFE presents videos so you can learn how insurance fraud is perpetrated and what is necessary to deter or defeat insurance fraud. This Video Blog of True Crime Stories of Insurance Fraud with the names and places changed to protect the guilty are all based upon investigations conducted by me and fictionalized to create a learning environment for claims personnel, SIU investigators, insurers, police, and lawyers better understand insurance fraud and weapons that can be used to deter or defeat a fraudulent insurance claim.

Today’s video explains why a person was driven to try an arson for profit and how the insurer tried to defeat the crime.

When a person decides to perpetrate an insurance fraud, he pushes the pause button on his morality. His plan to commit the fraud will then become so flamboyant and creative that even the most innocent of claims adjusters will detect the crime. Such was the case of a Belgian immigrant. He came to the United States shortly after World War II. He eked out a living with various jobs as a low paid engineering draftsman.

Before he decided to change his career and try arson for profit, he had led a dull, but exemplary, life. He, at the age of sixty, married his second wife. Later they had a child. When the child was three, he contracted phlebitis and underwent several surgeries. He was unable to keep up with his work and, in any event, the aerospace industry had just lost several major contracts. He lost his job.

True Crime Stories

Barry Zalma presents fictionalized True Crime Stories of Insurance Fraud from an Expert who explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers.

The stories help to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the ­­­Perpetrators than any Other Crime.

If the fraud succeeds the insurer must charge more premium to cover the expense of defending the fraud and payment of funds to the fraud perpetrator. If the fraud fails the insurer must charge more premium to cover the expense of defending the fraud. Everyone, except the lawyers, lose.

As you watch the videos I hope they help you understand the effect that insurance fraud has on the perpetrators, the insurers, the people who need insurance, the people who buy insurance, and the people who keep the promises made by insurance policies.Over the last 54 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud.


© 2022 – Barry Zalma

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

Subscribe to “Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe and “Excellence in Claims Handling” at https://barryzalma.substack.com/welcome.

You can contact Mr. Zalma at https://www.zalma.com, https://www.claimschool.com, zalma@claimschool.com and zalma@zalma.com . Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

You may find interesting the podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma;  you can follow Mr. Zalma on Twitter at; you should  see Barry Zalma’s videos on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; or videos on https://rumble.com/zalma. Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claimslibrary/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ 

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Declaratory Relief Action Does not Impinge on State Court Tort Action

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Federal Court Retains Jurisdiction on Insurance Coverage Issue

After an automobile collision in which James Bryant (“Bryant”) was driving a vehicle owned by RSS, LLC, and Steven Hughes (“Hughes”), and hit Glynn Allan Smith (“Smith”) (collectively “Defendants”) resulted in an insurance coverage claim. The vehicle was insured by Auto-Owners Insurance Company (“Auto-Owners” or “Plaintiff”), which claims there is no coverage because Bryant was not a permissive driver. Smith filed a Motion to Dismiss asking the Court to abstain from exercising jurisdiction over this matter pursuant to Nautilus Ins. Co. v. Winchester Homes, Inc., 15 F.3d 371, 377 (4th Cir. 1994) because among others reasons, there is a potential for unnecessary entanglement between this action and the personal injury action pending in State Court. The USDC, in Auto-Owners Insurance Company v. Glynn Allan Smith; RSS, LLC; Steven Hughes; and James Bryant, No. 4:21-cv-03693-JD, United States District Court, D. South Carolina, Florence Division (January 19, 2022), found it proper to resolve the insurance coverage issue.

BACKGROUND

The underlying State Court case arises from injuries suffered by Smith arising out of a motor vehicle collision. AutoOwners issued a Commercial Auto Policy (the “Policy”), to RSS, LLC, and Hughes with combined liability limits of $500,000.00 per accident. The 2005 pickup truck involved in the accident is insured under the Policy and appears as vehicle number 5 on the Declarations page. Plaintiff contends Bryant is not a scheduled driver on the Policy. Moreover, the insurer claims that “Bryant was not a scheduled driver for the subject vehicle or any vehicle [on the insurance policy] owned by the Named Insureds, nor was he authorized to drive the subject vehicle or any vehicle owned by RSS, LLC and/or Defendant Hughes.”

On August 4, 2020, Smith was hit by a vehicle driven by Bryant, when Bryant crossed the center line. The Complaint alleges Bryant was formally charged with, among other things, “Driving under suspension, license suspended for DUI – 1st offense; and . . . Driving under the Influence, less than 10, 1st offense.” Plaintiff, AutoOwners, is not a party in the State Court case as all the claims are based in tort. Plaintiffs sued seeking declaratory judgment contesting coverage to provide a defense or indemnification in the underlying State Court case.

DISCUSSION

Smith contends that facts weighs in his favor of the USDC abstaining from the case because the collision occurred in South Carolina, the Policy was issued in this State, and South Carolina has a strong interest in having its own courts interpreting South Carolina law.

This is an insurance coverage case that requires the Court to review the Policy and the applicable facts and issue a Declaratory Judgment as to the rights and responsibilities of the parties under the Policy. Federal Courts routinely adjudicate insurance policies governed by State.

Smith also asserted that this case can efficiently be resolved in the pending State Court case because the alleged coverage issue is being litigated in the underlying State Court case, which has been litigated for over a year. However, a review of the underlying State Court case indicates that resolution of this case in State Court would not be more efficient.

Plaintiff is not a party to the underlying State Court case. Additionally, as the underlying State Court case concerns tort issues while this case involves contract issues, the issues in each case are different.

Smith, in addition, contended that there exists the potential for entanglement between the State Court and this Court because AutoOwner’s obligations under the Policy will be addressed and litigated in the underlying State Court case. Entanglement occurs where many of the issues of law and fact sought to be adjudicated in the federal action are already being litigated by the same parties in the related state court action.

Entanglement is unlikely because the Auto-Owner’s contract dispute will not be adjudicated in the Underlying State Court case. Thus, no issues regarding AutoOwner’s rights or obligations are likely to be resolved in that action because the underlying State Court claims (i.e., negligence, vicarious liability etc . . .) do not relate to the USDC’S coverage determination. If the USDC determines during the course of litigation that it needs to wade into fact-finding in a manner that would impede upon the questions being considered by the State Court in the underlying case, the Court reserved its right to revisit this order and decide to abstain from hearing the case.

Lastly, in considering the last factor, the USDC found that this case is not being used merely as a device for procedural fencing. Accordingly, the Court found that the declaratory relief sought will serve a useful purpose in clarifying and settling the legal relations in issue, and will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding.

For the foregoing reasons, the USDC decided to exercise jurisdiction over this case; and therefore, Smith’s Motion to Dismiss is denied.

ZALMA OPINION

A declaratory relief action has no relationship to a tort action. If AutoOwners is correct – and it appears so – that it owes neither defense nor indemnity to the defendant unlicensed driver it is entitled to seek a quick, simple and direct action in federal court to determine if it is correct in its conclusion that it owes neither defense nor indemnity to Byrant.


© 2022 – Barry Zalma

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

Subscribe to “Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe and “Excellence in Claims Handling” at https://barryzalma.substack.com/welcome.

You can contact Mr. Zalma at https://www.zalma.com, https://www.claimschool.com, zalma@claimschool.com and zalma@zalma.com . Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

You may find interesting the podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma;  you can follow Mr. Zalma on Twitter at; you should  see Barry Zalma’s videos on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; or videos on https://rumble.com/zalma. Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claimslibrary/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ 

 

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Public Policy & No Insurance Defeats Negligence Claim

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Court’s Duty Is To Declare What The Law Is, And Not What It Ought To Be

Leodis Sledge appealed the trial court’s grant of summary judgment to the City of Pine Bluff, Arkansas, et al on his claims of negligence that he asserted were the proximate cause of Leach’s death on April 16, 2020.

In Leodis Sledge, Individually And As Administrator Of The Estate Of Tanesha Leach, Deceased, And On Behalf Of All Wrongful Death Beneficiaries And Heirs At Law v. City Of Pine Bluff, Arkansas, By And Through Its Mayor, Shirley Washington, In Her Official Capacity As Mayor Of The City Of Pine Bluff, Arkansas; Pine Bluff City Council, By And Through Its Ex-Officio President, Shirley Washington, In Her Official Capacity; Rick Rhoden, In His Official Capacity As Director Of Pine Bluff Street Department; And Kelvin Sargent, In His Official Capacity As Chief Of Police Of The City Of Pine Bluff, No. CV-20-547, 2022 Ark.App. 23, Court of Appeals of Arkansas, Division IV (January 19, 2022) the Court of Appeal responded applying the law.

FACTS

On April 12, 2020, a large line of severe thunderstorms containing straight-line winds and tornadoes passed through Arkansas, including Jefferson County, where Pine Bluff is located. As a result of these storms, Jefferson County was declared by the governor to be a disaster area. Pine Bluff suffered hundreds of uprooted trees as a result of the extreme winds, and more than 33,000 Entergy customers lost power as a result of the storms. One of the downed trees partially obstructed the road on Hutchison Street near Smart Street. From April 13 to April 16, there were several documented 911 calls regarding the downed tree as well as several records indicating that both the police department and the street department were notified of the downed tree. However, no officers remained on the scene of the downed tree, no barriers were erected around the tree, and the street was not closed.

On April 14, a motorist reported that he almost hit the tree and that it could not be seen until you were “right up on it.” Early on the morning of April 16, 2020, Kelli Shavers hit the downed tree while driving her vehicle. Tanesha Leach, who was a passenger in Shavers’s vehicle, was killed. Shavers stated that she knew there was a downed tree on Hutchison Street, but she did not remember exactly where it was located, it was dark, and even though she slowed her vehicle as she believed she was getting close to the tree, she still hit the tree.

The appellees moved for summary judgment on Sledge’s complaint, asserting municipal immunity on the basis that it had no general-liability coverage under Arkansas Code Annotated section 21-9-301.

The circuit court granted the  motion for summary judgment, finding that although Sledge had pleaded sufficient facts to establish a prima facie case of “utter indifference and conscious disregard,” Arkansas Code Annotated section 21-9-301 grants municipalities immunity from liability and from suits for damages except to the extent they may be covered by liability insurance, and on the basis of Mayor Washington’s affidavit, the city was not covered by liability insurance against negligent actions at the time of the incident in which Leach was killed. This timely appeal followed.

DISCUSSION

Arkansas courts have held that, when a circuit court’s order specifies a particular ground for the court’s decision, that ground alone is subject to our review. If the circuit court’s order is more in the nature of a “blanket” decision and does not articulate a particular basis for its ruling, then the order encompasses all of the issues presented to the circuit court in the parties’ briefs and arguments.

The circuit court granted the defendants’ motion for summary judgment on the basis that Arkansas Code Annotated section 21-9-301 grants municipalities immunity from liability and from suit for damages except to the extent they may be covered by liability insurance.

A suit against a public employee in his or her official capacity is merely a suit against the public employer. Qualified immunity is not a defense available to governmental entities, but only to government employers sued in their individual capacity. Because Sledge sued the public officials in their official capacities only, qualified immunity is not at issue.

Sledge’s complaint alleged “that the appellees’ conduct constituted gross negligence; a reckless indifference to the consequences of a known risk of an abnormally dangerous condition; and willful and wanton neglect in total disregard of the health and safety of Tanesha Leach” because they knew the downed tree “created a dangerous condition that would probably lead to serious injury or death if not removed from the street or if unsuspecting motorists traveling along North Hutchinson Street were not warned of the danger,” and appellees failed to remove the downed tree or to warn unsuspecting motorists of the danger for three days, until the wreck that claimed Leach’s life.

Arkansas Code Annotated section 21-9-301, provides: “(a) It is declared to be the public policy of the State of Arkansas that all counties, municipal corporations, school districts, public charter schools, special improvement districts, law enforcement agencies for and certified law enforcement officers employed by a public or private institution of higher education, and all other political subdivisions of the state and any of their boards, commissions, agencies, authorities, or other governing bodies shall be immune from liability and from suit for damages except to the extent that they may be covered by liability insurance.”

This statute provides city employees with immunity from civil liability for negligent acts but not for intentional acts.

It is the court’s duty to declare what the law is, and not what it ought to be. In determining the meaning of a statute, we construe it just as it reads, giving words their ordinary and usually accepted meaning in common language. A plain reading of section 21-9-301 provides immunity from torts for municipalities except to the extent that they may be covered by liability insurance.

The mayor’s affidavit is sufficient proof to establish that Pine Bluff did not have insurance coverage to provide coverage for Sledge’s negligence claims. An affidavit stating that there is no general-liability coverage establishes a prima facie entitlement to summary judgment. Sledge failed to meet proof with proof to demonstrate the existence of a genuine issue of material fact on this issue. Therefore, the appellees were entitled to municipal immunity and summary judgment was proper.

ZALMA OPINION

If the city had purchased insurance the plaintiff would have a great case and collected real damages.  However, the court interpreted the law as it was written and since there was no insurance purchased by the city the Legislature made them immune.


© 2022 – Barry Zalma

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

Subscribe to “Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe and “Excellence in Claims Handling” at https://barryzalma.substack.com/welcome.

You can contact Mr. Zalma at https://www.zalma.com, https://www.claimschool.com, zalma@claimschool.com and zalma@zalma.com . Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

You may find interesting the podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma;  you can follow Mr. Zalma on Twitter at; you should  see Barry Zalma’s videos on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; or videos on https://rumble.com/zalma. Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claimslibrary/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ 

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A True Crime Story of Insurance Fraud

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Uninsured Motorist

See the full video at https://rumble.com/vt719s-a-true-crime-story-of-insurance-fraud.html  and at https://youtu.be/fAED2GUGwy8

Barry Zalma, Esq., CFE presents videos so you can learn how insurance fraud is perpetrated and what is necessary to deter or defeat insurance fraud. This Video Blog of True Crime Stories of Insurance Fraud with the names and places changed to protect the guilty are all based upon investigations conducted by me and fictionalized to create a learning environment for claims personnel, SIU investigators, insurers, police, and lawyers better understand insurance fraud and weapons that can be used to deter or defeat a fraudulent insurance claim.

Occasionally, without fanfare, someone stands up and refuses to honor an obvious fraud. Such an event, by its rarity, deserves public recognition.

In October 1989 Joe Chevrolet, a negligent, uninsured motorist struck the rear end of a vehicle driven by Marcia Toyota. Ms. Toyota was insured with Good Hands Insurance Company. Marcia claimed severe physical and emotional injuries as a result of the accident. Through her attorney, Mel Shyster, she presented the reports of Louise Quack, a doctor of Chiropractic. Good Hands and Toyota did not agree on the amount of loss she had incurred. Both sides presented evidence to arbitrator Honest Abe Lawyer.

At the arbitration Dr. Quack testified explaining the severe injuries she claimed she had detected in Toyota. Dr. Quack spoke at length about the many modalities of treatment she provided to Toyota to make her well. Good Hands produced George Wellness, M.D. who testified that Toyota suffered “no injury.” Good Hands also brought to the Arbitration Clever Expert, Ph.D. who stated an opinion that the collision was “de minimis” and caused no actual damage to Toyota’s vehicle.

Good Hands presented its evidence to the arbitrator with trepidation. It knew that arbitrators often attempt to reach Solomon-like decisions. They often render awards that split the difference between the demand and the offer.

Barry Zalma presents fictionalized True Crime Stories of Insurance Fraud from an Expert who explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers.

The stories help to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the ­­­Perpetrators than any Other Crime.

If the fraud succeeds the insurer must charge more premium to cover the expense of defending the fraud and payment of funds to the fraud perpetrator. If the fraud fails the insurer must charge more premium to cover the expense of defending the fraud. Everyone, except the lawyers, lose.

As you watch the videos I hope they help you understand the effect that insurance fraud has on the perpetrators, the insurers, the people who need insurance, the people who buy insurance, and the people who keep the promises made by insurance policies.Over the last 54 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud.


© 2022 – Barry Zalma

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

Subscribe to “Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe and “Excellence in Claims Handling” at https://barryzalma.substack.com/welcome.

You can contact Mr. Zalma at https://www.zalma.com, https://www.claimschool.com, zalma@claimschool.com and zalma@zalma.com . Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

You may find interesting the podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma;  you can follow Mr. Zalma on Twitter at; you should  see Barry Zalma’s videos on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; or videos on https://rumble.com/zalma. Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claimslibrary/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ 

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Awareness of an Alleged Injury is not Enough to Constitute a Claim

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Claim Must Be Made During Policy Period to Obtain Coverage on a Claims Made Policy

Heart Rendering Damages Not Enough to Require Insurer to Defend or Indemnify

When he was just about two years old, Braylon Jordan swallowed small magnets, “Buckyballs,” manufactured by Maxfield & Oberton Holdings (M&O). Once ingested, the magnets shredded his internal organs, necessitating surgery to remove most of his intestines, leaving Braylon severely disabled for the rest of his life, and consigning his parents to provide near constant care for their son for the rest of theirs. This heart-rending situation came to the Fifth Circuit for the second time; the latest appeal involves not the merits of the Jordans’ claims but a dispute over whether there is insurance coverage for M&O’s defense and for a partial settlement of the Jordans’ claims.

In Meaghin Jordan, Individually; Jonathan Jordan, Individually; Meaghin and Jonathan Jordan, on behalf of their minor son, Braylon Jordan v. Evanston Insurance Company, No. 20-60716, United States Court of Appeals, Fifth Circuit (January 17, 2022) the Fifth Circuit answered the question.

FACTS

The ordeal that Braylon Jordan and his family have endured is chronicled in this court’s prior opinion in their action against M&O, Jordan v. Maxfield & Oberton Holdings, L.L.C., 977 F.3d 412, 414-15 (5th Cir. 2020).

As discovery proceeded in the underlying case, Evanston Insurance Company, one of M&O’s excess liability insurers, confirmed that it denied coverage for the Jordans’ claims against M&O and declined to defend M&O against the Jordans’ suit. Evanston’s declination led the Jordans to sue for declaratory relief to determine whether Evanston’s insurance policy, as well as several other policies held by M&O at relevant times, covered their claims against M&O. The evidence focused primarily on three things: news reporting of Braylon Jordan’s story, reactions to several articles by M&O and its insurers, and the insurance policies themselves.

On April 23, 2012, WWL TV in New Orleans ran an article detailing Braylon’s surgeries and the dangers posed by high-powered magnets. Zucker saw this article and forwarded it, along with one about a teenager in Oregon, to M&O’s primary insurer the next day. Zucker told the insurer that the “news stories were reported online involving our products. All known information about the incident are [sic] included in the story. We have no additional information nor have we been contacted directly regarding the incident.” A day later M&O forwarded the WWL article to its excess insurers, including Evanston. M&O’s primary insurer acknowledged receipt of Zucker’s message, responding that it “reserve[d] all rights, including the right to deny coverage for this claim[.]”

For its part, Evanston opened an internal “Claim/Occurrence” file. That same day Evanston noted that it had “[r]eceived e-mail from underlying advised they have also received notice of this new loss.” In June 2012, Evanston added a note to the file that stated “[n]o claim or lawsuit file[d].” In October 2012 Evanston again noted “[n]o claim or lawsuit file[d].”

Additional news articles were published about Braylon. On December 11, 2012, counsel retained by the Jordans sent M&O a demand letter. The letter “advise[d] that [counsel was] representing Braylon Jordan in his claim for personal injuries which occurred on April 1, 2012, when he swallowed eight magnetic Bucky Balls [sic] manufactured by [M&O],” and requested “a response regarding this claim from [M&O] or [its] liability insurance carrier within ten days . . . .” After M&O’s counsel forwarded the Jordans’ demand letter and links to several additional news articles to its insurers, including Evanston, Evanston responded in January 2013 that the [Jordan] claim is the first claim to be submitted that is related to [approximately 38] prior Occurrences reported to Evanston . . . . However . . . this claim does not meet the timely reporting conditions of the Evanston excess liability claims-made policy. Therefore, there is no coverage available under the Evanston policy for this matter.

M&O’s various insurance policies were claims-made policies. Generally, claims-made policies provide coverage for claims made against insured parties within a defined policy period.

The Evanston policy promised to pay, as a result of claims first made against the Insured and reported to the Company during the policy period, damages incurred by the insured. The policy period was July 25, 2011 to July 25, 2012.  The claim by counsel was made months after expiration of the Evanston policy.

Shortly after the motions for summary judgment were filed, the Jordans reached an agreement with Zucker and M&O’s underlying insurer to settle their claims against both. The underlying insurer tendered its policy limits, and Zucker agreed to pay an additional $20 million to the Jordans, contingent on that amount being funded by M&O’s excess insurers. Evanston refused to fund this settlement.

The jury in the Jordans’ primary action against M&O, returned a verdict in favor of M&O. Because there was no liability, Evanston asserted there was no possibility of an actual claim to invoke coverage for the settlement. The district court concluded that Evanston was not obligated to fund the settlement made by Zucker because any duty that Evanston had to indemnify him could only be asserted once the Jordans established that his potential liability implicated a covered loss. However, the district court nonetheless required “Evanston to continue to defend its insureds against the Jordans’ product liability claims.”

The Fifth Circuit agreed with Evanston that the district court erred and held that the Jordans failed to demonstrate that they made any claim against M&O during the policy period. As a result there was no coverage, and Evanston had no obligation to indemnify M&O’s CEO for the parties’ settlement.

This case hinged on the threshold requirements under the Evanston policy that:

  1. a claim be made against M&O, and
  2. notice of that claim be timely provided to Evanston, in order to trigger coverage.

The district court sidestepped the first question and instead focused on the second. The court took this approach because it found that Evanston acted as though it had received a claim after M&O initially forwarded the WWL news article, by opening a “Claim/Occurrence” file and continuing to monitor whether any lawsuit had been filed by the Jordans against M&O. But, the Fifth Circuit concluded that ducking the question of whether a timely claim was actually made, by “deeming” it so, was error.

The policy itself does not define “claim,” but generally, under Mississippi law, when the words of an insurance policy are plain and unambiguous, the court will afford them their plain, ordinary meaning and will apply them as written.

A “claim” is an assertion by a third party that, in the opinion of that party, the insured may be liable to it for damages within the risk covered by a policy. [13A Couch on Insurance § 191:10 (Stephen Plitt et al., eds.) (3d ed. Dec. 2021).] A common thread from Couch and the dictionary definitions is that a “claim” involves a “demand” or “assertion” made by a claimant against a party who could satisfy it.

Even assuming the press comments were and that constituted a “claim” under Evanston’s policy, Meaghin Jordan made the comments to a media outlet, not to M&O or Evanston. The Jordans did not tender any other communication to M&O or Evanston before their counsel sent their demand letter to M&O on December 11, 2012-outside Evanston’s policy period.

The insured’s awareness of an alleged injury is not enough to constitute a claim. [Titan Indem. Co. v. Williams, 743 So.2d 1020, 1025 (Miss. Ct. App. 1999)].

The fact that M&O became aware of media reports about Braylon’s injuries and sent those reports to Evanston, which in turn opened an internal “Claim/Occurrence” file and monitored further developments, does not substitute for the Jordans actually making a timely claim against M&O. Their failure to do so is fatal to their assertion of coverage.

As there was no coverage triggered under its policy, Evanston is not obligated to indemnify Zucker for the agreed amounts in his settlement with the Jordans.

Because no claim arising from Braylon Jordan’s injuries was timely made against M&O during Evanston’s policy period, Evanston is not obligated to provide M&O costs of its defense or coverage for the partial settlement between the Jordans and its then-CEO Craig Zucker.

ZALMA OPINION

Claims Made and Reported policies are different than the common “Occurrence” policies. Failure to make a claim – demand money or some other action as damages – while the policy is in full force and effect – defeats a claim for defense or indemnity. The injury caused by swallowing Bucky Balls was enormous but a claims made policy requires that a claim be made to the insurer while the policy is in force. The claim by the Jordan’s lawyer, arriving almost four months after expiration of Evanston’s policy defeated the M&O claims.


© 2022 – Barry Zalma

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

You can contact Mr. Zalma at https://www.zalma.com, https://www.claimschool.com, zalma@claimschool.com and zalma@zalma.com . Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Subscribe to “Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe and “Excellence in Claims Handling” at https://barryzalma.substack.com/welcome. You may also find interesting the podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma;  you can follow Mr. Zalma on Twitter at @bzalma; you should  see Barry Zalma’s videos on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; or videos on https://rumble.com/zalma. Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claimslibrary/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ 

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True Crime Stories of Insurance Fraud

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The Largest Residential Burglary of All Time

See the full video at https://rumble.com/vsykdo-true-crime-stories-of-insurance-fraud.html and at https://youtu.be/NAtEec_k238

Within seven days of the delivery of his policy, a “burglary” was reported. A total of $7,000,000.00 of specifically identified and scheduled personal property was reported stolen. He claimed an additional $2,000,000 in unscheduled diamonds were stolen from their hiding place in one of his 50 suit coats hanging in the closet.

Faced with a $7 million fraudulent claim an insurer conducted a thorough investigation only to fold when sued for bad faith.

Once an insurer gets a reputation for paying for fraudulent claims rather than fighting with all of its assets those who perpetrate fraudulent claims will gather like vultures over a rotting carcass ready to pick the bones clean. The reverse is also true: when an insurer makes it clear it will never pay a fraudulent claim, regardless of cost, those who earn their living by fraud will stay away.

Barry Zalma presents fictionalized True Crime Stories of Insurance Fraud from an Expert who explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers.

The stories help to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the ­­­Perpetrators than any Other Crime.

If the fraud succeeds the insurer must charge more premium to cover the expense of defending the fraud and payment of funds to the fraud perpetrator. If the fraud fails the insurer must charge more premium to cover the expense of defending the fraud. Everyone, except the lawyers, lose.

As you watch the videos I hope they help you understand the effect that insurance fraud has on the perpetrators, the insurers, the people who need insurance, the people who buy insurance, and the people who keep the promises made by insurance policies.Over the last 54 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud.


© 2022 – Barry Zalma

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

Subscribe to “Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe and “Excellence in Claims Handling” at https://barryzalma.substack.com/welcome.

You can contact Mr. Zalma at https://www.zalma.com, https://www.claimschool.com, zalma@claimschool.com and zalma@zalma.com . Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

You may find interesting the podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma;  you can follow Mr. Zalma on Twitter at; you should  see Barry Zalma’s videos on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; or videos on https://rumble.com/zalma. Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claimslibrary/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ 

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Insurance is a Contract of Personal Indemnity

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Insurer’s Only Obligation is to the Person Insured

Who’s on First or Only Person Insured May Collect on a Fire Policy

It is axiomatic that first party property insurance is a contract of personal indemnity. It does not follow title to the land and only pays those who are named on the policy as an insured and have an insurable interest. Someone who has an insurable interest but is not named has no right to the policy.

Konstantinos Kapnisis (Kapnisis) appealed from the judgment after the trial court granted summary judgment in favor of Colony Insurance Company (Colony). In Konstantinos Kapnisis v. Colony Insurance Company, B308056, California Court of Appeals, Second District, Fourth Division (January 19, 2022) the California Court of Appeals resolved an issue regarding that an insurer only needs to pay he who is insured.

FACTUAL BACKGROUND

Kapnisis wanted to buy a restaurant called Big Oaks. Kapnisis signed a purchase agreement and a month-to-month lease to rent Big Oaks pending the close of escrow. The lease required him to pay Big Oaks’ insurance premium in order to operate the restaurant. Colony subsequently issued a policy naming Big Oaks as the insured. Two weeks later, a fire destroyed Big Oaks. Colony issued checks payable to “Big Oaks” and sent payment to the mailing address listed in the insurance policy.

Big Oaks was a restaurant located on land owned by the United States Forest Service. In 2012, Hitendra Golakiea and his wife, Ila Patel, purchased Big Oaks.  Golakiea and Patel decided to sell, and Kapnisis offered to purchase, Big Oaks for $220,000. The parties signed a Commercial Property Purchase Agreement and Joint Escrow Instructions (Purchase Agreement). The Purchase Agreement stated, among other things, that the offer was contingent upon Kapnisis obtaining:

  1. a special use permit from the United States Forest Service; and
  2. a permanent liquor license from the California Department of Alcohol Beverage Control.

The title of Big Oaks would be conveyed through a grant deed “at the close of escrow.” On the same day that he signed the Purchase Agreement, Kapnisis signed a month-to-month Commercial Lease Agreement (Lease) with Golakiea and Patel to lease Big Oaks. Kapnisis signed the Lease in order to begin operating Big Oaks before the sale of the property closed. The lease required Kapnisis, as the tenant, to pay the operating expenses and utilities, insurance premiums, and real property taxes. As of July 2017, Kapnisis managed Big Oaks and lived on the property.

Kapnisis never obtained either the special use permit from the United States Forest Service nor the requisite liquor license. Because of his failure to obtain the required documents, escrow never closed. Therefore, title to Big Oaks did not transfer to Kapnisis.

INSURANCE POLICY

Under the terms of the Lease, Kapnisis was responsible for paying the insurance on Big Oaks. In June 2018, Kapnisis received a call from Big Oaks’ insurance broker, Huntington Pacific Insurance Agency, and learned that the insurance policy on Big Oaks was up for renewal.

On June 17, 2018, the insurance broker, through an intermediary, obtained a quote for Big Oaks from Colony. The quote included $255,000 in building coverage and $100,000 in contents coverage, for a premium of $4,145.54. The application for insurance for Big Oaks, was signed by Kapnisis. The only applicant listed was “Big Oaks Lodge,” with a handwritten address of 33101 Bouquet Canyon Road, Saugus CA 91390, which was the physical address of the restaurant. Colony then issued its Policy, listing “Big Oaks” as the insured. The listed mailing address was 2533 North Lamer Street, Burbank CA 91504 (the North Lamer address). This mailing address was also Patel’s residential address.

Kapnisis paid the insurance broker the premium and received a receipt from the insurance broker with his name handwritten on it.

THE FIRE

On August 11, 2018 a fire broke out at Big Oaks and the entire building burned down. Kapnisis and Patel each made claims with Colony for policy benefits as a result of the fire. Patel told Colony that she was the owner of Big Oak and Kapnisis was the tenant. Kapnisis also claimed he was the owner of Big Oaks; however, he did not provide Colony with any documentation proving he owned Big Oaks at the time of the fire.

In September 2018, Colony issued a series of checks made payable to “Big Oaks” for the fire loss. Colony paid a total of $335,368.76. Colony sent the checks to the North Lamer address.

THE LAWSUIT

Kapnisis initiated this lawsuit against Colony for breach of contract, breach of implied covenant of good faith and fair dealing, unfair competition, negligence, and declaratory relief. He also sought punitive damages against Colony. Colony filed a motion for summary judgment or summary adjudication, arguing that there was no breach of contract because it complied with the express terms of the Policy by writing checks to “Big Oaks” and mailing those checks to the address listed on the Policy. The trial court granted the summary judgment motion as to all causes of action and entered judgment in favor of Colony.

DISCUSSION

The standard elements of a breach of contract claim are:

  1. the existence of a contract,
  2. the plaintiff’s performance or excuse for nonperformance,
  3. the defendant’s breach, and
  4. resulting damage to the plaintiff. (Abdelhamid v. Fire Ins. Exchange (2010) 182 Cal.App.4th 990, 999.)

The interpretation of an insurance policy is a question of law and follows the general rules of contract interpretation.

Since Kapnisis did not dispute that “Big Oaks” was the named insured on the Policy and that the insurance proceeds were mailed to the address listed on the Policy; and that neither Kapnisis nor his address were listed on the Policy; Colony satisfied its contractual obligations to pay policy benefits to “Big Oaks” at the address listed on the Policy.

Colony followed the express terms of the Policy and any dispute beyond that, such as Patel’s authority to cash those checks, is not between Kapnisis and Colony but potentially between Kapnisis and Patel. Colony complied with its contractual obligations to pay the insurance proceeds to the listed insured and corresponding address in the Policy.

Kapnisis failed to submit evidence sufficient to establish a triable issue of material fact as to Colony’s alleged breach of contract. Absent a breach of contract, Colony did not breach the implied covenant of good faith and fair dealing. T

ZALMA OPINION

It is rare, in my experience, for people who purchase insurance to actually read the policy acquired. At the time Colony’s policy was issued Kapnisis had an insurable interest in the property that held the Big Oaks restaurant and lodge but had no ownership interest in an entity called “Big Oaks.” He never asked Colony, or his broker, to name him as an insured on the policy because he did not read it – and probably did not read the application either – he was not an insured of the policy and it only insured the risks faced by the actual owner of “Big Oaks” Ms. Patel. Insurance only pays the person insured as long as that person has an insurable interest in the property. Patel, as the owner of Big Oaks had that interest and was named; Kapnisis had an insurable interest but was not named.


© 2022 – Barry Zalma

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

Subscribe to “Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe and “Excellence in Claims Handling” at https://barryzalma.substack.com/welcome.

You can contact Mr. Zalma at https://www.zalma.com, https://www.claimschool.com, zalma@claimschool.com and zalma@zalma.com . Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

You may find interesting the podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma;  you can follow Mr. Zalma on Twitter at; you should  see Barry Zalma’s videos on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; or videos on https://rumble.com/zalma. Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claimslibrary/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ 

 

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Jeweler’s Inventory Exists to be Sold

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Diminution in Value of Stock of Jeweler is a Direct Physical Loss

Before the court was a Motion for Partial Summary Judgment  filed by defendant Great American Insurance Company of New York (“Great American”) seeking dismissal of plaintiff’s claims of insurance coverage for consequential loss. In Nederland Jewelers LLC v. Great American Insurance Co Of New York, No. 2:21-CV-01431, United States District Court, W.D. Louisiana, Lake Charles Division (January 11, 2022) the question was whether Rolex watches recovered from thieves lost value because they could not be sold as new Rolex watches.

FACTUAL BACKGROUND

Nederland claimed against a property and inland marine insurance policy issued by defendant Great American. Nederland owns and operates a jewelry store in Lake Charles, Louisiana. An armed robbery occurred at the store on June 3, 2020, in which the four suspects smashed display cases and took several Rolex watches, among other items.

Law enforcement arrested the suspects soon after the robbery, recovering all but two of the watches. Nederland then filed a claim under its policy with Great American, seeking to recover for the missing watches and for the loss of value to the Rolex watches that had been returned as well as those that had remained in the display case. Great American made partial payment but claimed insufficient information to determine coverage for some of the amounts.

Nederland then filed suit in Louisiana raising claims for breach of insurance contract and bad faith under Louisiana law. Relevant to this motion, Nederland alleges that “[a]s a result of this robbery, the damaged watches can no longer be sold as Rolex products and have lost their original value due to damages sustained.”

It sought damage for “loss of use” and “depreciation.” Great American moved for partial summary judgment on Nederland’s entitlement to coverage for consequential damages, asserting that such losses are not covered under the policy

APPLICATION OF LAW

Louisiana law provides that an insurance policy is a contract and that its provisions are construed using the general rules of contract interpretation in the Louisiana Civil Code. The words of the policy must be given their generally prevailing meaning and interpreted in light of the other provisions so that each is given the meaning suggested by the contract as a whole.

While the insured must show that a claim falls within a policy’s terms, the insurer bears the burden of showing that an exclusion applies. Ambiguities in the policy, including within an exclusionary clause, must be construed against the insurer and in favor of coverage.

Under its “Jewelers Block Coverage Form,” Great American’s policy provides that it will pay for “direct physical loss of or damage to Covered Property from Covered Causes of Loss.” The parties do not dispute that the Rolex watches stocked by Nederland are covered property. “Covered Causes of Loss,” meanwhile, is defined as “Direct Physical Loss or Damage to the Covered Property except those causes of loss listed in the exclusions.” Among the exclusions, Great American states that it will not pay for “loss or damage caused by or resulting from . . . [d]elay, loss of use, loss of market or any other consequential loss.”

Great American relied on the exclusion for the position that, while it is liable for repair costs for the watches that were damaged during the robbery, it is not liable for any diminution in their value.

Insurance companies in Louisiana are permitted to exclude coverage for consequential damages as a result of damage to property. Reviewing such a provision, the Fifth Circuit delineated between actual losses and consequential damages as follows: “According to Black’s [Law Dictionary], ‘actual loss’ is ‘[a] loss resulting from the real and substantial destruction of insured property.’ Black’s makes reference to “actual loss” when it defines “actual damages” as “[a]n amount awarded to a complainant to compensate for a proven injury or loss; damages that repay actual losses.” In contrast, Black’s separately defines “consequential loss” as “[a] loss arising from the results of damage rather than from the damage itself, ” and notes that it is “[a]lso termed indirect loss; consequential injury.” According to Black’s, “consequential damages” entail “[l]osses that do not flow directly and immediately from an injurious act but that result indirectly from the act.” A plain reading of “actual loss or damage” does not include “consequential loss” or “consequential damage.”

The concept appears more frequently in the case law under loss of use cases. A few courts have distinguished between repair/replacement costs and damages based on the diminished value of the repaired item. Where the insured property is the merchant’s stock in trade, the court finds a much closer question in whether a diminution in market value following covered direct physical damage is properly excluded as a consequential loss.

Nederland purchased coverage as a jeweler, with the obvious intent of selling its insured property rather than keeping it as an heirloom. Great American asserts that any diminution in value-not merely those resulting from changes in market conditions or loss of use-is a consequential damage excluded by the terms of the policy. But if the watches cannot be resold for close to their original value after these repairs, then it calls into question whether the repairs themselves offered the coverage contemplated by the policy.

Accordingly, the court found that the exclusion cannot be read as barring all coverage for the watches’ decrease in value following repair.

ZALMA OPINION

The damage caused to the jewelry, whether left in the showcase smashed by thieves, changed the value and the ability of Nederland to sell the jewelry at the same price had they not been stolen and had not been damaged by the broken glass. Therefore, the court concluded, that there was direct physical loss and damage to the jewelry. The insurer could have paid the full value as required by the policy and taken the “damaged” watches and other jewelry as salvage or paid the diminished value. This case teaches that the insurer needed the assistance of an intelligent, well trained and experienced claims adjuster not a lawyer.


© 2022 – Barry Zalma

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 54 years in the insurance business.

Subscribe to “Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe and “Excellence in Claims Handling” at https://barryzalma.substack.com/welcome.

You can contact Mr. Zalma at https://www.zalma.com, https://www.claimschool.com, zalma@claimschool.com and zalma@zalma.com . Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

You may find interesting the podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma;  you can follow Mr. Zalma on Twitter at; you should  see Barry Zalma’s videos on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; or videos on https://rumble.com/zalma. Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claimslibrary/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ 

 

 

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True Crime Story “How Not to Commit Arson”

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A True Crime Video on How Not to Commit Arson

See the full video at https://rumble.com/vstwpu-true-crime-story-how-not-to-commit-arson.html?mref=6zof&mrefc=2   and at https://youtu.be/ZMSplau7qG4

Barry Zalma presents fictionalized True Crime Stories of Insurance Fraud from an Expert who explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers.

The stories help to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the ­­­Perpetrators than any Other Crime.

If the fraud succeeds the insurer must charge more premium to cover the expense of defending the fraud and payment of funds to the fraud perpetrator. If the fraud fails the insurer must charge more premium to cover the expense of defending the fraud. Everyone, except the lawyers, lose.

As you watch the videos I hope they help you understand the effect that insurance fraud has on the perpetrators, the insurers, the people who need insurance, the people who buy insurance, and the people who keep the promises made by insurance policies.Over the last 54 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud.


© 2022 – Barry Zalma

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 54 years in the insurance business.

Subscribe to “Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe and “Excellence in Claims Handling” at https://barryzalma.substack.com/welcome.

You can contact Mr. Zalma at https://www.zalma.com, https://www.claimschool.com, zalma@claimschool.com and zalma@zalma.com . Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

You may find interesting the podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma;  you can follow Mr. Zalma on Twitter at; you should  see Barry Zalma’s videos on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; or videos on https://rumble.com/zalma. Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claimslibrary/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ 

 

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Treble Damages are Punitive & Excluded by Policy

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Punitive Damages Fail Their Purpose if Insurable

An insurer sought a declaratory judgment for the purpose of adjudicating whether its insurance policy excluded treble damages pursuant to Oklahoma state statute 47 O.S.2011, § 10-103. The Insurer filed a motion for summary judgment, and the trial court concluded the treble damages provided by 47 O.S. 2011, § 10-103 were punitive in nature, and the damages were excluded by a clause excluding punitive damages. In Progressive Direct Insurance Company v. Ikia Pope, and Brandi Powell v. Ikia Pope, No. 119309, 2022 OK 4, Supreme Court of Oklahoma (January 11, 2022) the Oklahoma Supreme Court resolved the dispute.

FACTS

Ikia Pope and Brandi Powell were in a motor vehicle collision. Pope left the scene of the collision. Powell alleged Pope drove a vehicle owned by third parties who gave permission for Pope to drive the vehicle. Progressive Direct Insurance Company insured the vehicle driven by Pope.

Powell made bodily injury and property damage claims with Progressive Direct Insurance Company (insurer). Powell asserted she was entitled to treble property damages pursuant to a statute which states that “the driver of any vehicle involved in an accident resulting only in damage to a vehicle … Any person failing to stop or comply with said requirements under such circumstances shall be guilty of a …  In addition to the criminal penalties imposed by this section, any person violating the provisions of this section shall be subject to liability for damages in an amount equal to three times the value of the damage caused by the accident. Said damages shall be recoverable in a civil action.” [47 O.S.2011, § 10-103 (emphasis added).]

Progressive Direct Insurance Company (insurer) alleged treble damages pursuant to the statute did not apply to its insurance policy because punitive damages were clearly excluded.

The trial court stated the issue for adjudication was whether public policy required statutory treble damages to be excluded from the policy’s coverage. The trial court concluded the treble damages in 47 O.S. § 10-103 “is more aligned with the definition of punitive damages than it is with non-punitive or compensatory [damages].” The trial court concluded a punitive purpose in statutory language would be frustrated by allowing a driver to shift the statutory economic burden to an insurer.

ANALYSIS

Generally, compensatory damages “are intended to redress the concrete loss that the plaintiff has suffered by reason of the defendant’s wrongful conduct;” but “punitive damages serve a broader function; they are aimed at deterrence and retribution.”

Statutorily specified damages are slightly different in that they may be compensatory, punitive, or a mixture of the two depending upon the legislative purpose served by the particular statutory damages.

The obvious public policy behind the treble damages provision is to provide an added level of deterrence against hit-and-run drivers who damage attended vehicles. The Legislature’s public policy for imposing a criminal penalty and the treble damages in 47 O.S. § 10-103 were to create a deterrence by imposing punitive measures upon a driver “involved in an accident who did not fulfill the requirements of 47 O.S. § 10-104 and fled the scene of the accident.

The Circuit Court focused on two issues:

  1. The amount multiplied was a small determined statutory amount, $500.00; and
  2. Damages could be trebled without any showing the defendant’s conduct was an entire lack of care, willful misconduct, wantonness, or conscious indifference to consequences.

Some states allow the insurability of punitive damages directly or vicariously assessed against the insured when provided by the insurance policy. More than twenty-five years ago, the United States Court of Appeals for the Tenth Circuit stated: “Oklahoma courts adhere to the view that public policy prohibits liability insurance coverage of punitive damages except where the party seeking the benefit of insurance coverage has been held liable for punitive damages solely due to conduct of another, under principles of vicarious liability.” In Dayton Hudson Corp. v. American Mut. Liability Ins. Co., 1980 OK 193, 621 P.2d 1155, 16 A.L.R.4th 1, this Court explained a policy provision requiring an insurer to pay “for all sums which the insured might become legally obligated to pay” was sufficiently broad to include liability for punitive damages when such damages were not “specifically excluded” by the policy.

This Court has recognized for more than one-hundred years that an insurer and insured are free to agree to a policy’s provisions and how they are construed, provided such agreement does not conflict with public policy. The policy states the insurer “will pay damages for bodily injury and property damage for which an insured person becomes legally responsible because of an accident” but excludes from coverage “bodily injury or property damage caused by an intentional act of that insured person,” and “punitive or exemplary damages.”

An insurance policy is issued pursuant to statutes, and the provisions of those statutes are given force and effect as if written into the policy. Courts construe terms in an insurance policy consistent with insurance statutes on the same subject. The punitive nature of treble damages is not ambiguous. Statutes combining a criminal penalty and a civil statutory punitive damages provision existed many years prior to 1987.

Generally, a statutory multiplier for damages has a punitive nature when damages are meant to punish “the wrongdoer” and to act as a deterrent to others.  The nature of the wrongful conduct sufficient to support an award of statutory punitive damages is not necessarily synonymous with wrongful conduct to support an award of common-law punitive damages.

Considering the well-known history of statutorily multiplied damages in the context of a combined punitive and deterrent purpose, our discussion of the Legislature’s purpose for 47 O.S. § 10-103 in 1987, and construction of this statute as part of the insurance policy, the Supreme Court concluded the statutory treble damages in 47 O.S.2011, § 10-103 are for the purpose of controlling conduct of drivers and are punitive in nature. Therefore, the treble damages in 47 O.S.2011, § 10-103 are punitive for the purpose of the exclusion in the policy.

The treble damages provision in 47 O.S.2011, § 10-103 had a primary purpose to deter hit-and-run drivers, and “is more aligned with the definition of punitive damages than it is with non-punitive or compensatory” damages and the statutory treble damages in 47 O.S. 2011, § 10-103 were excluded by the policy.

ZALMA OPINION

It should be axiomatic, and it is in Oklahoma, that an insurer and insured are free to agree to a policy’s provisions. The exclusion for intentional acts and punitive damages was conspicuous, plain and clear and the Supreme Court concluded that trial court was correct when it refused to allow coverage for the punishment damages established by the statute.


© 2022 – Barry Zalma

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. Mr. Zalma practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

You can subscribe to “Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe and “Excellence in Claims Handling” at https://barryzalma.substack.com/welcome.

You can contact Mr. Zalma at https://www.zalma.com, https://www.claimschool.com, zalma@claimschool.com and zalma@zalma.com . Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

You may find interesting the podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma;   you should  see Barry Zalma’s videos on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; or videos on https://rumble.com/zalma. Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claimslibrary/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ 

 

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True Crime Stories About How Insurance Fraud Costs Everyone

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Fictionalized True Crime Stories of Insurance Fraud from an Expert

See the full video at https://rumble.com/vsrp0o-true-crime-stories-about-how-insurance-fraud-costs-everyone.html and at https://youtu.be/36jYKL71QaI

Barry Zalma presents fictionalized True Crime Stories of Insurance Fraud from an Expert who explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers.

The stories help to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the ­­­Perpetrators than any Other Crime.

This book started as a collection of columns I wrote and 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. Since the last edition I have added more stories that were published in my twice monthly newsletter, Zalma’s Insurance Fraud Letter which is available free to anyone who clicks the links. The original title was “Heads I Win, Tails You Lose” and was 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. If the fraud succeeds the insurer must charge more premium to cover the expense of defending the fraud and payment of funds to the fraud perpetrator. If the fraud fails the insurer must charge more premium to cover the expense of defending the fraud. Everyone, except the lawyers, lose.As you read the stories I hope they help you understand the effect that insurance fraud has on the perpetrators, the insurers, the people who need insurance, the people who buy insurance, and the people who keep the promises made by insurance policies.Over the last 54 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud.

True Crime Stories About How Insurance Fraud Costs Everyone


© 2022 – Barry Zalma

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 54 years in the insurance business.

Subscribe to “Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe and “Excellence in Claims Handling” at https://barryzalma.substack.com/welcome.

You can contact Mr. Zalma at https://www.zalma.com, https://www.claimschool.com, zalma@claimschool.com and zalma@zalma.com . Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

You may find interesting the podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma;  you can follow Mr. Zalma on Twitter at; you should  see Barry Zalma’s videos on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; or videos on https://rumble.com/zalma. Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claimslibrary/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ 

 

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Injured While Abating Asbestos Clearly Excluded

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Conspicuous, Plain and Clear Exclusinon of Injury Arising Out of Asbestos Removal is Effective

After a fire on one of its refineries injured two workers, killing one of them, appellant Motiva Enterprises LLC (Motiva) sought insurance coverage from the companies that insured the contractor that employed the workers. In Motiva Enterprises LLC v. National Fire & Marine Insurance Company, Axis Surplus Insurance Company et al., Maxum Indemnity Company, A159229, A159231, A159233, California Court of Appeals, First District, First Division (January 10, 2022) the Court of Appeal resolved the dispute.

The trial court concluded on summary judgment that because the workers had been abating asbestos, the relevant policies’ asbestos exclusions barred coverage. The Court of Appeal was asked to find coverage for Motiva.

FACTUAL BACKGROUND

Motiva is one of the world’s largest gasoline and diesel fuel refiners and suppliers and owns and operates the largest refinery in North America, located in Port Arthur, Texas. Under an agreement dated December 1, 2015, Motiva hired Excel Modular Scaffold and Leasing Corp. (Excel) to abate asbestos at the Port Arthur refinery. The agreement incorporated a broader “Framework Agreement.” Under the Framework Agreement, Motiva was to enroll Excel in its “Rolling Contractor Insurance Program.”

Excel also purchased insurance policies from AXIS Surplus Insurance Company (AXIS), Endurance American Specialty Insurance Company (Endurance), Maxum Indemnity Company (Maxum), and National Fire & Marine Insurance Company (National Fire). Each policy contained exclusions clauses, which “remove coverage for risks that would otherwise fall within the insuring clause.

Although all four policies included asbestos exclusions, the trial court disposed of the case by focusing on two of them: one in a primary policy issued by AXIS and one in the National Fire policy. The primary policy issued by AXIS excluded coverage for bodily injury “arising directly or indirectly” out of “the abating, … cleaning up, removing, . . . remediation or disposing of, or in any way responding to” asbestos. AXIS, Endurance, and Maxim all issued excess polices that adopted the asbestos exclusion in the AXIS primary policy. The National Fire policy excluded coverage for bodily injury “arising out of . . . [the] removal of . . . asbestos.”

An Excel crew was working to abate asbestos at the Port Arthur refinery from a section of a refinery line that was 60 feet in the air. After the asbestos was removed, the crew was lowered to the ground and started to wash the area with what they thought was water to remove any remaining asbestos from the scaffolding. But because of equipment or mechanical issues that are described in a sealed report, they actually sprayed a flammable liquid, causing an explosion and fire. One crew member suffered severe burns and later died, and his supervisor suffered neck injuries and posttraumatic stress disorder.

The supervisor and the deceased crew member’s survivors sued Motiva in Texas for the company’s alleged negligence. Motiva ultimately paid them as part of a settlement.

Motiva sued the insurers seeking indemnification for the settlement payment from Excel’s insurers. As amended, the complaint alleged causes of action for declaratory relief, breach of contract, and breach of the implied covenant of good faith and fair dealing.

The trial court issued orders separately granting the motions of Axis and Endurance, Maxum, and National Fire, all on the sole ground that the asbestos exclusion in either the AXIS or National Fire policy barred coverage.

DISCUSSION

The trial court relied on policy exclusions that barred coverage for any injuries “arising out of” asbestos abatement/removal. Insurance coverage is interpreted broadly to afford the insured the greatest possible protection, whereas exclusion clauses are to be interpreted narrowly against the insurer. But California courts have interpreted the terms “arising out of” or ‘arising from” broadly. It is settled that this language does not import any particular standard of causation or theory of liability into an insurance policy. Rather, it broadly links a factual situation with the event creating liability, and connotes only a minimal causal connection or incidental relationship.

It is undisputed that the victims who sued Motiva were working to abate asbestos on the date of the accident, and that their injuries were caused by a fire that occurred at the refinery at the end of their workday. Given these undisputed facts, it appears straightforward that the injuries arose out of asbestos abatement.

Motiva contends the asbestos exclusions did not apply because asbestos did not “cause” the accident under a “proximate causation” analysis. The California Supreme Court has construed Insurance Code section 530 as incorporating into California law the efficient proximate cause doctrine, an interpretive rule for first party insurance. The doctrine is the preferred method for resolving first party insurance disputes involving losses caused by multiple risks or perils, at least one of which is covered by insurance and one of which is not. The claims sought coverage, however, under a third party policy.

Motiva has failed to establish the existence of a covered event other than the asbestos-removal activities that concurrently caused the accident. It relies on a series of cases where courts analyzed whether concurrent causes resulted in injury, but these cases are inapplicable because here there were no such concurrent causes of the fire. Here there is no dispute that there was a connection between asbestos removal and the victims’ injuries.

The deadly fire would not have happened but for the asbestos abatement.  It is simply not the case that Motiva’s alleged liability is completely divorced from asbestos or asbestos abatement.

It is established that an insurer cannot escape its basic duty to insure by means of an exclusionary clause that is unclear. Any exception to the performance of the basic underlying obligation to defend and indemnify must be so stated as clearly to apprise the insured of its effect. Thus, the burden rests upon the insurer to phrase exceptions and exclusions in clear and unmistakable language. The exclusionary clause must be conspicuous, plain and clear. This rule applies with particular force when the coverage portion of the insurance policy would lead an insured to reasonably expect coverage for the claim purportedly excluded.

The burden is on the insured to establish that the claim is within the basic scope of coverage and on the insurer to establish that the claim is specifically excluded.

Motiva focuses on AXIS’s primary policy. The policy included a section titled “EXCLUSION-ASBESTOS” that, as Motiva acknowledges, excluded coverage for bodily injury arising directly or indirectly out of, among other things, “[a]ny loss, cost or expenses arising out of the abating, testing for, monitoring, cleaning up, removing, containing, treating, detoxifying, neutralizing, remediation or disposing of, or in any way responding to, or assessing the effects of asbestos, asbestos fibers, or any other form of asbestos, by any insured or by any other person or entity.” It further excluded coverage for “[a]ny injury or damage caused or alleged to have been caused by the removal, eradication, detoxification, remediation or decontamination of asbestos or property containing asbestos.” Contrary to Motiva’s contention, this is hardly language that would leave an ordinary insured-much less one of the largest gasoline and diesel fuel refiners in the world-“hopelessly confused by its overlapping provisions and its arcane language.”

ZALMA OPINION

Since there was no dispute that the injured workers were abating asbestos, the Court of Appeal had no need to rely on any strained or absurd definitions of those terms to conclude that the exclusion applies. Insurance policies are contracts. When, as in this case, an exclusions is conspicuous, plain and clear a court has no option but to enforce the exclusion.


© 2022 – Barry Zalma

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 54 years in the insurance business.

Subscribe to “Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe and “Excellence in Claims Handling” at https://barryzalma.substack.com/welcome.

You can contact Mr. Zalma at https://www.zalma.com, https://www.claimschool.com, zalma@claimschool.com and zalma@zalma.com . Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

You may find interesting the podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma;  you can follow Mr. Zalma on Twitter at; you should  see Barry Zalma’s videos on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; or videos on https://rumble.com/zalma. Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claimslibrary/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ 

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Construction Defects & Insurance Volume 4 Second Edition

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Liability Insurance & Construction Defects

See the full video at https://rumble.com/vsrbjo-construction-defects-and-insurance-volume-4-second-edition.html and https://youtu.be/oXqh5pm1jgw

Construction defects have grown into one of the most active areas of litigation in the United States.

This, the second edition of volume four of the eight volume series is the newest addition to Barry Zalma’s insurance claims books that thoroughly explain how to identify construction defects, how to insure, investigate, prosecute, and defend cases that result from construction defect claims.

Written by nationally-renowned expert, Barry Zalma, Construction Defects & Insurance is designed to help property owners, developers, builders, contractors, subcontractors, insurers, lenders, risk managers and lawyers avoid construction litigation, confidently and rapidly resolve claims associated with construction defect issues, or litigate construction defect litigation.

Construction Defects & Insurance addresses a wide range of topics associated with this escalating and expensive problem. As you read through the various volumes and pages, you will find comprehensive insights into:

• The construction processes
• Risks to be managed
• What is required in an application for insurance protecting the insured against the risks of loss anticipated from construction
• How to acquire the correct and complete construction insurance
• How insurers underwrite against construction defect claims
• How insurers decide to insure/not insure
• Confronting losses caused by construction defects
• Litigation or alternative dispute resolution of construction defect claims

Barry Zalma, has more than 54 years’ practical experience in this area. He is a highly sought after consultant and insurance claims handling expert witness nationally and internationally.

In this eight volume treatise he has also provided checklists that walk the reader through an analysis of construction defects, the process of purchasing and later invoking construction defect insurance, and what is necessary to prosecute or defend a construction defect lawsuit. The books also include helpful sample forms to assist in the identification of defects and numerous case studies to illustrate the state of litigation.

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

Claims professionals, risk managers, producers, underwriters, attorneys (both plaintiff and defense; both policyholder and insurer counsel), and business owners will benefit greatly from the multiple volumes. It is also the perfect resource for insurance educators, trainers, and students whose role requires an understanding of construction defect law and construction insurance law.

This, the fourth volume of Construction Defects & Insurance, includes materials concerning Liability Insurance and covers the following subjects:

1. Overview
2. What is Involved?
3. Liability Insurance
4. How To Shop for Insurance
5. A Resource for Victims of Fraudulent Insurance Applications
6. Duties of the Insured and Insurer
7. Other Insurance Clauses
8. Subrogation
9. Insurance Fraud
10. Checklist A – Liability Insurance
11. Appendix A Sample Request for Insurance Quotation Form
12. Appendix B Commercial General Liability Coverage Form
13. Appendix C Claims Made CGL


© 2022 – Barry Zalma

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 54 years in the insurance business.

Subscribe to “Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe and “Excellence in Claims Handling” at https://barryzalma.substack.com/welcome.

You can contact Mr. Zalma at https://www.zalma.com, https://www.claimschool.com, zalma@claimschool.com and zalma@zalma.com . Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

You may find interesting the podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma;  you can follow Mr. Zalma on Twitter at; you should  see Barry Zalma’s videos on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; or videos on https://rumble.com/zalma. Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claimslibrary/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ 

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Zalma’s Insurance Fraud Letter – January 15, 2022

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ZIFL January 15, 2022 Volume 26, Issue 2

See the full video at https://rumble.com/vsl8pc-zalmas-insurance-fraud-letter-january-15-2022.html and at https://youtu.be/n6McP2y2_lI

A ClaimSchool™ Publication © 2022, Barry Zalma & ClaimSchool, Inc., Go to my blog & Videos at: Zalma on Insurance, And at https://zalma.com/blog, Go to the Insurance Claims Library, Listen to the Podcast: Zalma on Insurance, Videos from Zalma on Insurance, Subscribe to Barry Zalma on Substack.com, Subscribe to e-mail Version of ZIFL, it’s Free! Read last two issues of ZIFL here. Go to the Barry Zalma, Inc. web site here, Videos from “Barry Zalma on YouTube”  Go to Barry Zalma videos at Rumble.com at https://rumble.com/zalma

Some Articles from the Current Issue

Convicted Insurance Fraudster Loses Appeal

In The People of The State Of New York v. Kevin A. Ashby, No. 2021-07434, Supreme Court of New York, Fourth Department (December 23, 2021) after he was convicted, Kevin A. Ashby appealed the jury verdict of insurance fraud in the third degree and attempted grand larceny in the third degree.

Ashby contended that the indictment was jurisdictionally defective. The failure of the first count of the indictment to recite all the elements of the crime in full. However, the appellate court found that the failure did not constitute a jurisdictional defect because that count specifically referred to the applicable section of the Penal Law.

Although defendant further contended that each count of the indictment was legally insufficient because the counts do not set forth sufficient factual allegations, he failed to preserve his contention for the court’s review.

Ashby also contended that count one of the indictment was impermissibly amended.

Contrary to defendant’s contention, he was required to preserve that contention for appellate review. Although past cases of this Court have not required preservation of such a contention defendant failed to preserve his contention for review and the court declined to exercise its power to review it as a matter of discretion in the interest of justice.

After Insurance Fraud Indictment Dismissed Defendants Sue Police Officer

Arrest Warrant Issued Fairly Defeats Malicious Prosecution Suit

Evidence Required to Support Malicious Prosecution Against Police

Vicki Davis and Robin Trawick filed suit against Defendants State Farm Fire and Casualty Company (“State Farm”), Don Allen, and the Georgia Office of Insurance and Safety Fire Commissioner (“OCI”) because they were arrested for insurance fraud which charges were later dismissed. Defendants Allen and OCI moved the court to dismiss the malicious prosecution action in Vicki H. Davis and Robin R. Trawick v. State Farm Fire and Casualty Company, et al., No. 1:21-cv-2988-MLB, United States District Court, N.D. Georgia, Atlanta Division (December 23, 2021).

Read the rest of the article at https://zalma.com/zalmas-insurance-fraud-letter-2/

Workers’ Compensation Board Improperly Ignored Evidence of Fraud

NEW YORK WORKERS’ COMPENSATION BOARD ABUSED ITS DISCRETION

After the Workers’ Compensation Board ruled, among other things, that the application of Everest National Insurance Company was required to pay benefits it appealed seeking review of the decision of the Workers’ Compensation Law Judge that its actions were untimely, and from a decision of said Board, filed October 28, 2019, which denied an application by Everest National Insurance Company for reconsideration and/or full Board review. Everest appealed because it was not provided proper notice, was not the insurer and because the allegedly injured worker was perpetrating a fraud.

In the Matter of the Claim of Michel Salinas v. Power Services Solutions LLC et al., and South Side Services Inc. et al. Workers’ Compensation Board, No. 2021-0732, Supreme Court of New York, Third Department (December 23, 2021) the appellate court resolved the dispute.

Read the rest of the article at https://zalma.com/zalmas-insurance-fraud-letter-2/

A Proposal to Defeat Insurance Fraud

A Proposal that Every Insurer Should Establish a Corporate Position to Refuse to Pay a Fraud

See the full video of this proposal at https://rumble.com/vs8qes-how-to-defeat-insurance-fraud.html and at https://youtu.be/USCEdOuXs2A Every first party property policy of insurance contains the following language mandated by the statutory New York Standard Fire Policy.

Read the rest of the article at https://zalma.com/zalmas-insurance-fraud-letter-2/

Insurance Fraud Conviction Affirmed

Conviction Deserved When Perpetrator Admits He Was Not Injured

In State of Utah v. Julio Ayala, No. 20170928-CA, 2022 UT App 1, Court of Appeals of Utah (January 6, 2022) the prosecution proved that Julio Ayala was involved in multiple automobile accidents while driving his truck and trailer. Ayala filed claims with several insurance companies, and those insurers paid for, among other things, numerous chiropractic treatments and property damage claims. Ayala later admitted to a private investigator that he had not been injured in the accidents but nonetheless believed he had a right to receive insurance benefits.

Read the rest of the article at https://zalma.com/zalmas-insurance-fraud-letter-2/

Health Insurance Fraud Convictions

UC San Diego Health Pays $2.98 Million To Resolve Allegations of Ordering Unnecessary Testing

UC San Diego Health, the academic health system of the University of California, San Diego, paid $2.98 million to the U.S. to resolve allegations that it violated the False Claims Act by ordering medically unnecessary genetic testing reimbursed by Medicare.

The settlement resolves allegations that, from December 2015 to October 2019, UC San Diego Health ordered and submitted referrals for medically unnecessary genetic testing performed by CQuentia Arkansas Labs, CQuentia NGS and Total Diagnostic II (collectively “the CQuentia labs”). The government alleged that this conduct led to the submission of false claims for payment to Medicare for these tests.

Read the rest of the article at https://zalma.com/zalmas-insurance-fraud-letter-2/

Guilty Verdict Stands for Failure to Preserve Issue for Appeal

Guilty Verdict of Insurance Fraud Stands for Lack of Appellate Issues

The appellate courts of the state of New York are noted for the ability to write a succinct, clear and unambiguous decision on an appeal by a convicted criminal. In The People of The State Of New York v. Kevin A. Ashby, No. 2021-07434, Supreme Court of New York, Fourth Department (December 23, 2021) Kevin A. Ashby appealed from a judgment that convicted him upon a jury verdict of insurance fraud in the third degree and attempted grand larceny in the third degree.

Read the rest of the article at https://zalma.com/zalmas-insurance-fraud-letter-2/

Other Insurance Fraud Convictions

Louisiana Woman 30th Guilty Plea in Staged Auto Crash Cases

Donisha Lee, age 30, admitted that on September 6, 2017, on the I-10 near the Almonaster exit, she was a passenger in Erica Lee’s 2015 RAV4 being driven by their former co-defendant, when he intentionally crashed into a tractor-trailer owned by Averitt Express. After the staged accident, the driver exited the RAV4 and told Erica Lee to get behind the wheel of the RAV4 to make it appear that Erica Lee was driving the vehicle at the time of the staged accident. The defendants contacted the New Orleans Police Department and falsely claimed that Erica Lee was the driver at the time of the collision. Passenger A falsely claimed to the NOPD that she was Thompson.

Read the rest of the article at https://zalma.com/zalmas-insurance-fraud-letter-2/

Excellence in Claims Handling

A Series of Video Presentations and Text on Insurance Claims

Go to “Excellence in Claims Handling” and subscribe at https://barryzalma.substack.com/welcome and go to https://zalmaoninsurance.locals.com/subscribe subscribe to my locals account. See the introductory video at https://youtu.be/kLSSBG7kZy0 and at https://rumble.com/vrhaka-excellence-in-claims-handling.html

Read the rest of the article at https://zalma.com/zalmas-insurance-fraud-letter-2/

© 2022 – Barry Zalma

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 54 years in the insurance business.

Subscribe to “Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe and “Excellence in Claims Handling” at https://barryzalma.substack.com/welcome.

You can contact Mr. Zalma at https://www.zalma.com, https://www.claimschool.com, zalma@claimschool.com and zalma@zalma.com . Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

You may find interesting the podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma;  you can follow Mr. Zalma on Twitter at; you should  see Barry Zalma’s videos on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; or videos on https://rumble.com/zalma. Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claimslibrary/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ 

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Supreme Court of Delaware Applies Policy as Written

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Economic Damages not a Risk Insured Against

Insurance is not Designed to Cure Public Ills

The Supreme Court of Delaware was asked whether insurance policies covering lawsuits “for” or “because of” personal injury require insurers to defend their insureds when the plaintiffs in the underlying suits expressly disavow claims for personal injury and seek only their own economic damages. The trial Court decided that the insured, Rite Aid, could effective compel its insurance carriers to defend it against lawsuits filed by two Ohio counties to recover opioid-epidemic-related economic damages.

In ACE American Insurance Company, Illinois Union Insurance Company, ACE Property & Casualty Company, and Federal Insurance Company v. Rite Aid Corporation, Rite Aid Hdqtrs. Corporation, and Rite Aid Of Maryland, Inc. d/b/a Mid-Atlantic Customer Support Center, No. 339, 2020, Supreme Court of Delaware (January 10, 2022) the Delaware Supreme Court resolved the dispute by reading the policies involved and the facts alleged by the Ohio Counties.

FACTS

Three classes of plaintiffs are within the scope of the insured’s personal injury coverage:

  1. the person injured,
  2. those recovering on behalf of the person injured, and
  3. people or organizations that directly cared for or treated the person injured.

To recover under the insured’s policy as a person or organization that directly cared for or treated the injured person, the plaintiff must prove the costs of caring for the individual’s personal injury. The plaintiffs, governmental entities, sought to recover only their own economic damages, specifically disclaiming recovery for personal injury or any specific treatment damages.

Rite Aid is a national drugstore company with about 2,500 stores around the country. Chubb wrote general liability insurance for Rite Aid.

Rite Aid and others are defendants in multi-district litigation before the United States District Court for the Northern District of Ohio (the “MDL Opioid Lawsuits”). Plaintiffs have filed over a thousand suits in the MDL Opioid Lawsuits against companies in the pharmaceutical supply chain for their roles in the national opioid crisis. Certain suits are bellwether suits-including the complaints of Summit and Cuyahoga Counties in Ohio (“the Counties”) which are at issue before the Delaware Supreme Court.

The Counties’ cases are called the “Track One Lawsuits.” Those lawsuits: “take[] aim at the two primary causes of the opioid crisis: (a) a marketing scheme [by certain defendants] . . .; and (b) a supply chain scheme, pursuant to which the various entities in the supply chain failed to design and operate systems to identify suspicious orders of prescription opioids, maintain effective controls against diversion, and halt suspicious orders when they were identified, thereby contributing to the oversupply of such drugs and fueling an illegal secondary market.”

ACE Policy XSL G27390900, the 2015 Policy “applies” to “personal injury” which “is caused by an ‘occurrence’ that takes place in the ‘coverage territory;’ and . . . occurs during the policy period.” “Personal injury” is defined in part as “bodily injury” and includes “any continuation, change, or resumption of that ‘personal injury’ . . . after the end of the policy period.” “Bodily injury” has its own definition: “bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.” And an occurrence, with respect to bodily injury, is “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Finally, the 2015 Policy provides that Chubb has a “duty to defend the insured against any ‘suit’ seeking [personal injury] damages.”

After Chubb denied coverage, Rite Aid sued the carriers in the Superior Court, claiming breach of contract, seeking a declaratory judgment on the duty to pay or reimburse defense costs, and statutory remedies for Chubb’s refusal to defend without good cause under Pennsylvania law. Rite Aid moved for partial summary judgment seeking a declaration that Chubb is obligated to “pay or reimburse” Rite Aid’s defense costs for the Track One Lawsuits and “all similarly pled lawsuits[, ]” which would likely encompass most of the MDL Opioid Lawsuits. Chubb moved for partial summary judgment on the grounds that it had no obligation to defend Rite Aid in the lawsuits.

The Superior Court granted summary judgment to Rite Aid.

ANALYSIS

Chubb acknowledges that an insurer has a duty to defend the insured when a complaint seeks damages for injuries that arguably are covered by the policy. And Chubb agrees that the 2015 Policy covers suits seeking damages “for” or “because of” personal injury. Coverage depends on whether the bodily injury was suffered by the plaintiff, or someone asserting bodily injury liability derivatively for the harmed party. Dispositive to the Supreme Court was the fact that the Counties did not suffer personal injury and thus seek compensation only for their non-derivative economic harms, even if those harms have some causal connection to a bodily injury.

It is axiomatic that the duty to defend is broad. An insurer has an obligation to defend its insured, even if the action against the insured is groundless, whenever the complaint may potentially come within the coverage of the policy. This applies even when the complaint has only one allegation that falls within the scope of the policy’s coverage and even if an insured is ultimately found to be not liable.

Taking Cuyahoga County’s complaint as representative, it seeks “economic damages” as a “direct and proximate result” of Rite Aid’s failure to “effectively prevent diversion” and “monitor, report, and prevent suspicious orders” of opioids. Cuyahoga alleges that Rite Aid’s conduct also “fell far short of legal requirements” and “contributed significantly to the opioid crisis by enabling, and failing to prevent, the diversion of opioids” for illegal and non-prescription use. Cuyahoga claims the opioid crisis “saddled [it] with an enormous economic burden,” with “several departments [incurring] direct and specific response costs that total tens of millions of dollars[, ]” including costs in the areas of medical treatment and criminal justice.

The complaints do not allege personal injury damage claims for or on behalf of individuals who suffered or died from the allegedly abusive prescription dispensing practices. Rather, the Counties expressly disclaimed personal injury damages. The Counties made clear that: they “do not seek damages for death, physical injury to person, emotional distress, or physical damages to property;” and their increased costs are of a different kind and degree than Ohio citizens at large and can only be suffered by the Counties and are not based upon or derivative of the rights of others.

Delaware law recognizes that the duty to defend test extends past the mere labels of a claim, inquiring into whether the factual allegations in the underlying complaint potentially support a covered claim. However, the Track One Lawsuits asserted no claims for personal injury-just facts that support the economic loss claims. The Supreme Court recognized that the plaintiffs did not seek damages for personal injury. They seek to recover for non-derivative economic loss.

The Supreme Court, looking to the mutual intent at the time of contracting, an objective, reasonable third party would read damages claimed by any person or organization for care or death resulting at any time from the personal injury to mean damages directly resulting from the personal injury-damages for providing care to an injured individual.

The Supreme Court noted that if the Counties ran public hospitals and sued Rite Aid on behalf of these hospitals to recover their actual, demonstrated costs for treating bodily injuries caused by opioid over-prescription, the 2015 Policy would most likely be triggered. However, the Counties’ alleged damages do not depend on proof of bodily injuries or even suggest them.

The complaints, the Supreme Court concluded, are not covered by the 2015 Policy. The trial court was reversed and the Supreme Court concluded the insurers had no duty to defend or indemnify the insureds.

ZALMA OPINION

People insured and many judges seem to believe that insurance is not a contractually established risk transfer device but is a means of curing the ills of the community. They forget that insurance is a contract that protects the person or entity insured against certain identified fortuitous risks of loss. When, as in this case, the policy only insures against personal injury, there can be no duty to defend or indemnify the insured for economic damages that do not fit the definition of “personal injury.” The Supreme Court of Delaware read the policy and had no choice but to reverse the trial court and determine the insurers owed neither defense nor indemnity to the Rite Aid entities.


© 2022 – Barry Zalma

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 54 years in the insurance business.

Subscribe to “Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe and “Excellence in Claims Handling” at https://barryzalma.substack.com/welcome.

You can contact Mr. Zalma at https://www.zalma.com, https://www.claimschool.com, zalma@claimschool.com and zalma@zalma.com . Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

You may find interesting the podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma;  you can follow Mr. Zalma on Twitter at; you should  see Barry Zalma’s videos on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; or videos on https://rumble.com/zalma. Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claimslibrary/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ 

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Guilty Verdict Stands for Failure to Preserve Issue for Appeal

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Guilty Verdict of Insurance Fraud Stands for Lack of Appellate Issues

The appellate courts of the state of New York are noted for the ability to write a succinct, clear and unambiguous decision on an appeal by a convicted criminal. In The People Of The State Of New York v. Kevin A. Ashby, No. 2021-07434, Supreme Court of New York, Fourth Department (December 23, 2021) Kevin A. Ashby appealed from a judgment that convicted him upon a jury verdict of insurance fraud in the third degree and attempted grand larceny in the third degree only to have his appeal rejected summarily.

THE APPEAL

On appeal from a judgment convicting him upon a jury verdict of insurance fraud in the third degree (Penal Law § 176.20), defendant Ashby contended that the indictment is jurisdictionally defective.

The failure of the first count of the indictment to recite all the elements of the crime in full “did not constitute a jurisdictional defect because that count specifically referred to the applicable section of the Penal Law” and is not sufficient to maintain an appeal to a conviction.

Although defendant contended that each count of the indictment is legally insufficient because the counts do not set forth sufficient factual allegations, he failed to preserve his contention for review, and the court declined to exercise its power to review it as a matter of discretion in the interest of justice.

Ashby also contended that count one of the indictments was impermissibly amended. Contrary to defendant’s contention he was required to preserve that contention for appellate review.

ZALMA OPINION

Insurance fraud perpetrators who are convicted by a jury are usually so shocked that they were arrested, tried and convicted that they immediately file an appeal even if they have no viable ground supporting the appeal. Mr. Ashby’s appeal was simply inadequate and was disposed of with alacrity by the appellate court for failure to preserve any of the issues at trial and because he was properly charged, tried, convicted and sentenced.


© 2022 – Barry Zalma

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 54 years in the insurance business.

Subscribe to “Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe and “Excellence in Claims Handling” at https://barryzalma.substack.com/welcome.

You can contact Mr. Zalma at https://www.zalma.com, https://www.claimschool.com, zalma@claimschool.com and zalma@zalma.com . Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

You may find interesting the podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma;  you can follow Mr. Zalma on Twitter at; you should  see Barry Zalma’s videos on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; or videos on https://rumble.com/zalma. Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claimslibrary/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ 

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Insurance Fraud Conviction Affirmed

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Conviction Deserved When Perpetrator Admits He Was Not Injured

In State of Utah v. Julio Ayala, No. 20170928-CA, 2022 UT App 1, Court of Appeals of Utah (January 6, 2022) the prosecution proved that Julio Ayala was involved in multiple automobile accidents while driving his truck and trailer. Ayala filed claims with several insurance companies, and those insurers paid for, among other things, numerous chiropractic treatments and property damage claims. Ayala later admitted to a private investigator that he had not been injured in the accidents but nonetheless believed he had a right to receive insurance benefits.

After Ayala was criminally charged, the case was tried without a jury and the court convicted Ayala on one count of a pattern of unlawful activity and one count of felony insurance fraud. Ayala appealed, claiming (1) that the trial court committed plain error when it convicted him based on insufficient evidence that his crime met the threshold for a third-degree felony and (2) that his counsel was ineffective for failing to call an expert witness to opine on interpretation errors in Ayala’s interview with the private investigator.

BACKGROUND

Between January 2010 and July 2012, Ayala was involved in five automobile accidents. In each accident, he was rear-ended by another vehicle. For three of those accidents-the first in January 2010, the second in December 2010, and the third in April 2012-Ayala filed claims with his insurance company, which in turn paid for chiropractic care for him and damage to his vehicle and trailer.

In March 2013, Ayala had another similar accident. When he again sought insurance benefits for alleged damage to his trailer, the insurance company sent a private investigator to interview him. Because Ayala speaks primarily Spanish, the private investigator provided an interpreter (Interpreter) to relay questions to Ayala and his attorney. Ayala’s attorney, who was present during the interview, spoke English and Spanish and interjected several times to aid in and clarify the interpretation of the questions the investigator asked Ayala.

During the interview, Ayala admitted that he had not been injured in any of the accidents. Ayala stated that his insurance coverage entitled him to chiropractic treatments following the accidents, even if he had not been injured. Ayala agreed with the private investigator that he had “received treatment for no reason” and added, “[S]ince I am covered because of my insurance and that’s my right.” At the end of the interview, Ayala affirmed that he had understood all the investigator’s questions.

A complaint was made with the Insurance Fraud Division of the Utah Insurance Department, and the State charged Ayala with one count of a pattern of unlawful activity and two counts of insurance fraud.

The trial court concluded that Ayala had filed claims for chiropractic treatment following the January 2010 accident, the December 2010 accident, and the April 2012 accident, despite the fact that he had not been injured in those accidents. The trial court also convicted Ayala on the felony insurance fraud count.

ANALYSIS

With regard to Counsel’s awareness of the interpretation issues, the court found the following on remand:

  • Counsel was aware of the deficiencies with the interpretation but believed he could rely on his own fluency in Spanish to address any of its problems through cross-examination rather than calling on an expert to testify.
  • Counsel believed that the testimonies from several chiropractors would objectively establish that Ayala was injured, and he considered the problems with the interpretation a “side-issue.”
  • In retrospect, Counsel wished he had called an expert to testify about issues with the interpretation.

About the testimonies of the two experts, the court made the following findings:

  1. The two expert interpreters’ evaluations of the interview were based solely on the transcripts, and they did not listen to an audio recording of the interview.
  2. The first expert interpreter “acknowledged that a good portion of language is non-verbal. Vocal tone, eye contact, body language, and gestures do not come across in written translation, and an interpreter sitting next to the individual for whom they are interpreting may more easily be able to determine if the individual is understanding the interpretation.”
  3. The second expert interpreter conceded that “he [was] missing some context and nuances that [could] not be ascertained solely from reviewing the transcript.”
  4. The expert interpreters pointed out some words in the interpretation that could have been substituted with more accurate terms. The first expert noted that for the English word “injury,” the Interpreter used Spanish language that typically refers “to hurt feelings or actual physical injury, depending On the context.”
  5. The expert explained that it would have been more accurate to employ different Spanish language that is “commonly used to describe a more serious injury.”
  6. The second expert interpreter noted that when Ayala talked about his “right” to receive insurance benefits, a more accurate interpretation would have conveyed that Ayala believed he was “deserving” of receiving the benefits.
  7. Although the two expert interpreters “were credible” and their “expertise unquestioned[, ] . . . many of the objections to the quality of [the] interpretation were more technical than practical.”

The hearing testimony and report of the experts did not persuade the trial court that the interpretation was misunderstood by Ayala to any substantial degree, or that Ayala’s responses during the insurance investigation were so missperceived and misstated as to obscure their essential meaning.

Ayala asked the appellate court to conclude that the trial court wrongly convicted him of felony insurance fraud because the evidence did not show that he received at least $1,500 in fraudulent insurance benefits-the minimum threshold for a third-degree felony.

Contrary to the request, the appellate court concluded that the trial judge did not commit error, because there was evidence sufficient to show that Ayala received nearly $2,000 in insurance benefits in connection with his fraudulent insurance claim. Specifically, defense exhibit 5 (which Ayala produced at trial) included six claim forms for chiropractic treatments received from April 20 to May 18, 2012, in connection with the April 2012 accident and claim. Accordingly, there was sufficient evidence to support Ayala’s third-degree-felony conviction.

Ayala’s defense was not prejudiced by Counsel’s alleged deficient performance and the trial court found that Counsel was familiar with the facts of the case and was confident in his ability to cross-examine Interpreter on his own, and thus he would not need to hire an expert. Counsel’s cross-examination of Interpreter elicited the same information about the problematic aspects of the interpretation as would have been offered by the two experts. Thus, it is clear that the testimonies of the experts about the quality of interpretation-had they been included at trial-would not have had an impact on the proceeding’s outcome for the simple reason that their testimonies would have added nothing substantive to the testimony about the interpretation deficiencies Counsel elicited on his own.

Although it may be true that the interpretation was inelegant in that it suffered from certain deficiencies and a lack of nuance, any problems with it were not so profound as to undermine the appellate court’s confidence in the proceeding’s outcome.

Therefore, the court of appeals concluded that the trial court did not err in convicting Ayala of felony insurance fraud, because sufficient evidence was presented at trial that Ayala received more than $1,500 in insurance benefits in connection with the fraudulent claim related to that count.

ZALMA OPINION

Major insurance frauds are ignored by prosecutors. A $1500 to $2000 fraud was tried to a judge, the defendant was properly convicted and will be appropriately punished because he was ignorant enough, with his lawyer present, to tell an investigator that he was not injured in any of the accidents and received chiropractic treatment as – what he believed to be a right – even though there was no physical reason for the treatment. Taking this case up on appeal is an example of why states are loathe to bring insurance fraud cases to trial because of the expense of a trial and an appeal far exceed the amount taken in the fraud. However, if other states emulate Utah any prosecution and conviction will deter others from attempting fraud.


© 2022 – Barry Zalma

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 54 years in the insurance business.

Subscribe to “Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe and “Excellence in Claims Handling” at https://barryzalma.substack.com/welcome.

You can contact Mr. Zalma at https://www.zalma.com, https://www.claimschool.com, zalma@claimschool.com and zalma@zalma.com . Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

You may find interesting the podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma;  you can follow Mr. Zalma on Twitter at; you should  see Barry Zalma’s videos on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; or videos on https://rumble.com/zalma. Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claimslibrary/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ 

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Forced Placed Insurance only Insured the Risk Faced by the Lender

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Homeowner not a Beneficiary of a Forced Placed Policy

A homeowner sued the bank that held her mortgage and the bank’s insurance company. The bank had force-placed insurance on her property because she let her prior insurance lapse. She claimed the insurance company refused to pay for damage after a storm. In Nina Breland v. Trustmark Corporation D/B/A Appelleestrustmark National Bank, Proctorfinancial Inc. A/K/A Proctor Financialinsurance Company, And Certainunderwriters At Lloyd’s Of London, Including Ironshore Europe Limited, No. 2020-CA-00970-COA, Court of Appeals of Mississippi (January 4, 2022) resolved the dispute after the trial court granted summary judgment, finding the bank and insurance company were not liable because Ms Breland did not have a contractual relationship with the insurer

FACTS

In 2004, Trustmark National Bank loaned Nina Breland $78,500 to allow her to buy a house in Gulfport. The house was financed by a Fannie Mae mortgage through Trustmark. As a result, Trustmark used a series of guidelines propagated by Fannie Mae.

The Deed of Trust on the home required Ms. Breland to insure it. She initially obtained a homeowner’s hazard insurance policy and wind policy for the home. Ms. Breland maintained this private insurance from March 2004 to March 2015.

In 2015, Ms. Breland’s insurance carrier notified her that it was discontinuing her insurance coverage for wind damage. Ms. Breland failed to obtain a new wind policy. Trustmark sent letters to Ms. Breland on several occasions informing her that the hazard and windstorm coverage had lapsed. By these notices, the bank informed her that under the Deed of Trust it intended to force-place insurance if she did not secure her own private insurance.

After Ms. Breland failed to obtain adequate insurance coverage, Trustmark secured force-placed insurance coverage on her house through a third-party insurance servicing company known as Proctor Financial Inc. According to the Deed of Trust, Ms. Breland was obligated to pay the policy premiums despite her interests being unprotected by the insurance. Notably, Trustmark-not Ms. Breland-was the named insured under the policy. Ms. Breland was not a party to the policy and was not an additional insured on the policy.

The policy issued windstorm coverage which ran from 2015 through 2016. The policy charged a higher premium than Ms. Breland had paid for her private insurance. The policy also had a $5,000 deductible, which Ms. Breland’s private insurance did not have. Ms. Breland never obtained windstorm coverage during the 2015 through 2016 period.

As a result, the force-placed windstorm coverage was reinstated from 2016 to 2017 in the amount of $100,000.

In March 2016, Ms. Breland’s home was damaged in a windstorm. She initially claimed a loss of $2,244. She filed a windstorm claim with Ironshore. The insurer denied the claim on the basis that its investigation revealed that the cost to repair the home did not exceed the $5,000 deductible. In August 2017, Ms. Breland commissioned a second inspection of her home. This second inspection quoted Ms. Breland an estimate of $14,550 to replace her roof and decking as well as correct termite damage. Ms. Breland later obtained private insurance coverage, and Trustmark subsequently canceled the force-placed coverage.

In granting summary judgment, the trial court found that Ms. Breland was not a third-party beneficiary to the force-placed insurance contract, Trustmark did not breach its contract with Ms. Breland, and she had no private right of action to enforce federal Fannie Mae regulations that governed her mortgage. The trial court further held that Trustmark and the insurance companies did not act wrongfully and dismissed Ms. Breland’s claims of civil conspiracy and punitive damages.

Ms. Breland appealed.

DISCUSSION

A party must show, to establish it is a third-party beneficiary, the contracts between the original parties must have been entered for his benefit, or at least such benefit must be the direct result of the performance within the contemplation of the parties as shown by its terms.

When the contract of insurance was between the bank and the insurance providers, with the property owner as an additional insured, the property owner’s claims necessarily fail as a matter of law.

The Mississippi Supreme Court has held that to receive third-party-beneficiary status, the contract “must have been entered for his benefit. Here, the contract for insurance between Trustmark and Ironshore was not for the benefit of Ms. Breland, but rather for the benefit of the bank. Additionally, it is clear under the Deed of Trust and on the plain face of the insurance contract that Ironshore’s insurance was intended to protect the interests of Trustmark. The whole purpose of the Deed of Trust’s clause securing force-placed insurance was to safeguard the interests of the mortgage holder. Here, the mortgage holder is Trustmark.

Additionally, the Deed of Trust makes clear that “such coverage shall cover Lender, but might or might not protect Borrower . . . .” (Emphasis added). In other words, the force-placed insurance was not for her benefit. In addition, the letters sent to her indicated that insurance was being force-placed to protect the bank’s interests, and these notices were sent to her on more than one occasion.

Here, Ms. Breland contends that the contracts at issue are the Deed of Trust between herself and Trustmark and the force-placed insurance policies covering her home. However, it is axiomatic that the duty of good faith arises only when there is a contractual relationship between parties. Neither Ironshore nor Proctor were parties to any contract with Ms. Breland. Therefore, her claim against the bank and insurance companies fails as a matter of law.

Mississippi law requires that the right of a third party to maintain an action as a third-party beneficiary must spring from the contract terms and Ms. Breland could not offer competent summary judgment evidence to support the conclusion that she was an intended third-party beneficiary of Fannie Mae’s servicing guidelines.”

Under Mississippi law, punitive damages may be considered if, but only if, an award of compensatory damages has been made against a party.[Miss. Code Ann. § 11-1-65(c) (Rev. 2019).] As all the defendants correctly point out, Ms. Breland’s claim for punitive damages fails at the outset because there was no award for compensatory damages.

ZALMA OPINION

Ms. Breland was lucky that the uninsured loss was small. She tried, however, to make a profit from her error, from her failure to fulfill the obligation under the deed of trust to maintain insurance protecting her and the lender from the risks of loss by windstorm and other perils. She did not fulfill her obligation under the deed of trust. The bank protected itself with a forced placed insurance and did not insure the risks faced by Ms. Breland. Her suit was unenforceable and an attempt to make her error into a profit by seeking bad faith and punitive damages from insurers who did not insure her directly or as a third party beneficiary.


© 2022 – Barry Zalma

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 54 years in the insurance business.

Subscribe to “Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe and “Excellence in Claims Handling” at https://barryzalma.substack.com/welcome.

You can contact Mr. Zalma at https://www.zalma.com, https://www,claimschool.com, zalma@claimschool.com and zalma@zalma.com . Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

You may find interesting the podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma;  you can follow Mr. Zalma on Twitter at; you should  see Barry Zalma’s videos on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; or videos on https://rumble.com/zalma. Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claimslibrary/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ 

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Federal Court Retains Jurisdiction of Rescission Case

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Material Misrepresentation on Application for Insurance Supports Rescission

Karen Macko (“Mrs. Macko”) and William Stephen Mackos (“Mr. Macko”) (together, the “Mackos”) moved the court to dismiss a suit brought by their insurer seeking confirmation of the rescission of an insurance policy. In Safeport Insurance Company v. Karen Macko and William Stephen Macko, No. 9:21-cv-00131-DCN, United States District Court, D. South Carolina, Beaufort Division (December 8, 2021) the USDC resolved the claims.

BACKGROUND

The Mackos purchased a home on, Hilton Head Island, South Carolina (the “Home”). The Home is titled in the name of both Mr. and Mrs. Macko, as joint tenants with right of survivorship. In December 2018, Mrs. Macko applied for insurance for the Home with SafePort through a third-party insurance agency, American Auto Club Insurance Agency (“American Auto”). Whether the application was prepared by Mrs. Macko herself or her agent, in response to questions in the application, Mrs. Macko was identified as an unmarried individual who owned the Home outright. Further, Mrs. Macko’s application indicated that no member of her household had been convicted of a felony or other serious crime.

Mrs. Macko renewed the First Policy, at which time SafePort issued the Second Policy,  to Mrs. Macko. Later, Mr. Macko was added as a named insured on the Second Policy. During the term of the Second Policy, the Mackos suffered an accidental fire loss to the Home, making it uninhabitable (“the Fire Loss”).

Shortly thereafter, the Mackos engaged Servicemaster of Beaufort, Inc., a South Carolina corporation (“Servicemaster”), to remediate the damage to the Home. According to the Mackos, they engaged Servicemaster pursuant to SafePort’s direction and recommendation. Under the Second Policy, SafePort made payments to the Mackos for loss of use of the Home and authorized Servicemaster to remove all drywall from the Home and to dispose of the Mackos’ personal contents, which were deemed a total loss.

During its investigation, SafePort discovered two alleged misrepresentations in Mrs. Macko’s application for the First Policy. First, Mrs. Macko was married, contrary to the statements in her application identifying her as unmarried and owning the Home in full. Second, Mr. Macko had been convicted of felony insurance fraud, contrary to statements in the application that no member of the household had been convicted of a felony or other serious crime. As a result, SafePort mailed Mrs. Macko a letter purportedly rescinding the First Policy ab initio based on Mrs. Macko’s “provision of inaccurate information and/or omission of accurate information in the [] application.”

SafePort, sued seeking (1) a rescission of the Policies for equitable fraud and (2) declaratory judgment that it has no obligation to the Mackos or any other person under the Policies. The next day Servicemaster filed a mechanic’s lien against the Mackos and the Home to secure alleged amounts owed for work done at the Home relating to the Fire Loss.

Before filing an answer in this federal action, the Mackos filed an answer, crossclaims, and a third-party complaint in the State Court Action. In their crossclaims, the Mackos assert bad faith and breach of contract causes of action against SafePort and seek declaratory judgment. Specifically, the Mackos asked the state court to declare that the Second Policy was in effect at the time of the Fire Loss, that SafePort’s rescission was improper, that SafePort has failed to pay benefits due under the Second Policy, and that SafePort has engaged in improper claims practices.

On March 15, 2021, the Mackos filed a motion to dismiss this federal action pursuant to the abstention doctrine claiming the two suits deal with the same issues.

DISCUSSION

Because SafePort seeks a declaration that the Policies are void ab initio and that it owes the Mackos no obligations under the Policies, the Mackos perceive the case as falling exclusively under the Declaratory Judgment Act, 28 U.S.C. § 2201. The Declaratory Judgment Act makes clear that district courts possess discretion in determining whether and when to entertain an action under the Declaratory Judgment Act, even when the suit otherwise satisfies subject matter jurisdictional prerequisites.

SafePort claimed that it has brought a non-declaratory judgment claim of rescission which is within the jurisdiction of the federal court. While wise judicial policy and extraordinary circumstances may justify dismissal, courts must remain cognizant that abstention from the exercise of federal jurisdiction is the exception not the rule.

Rescission is a non-declaratory claim that a court must entertain unless there are extraordinary and narrow circumstances exist. To ensure that they have asked for all available relief, plaintiffs commonly add a request for declaratory relief in addition to requests for equitable or monetary relief. The USDC declined to adopt a rule that would transform that thoroughness into a handicap.

Two conditions must be present for a court to decline jurisdiction: First, there must be parallel proceedings in state and federal court. Second, exceptional circumstances warranting abstention must exist.

Parallel Proceedings

Suits are parallel if substantially the same parties litigate substantially the same issues in different forums. Because of the additional parties in the State Court Action, the parties are not facially the same.

SafePort argues that the lawsuits do not litigate substantially the same issues because the primary complaint in the State Court Action involves Servicemaster’s attempts to recover for the work it completed at the home.

Both actions involve the factual issues of whether Mrs. Macko made misrepresentations in her insurance application and whether SafePort relied on those misrepresentations in issuing the Policies. Both actions likewise involve the legal issues of whether the Policies are void ab initio and whether SafePort is liable for any portion of the Fire Loss. Still, the court’s analysis is complicated by the fact that SafePort seeks the additional remedy of rescission in this action and does not assert that cause of action in the State Court Action.

State and federal claims arising out of the same factual circumstances do not qualify as parallel if they differ in scope or involve different remedies. Rather, a federal court may abstain only if it concludes that the parallel state-court litigation will be an adequate vehicle for the complete and prompt resolution of the issues between the parties. If there is any serious doubt that the state action would resolve all of the claims, it would be a serious abuse of discretion to abstain. Because SafePort’s rescission cause of action is not asserted in the State Court Action, the State Court Action would not resolve all of the claims before this court, which supports a finding that the actions are not parallel.

The court did not not find that circumstances or justification for abstention exist in the case brought by SafePort. Therefore, the court found it was required to support its virtually unflagging obligation to exercise its jurisdiction over the instant matter properly before it.

ZALMA OPINION

People who defraud insurance companies or obtain insurance under false pretenses prefer to litigate against their insurer in state court. The Macko’s, before responding to the Federal Action responded to a state court action to enforce a contractor’s lien and expanded it to cover some of the issues in federal action and then claim the two actions are parallel. The attempt properly failed and the rescission action can be resolved in federal court and, based on the record of misrepresentations and concealment of material facts – the prior insurance fraud conviction of Mr. Macko – should be dispositive. The jurisdictional ploy to avoid federal court failed.


© 2022 – Barry Zalma

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 54 years in the insurance business.

Subscribe to “Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe and “Excellence in Claims Handling” at https://barryzalma.substack.com/welcome.

You can contact Mr. Zalma at https://www.zalma.com, https://www,claimschool.com, zalma@claimschool.com and zalma@zalma.com . Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

You may find interesting the podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma;  you can follow Mr. Zalma on Twitter at; you should  see Barry Zalma’s videos on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; or videos on https://rumble.com/zalma. Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claimslibrary/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ 

 

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How to Defeat Insurance Fraud

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A Video Explaining the Efforts Needed to Deter or Defeat Insurance Fraud

See the video at https://rumble.com/vs8qes-how-to-defeat-insurance-fraud.html and at https://youtu.be/USCEdOuXs2A

Insurance fraud is a crime in most states of the United States. The victims of the crime of insurance fraud are insurers – no one else. The crime is committed by every race, gender, national origin, religion, or sexual orientation.

The crime of insurance fraud takes from the insurance industry and, as a result, the insurance buying public, anywhere from $80 to $300 billion dollars every year. No one knows the real amount because most insurance fraud attempts succeed.

I have been involved in insurer’s attempts to defeat insurance fraud for almost 54 years. I have seen frauds succeed. I have had clients compel settlement of a fraudulent claim with voluminous evidence sufficient to prove the fraud beyond a preponderance of the evidence, to avoid the possibility of a bad faith. The only way, in my experience, to defeat insurance fraud is to take the profit out of the crime. Criminal prosecutions don’t take the profit out of the crime since there are few arrests, fewer convictions and most sentences, even after a conviction, are mild and often do not require full restitution.

As a result, many insurers refuse to rely upon police agencies. Even state Insurance Fraud Divisions or Insurance Fraud Bureaus, because of a lack of success of those agencies to reduce insurance fraud. Courageous insurers have decided to refuse to be victims of fraud. They refuse to pay. They take fraud cases to trial and appeal all adverse judgments. Some are beginning to take advantage of whistle blower provisions in state Insurance Fraud Prevention Acts (IFPA).

California’s Code of Regulations describe a thorough investigation at Section 2698.36. “Investigating Suspected Insurance Fraud” explains what is required to complete a thorough investigation.

It requires that the SIU shall establish, maintain, distribute and adhere to written procedures for the investigation of possible suspected insurance fraud. An investigation of possible suspected insurance fraud shall include:

  • A thorough analysis of a claim file, application, or insurance transaction.
  • Identification and interviews of potential witnesses who may provide information on the accuracy of the claim or application.
  • Utilizing industry-recognized databases.
  • Preservation of documents and other evidence.
  • Writing a concise and complete summary of the investigation, including the investigator’s findings regarding the suspected insurance fraud and the basis for their findings.

In addition, to complete a thorough investigation of a suspected fraudulent claim should include:

  • Detailed recorded statements of the insured and all independent witnesses.
  • A demand for production of all documentation available to the insured relating to the loss such as:
    • Title documents.
    • Purchase documents such as receipts, purchase orders, purchase contracts, invoices, warranties, credit car statements, and the like.
    • Telephone records.
    • Tax returns.
    • Employment records.
    • Repair invoices.
    • Repair estimates.
    • Replacement estimates.
  • An examination under oath of the insured(s)
  • An examination under oath of any partners, employees or officers of a suspected corporation or partnership.
  • Reports of any relevant experts like a fire cause and origin expert.
  • Advice and counsel of an independent insurance coverage lawyer.

The Qui Tam Solution to Insurance Fraud

In a case of amazing and surprising perspicacity, the California Legislature recognized the problem and added to The California Insurance Frauds Prevention Act (“CIFPA”) a qui tam provision that made it possible for insurers to file whistleblower suits against fraud perpetrators.

This is a real weapon available to insurers who wish to defeat insurance fraud. The insurer who has collected sufficient evidence to establish beyond a preponderance of the available evidence, was the victim of a single or multiple acts of insurance fraud may file suit under the statute in the name of the state of California. The punishment, if successful, will be enormous and the state and the insurer will share in the funds obtained.

This powerful tool should be emulated by every state as well as every federal court under the false claims act. Take the money from the fraudsters, take the profit out of the crime, and they will move on to other less prosecuted crimes like taking benefits from the U.S. Government’s efforts to ease the public’s cost of the Covid-19 pandemic.

What to do if There is No Available Qui Tam Statute

Every first party property policy of insurance contains the following language mandated by the statutory New York Standard Fire Policy.

This entire policy shall be void if, whether before or after a loss, the insured has willfully concealed or misrepresented any material fact or circumstance concerning this insurance or the subject thereof, or the interest of the insured therein, or in case of any fraud or false swearing by the insured relating thereto. [California Insurance Code Section 2071]

If, after a thorough investigation of a claim the insurer determines a fraud has been attempted and the insurer has obtained a preponderance of all available evidence that can establish a fraud was attempted, the insurer must advise the insured it will not pay and will declare the policy void in accordance with the policy language quoted above.

A Proposal that Every Insurer Should Establish a Corporate Position to Refuse to Pay a Fraud

Since it is often difficult to convince a state department of insurance, a state Attorney General or local prosecutors to prosecute insurance fraud perpetrators insurers must proactively act to defeat insurance fraud. If there is no opportunity to file a qui tam action the insurer must, as a corporate requirement, refuse to pay any insurance fraud perpetrator.

The insurer who truly desires to defeat insurance fraud must:

  1. Require that the entire staff of claims handlers be trained to recognize attempts at insurance fraud.
  2. Require that the entire staff of claims handlers be trained to recognize the “red flags of fraud.”
  3. Create, maintain and effectively fund an SIU staffed with insurance and fraud trained investigators.
  4. Require a thorough investigation of every claim.
  5. Require the claims staff to refer suspected insurance fraud attempts to the SIU when a claims investigation establishes no less than three red flags of fraud.
  6. Require the SIU to conduct a thorough suspected fraud investigation.
  7. When the SIU collects what it believes to be an attempt at insurance fraud it should refer, for advice and counsel, the claim to an experienced insurance coverage lawyer in the state where the claim was presented.
  8. If, after review of the claims investigation, coverage counsel opines that there is a preponderance of evidence establishing a fraud was attempted and claims management is convinced the advice is proper the claim must be rejected as a fraud.

If the insured sues the insurer for breach of contract or bad faith the insurer must:

  1. Publish to the insurance buying public that it is the insurer’s incorruptible opinion that it will never pay what it believes to be a fraudulent claim.
  2. Retain counsel to defend the insurer.
  3. Instruct defense counsel that the insurer expects counsel to take the matter to trial.
  4. Instruct defense counsel to aggressively defend the lawsuit.
  5. Instruct defense counsel to conduct every needed discovery immediately without courtesy.
  6. Instruct defense counsel to depose every insured, every witness and every expert consulted by the insured, as soon as possible after the filing of the law suit.
  7. Instruct defense counsel to move the trial court for orders limiting the actions of the plaintiff including, but not limited to, motions for summary judgment, motions to compel discovery responses, motions in limine and any other motion available to limit the case.
  8. Instruct defense counsel that he or she has no authority to settle or even consider negotiating a settlement.
  9. Instruct defense counsel to advise the policyholder’s counsel that the case must go to trial and there will be no settlement discussions.
  10. Instruct defense counsel to advise the court that because the insurer believes it was defrauded it is against the insurer’s corporate policy to pay anything to a fraud perpetrator.
  11. Instruct defense counsel to provide no “courtesy” to policyholder’s counsel.
  12. If, after trial, there is an adverse judgment against the insurer instruct counsel to immediately file an appeal.

By so doing a proactive insurer will establish proactively spend millions to defend against fraud and refuse to pay tribute to anyone, especially a fraud perpetrator.

Setting up such company policy will go a long way to reduce insurance fraud attempts against the insurer. Fraud perpetrators will move from that insurer to another. Those insurers who do not have such a corporate policy will find more attempts at insurance fraud and will be encouraged to take on the aggressive anti-fraud position taken by the insurer following the anti-fraud position proposed


© 2022 – Barry Zalma

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 54 years in the insurance business.

Subscribe to “Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe and “Excellence in Claims Handling” at https://barryzalma.substack.com/welcome.

You can contact Mr. Zalma at https://www.zalma.com, https://www,claimschool.com, zalma@claimschool.com and zalma@zalma.com . Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

You may find interesting the podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma;  you can follow Mr. Zalma on Twitter at; you should  see Barry Zalma’s videos on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; or videos on https://rumble.com/zalma. Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claimslibrary/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ 

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Second Edition: Construction Defects and Insurance Part Three Now Available

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Construction Defects and Insurance Volume Three Second Edition

NOW AVAILABLE FROM AMAZON.COM

Construction defects have grown into one of the most active areas of litigation in the United States.

Construction Defects and Insurance Volume Three Second Edition: The Commercial General Liability Policy the Construction Defect Policy; CGL Policy Format and Structure; Exclusions to CGL Insurance by [Barry Zalma]This, the third volume of the eight volume multi-volume treatise on construction defects and insurance is the newest addition to Barry Zalma’s insurance claims books that thoroughly explain how to identify construction defects, how to insure, investigate, prosecute, and defend cases that result from construction defect claims.

Written by nationally-renowned expert, Barry Zalma, Construction Defects & Insurance is designed to help property owners, developers, builders, contractors, subcontractors, insurers, lenders, risk managers and lawyers avoid construction litigation, confidently and rapidly resolve claims associated with construction defect issues, or litigate construction defect litigation.

Construction Defects & Insurance addresses a wide range of topics associated with this escalating and expensive problem. Barry Zalma, has more than 54 years’ practical experience in this area. He is a highly sought after consultant and insurance claims handling expert witness who has testified nationally in state and federal courts.

In this series of books he has also provided checklists that walk the reader through an analysis of construction defects, the process of purchasing and later invoking construction defect insurance, and what is necessary to prosecute or defend a construction defect lawsuit. The books also include helpful sample forms to assist in the identification of defects and numerous case studies to illustrate the state of litigation.

Thorough, yet practical, this series of books form the ideal guide for any professional who works in or frequently interacts with the construction industry, construction defect insurance or the legal practice prosecuting or defending suits alleging construction defects or insurance claims relating to construction defects.

Claims professionals, risk managers, producers, underwriters, attorneys (both plaintiff and defense), and business owners will benefit greatly from the multiple volumes.

It is also the perfect resource for insurance educators, trainers, and students whose role requires an understanding of construction defect law and construction insurance law.

This, the third volume of Construction Defects & Insurance, includes materials concerning:

  • The Commercial General Liability Policy the Construction Defect Policy
  • CGL Policy Format and Structure
  • Exclusions to CGL Insurance
  • Claims Made Provisions
  • Coverage After Project is Completed
  • Additional Insured Endorsements
  • Failure of Agent or Broker to Obtain Insurance Requested
  • Contractor’s Pollution Liability
  • Property Insurance
  • Construction Related Exclusions
  • Deductibles, Self-Insured-Retention & Coinsurance
  • Public Insurance Adjusters
  • Certificates of Insurance
  • Builders Risk Insurance
  • Obligations of a Condominium Association
  • Surety, Performance and Payment Bond Claims
  • Flood Insurance

Available as a Kindle book  Available as a Paperback  Available as a hardcover


© 2022 – Barry Zalma

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 54 years in the insurance business.

Subscribe to “Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe and “Excellence in Claims Handling” at https://barryzalma.substack.com/welcome.

You can contact Mr. Zalma at https://www.zalma.com, https://www,claimschool.com, zalma@claimschool.com and zalma@zalma.com . Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

You may find interesting the podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma;  you can follow Mr. Zalma on Twitter at; you should  see Barry Zalma’s videos on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; or videos on https://rumble.com/zalma. Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claimslibrary/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ 

 

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It Doesn’t Pay to Lie to Your Insurer

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Post Acquisition Fraud Can Support Rescission in Michigan

Meemic Insurance Company appealed a trial court’s order granting summary disposition in favor of all defendants to its suit for declaratory  judgment that it had no duty to defend or indemnify under a no-fault policy issued to its insured, defendant Patricia Musser, in connection with an automobile accident.

In Meemic Insurance Company v. Estate Of Brendon Pearce, et al , No. 352724, Court of Appeals of Michigan (November 23, 2021) the Court of Appeals resolved the issue and returned the case to the trial court.

BACKGROUND

This appeal involves Meemic’s obligation to provide insurance coverage in connection with a motor-vehicle accident. Melissa Sue Musser was driving southbound in a 2002 Oldsmobile Silhouette registered to her mother, Patricia Musser, when the vehicle encountered a large water puddle. Melissa lost control of the vehicle, left the road, turned over, and struck a tree. Ryan Harston, Joseph Grinage, John Musser, Andrew Musser, and Brendon Pearce were all passengers in the vehicle. Melissa and Brendon sustained fatal injuries, and the others sustained nonfatal injuries. Brendon’s mother, Lynn Pearce, sought damages for Brendon’s death, and other occupants sought recovery of personal protection insurance benefits from Meemic under its no-fault policy issued to Patricia.

Meemic averred its insurance policy was void because of Patricia’s alleged fraud in procuring the policy and her alleged failure to inform Meemic about changes to the members of Patricia’s household.

CONCEALMENT OR FRAUD

In its complaint, Meemic alleged that it was entitled to rescind and void the policy because Patricia failed to inform it that:

  1. Melissa was a household member at the time of the execution of the policy;
  2. Melissa was a household member “during all or a portion of the effective dates of the policy”; and
  3. Melissa was operating a covered vehicle “during all or a portion of the effective dates of the policy.”
  4. Patricia failed to inform Meemic about “all persons living at the Residence” at the time of the initial application or when renewing the policy.

Although the house was broken into two residences, at the time of the accident, Patricia and Melissa lived together.

At the time of the accident, Patricia owned a Ford Focus and a Silhouette. Patricia purchased the Silhouette in 2014 to transport her family members to school activities. Patricia testified that Melissa did not drive the Focus because it had a manual transmission, which Melissa did not know how to operate.  According to a Meemic representative, if Meemic had known about Melissa’s alcohol-related conviction, it would not have continued to insure Patricia’s vehicles.

ANALYSIS

Meemic argues that the trial court erred by determining that it was not entitled to rescind its policy on the basis of fraud and granting summary disposition to defendants.

The current state of insurance-fraud litigation in Michigan separates fraud into two broad categories based on when it occurred:

fraud that occurred before the parties entered into an insurance contract (preprocurement fraud); and

  • fraud that occurred after the parties entered into an insurance contract (postprocurement fraud). Postprocurement fraud has further been divided into two types:
    1. fraud that occurred before litigation began; and
    2. fraud that occurred after litigation began.

The crucial distinction between the two types of postprocurement fraud is when the fraud occurred, not when it was discovered. Consequently, evidence of fraud obtained during the course of litigation can be used to void an insurance contract as long as it relates to fraud that occurred before litigation began.

In Meemic Ins Co v Fortson, 506 Mich. 287, 293; 954 N.W.2d 115 (2020), the Michigan Supreme Court concluded that antifraud provisions in insurance contracts “are valid when based on a defense to mandatory coverage provided in the no-fault act itself or on a common-law defense that has not been abrogated by the act.”

Rescission is available as a remedy for preprocurement fraud for even a regular, nonsubstantial-breach of contract. This distinction is important because not every breach of contract amounts to a substantial one. If fraud occurred before the parties entered into the insurance contract, then rescission is available as a remedy under the normal breach-of-contract standard.

PREPROCUREMENT FRAUD

Although Meemic, at least initially, appears to have relied on preprocurement fraud as justification for its claim, on appeal it makes only passing reference to the initial application and it relies solely on evidence of where Melissa was living at the time of the accident. Meemic, in a reply brief assereds, “While the Policy was not necessarily ‘obtained’ by fraud . . ., Meemic’s ‘antifraud provision’ and common law defenses apply nonetheless to Patricia’s ‘failure to perform a substantial part of the contract or one of its essential terms[.]'” In so doing the court concluded that Meemic abandoned any claim of preprocurement fraud.

POSTPROCUREMENT FRAUD

To be entitled to rescission on the basis of postprocurement fraud, Meemic must demonstrate that Patricia substantially breached the insurance contract. The insurance contract required Patricia, in relevant part, to inform Meemic of any changes to her household as well as any changes to the drivers of her vehicles. The contract clearly stated that Patricia’s failure to do so would allow Meemic to “declare this policy null and void.”

Patricia opined that Melissa used the Silhouette three or four times per week and that she used the vehicle about as much as Patricia did. Importantly, Patricia was aware that Melissa had an alcohol-related driving offense, but she failed to disclose this to Meemic.

Patricia, therefore, gave Meemic some information about Melissa driving the Silhouette. The information Patricia provided to Meemic, however, did not cause Meemic to add Melissa as a “regular” driver of the Silhouette under Patricia’s insurance policy. And Patricia failed to inform Meemic about Melissa’s alcohol-related driving offense. Thus, Patricia gave Meemic some information about Melissa using the Silhouette, but not all of her available information.

Rescission is available as a remedy only if Patricia substantially breached the insurance contract. A substantial breach occurs when a party does not receive the benefit of the bargain. Indeed, Meemic has a policy not to insure vehicles driven by individuals with alcohol-related driving offenses. As such, if Patricia had sought to add Melissa to her policy as a driver of the Silhouette, then Meemic would have refused to insure the vehicle.

The record, however, did not provide the Court of Appeal with adequate information to decide this issue. Patricia testified that she contacted Meemic to see if Melissa would be covered while driving the Silhouette. When she did so, Patricia did not ask for Mellissa to be added to her insurance policy, and she did not notify Meemic about Melissa’s alcohol-related driving offense. That said, Patricia did tell Meemic that Melissa would frequently drive the Silhouette. Whether this level of disclosure was sufficient to notify Meemic that Melissa would be a “regular driver” of the Silhouette is a question of fact for the jury to decide.

Who drives a vehicle on a regular basis is an integral part of a car-insurance policy.  Thus, if Patricia failed to disclose sufficient information, then it amounted to a substantial breach of contract because Meemic no longer knew the actual terms of the contract it had entered into. Such a substantial breach would permit Meemic to rescind the contract.

The trial court’s order granting summary disposition to defendants was reversed and remanded for further proceedings consistent with this opinion.

ZALMA OPINION

Insurance companies are entitled to rely on the good faith of those they insure to advise the insurer of the risks they are being asked to take. When an insured lies on an application about facts material to the risk the insurer is taking will be sufficient grounds to rescind the policy. Similarly, if after the policy is in effect but before the event that resulted in a claim, the insured misrepresents or conceals a material fact rescission is appropriate in Michigan. From the evidence discussed by the appellate court Patricia lied about who lived in her residence, what vehicles existed in the residence and who drove the vehicles both before and after the inception of the policy. It is now up to the jury to determine if Meemic can prove the allegations even though the Patricia admitted the concealment and Meemic was able to show it would not have insured her if it knew the truth.


© 2022 – Barry Zalma

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 54 years in the insurance business.

Subscribe to “Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe and “Excellence in Claims Handling” at https://barryzalma.substack.com/welcome.

You can contact Mr. Zalma at https://www.zalma.com, https://www,claimschool.com, zalma@claimschool.com and zalma@zalma.com . Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

You may find interesting the podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma;  you can follow Mr. Zalma on Twitter at; you should  see Barry Zalma’s videos on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; or videos on https://rumble.com/zalma. Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claimslibrary/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ 

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After Insurance Fraud Indictment Dismissed Defendants Sue Police Officer

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Arrest Warrant Issued Fairly Defeats Malicious Prosecution Suit

EVIDENCE REQUIRED TO SUPPORT MALICIOUS PROSECUTION AGAINST POLICE

Vicki Davis and Robin Trawick filed suit against Defendants State Farm Fire and Casualty Company (“State Farm”), Don Allen, and the Georgia Office of Insurance and Safety Fire Commissioner (“OCI”) because they were arrested for insurance fraud which charges were later dismissed. Defendants Allen and OCI moved the court to dismiss the malicious prosecution action in Vicki H. Davis and Robin R. Trawick v. State Farm Fire and Casualty Company, et al., No. 1:21-cv-2988-MLB, United States District Court, N.D. Georgia, Atlanta Division (December 23, 2021).

BACKGROUND

On December 26, 2016, a fire destroyed Plaintiff Davis’s residence and all her personal belongings. Plaintiff Davis notified Defendant State Farm of the fire and made a claim pursuant to policy she had with it. Defendant State Farm extended coverage and made a payment of $239,200.00 for loss of the residence but did not issue any payment for loss of her personal property.

Defendant Allen, an investigator for OCI, submitted a warrant application to the Magistrate Court for Grady County, Georgia for Plaintiffs’ arrests. The application stated Plaintiff Davis “collected insurance money for living expenses that were not legal. Made false statement to Insurance Company.” Plaintiffs made their first appearance after being arrested and booked.

The Grady County Magistrate Court dismissed the criminal warrants for lack of evidence.

Plaintiffs then sued Defendants Allen and OCI alleging three counts: (1) state law malicious prosecution; (2) federal § 1983 unreasonable seizure of person, and (3) federal § 1983 malicious prosecution. Defendants Allen and OCI moved to dismiss. Since the Plaintiffs did not dispute OCI should be dismissed and their state law claim for malicious prosecution against Defendant Allen should be dismissed. The Court, therefore, dismissed both counts.

DISCUSSION

Eleventh Amendment Immunity

Defendant contended that any claims against him in his official capacity are barred by the Eleventh Amendment and 42 U.S.C. § 1983. Plaintiff, however, represents Defendant “Allen is being sued in his personal capacity.

Federal § 1983 Unreasonable Seizure

Plaintiffs asserted an independent “Fourth Amendment Unreasonable Seizure of Person” claim. Plaintiffs alleged Defendant’s conduct “in causing and facilitating the arrest and detention of Plaintiffs . . . without arguable probable cause constituted an unreasonable seizure of person in violation of the Fourth Amendment.” Although it was not entirely clear from the complaint whether Plaintiffs are trying to plead a freestanding false arrest claim, but, if they are, that claim failed as a matter of law.

A claim of false arrest or imprisonment under the Fourth Amendment concerns seizures without legal process, such as warrantless arrests. The issuance of a warrant-even an invalid-one constitutes legal process, and thus, where an individual has been arrested pursuant to a warrant, his claim is for malicious prosecution rather than false arrest. Regardless of the validity of the warrant, plaintiff’s allegations support a § 1983 malicious prosecution claim rather than a § 1983 false arrest claim.

The Court had no option, therefore, but to dismiss Plaintiffs’ “Fourth Amendment Unreasonable Seizure” claim since the plaintiffs were arrested and detained under the authority of a warrant.

Federal § 1983 Malicious Prosecution

Plaintiffs also bring a federal § 1983 malicious prosecution claim. Plaintiffs claim Defendant caused a felony criminal prosecution to be initiated against them for the offense of insurance fraud and participated and assisted with the continuation of that prosecution for 231 days. They allege Defendant knew or should have known that there was no arguable probable cause to support the prosecution which was based on statements by an insurance company that were either knowingly false or made with reckless disregard for the truth. Plaintiffs contend Defendant knew those statements were false or continued the prosecution of Plaintiffs with reckless disregard for the truth, and thus the prosecution was carried out maliciously, without probable cause, and was ultimately terminated in Plaintiffs’ favor.

Malicious prosecution is “a violation of the Fourth Amendment and [a] viable constitutional tort under § 1983.” Blue v. Lopaz, 901 F.3d 1352, 1357 (11th Cir. 2018). To maintain a claim of malicious prosecution, Plaintiffs must overcome two hurdles:

  1. They must prove they suffered a seizure pursuant to legal process that violated the Fourth Amendment. This burden requires them to “establish:
    1. that the legal process justifying their seizure was constitutionally infirm and
    2. that their seizure would not otherwise be justified without legal process.
    3. the elements of the common law tort of malicious prosecution.
  2. To establish common-law malicious prosecution, a plaintiff must show:
    1. a criminal prosecution instituted or continued by the present defendant;
    2. with malice and without probable cause;
    3. that terminated in the plaintiff accused’s favor; and
    4. caused damage to the plaintiff accused.

A warrant violates the Fourth Amendment if the affidavit supporting it contains deliberate falsity or reckless disregard for the truth, which applies to both statements and omissions. Plaintiffs claim Defendant either knew the statements by the insurance company were false or he continued the prosecution with reckless disregard for the truth.

Survival of such claim requires some evidence establishing Defendant’s subjective belief about the veracity of the assertions made in his affidavit. A plaintiff’s attack on an affidavit thus must be more than conclusory and must be supported by more than a mere desire to cross-examine. There must be allegations of deliberate falsehood or of reckless disregard for the truth, and those allegations must be accompanied by an offer of proof. They should point out specifically the portion of the warrant affidavit that is claimed to be false; and they should be accompanied by a statement of supporting reasons

Plaintiff did not identify what false information was put in the reports or why that information was false. Rather, plaintiff presented nothing more than conclusory statements about false evidence, statements, and reports. Plaintiff, therefore, has failed to allege fact demonstrating that the defendant intentionally or recklessly made false statements or omissions in procuring the arrest warrant and that the false statements were necessary to the finding of probable cause.

While including repeated, generic allegations of intentional misconduct, Plaintiffs did not point out specifically the portion of the warrant affidavit they claimed was false or include any statement of supporting reasons as to why it was false or why Defendant knew that. Plaintiffs’ conclusory allegations were insufficient to demonstrate an unconstitutional warrant since they fail to allege facts demonstrating that Defendant intentionally or recklessly made false statements or omissions in procuring the arrest warrant and that the false statements were necessary to the finding of probable cause.

The law states that an arresting officer is required to conduct a reasonable investigation to establish probable cause. In making an arrest affidavit or seeking an arrest warrant, a police officer may not close her or his eyes to facts that would help clarify the circumstances of an arrest. An officer need not “take ‘every conceivable step . . . at whatever cost, to eliminate the possibility of convicting an innocent person.’” [Williams v. City of Homestead, Fla., 206 Fed.Appx. 886, 888 (11th Cir. 2006)]. And not “every failure by an officer to discover ‘easily discoverable facts’ violates the Fourth Amendment.” [Washington v. Rivera, 939 F.3d 1239, 1248 (11th Cir. 2019)] Officers cannot conduct an investigation in a biased fashion, elect not to obtain easily discoverable facts, or choose to ignore information that has been offered to him.

Plaintiffs claim State Farm provided Defendant a statement which was the basis of their prosecution. Plaintiffs contended Defendant was required to verify the information provided by State Farm and did not undertake any reasonable avenues of investigation which would have exonerated Plaintiffs.

However, officers may generally rely on a victim’s statement to support probable cause absent allegations indicating that their reliance was unreasonable.

The factual allegations in the complaint fail to demonstrate a lack of probable cause.  The Court, therefore, granted Defendants Don Allen and Georgia Office of Insurance and Safety Fire Commissioner’s Motion to Dismiss.

ZALMA OPINION

State Farm was not a party to these motions but will probably bring its own motion since the report to the police was probably made in accordance with the insurer’s obligation to report suspicion of crime by state law or common law and that is why plaintiffs spent their time against the police officer.


© 2022 – Barry Zalma

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 54 years in the insurance business.

Subscribe to “Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe and “Excellence in Claims Handling” at https://barryzalma.substack.com/welcome.

You can contact Mr. Zalma at https://www.zalma.com, https://www,claimschool.com, zalma@claimschool.com and zalma@zalma.com . Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

You may find interesting the podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma;  you can follow Mr. Zalma on Twitter at; you should  see Barry Zalma’s videos on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; or videos on https://rumble.com/zalma. Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claimslibrary/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ 

 

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Excellence in Claims Handling – A Video Series

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Part Three of The Excellence in Claims Handling Program: Liability & Property Insurance

The third  video in a series of videos about excellence in claims handling is now available only to subscribers and will liability insurance and property insurance and their difference.

The video will be accessible only to paid subscribers so please subscribe at “Subscribe to Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe. Once you subscribe all the videos will be available to you.

© 2022 – Barry Zalma

Mr. Zalma also has available for license a series of training seminars on video to provide to your entire staff of claims professionals with detail at https://www.claimschool.com.

Subscribe to Excellence in Claims Handling at Excellence in Claims Handling” at https://barryzalma.substack.com/welcome; “Zalma on Insurance” at https://zalmaoninsurance.locals.com and You can contact Mr. Zalma at https://www.zalma.com, https://www.claimschool.com, zalma@claimschool.com and zalma@zalma.com.

Since 1967 Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

You may also find interesting the FREE podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma and more than 347 FREE insurance claims and insurance law videos at https://rumble.com/zalma.

You can follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at https://www.rumble.com/zalma ; you should to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/ The last two issues of  Zalma’s Insurance Fraud Letter are available at https://zalma.com/zalmas-insurance-fraud-letter-2/

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Contract Provides Effective Transfer of Risk

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Indemnity and Defense Agreement Must be Enforced

Defendants, Fox Mill Limited Partnership and the Kane County Land Company (collectively, FMLP), appealed from a declaratory judgment for defense costs in favor of the Wasco Sanitary District (District) in Wasco Sanitary District v. Fox Mill Limited Partnership, and Kane County Land Company, No. 2-20-0650, 2021 IL App 200650-U, Court of Appeals of Illinois, Second District (December 9, 2021) and the Court of Appeal resolved the issue.

BACKGROUND

In 1994 the District entered into an annexation agreement to provide water and wastewater treatment services for FMLP’s residential development, a subdivision called Fox Mill. This subdivision included about 800 high-end custom homes in the Village of Campton Hills. Under the agreement, FMLP would pay for or construct water facilities for the District and in return FMLP could collect for the connection permits for the Fox Mill subdivision. (The connection permits were sold for around $25,000 for each single-family home. The agreement also provided that FMLP could sell the District’s excess capacity provided that the excess was created by FMLP’s improvements.

In a section of the contracts titled “Hold Harmless and Indemnification,” the 1994 annexation agreement provided that:

“In the event a claim is made against the DISTRICT, its officers, other officials, agents and employees *** or any of them, is made a party-defendant in any proceeding arising out of or in connection with this Agreement, the annexation of the ANNEXATION REALTY, the approval and construction of the WASTEWATER FACILITIES or WATER FACILITIES, or the development of the SUBJECT REALTY, including matters pertaining to hazardous materials and other environmental matters, [FMLP] shall * * * defend and hold the DISTRICT such officers, other officials, agents and employees harmless from all claims, liabilities, losses, taxes, judgments, costs, fees, including expenses and reasonable attorneys’ fees, in connection therewith ***.

On the topic of attorneys, the agreement also provided that:

Any such indemnified person may obtain separate counsel to participate in the defense thereof at his own expense. However, if the Illinois Rules of Professional Conduct, as amended, requires such indemnified person to be separately defended where there is no consent to a conflict of interest, then [FMLP] shall bear such expense. In the event of a conflict of interest, it is agreed that [FMLP] will pay for a Kane County attorney to represent such person. The DISTRICT and such officers, other officials, agents and employees shall cooperate in the defense of such proceedings and be available for any litigation related appearances which may be required.

FMLP’s principals, Jerry Boose and Kenneth Blood, operated other residential real estate ventures in the area, including one known as B&B Enterprises. In subsequent amendments to the 1994 agreement, FMLP assigned its excess capacity rights to B&B Enterprises. As an example of one transaction, in July 2008 B&B sold capacity for 106 single-family detached lots in the Norton Lakes subdivision to developers Hudson T. Harrison and others. At $25,000 per lot, B&B-through FMLP-received $2,650,000 for the transaction.

One of the District’s residents, Ed Fiala and a third-party home developer, Tim Kobler Custom Homes, Inc. (Fiala) filed suit against the District, its trustees, its outside counsel as well as FMLP, B&B, Boose, Blood, B&B and FMLP’s attorney and Harrison. Fiala’s suit was brought as a putative RICO-class action (18 U.S.C. § 1962) alleging a pattern of racketeering activity including bribery, theft, and fraud designed to deprive the District’s residents and builders of their property.

The District notified FMLP that it and its trustees wanted to be defended under the 1994 annexation agreement; FMLP refused. The District began to pay its own defense costs and those of its trustees and the District sued FMLP.

To raise funds for attorney fees for the Fiala litigation, the District added a $20 per month per resident fee. FMLP asserted that the Fiala litigation did not arise from the 1994 agreement because Fiala was not seeking to overturn that agreement; that the District failed to “tender” the Fiala suit to FMLP; that the District failed to hire “a Kane County attorney” to represent them; and, that the District refused to cooperate with FMLP in its defense against Fiala.

The District received an order granting it approximately $1.3 million in attorney fees expended in the Fiala litigation. In January 2021, the trial court modified its order to include approximately $400,000 in additional fees that were not included in the original order or had accrued since the order was entered. FMLP timely appealed from the trial court’s judgment.

ANALYSIS

FMLP’s first contention is that the District was required, but failed, to “formally tender” Fiala’s suit to trigger FMLP’s duty to defend asserting similarities in insurance contracts.

However, FMLP is not an insurer, and the District is not seeking defense and indemnity under the terms of an insurance policy. Nothing in the 1994 annexation agreement or subsequent amendments required the District to “formally tender” a suit to FMLP to trigger its duty to defend and indemnify.

“Tender” language, which would be standard boilerplate in a typical insurance contract, was not in the 1994 annexation agreement, which was categorically not an insurance contract. FMLP’s tender argument, therefore, was irrelevant.

FMLP has never denied that it knew the District was also a named defendant in each version of Fiala’s complaint. FMLP would prefer a contrary result which would ultimately make no sense: having the District jump through meaningless hoops towards an absurd end: telling FMLP something it already knew: that it was being sued by Fiala and wanted to be defended and indemnified under the 1994 agreement.

FMLP could not express bewilderment that the District was a party to the Fiala litigation; both FMLP and the District were represented at counsels’ table in the same suit concerning the 1994 agreement. Therefore, the Court of Appeal, like the trial court, refused to permit FMLP to continue to deny the obvious.

The issue of conflict counsel asserted by FMLP was completely illusory. For example, Boose, in his deposition, testified that even if the District had sought “defense through a Kane County lawyer,” FMLP still would not have agreed to defend the District because FMLP “wouldn’t have been able to *** afford it.” (Boose further testified that FMLP never tendered the Fiala suit to FMLP’s general liability commercial insurance on its own behalf.) The issue raised by FMLP of the need for “a Kane County attorney” was merely another straw man conjured by FMLP to avoid providing the District with its contractually promised defense and indemnification.

FMLP challenged the trial court’s turnover orders, which released nearly $2 million from FMLP’s bond posted with the circuit clerk to cover a decade of the District’s attorneys’ fees. FMLP elected to appeal the trial court’s declaratory judgment separately while matters were still pending in the trial court.

The appellate court rejected FMLP’s contentions. The 1994 annexation agreement plainly obligated FMLP to defend and indemnify the District, and the trial court correctly determined that FMLP had a continuing duty to defend and indemnify the District and its trustees. Therefore, the trial court did not err in granting declaratory judgment on coverage in favor of district and its trustees.

ZALMA OPINION

The essence of insurance is the transfer of a risk from an individual to an insurer. Insurance is not, howeverf, the only risk transfer device. The “hold harmless” agreement was a risk transfer device established by a contract between the District and FMLP. It was an effective risk transfer device and the District – although it took them ten years to do so – they got their attorneys fees paid from a bond posted by FMLP. I can only wonder what took the parties and the courts so long to enforce a clear and unambiguous contract and how much faster an insurance policy would have provided defense and indemnity.


© 2022 – Barry Zalma

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 54 years in the insurance business.

Subscribe to “Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe and “Excellence in Claims Handling” at https://barryzalma.substack.com/welcome.

You can contact Mr. Zalma at https://www.zalma.com, https://www,claimschool.com, zalma@claimschool.com and zalma@zalma.com . Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

You may find interesting the podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma;  you can follow Mr. Zalma on Twitter at; you should  see Barry Zalma’s videos on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; or videos on https://rumble.com/zalma. Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claimslibrary/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ 

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Workers’ Compensation Board Improperly Ignored Evidence of Fraud

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New York Workers’ Compensation Board Abused Its Discretion

After the Workers’ Compensation Board ruled, among other things, that the application of Everest National Insurance Company was required to pay benefits it appealed seeking review of the decision of the Workers’ Compensation Law Judge that its actions were untimely, and from a decision of said Board, filed October 28, 2019, which denied an application by Everest National Insurance Company for reconsideration and/or full Board review. Everest appealed because it was not provided proper notice, was not the insurer and because the allegedly injured worker was perpetrating a fraud.

In the Matter of the Claim of Michel Salinas v. Power Services Solutions LLC et al., and South Side Services Inc. et al. Workers’ Compensation Board, No. 2021-0732, Supreme Court of New York, Third Department (December 23, 2021) the appellate court resolved the dispute.

FACTS

Claimant experienced a work-related accident in 2017, and a Workers’ Compensation Law Judge (hereinafter WCLJ) subsequently established the claim for postconcussive syndrome, major depressive disorder and various other injuries. The identification of claimant’s employer occurred over a series of hearings and through a number of ordered investigations, and the WCLJ ultimately found that claimant was employed by Salvador Almonte, the owner and operator of, among other businesses, Power Services Solutions LLC, and that the accident occurred while claimant was performing work for Kingdom Associates Inc., which had a contract with Power Services.

The workers’ compensation insurer for Kingdom, Starr Indemnity & Liability Company, eventually submitted a certificate of insurance to the WCLJ that indicated that Everest National Insurance Company provided coverage to Power Services at the time of the subject accident. The WCLJ determined that Everest needed to be put on notice, and a copy of that decision was mailed to Everest.

Due to an apparent printing error, Everest’s name and address on the notice of hearing were obscured by a list of the dozens of other interested parties on this claim. Everest failed to appear at that hearing, and the WCLJ ultimately discharged several other would-be employers and carriers, finding that Power Services was the proper employer and that Everest was the proper carrier.

A copy of the February 14, 2019 decision memorializing those findings was also mailed to Everest. That decision, however, continued to caption Kingdom as the employer and Starr as the carrier, reflecting same on the recipient page where Everest was still listed as only an interested party. On March 7, 2019, the Workers’ Compensation Board filed a corrected EC-1 form reflecting that Everest was the proper carrier for the subject claim.

Everest and its third-party administrator appealed to the Board on May 23, 2019, arguing, among other things, that the notice sent to it for the February 11, 2019 hearing was deficient and that it never provided coverage for Power Services. A panel of the Board denied the appeal on the ground that it was untimely, finding that, although the notice issue could possibly excuse Everest’s absence from the February 11, 2019 hearing, no explanation was provided for its delay in appealing the February 14, 2019 decision, which Everest had not denied receiving. Meanwhile, on or around September 5, 2019, Almonte was indicted for his alleged participation in an extensive insurance fraud scheme, which notably involved the creation and issuance of false certificates of insurance. By decision filed October 28, 2019, the full Board denied Everest’s application, and these appeals ensued.

ANALYSIS

A party seeking review of a WCLJ’s decision is required to file an application for review with the Board within 30 days of the filing of the decision. The Board is afforded broad discretion to accept or reject such application as untimely, and, absent an abuse of that discretion, the Board’s determination will not be disturbed

In the view of the appellate court, the Board abused that discretion.

The early stages of this claim were notably protracted, and Everest was brought into the fold a year and a half after the claim was filed, missing the first six hearings and all of the investigations regarding claimant’s actual employer and issues of coverage. Correspondence sent to Everest, including the February 14, 2019 decision, continued to facially reflect that Kingdom and Starr were responsible for this claim.

It is only in the middle of a paragraph on the second page of that decision that Power Services is named as the employer and Everest as its carrier. The Board did not update its own file to reflect the proper carrier until about one month after the February decision, and, although that may have given Everest several days in which to still file a timely appeal, there was no indication, or allegation, in the record before the court that the corrected notice of case assembly was also forwarded to Everest.

It is not difficult to understand why Everest, receiving either defective or facially misleading correspondence from the Board regarding this claim, was not immediately aware that a policy attributed to it – covering an employer with which it had never contracted – was at issue.

Significantly, the proof submitted by Everest in support of its administrative appeal strongly suggests that the certificate of insurance provided to the Board was not authentic, and, based upon the limited record before us, the certificate appears to have been an important, if not the only, factor in the WCLJ’s decision as to Everest. In other words, Everest has brought to the Board’s attention the strong possibility that it has issued a decision based perhaps entirely upon fraudulent documentation.

Although the appellate court was aware that the Board has broad discretion as to this matter and will generally not be considered to have abused that discretion by strictly enforcing its own regulations, the court found that it could discern no rational reason why the Board would decline to investigate when presented with legitimate, presently uncontested evidence that a fraud was perpetrated upon it.

It would seem unlikely that a criminal matter involving allegations of pervasive workers’ compensation insurance fraud was unknown to the Board by the time of its full Board decision or, at the very least, the Board panel decision settling the record for this appeal – issued over a year after Almonte’s highly-publicized indictment.

Under these facts, it is not an adequate answer to say that this kind of determination is usually discretionary and the very purpose of the discretion afforded to the Board is to grant relief in circumstances such as these.

Although Almonte’s criminal charges was not part of the administrative record, it is a matter of public record and need not be ignored. Based upon the foregoing, the appellate court found that the Board abused its discretion in denying Everest’s application for review.

Therefore, the court ordered that the decision filed August 5, 2019 is reversed, without costs, and matter remitted to the Workers’ Compensation Board for further proceedings not inconsistent with this Court’s decision.

ZALMA OPINION

No insurer should be abused by a workers’ compensation appeals board who ignored its own error when holding Everest to provide benefits to Almonte even though it was clear that it was the victim of an insurance fraud, the allegedly injured employee was charged with fraud in a very public manner, and the pleadings presented to the Everest by the Board deceived it into believing it was not involved. The Board’s abuse of discretion required a reversal and allowed the Board to correct its error.


© 2022 – Barry Zalma

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 54 years in the insurance business.

Subscribe to “Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe and “Excellence in Claims Handling” at https://barryzalma.substack.com/welcome.

You can contact Mr. Zalma at https://www.zalma.com, https://www,claimschool.com, zalma@claimschool.com and zalma@zalma.com . Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

You may find interesting the podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma;  you can follow Mr. Zalma on Twitter at; you should  see Barry Zalma’s videos on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; or videos on https://rumble.com/zalma. Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claimslibrary/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ 

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ClaimSchool, Inc. – Insurance Education

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Insurance Education from Barry Zalma

Barry Zalma Presents What Your Insurance Organization Needs.

Mr. Zalma’s presentations are practical, thought-provoking, entertaining and will fit easily into any budget.

Enthusiastically committed to professionalism in insurance and insurance claims Mr. Zalma positively influences other insurance professionals through the spoken and written word.

Mr. Zalma specializes in clarifying the importance of insurance in a modern society and in making insurance understandable. He also provides everything needed by the insurance claims professional to complete the thorough investigation of a property, casualty or liability claim efficiently, equitably, empathetically and in good faith.

How Will You or Your Group or Organization Benefit from Working with Barry Zalma?

You can expect live or video presentations supplemented with texts that are:

  • Clear and understandable presentations that involve the both youngest and oldest member of your organization.
  • Presentations that entice the most experienced person in your organization who thinks he or she has nothing to learn.
  • Enhanced communications between claims and legal service providers.
  • Methods to make claims operations more cost effective.
  • Improved recognition of the indicators or “red flags of fraud.”
  • Better understanding of how to deal with people presenting claims
  • Improved interviewing techniques.
  • Ability to use methods that achieve a quantifiable reduction in claims expenses and indemnity payments while leaving the insured totally satisfied.

Live Training Available

Barry Zalma Presents What Your Insurance Organization Needs.

He positively influences other insurance professionals through the spoken and written word. He specializes in clarifying the importance of insurance in a modern society and in making insurance understandable.

The Excellence in Claims Handling Program Will Cover:

  • How to Read and Understand an Insurance Policy;
  • The loss notice.
  • The first contact with the insured presenting a claim.
  • The first contact with a third party claimant presenting a claim against an insured.
  • Underwriting for the claims professional.
  • The recorded statement.
  • Locating and taking recorded statement of independent witnesses.
  • Locating and obtaining information from governmental entities.
  • Preparing an agreed scope of loss with an insured or the insured’s public insurance adjuster.
  • Preparing a captioned report to insurance company management.
  • Preparing a statement of loss.
  • Negotiating a first party claim with an insured.
  • Negotiating a third party claim with a claimant or lawyer.
  • Preparing a sworn proof of loss with an insured after agreement.
  • Requiring an insured to submit a sworn proof of loss if agreement cannot be reached.
  • Preparing a release of all claims after reaching settlement with a claimant or claimant’s counsel
  • Use of an Insurance Coverage and Claims Handling Expert in Insurance Litigation.
  • Insurance Fraud & Weapons to Fight Fraud;
  • The Examination Under Oath;
  • Presentation and Adjustment of Claims in a Catastrophe;
  • Appraisal, A Specialized and Narrow Type of Insurance Arbitration;
  • Rescission of Insurance Policies;
  • Catastrophes and Fraud;
  • Torts for the Claims Person — A Primer;
  • Avoiding the Tort of Bad Faith;
  • Arson and Arson for Profit;
  • Dealing with the Public Insurance Adjuster; or
  • Barry Zalma will customize a talk and speak on any insurance topic you require.

Subscribe to “Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe where you can access the program “Excellence in Claims Handling” for a small fee.

If you want to license the full “Excellence in Claims Handling” program for use by your entire organization a license is available for a one time license fee of only $1,000.00 by contacting Mr. Zalma at zalma@claimschool.com.

RUMBLE.COM FREE VIDEOS

There are now available 347 FREE Videos at https://rumble.com/zalma where you can learn about insurance, insurance claims, insurance claims handling, insurance law, and insurance education.

CONTACT BARRY ZALMA & LEARN ABOUT CLAIMSCHOOL, INC. FREE MATERIALS

You may find interesting the podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma;  you can follow Mr. Zalma on Twitter at; you should  see Barry Zalma’s videos on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; or videos on https://rumble.com/zalma. Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claimslibrary/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ 

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Excellence in Claims Handling – A Video Series

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Part Two of The Excellence in Claims Handling Program: What is Insurance?

The second video in a series of videos about excellence in claims handling is now available only to subscribers and will cover an introduction to the series, a description of what insurance is and how it works as well as a description of property insurance.

The video will be accessible only to paid subscribers so please subscribe at Subscribe to “Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe. Once you subscribe the videos will be available.

© 2022 – Barry Zalma

Mr. Zalma also has available for license a series of training seminars on video to provide to your entire staff of claims professionals.

Subscribe to Excellence in Claims Handling at Excellence in Claims Handling” at https://barryzalma.substack.com/welcome; “Zalma on Insurance” at https://zalmaoninsurance.locals.com and You can contact Mr. Zalma at https://www.zalma.com, https://www.claimschool.com, zalma@claimschool.com and zalma@zalma.com.

Over the last 54 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

You may find interesting the podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma; you can follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at https://www.rumble.com/zalma ; you should to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/ The last two issues of  Zalma’s Insurance Fraud Letter are available at https://zalma.com/zalmas-insurance-fraud-letter-2/

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Zalma’s Insurance Fraud Letter – January 1, 2022

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Zalma’s Insurance Fraud Letter

Volume 26 Issue 1

See the video at https://rumble.com/vrsvps-zalmas-insurance-fraud-letter-volume-26-issue-1.html and at https://youtu.be/d5hkDyINjoU

The first issue of the twenty sixth year of publication is available as an Adobe .pdf document at  with this issue and the December 15, 2021 issues of ZIFL here. The issue includes the following articles but you must go here  to read the full articles and the full 24 page issue of Zalma’s Insurance fraud Letter.

State Farm & Allstate Fight Fraudsters With Qui Tam Suits

It Is Essential That Insurers Are Proactive Against Insurance Fraud

Insurance companies are the victims of billions of dollars every year from insurance fraudsters. They have found that states and police agencies are either unable or unwilling to prosecute those who defraud insurers. In The People ex rel. State Farm Mutual Automobile Insurance Company v. Sonny Rubin et al., G059509, California Court of Appeals, Fourth District, Third Division (December 14, 2021) State Farm has taken proactive steps by filing qui tam suits based on the California Insurance Fraud Protection Act (IFPA) that allows qui tam plaintiffs to file lawsuits on the government’s behalf and seek monetary penalties against perpetrators of insurance fraud.

Insurance Fraud Perpetrators are Annoying

People who commit insurance fraud believe that it is a crime without punishment because no one is hurt except an insurance company. They are wrong but refuse to accept the fact. As an example of how annoying an insurance criminal can be is Steve Ellis Karacson v. David Shaver, No. 21-12100, United States District Court, E.D. Michigan, Southern Division (November 23, 2021) who filed a pro se petition for writ of habeas corpus. Steve Ellis Karacson, (“Petitioner”), pursuant to 28 U.S.C. § 2254, challenges his conviction for insurance fraud and arson of an insured dwelling. Petitioner previously filed a petition for writ of habeas corpus before Judge Matthew F. Leitman which challenged the same conviction. The petition was held in abeyance while Petitioner exhausted additional claims in the state courts [Karacson v. Shaver, No. 4:20-CV-13100 (E.D. Mich. May 27, 2021)] Petitioner moved for Judge Leitman to reopen that case, claiming that he has now exhausted his state court remedies. Petitioner subsequently filed the instant petition, in which he again seeks habeas relief from the conviction that he challenged in the active petition before Judge Leitman.

ClaimSchool, Inc. – Insurance Education

Insurance Education from Barry Zalma

Barry Zalma Presents What Your Insurance Organization Needs. Mr. Zalma’s presentations are practical, thought-provoking, entertaining and will fit easily into any budget. Enthusiastically committed to professionalism in insurance and insurance claims Mr. Zalma positively influences other insurance professionals through the spoken and written word.

Mr. Zalma specializes in clarifying the importance of insurance in a modern society and in making insurance understandable. He also provides everything needed by the insurance claims professional to complete the thorough investigation of a property, casualty or liability claim efficiently, equitably, empathetically and in good faith.

Insurer’s Summary Judgment Granted

US District Court judges often rely on the work of a Magistrate Judge to assist the District Judge in dealing with the volume of cases brought to the court. The Judge can accept, modify or reject the report made by the Magistrate Judge. In Sean Parsons v. Liberty Insurance Corporation, Civil Action No. 3:20-CV-1682-K, United States District Court, N.D. Texas, Dallas Division (December 1, 2021), United States Magistrate Judge David L. Horan, made recommendations to grant some, but not all, of the grounds stated by Liberty Insurance Corporation to dismiss the plaintiff’s complaint. Liberty objected to the Report and recommendations.

Where there are no objections to a Magistrate Judge’s Report and Recommendation, a District Court is to review the report for findings and conclusions that are either clearly erroneous or contrary to law. However, a District Court is required to review a Magistrate Judge’s Report and Recommendation in light of specific objections made by either party within ten days of receipt of the report.

Another Annoying Insurance Criminal Whose Motion for Early Release is Denied

A woman who faked the death of her husband, who cremated and buried a stranger as if he was her husband, and stole more than two million dollars from an insurer brought a motion to be released because of a claim of illness and cancer without evidence of being a person with cancer met a US District judge who, appropriately refused to buy her claim.

In United States of America v. Irina Vorotinov, No. 15-CR-0054(1) (PJS/HB), United States District Court, D. Minnesota (December 9, 2021) Irina Vorotinov pleaded guilty to mail fraud and engaging in a monetary transaction in criminally derived property. She was sentenced to 37 months in prison and two years of supervised release and ordered to pay $2,056,554.09 in restitution. Vorotinov was released from prison in August 2019 and began serving her term of supervised release.

Health Insurance Fraud Convictions

Medical Director of Long Beach Addiction Clinic in Connection to Four-Year Medi-Cal Fraud Scheme

Howard Wallace Oliver, M.D. medical director of West Coast Counseling Services — an addiction treatment facility in Long Beach, California that purported to serve patients with substance use disorders. From late 2009 through July 2013, West Coast Counseling stole more than $2.8 million from Medi-Cal by submitting fraudulent claims for services that were not performed or were not medically justified. Today, in Los Angeles County Superior Court, Oliver was sentenced to seven years, eight months in state prison. A restitution hearing is scheduled for December 29, 2021. Oliver has been in custody since September 15, 2021, when a jury returned a verdict of guilty on all the felony charges against him. The charges included Medi-Cal fraud, conspiracy, insurance fraud, grand theft, fraudulent claims, and four counts of tax evasion.

Other Insurance Fraud Convictions

Former Adjuster Sentenced to Three Years in Prison for Kentucky Crop Insurance Fraud.

Timothy Douglas Snedegar, 65, of Mount Sterling, Kentucky, an adjuster who helped Central Kentucky farmers file more than $2 million in fraudulent crop insurance claims was sentenced to three years in prison. Snedegar also is responsible for restitution totaling $2,294,693.

Snedegar worked as an independent insurance adjuster, examining claims of hail damage to crops. He admitted that in crop years 2012 through 2015, he did reports with false information on the amount of damage to tobacco crops, including photos of damage from other fields, and took kickbacks from insurance agents who were involved in the scheme. Snedegar helped file dozens of claims that he knew were false, according to his plea agreement.

Excellence in Claims Handling

A Series of Video Presentations and Text on Insurance Claims

Go to “Excellence in Claims Handling” and subscribe at https://barryzalma.substack.com/welcome and go to https://zalmaoninsurance.locals.com/subscribe subscribe to my locals account. See the introductory video at https://youtu.be/kLSSBG7kZy0 and at https://rumble.com/vrhaka-excellence-in-claims-handling.html

Professional Insurance Adjusting

At the turn of the century, insurers, in a search for profit, decimated their professional claims sta. They laid off experienced personnel and replaced them with young, untrained and unprepared people.

A virtual clerk replaced the old professional claims handler. Process and computers replaced skill and judgment.

Insurers intentionally forgot that the promises made by an insurance policy are kept by the professional claims person. A professional claims staff is a cost-effective method to avoid litigation.


Barry Zalma & ClaimSchool, Inc.

Go to Zalma Books – E-Books and Articles by Barry Zalma  at the Insurance Claims Library where ClaimSchool publishes the ZIFL, several books and e-books written by Barry Zalma and sponsors Mr. Zalma’s speaking engagements. 

Written by Barry Zalma and Published twice a month by
ClaimSchool, Inc.
4441 Sepulveda Boulevard, Inc.
CULVER CITY CA 90230-4844
310-390-4455; https://claimschool.com; zalma@claimshool.com
Follow Barry Zalma on Twitter at https://twitter.com/bzalma
Read Mr. Zalma’s blog “Zalma on Insurance”
Go to “Zalma’s Insurance 101” Video Training  

Go to the Insurance Claims Library; Subscribe to Barry Zalma on Substack.com, Go to Barry Zalma videos at Rumble.com at https://rumble.com/zalma Videos from “Barry Zalma on YouTube; Go to the Insurance Claims Library; Listen to the Podcast: Zalma on Insurance

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Happy New Year’s Eve

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May You All Have a Wonderful, Successful and Profitable New Year

 


© 2021 – Barry Zalma

 

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Excellence in Claims Handling

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A Series of Video Presentations and Text on Insurance Claims

Go to “Excellence in Claims Handling” and subscribe at https://barryzalma.substack.com/welcome and go to https://zalmaoninsurance.locals.com/subscribe subscribe to my locals account. See the introductory video at https://youtu.be/kLSSBG7kZy0 and at https://rumble.com/vrhaka-excellence-in-claims-handling.html

Professional Insurance Adjusting

At the turn of the century, insurers, in a search for profit, decimated their professional claims sta. They laid off experienced personnel and replaced them with young, untrained and unprepared people.

A virtual clerk replaced the old professional claims handler. Process and computers replaced skill and judgment.

Insurers intentionally forgot that the promises made by an insurance policy are kept by the professional claims person. A professional claims staff is a cost-effective method to avoid litigation.

The professional claims person is an important part of the insurer’s defense to litigation against insurers for breach of contract.

A staff of claims professionals dedicated to excellence in claims handling are a profit center for an insurance company. Experience establishes that claims professionals resolve more claims for less money without the need for either party to involve counsel. A happy insured or claimant satisfied with the results of his or her claim will never sue the insurer.

Incompetent or inadequate claims personnel force insureds and claimants to lawyers. Every study performed on claims establish that claims with an insured or claimant represented by counsel cost more than those where counsel is not involved.

Prompt, effective and professional claims handling saves money and fulfills the promises made when the insurer sold the policy.

Insurers who believe they can handle first or third-party claims with young, inexperienced and inexpensive claims handlers will be faced with the screams of angry stockholders. Profits, thin as they are, will move rapidly into negative territory. Punitive damages as punishment for bad faith claims handling will deplete reserves. Insurers will quickly question why they are writing insurance. Those who stay in the business of insurance will either adopt a program requiring excellence in claims handling from every member of their claims staff, or they will fail.

Insurance is a business. It must change if it is to survive. It must rethink the firing of experienced claims staff and reductions in training to save “expense.”

Excellence in Claims Handling

Excellence in claims handling is a program that can help insurers avoid charges of bad faith in both first and third party claims.

An insurer must understand that it cannot adequately fulfill the promises it makes to it insured and the Fair Claims Practices Act which exist in almost every state, when dealing with claimants without excellence in claims handling. An insurer must work intelligently and with vigor to create a professional claims department.

Insurance Claims Professionals Are

  1. People who can read and understand the insurance policies issued by the insurer.
  2. They understand the promises made by the policy and their obligation, as an insurer’s claims staff, to fulfill the promises made.
  3. They are all competent investigators.
  4. They have empathy and recognize the difference between empathy and sympathy.
  5. They understand medicine relating to traumatic injuries and are sufficiently versed in tort law to deal with lawyers as equals.
  6. They understand how to repair damage to real and personal property and the value of the repairs or the property.
  7. An insurer whose claims staff is made up of people who are less than Insurance Claims Professionals will be destroyed by expensive and counter-productive litigation.

A Proposal to Create Claims Professionals

To avoid claims of bad faith; to avoid punitive damages; to avoid losses; and to make a profit insurers must maintain claim staffs who are dedicated to excellence in claims handling. That means they will make sure every promise made in every policy is satisfied by the:

  1. Insurers who only hire insurance claims professionals.
  2. Insurers who train the claims staff to be insurance claims professionals.
  3. Insurers who require that the claims staff treat every insured with good faith and fair dealing.
  4. Insurers who demand excellence in claims handling from the claims staff.
  5. The insurance industry for the last 25 years has decimated the number of insurance claims professionals for insurers to hire.
  6. If any experienced claims professionals exist in the insurer’s staff, the insurer must cherish and nurture them. If none are available, the insurer has no option but to train its people.
  7. Those who treat all insureds and claimants with good faith and fair dealing and provide excellence in claims handling must be honored with increases in earnings and perquisites.
  8. The insurer must immediately eliminate those who do not provide excellence in claims handling from the claims staff.

What Sources Are Available to Obtain Training?

Insurance training is available across the country by correspondence, in local colleges and universities and from law firms that will provide the training as a marketing tool. None of these sources are directed to producing insurance claims professionals. They do provide the basic background information necessary to begin the process of becoming an insurance claims professional. In that regard, I have created electronic training programs on professional claims handling that are available from experfy.com and a different set of courses from illumeo.com.

An excellence in claims handling program can include a series of web-based lectures supported by text materials like my claims books available at amazon.com and over the insurance claims library at my web site at https://zalma.com.

The web lectures must be supplemented by meetings between supervisors and claims staff on a regular basis to reinforce the information learned in the lectures.

In addition, the insurer must institute a regular program of auditing claims files to establish compliance with the subjects studied. There is no quick and easy solution. The training takes time. Learning takes longer. The insurer’s management must support and reinforce the training regularly.

The excellence in claims handling program requires a minimum of the following:

  1. The insurance policy — how to read and understand the contract that is the basis of every adjustment.
  2. The formation of the insurance policy.
  3. Tort law including negligence, strict liability in tort, and intentional torts.
  4. Contract law including the insurance contract, the lease agreement, the bill of lading, non-waiver agreements, proofs of loss, releases and other claims related contracts.
  5. The duties and obligations of the insured in a personal injury claim.
  6. The duties and obligations of the insurer in a personal injury claim.
  7. The duties and obligations of the insured in a first-party property claim.
  8. The duties and obligations of the insurer in a first-party property claim.
  9. The Fair Claims Practices Act and the regulations to enforce it.
  10. The thorough investigation.
  11. Basic investigation of an auto accident claim.
  12. Basic investigation of a construction defect claim.
  13. Basic investigation of a non-auto negligence claim.
  14. Basic investigation of a strict liability claim.
  15. Basic investigation of the first-party property claim.
  16. The recorded statement of the first-party property claimant.
  17. The recorded statement or interview of a third-party claimant.
  18. The recorded statement of the insured.
  19. The red flags of fraud.
  20. The SIU and the obligation of the claims representative when fraud is suspected.
  21. Claims report writing.
  22. The evaluation and settlement of the personal injury claim.
  23. How to retain coverage counsel to aid when a coverage issue is detected.
  24. How to control coverage counsel.
  25. How to retain an expert.
  26. How to control the expert.
  27. Dealing with a plaintiffs’ lawyer.
  28. Dealing with personal injury defense counsel.
  29. The evaluation and settlement of the property damage claim.
  30. Arbitration and mediation and the claims representative.

It Takes Courage to Fight Insurance Fraud

The legislatures of the various states, the United States Congress, the National Association of Insurance Commissioners, The National Insurance Crime Bureau and insurance industry groups have finally decided that the war against insurance fraud is worth fighting.

Until the states, the local police agencies, the district attorneys, the United States Attorneys, and the Attorneys General of the various states join in the battle it will be fought to a stalemate. The insurance industry cannot successfully fight insurance fraud alone.

Insurance industry sources estimate insurance fraud from lows of $80,000,000,000 ($80 billion) a year to highs of $300,000,000,000 ($300 billion) a year. Regardless of which, if any, estimate is accurate the amount of money going to insurance criminals is staggering and approaches no less than 3% to 10% of premium collected.

Every two weeks Zalma’s Insurance Fraud Letter publishes lists of convictions. The major volume of such convictions deal with Medicare and Medicaid fraud. Basic property and casualty fraud convictions are seldom described except when the perpetrator confesses or pleads guilty. Few go to trial. Those who are convicted usually are sentenced to short stays in jail or to home confinement.

Proposal

Insurance fraud is not a local problem. It is a depletion of the wealth of the entire country. The lawyer for the Department of Insurance of each state is the State Attorney General. A special unit could be established in the office of the Attorney General, funded with the monies taken from the insurance industry to support the war against insurance fraud. This unit should be given a simple mandate:

File and prosecute every insurance fraud brought to the unit by the Fraud Division that has a better than 50% chance of success.

The unit should not concentrate its efforts on major insurance frauds. Those can best be prosecuted by major fraud units already existing in the District Attorney’s offices and in offices of the US Attorney.

The state’s unit should concentrate on prosecuting every-day insurance fraud, the frauds of opportunity that take 90% of the money paid to fraud perpetrators, in the range of $5,000 to $50,000.

Single counts should be prosecuted. When prosecutors file multiple charges against individual defendants the case becomes a major action requiring a great deal of time to prosecute. Judges and juries do not want to be involved in a prosecution that takes months to prosecute.

If there are multiple counts available, the prosecutor should charge only the one where the evidence of fraud is overwhelming. If the jury finds for the defendant the prosecutor can charge the next count continuously until the statute of limitation runs.

If all available are charged in one case the prosecutor will offend the judge and jury and the defendant will get mercy from the jury.  Overcharging prosecution is as bad as not charging at all.

Teeth must be put in the posters that say “commit insurance fraud, go to jail.” Departments of Insurance are receiving reports from insurers of thousands of potential fraudulent claims a month. They do not have the staff, the ability or the desire to investigate and prosecute every case brought to them. If only 5 percent of those claims are investigated and prosecuted to conviction, the deterrent effect will be enormous. The Department of Insurance should issue a press release concerning every arrest and conviction. Newspapers should report daily that insurance criminals have been arrested and are going to trial or were convicted and are going to jail. Jail sentences should be made mandatory and remove from local judges the right to grant convicted felons probation and restitution only.

Sentences across the state must be consistent and true punishment. I have seen such inconsistency where cases, after conviction, the criminals received sentences that ranged from 24 hours to 24 years.

It is not enough for the state to say that the insurance companies must investigate and work to fight fraud. The state must also aggressively and vigorously fight insurance fraud.

Today, a person perpetrating an insurance fraud need only be concerned that an aggressive fraud investigation might delay, or reduce, the amount he might recover from his crime. Criminal prosecution for the crime of insurance fraud is so minuscule, in relation to the amount of fraud, as to be nonexistent. It certainly does not act as a deterrent. In conjunction with the formation of a special insurance fraud prosecution unit in the attorney general’s office, the legislatures should enact the following statutes:

As of the effective date of this statute there is no tort of bad faith in this state.

Punitive damages may not be awarded in this state.

Any insurer that, without malice, reports to the Fraud Division, Department of Insurance that it has rejected a claim because of fraud may not be sued in any court of this state, for any tort cause of action.

This section is not intended to eliminate the right of any insured to sue its insurer for breach of the insurance contract.

If the legislatures really want insurers to fight insurance fraud; if the legislatures wish to keep strong and viable this important industry; if the legislatures want to reduce the insurance premiums paid by their constituents, they must make practical the war on insurance fraud. As long as the tort of bad faith and the exposure of punitive damages hangs over insurance companies, the war will be one of attrition where no one will win.

The stories I have fictionalized in this book were written to show how insurance fraud is taking money out of the pockets of innocent and honest people who buy insurance. For every dollar taken by a fraud an insurer must collect two dollars in premiums. Every person in the US who does not commit fraud is paying to support those who do. A minimum of $20.00 for every $100.00 every person insured pays in premiums goes into the pockets of insurance criminals. If the stories in this book make the reader angry, write to your local District Attorney, States Attorney, Attorney General or US Attorney and let them know of your anger.

If enough people complain perhaps, the prosecution levels will increase. Although each of the stories in this book are based in fact, the names, locations and facts of the claims have been changed to protect the guilty. No resemblance to any person, except those specifically named, is intended and any resemblance is purely coincidental.


© 2021 – Barry Zalma

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 54 years in the insurance business.

Subscribe to “Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe and “Excellence in Claims Handling” at https://barryzalma.substack.com/welcome.

You can contact Mr. Zalma at https://www.zalma.com, https://www,claimschool.com, zalma@claimschool.com and zalma@zalma.com . Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

You may find interesting the podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma;  you can follow Mr. Zalma on Twitter at; you should  see Barry Zalma’s videos on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; or videos on https://rumble.com/zalma. Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claimslibrary/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ 

 

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Join the “Zalma on Insurance” Community on Locals.com

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Subscribe to the Zalma on Insurance Community

Go to https://zalmaoninsurance.locals.com/ and subscribe to follow the community. If you wish to read the first article and follow-up postings that will include everything from the treatise, Zalma on Insurance, you must subscribe to my locals.com account at:  https://zalmaoninsurance.locals.com/

You will also find available articles and videos relating to insurance claims, insurance fraud, insurance coverage, and insurance law that will assist you in obtaining information that will allow you to receive or produce excellence in claims handling.

After clicking subscribe, you will be prompted to enter your credit/debit card information. If an annual subscription option is available for the community you’ve joined, it will be selected by default, but if you would prefer to have a monthly auto-recurring subscription instead, you can click that option on the left (you can always choose to upgrade to an annual subscription later, if you change your mind).

I have just posted at my Locals.com community, the beginning of “What is Insurance”, that is the first installment which begins as follows:

What is Insurance?

I have just posted at my Locals.com community, Zalma on Insurance, that is the first installment on an article on the question of “What is Insurance” which begins as follows. If you wish to read this, and follow-up postings that will include everything from the treatise, Zalma on Insurance, you must subscribe to my locals.com account at:  https://zalmaoninsurance.locals.com/

Insurance policies are contracts. To form a contract, an insurer must make an offer that is accepted by a potential insured who then pays consideration – premiums – for the promises made by the insurer. Insurance contracts, like all contracts, can only exist if there is an offer, acceptance of the offer and payment of consideration.
An insurance contract exists when an insurer and the insured agrees that the insurer will provide indemnity to the insured as a result of a contingent or unknown event that causes loss to the insured.

The language of insurance contracts come in multiple formats with an almost infinite variety of terms and conditions. I personally have collected, over the last 54 years about 17 linear feet of multiple insurance forms created by the Insurance Services Office (“ISO”), Standard, and individual insurance company specialty forms. In addition, since the advent of the Internet I have collected gigabytes of insurance policy forms as paper has given way to digital insurance policy wording.


© 2021 – Barry Zalma

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 54 years in the insurance business.

Subscribe to “Zalma on Insurance” at https://zalmaoninsurance.locals.com and “Excellence in Claims Handling” at https://barryzalma.substack.com/welcome.

You can contact Mr. Zalma at https://www.zalma.com, https://www,claimschool.com, zalma@claimschool.com and zalma@zalma.com . Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 54 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

You may find interesting the podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma;  you can follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at https://www.rumble.com/zalma you should  to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claimslibrary/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ 

 

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Excellence in Claims Handling Now Available on Substack

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Why Subscribe to Excellence in Claims Handling?

Subscribe now

The first publication is a fictionalized true crime story about insurance fraud called “The Great Jewel Theft” that is the first of more than 80 true crime stories that will be published on Substack as well as digests of new insurance law appellate decisions.

Introduction to Excellence In Claims Handling

In search of profit, insurers have decimated their professional claims staff. They laid off experienced personnel and replaced them with young, untrained, unprepared people. A virtual clerk replaced the old professional claims handler. Process and computers replaced hands-on human skill and judgment. Money was saved by paying lower salaries. Within three months of firing the experienced claims people gross profit increased.A site for the insurance claims professional and anyone who wants to know something about insurance, insurance claims, insurance coverage, and insurance law.

Insurance claims professionals are people who:
• can read and understand the insurance policies issued by the insurer.
• understand the promises made by the policy and their obligation, as an insurer’s claims staff, to fulfill the promises made.
• are competent investigators.
• have empathy, and recognize the difference between empathy and sympathy.
• understand medicine relating to traumatic injuries and are sufficiently versed in tort law to deal with lawyers as equals.
• understand how to repair damage to real and personal property and the value of the repairs or the property.
An insurer whose claims staff is made up of people who are less than professional will find itself the subject of multiple instances of expensive, counterproductive litigation.

The excellence in claims handling program requires thorough training providing each member of the claims staff with a minimum of the following:
1. How to read and understand the contract that is the basis of every adjustment, including but not limited to:
a. The formation of the insurance policy.
b. The rules of interpretation.
2. Tort law including negligence, strict liability in tort, and intentional torts.
3. Contract law including the insurance contract, the commercial or residential lease agreement, the bill of lading, nonwaiver agreements, proofs of loss, releases and other claims related contracts.
a. The duties and obligations of the insured in a personal injury claim.
b. The duties and obligations of the insurer in a personal injury claim.
c. The duties and obligations of the insured in a first party property claim.
d. The duties and obligations of the insurer in a first party property claim.
4. The Fair Claims Practices Act and the regulations that enforce it.
5. The thorough investigation:
a. Basic investigation of an auto accident claim.
b. Investigation of a construction defect claim.
c. Investigation of a nonauto negligence claim.
d. Investigation of a strict liability claim.
e. Investigation of the first party property claim.
f. The recorded statement of the first party property claimant.
g. The recorded statement or interview of a third party claimant.
h. The recorded statement of the insured.
i. The red flags of fraud.
j. The SIU and the obligation of the claims representative when fraud is suspected.
6. Claims report writing.
7. The evaluation and settlement of the personal injury claim.
8. How to retain coverage counsel to aid when a coverage issue is detected.
a. How to control coverage counsel.
b. How to instruct coverage counsel on the issue to be resolved.
9. Dealing with a plaintiff’s lawyer.
10. Dealing with personal injury defense counsel.
11. The evaluation and settlement of the property damage claim.
12. The Appraisal process.
13. Arbitration and mediation and the claims representative.

Claims handling without excellence is both dangerous and expensive. Insurers should develop a professional claims staff and provide excellence in claims handling because by so doing they will profit more than if they keep an inadequate and unprofessional claims staff.

The series of videos will be available soon for a monthly subscription. The video here is a tease to the beginning of the courses which will run approximately one hour each.

Barry Zalma, Esq., CFE

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 54 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.

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Construction Defects and Insurance

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Second Edition of Volume I and II now Available at Amazon.com

“Construction Defects and Insurance Volume One Second Edition”

Construction Defects and Insurance Volume One Second Edition: The Structure, The Construction Contract, and Construction Defect Insurance. by [Barry Zalma]Construction defects have grown into one of the most active areas of litigation in the United States.

This Second Edition of a multi-volume treatise is the newest addition to Barry Zalma’s insurance claims books that thoroughly explain how to identify construction defects, how to insure, investigate, prosecute, and defend cases that result from construction defect claims.

Barry Zalma, has more than 55 years’ practical experience in this area. He is a highly sought after consultant and insurance claims handling expert witness nationally by both lawyers representing policyholders and lawyers representing insurers.
In this, the first volume of the eight volume treatise he has also provided checklists that walk the reader through an analysis of construction defects, the process of purchasing and later invoking construction defect insurance, and what is necessary to prosecute or defend a construction defect lawsuit. The books also include helpful sample forms to assist in the identification of defects and numerous case studies to illustrate the state of litigation.

https://www.amazon.com/dp/B09N9TP4V6Thorough, yet practical, this series of books form the ideal guide for any professional who works in or frequently interacts with the construction industry, construction defect claims, construction defect litigation, construction defect insurance or the practice of law with regard to construction defect litigation.

Claims professionals, risk managers, producers, underwriters, attorneys (both plaintiff and defense; both policyholder and insurer), and business owners will benefit greatly from the multiple volumes. It is also the perfect resource for insurance educators, trainers, and students whose role requires an understanding of construction defect law and construction insurance law.

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.

This, the first volume of Construction Defects & Insurance Second Edition, includes materials concerning:

  1. Overview
  2. The Structure,
  3. The Construction Contract
  4. Plans and Specifications
  5. The Property Inspections
  6. Construction Experts Used in Construction Defect Suits
  7. Ethics in Construction
  8. Commercial Leases
  9. Appendix 1 – Sample State Contract
  10. Appendix 2 – Sample Owners Association Contractor Rules and Regulations
  11. Checklist One – The Structure
  12. Checklist Two – Plans and Specifications
  13. Checklist Three – The Property Inspection
  14. Checklist Four – The Construction Contract

Available as a hard cover, a paperback and as a Kindle Book

“Construction Defect and Insurance Volume Two Second Edition”

The Defects and Understanding Construction Defects Insurance and Underwriting

Construction defects have grown into one of the most active areas of litigation in the United States.
This multi-volume series is the newest addition to Barry Zalma’s insurance claims books that thoroughly explain how to identify construction defects, how to insure, investigate, prosecute, and defend cases that result from construction defect claims.
Written by nationally-renowned expert, Barry Zalma, Construction Defects & Insurance Volume Two Second Edition is designed to help property owners, developers, builders, contractors, subcontractors, insurers, lenders, risk managers and lawyers avoid construction litigation, confidently and rapidly resolve claims associated with construction defect issues, or litigate construction defect litigation.
The Treatise, Construction Defects & Insurance addresses a wide range of topics associated with this escalating and expensive problem. As you read through the eight volumes and pages, you will find comprehensive insights into:

  • The construction process
  • Risks to be managed
  • What is required in an application for insurance protecting the insured against the risks of loss anticipated from construction
  • How to acquire the correct and complete construction insurance
  • How insurers underwrite against construction defect claims
  • How insurers decide to insure/not insure
  • Confronting losses caused by construction defects
  • Litigation or alternative dispute resolution of construction defect claims

Barry Zalma, has more than 54 years’ practical experience in this area. He is a highly sought after consultant and insurance claims handling expert witness nationally.
In this the second volume of the series of books he has also provided checklists that walk the reader through an analysis of construction defects, the process of purchasing and later invoking construction defect insurance, and what is necessary to prosecute or defend a construction defect lawsuit. The books also include helpful sample forms to assist in the identification of defects and numerous case studies to illustrate the state of litigation.
Thorough, yet practical, this series of books form the ideal guide for any professional who works in or frequently interacts with the construction industry, construction defect insurance or the legal practice.
Claims professionals, risk managers, producers, underwriters, attorneys (both plaintiff and defense), and business owners will benefit greatly from the multiple volumes. It is also the perfect resource for insurance educators, trainers, and students whose role requires an understanding of construction defect law and construction insurance law.
As you read through Volume Two of Construction Defects and Insurance Volume Two Second Edition, you will find comprehensive — yet comprehensible — coverage of key topics, including:
This is the second volume of Construction Defects & Insurance Second Edition and covers:

  • Overview
  • The Defects
  • Mold or Fungi
  • Structural Failure
  • Understanding Insurance and Underwriting Claims Handling
  • Underwriting How an Insurer Decides to Insure or Not Insure
  • Checklist 1 The Defects
  • Checklist 2 Understanding Insurance
  • Checklist 3 Purchasing Insurance
  • Construction Acronyms

Available as a paperback  and a Kindle book  Available as a hardcover 

All of Barry Zalma’s books are available at Zalma’s Insurance Claims Library https://zalma.com/blog/insurance-claims-library/


© 2021 – Barry Zalma

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 54 years in the insurance business.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to training available at https://claimschool.com; articles at https://zalma.substack.com,  the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at https://www.rumble.com/zalma ; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

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Property Insurance Damages

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A Video Explaining Common Law Bad Faith

See the full video at https://rumble.com/vqwajc-property-insurance-damages.html and at https://youtu.be/SHQRnFF0WDQ

In the 1950’s the California Supreme Court, recognizing that some insurers took advantage of their customers by refusing to pay claims that were clearly owed under the terms and conditions of the policy; failed to negotiate settlements within policy limits, and left insureds to fend for themselves, a new tort grew was created. The California Supreme Court, concluding that some insurers failed to deal fairly with those they insured. Because contract remedies did not provide, in the reasoning of the California Supreme Court, a procedure by which adequate damages could be provided to the person wronged by his or her insurer, the tort of bad faith arose to the joy of the plaintiffs’ bar.

The concept of the tort of bad faith developed as a means of providing a recovery in tort for the breach of what had previously been regarded as a simple contract action. Contract damages are traditionally limited the injured party’s recovery to those damages within the contemplation of the parties at the time the contract was made.

Since an insurance policy is a contract that establishes the respective rights and obligations to which an insurer and its insured have mutually agreed it must be enforced as written. Generally, an appellate court will construe a policy using the same rules that govern the construction of any other contract. An insurance policy, however, is a unique type of contract because an insurer generally has exclusive control over the evaluation, processing, and denial of claims, and it can easily use that control to take advantage of its insured. Because of this inherent unequal bargaining power, between the insured and the insurer courts, like those in Texas and California concluded the “special relationship” between an insurer and insured justifies the imposition of a common-law duty on insurers to “deal fairly and in good faith with their insureds.”  [USAA Tex. Lloyds Co. v. Menchaca, 545 S.W.3d 479 (Tex., 2018)]

Compensatory Damages Available for Breach of Contract

These are damages for a monetary amount that is intended to compensate the non-breaching party for losses that result from the breach. The aim is to “make the injured party whole again”.

Expectation Damages:

These are damages that are intended to cover what the injured party expected to receive from the contract. Calculations are usually straightforward as they are based on the contract itself or market values.

Consequential Damages:

These are intended to reimburse the injured party for indirect damages other than contractual loss; for example, loss of business profits due to an undelivered machine. In order to recover, the injuries must “flow from the breach,” i.e., be a direct result of the breach, and be reasonably foreseeable to both parties when they entered into the contract.

Liquidation Damages:

Damages that are specifically stated in the contract. These are available when damages may be hard to foresee and must be a fair estimate of what damages might be if there is a breach. Both parties determine what would be an appropriate amount during contract negotiations. [Fleming Co. v. Thriftway Medford Lakes, Inc., 913 F. Supp. 837, 847 (D.N.J. 1995)]

Restitution:

These are not really legal damages per se, but rather are an equitable remedy awarded to prevent the breaching party from being unjustly enriched. For example, if one party has delivered goods but the other party has failed to pay, the party that delivered the goods may be entitled to restitution, i.e., the cost of the delivered goods, in order to prevent unjust enrichment.

Specific Performance:

Specific performance is an available remedy for breach of contract where the non-breaching party asks the court to issue a decree that requires the breaching party to perform their part of the bargain indicated in the contract.

Damages from Insurer for Breach

Before the advent of the tort of bad faith, if an insurer breached the contract and wrongfully refused to pay a claim the most that could be recovered would be the benefits promised by the insurance policy, the only damages envisaged by the insurance policy. Contract damages, in the eyes of some courts, seldom compensate the insured sufficiently if he or she has been abused by the insurer. Courts decided that the measure of damages for a breach of contract is inadequate where the wrongful conduct results in damages that were not foreseen at the time of contracting.

Tort Damages

If a tort theory can be used in an insurance dispute, then the possibility exists for a much broader recovery by the plaintiff. The measure of damages for a tort can include consequential damages, including all of the damages proximately resulting from the wrongful conduct even if they could not have been anticipated at the time of the contract, emotional distress, bodily injury, and consequential damages.

Limitations on Punitive Damages

The US Supreme Court has restricted the extent of available punitive damages in State Farm Mutual Automobile Insurance Co. v. Campbell, 123 S.Ct. 1513, 155 L.Ed.2d 585 (U.S. 2003), where it overturned a $145 million verdict against an insurer. It said that a punitive damages award of $145 million is excessive and violates the Due Process Clause of the Fourteenth Amendment. By reducing the exposure to excessive and debilitating punitive damages claims professionals can hope the Supreme Court’s ruling gives insurers more courage to fight insurance fraud since their exposure to punitive damages is limited. Regardless, Campbell allows recovery of punitive damages for tortious breach of the insurance contract and the tort of bad faith.

© 2021 – Barry Zalma

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 54 years in the insurance business.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to training available at https://claimschool.com; articles at https://zalma.substack.com,  the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at https://www.rumble.com/zalma ; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

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Belts & Braces Exclusions Sufficient to Avoid Covid Claims

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 No Direct Physical Loss & Exclusion for Losses Due to Microorganisms Defeats Claim

The COVID-19 pandemic forced numerous businesses to close their doors or to reduce operations temporarily. Many suffered severe economic losses as a result and have sought money under their business property insurance policies. In this case under our diversity jurisdiction, we address two insurance coverage issues arising out of the partial closure of the Ritz-Carlton hotel in Dallas, Texas. In Crescent Plaza Hotel Owner, L.P. v. Zurich American Insurance Company, No. 21-1316, United States Court of Appeals, Seventh Circuit (December 9, 2021) the Seventh Circuit dealt with three Covid Cases and found no coverage and rejected creative arguments that the lawyers for the Plaintiffs raised.

FACTS AND PROCEDURAL HISTORY

The COVID-19 Pandemic and Closure Orders

As the COVID-19 pandemic was spreading in the United States in March 2020, the Dallas County government issued several orders restricting the operations of local businesses.

Plaintiff Crescent Plaza Hotel Owner, L.P. owns the Ritz-Carlton in Dallas. The hotel offers guest rooms and suites, a restaurant and bar, general event space, and other amenities, including a salon, spa, and fitness center. Crescent alleges that COVID-19 rendered the air in the hotel unsafe and diminished the functional space available on the premises, causing significant losses of business income. Crescent also alleges that it was required to incur expenses to install plexiglass partitions and hand sanitizer stations, to display signs throughout the hotel, and to move furniture to permit social distancing.

The Insurance Policy

Defendant Zurich American Insurance Company issued a general business property insurance policy to Marriott International-the operator of the hotel-for the period of April 1, 2019 to April 1, 2020. Crescent argued that its losses are covered under several different provisions, nearly all of which require “direct physical loss or damage” to covered property. Zurich also issued another one-year policy to Marriott-again including Crescent as an additional insured-that took effect on April 1, 2020. That policy was largely identical to the 2019 version, but it added an exclusion for losses attributable to any communicable disease, including viruses. Crescent has not offered on appeal any reason to doubt that this exclusion bars coverage under the 2020 policy. Both policies include a microorganism exclusion, which bars coverage for losses “directly or indirectly arising out of or relating to: mold, mildew, fungus, spores or other microorganism of any type, nature, or description, including but not limited to any substance whose presence poses an actual or potential threat to human health.”

District Court Proceedings

Crescent filed a claim with Zurich, which denied the claim in large part as beyond the scope of the 2019 and 2020 policies’ coverage. Crescent sued seeking damages for breach of contract and a declaratory judgment that its losses were covered under the policies. Zurich moved to dismiss and the district court held that the phrase “direct physical loss or damage” requires either “a permanent [dispossession] of the property due to a physical change .. or physical injury to the property requiring repair.” Since Crescent could not allege either, the court granted the motion to dismiss.

DISCUSSION

Coverage

The first issue presented is whether Crescent has alleged direct physical loss or damage to its property. The Seventh Circuit concluded that it has not.

Exclusions

The microorganism exclusion in Crescent’s policy provides a second, independent basis for denying coverage. Although the district court did not address the exclusion,an appellate court may affirm on any basis supported by the record, so long as the opposing party had an opportunity to be heard on the issue.

Role of Exclusions

In an insurance case, the burden is initially on the insured party to show that its losses are covered. Once that showing has been made, the burden shifts to the insurer to establish that an exclusion applies. Exclusions are read narrowly and apply only if their application is clear and free from doubt.

The Microorganism Exclusion

The microorganism exclusion appears in both the 2019 and 2020 policies that Zurich issued for Crescent’s hotel. Crescent does not dispute that its alleged losses arose from and were related to the coronavirus. The question is whether the virus qualifies as a “microorganism” under the terms of the exclusion.

The existence of multiple dictionary definitions does not compel the conclusion that a term is ambiguous. Nor is Crescent’s assertion that viruses-unlike mold, fungi, and the other categories specifically listed in the exclusion-are not alive and do not have cells. The question is how an ordinary reader or policyholder, not a scientist, would understand the term as used in the policy. An ordinary reader, unversed in the nuances of classification debates in microbiology, would be unlikely to home in on viruses’ lack of cellular structure to decide whether losses they cause fall under the exclusion. The average policyholder would be puzzled by Crescent’s theory that the exclusion bars losses caused by bacteria but not those caused by viruses.

The context in which the term “microorganism” is used in this policy confirms that the exclusion unambiguously applies to viruses. The context and language signal clearly that the exclusion applies to losses caused by viruses. The relevant language is deliberately broad, covering microorganisms of any type, nature, or description, and applying broadly to any substance whose presence poses an actual or potential threat to human health, which the coronavirus undeniably does.

The Surplusage Argument

Crescent’s surplusage argument overlooks the fact that insurance policies often use overlapping provisions to provide greater certainty on the scope of coverages and exclusions. It is not surprising that a document, especially one drafted by an insurance company, would use a “belt and suspenders’ approach. In fact, insurance policies are notorious for their simultaneous use of both belts and suspenders, and some overlap is to be expected. Overlap between two exclusions in the Zurich policies does not render either superfluous.

Fundamentally belt-and-suspenders modifications to policy language simply do not compel the inference that prior policy language did not require the same result.

In reaching this decision the Seventh Circuit adopted the analysis of today’s decision in Sandy Point Dental, P.C. v. Cincinnati Insurance Co., No. 21-1186 (7th Cir. Dec. 9, 2021), and held that the term “direct physical loss or damage” to property does not apply to a business’s loss of use of the property without any physical alteration. It concluded that the microorganism exclusion in the policy independently bars coverage for the hotel’s claimed losses.

ZALMA OPINION

Although some of the best lawyers in the country have raised many creative attempts to get around the “direct physical loss” requirement and the microorganism exclusions like those in this case, the courts of the United States continue to properly refuse to rewrite a policy that was entered into by two sentient beings. It is essential to read the words of a policy and interpret it as the parties expected before there was a loss. The Seventh Circuit did so and ruled in the only way possible on the facts and the policy wording.


© 2021 – Barry Zalma

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 54 years in the insurance business.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to training available at https://claimschool.com; articles at https://zalma.substack.com,  the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at https://www.rumble.com/zalma ; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

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A Video Explaining Some Defenses to Mold Claims

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Economic Loss Doctrine, Peculiar Risk, Statutes of Limitation and Repose, Contributory Negligence

See the full video at https://rumble.com/vqu68o-a-video-explaining-some-defenses-to-mold-claims.html  and at https://youtu.be/0EGQf6SUjMQ

Economic Loss Doctrine

The economic loss doctrine is a judicially created doctrine providing that a commercial purchaser of a product cannot recover from a manufacturer, under the tort theories of negligence or strict products liability, damages that are solely ‘economic’ in nature.” It is a defense to tort claims that arise in construction matters and, in all claims, relating to property damage due to mold. Under the economic loss doctrine, a plaintiff who suffers only financial injury (as opposed to personal injury or emotional distress, or damage to real or personal property) as a result of another’s actions cannot seek recovery in tort. Instead, the plaintiff is limited only to recovery under a breach of contract theory

The economic loss doctrine does not apply to claims for breach of warranties under the Uniform Commercial Code by a buyer of an allegedly defective product who has sustained only property damage.

In Kriegler v. Eichler Homes, Inc. 269 Cal.App.2d 224 (1969), the courts fully examined the economic loss rule, and drew the line of demarcation between an economic loss and physical injury to property, including to the defective product itself. They allowed recovery of strict liability damages in the latter instance. California’s cornerstone strict liability construction case permitted recovery of strict liability damages where defectively fabricated radiant heat tubes installed in the substandard concrete slab of the plaintiff’s residence caused failure of the heating system and entailed emergency and permanent repairs, removal and storage of furniture, and the need for the plaintiff and his family to find temporary replacement shelter.

Peculiar Risk

Under the peculiar risk doctrine, an innocent third party injured by an independent contractor’s negligence could sue the contractor’s hirer (the developer or the general contractor) so that the injured party did not have to rely on the solvency of the contractor to be compensated for injuries. In California, the workers’ compensation laws create an exclusive remedy for an employee injured on the job and if such benefits are available—even if the injured workers’ employer carried no workers’ compensation insurance—third party claims against the hirer of his employer are barred.

Statutes of Limitation & Repose

In every suit relating to mold the statutes of limitation or the statutes of repose are a key issue to be resolved at, or before, trial. If it can be shown that a statute of limitation or a statute of repose applies, the case will end and the plaintiff will recover nothing. If established by a motion for summary judgment, or other pretrial proceeding, the case will never go to trial.

Assumption of the Risk

Assumption of the Risk

Where a voluntary participant in a sports activity suffers an injury that is a foreseeable risk of participation, in that activity, his claim is barred by the assumption of the risk doctrine. Any factual dispute as to the negligence of the person from whom damages are sought failing to prevent injury to the person seeking damages is irrelevant with respect to the issue of assumption of the risk. The defense would apply to a person who buys a property obviously infested with mold or fungi.

Contributory or Comparative Negligence

When bringing an action against a person for damages resulting from mold, the litigant must be aware how effective a claim of comparative negligence can be to reduce the amount recoverable. Evidence of comparative negligence will also help the litigant prove or defeat the portion of the suit claiming damages by negligence.

ZALMA OPINION

Mold claims seem to be brought under multiple theories of contract, warranty and tort. This video explains in detail some of the available defenses that a party, or the party’s insurer, will assert to avoid the mold claim or suit.


© 2021 – Barry Zalma

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 54 years in the insurance business.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to training available at https://claimschool.com; articles at https://zalma.substack.com,  the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at https://www.rumble.com/zalma ; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

 

 

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Anti-Indemnity Statute Affirmed

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Even With Insurance Wyoming Public Policy Defeats Choice of Law Provision of Contract

Texas and Wyoming are leading oil-producing states. Like other leading energy states, they both regulate the use of indemnity agreements in their oilfields with Anti-Indemnity Acts. Wyoming, concerned that indemnification disincentivizes safety, forbids oilfield indemnity agreements. Texas, concerned that large oil companies will use their leverage to demand indemnity from independent operators, also disfavors the agreements. But it does not ban them entirely. To address the bargaining-power problem, it allows indemnification in limited situations including when the indemnity is mutual and backed by insurance. In Cannon Oil and Gas Well Services, Incorporated v. KLX Energy Services, L.L.C., No. 21-20115, United States Court of Appeals, Fifth Circuit (December 10, 2021) the Fifth Circuit was asked to enforce indemnity agreement in contract.

Wyoming & Texas Have Different Laws Concerning Oilfield Indemnity Laws

A contract for the leasing and servicing of drilling equipment includes a mutual indemnity agreement that complies with Texas law but would be unenforceable under Wyoming’s blanket ban. Although the agreement states that Texas law will govern, most of the work performed under the contract occurred in Wyoming with none in Texas. And indemnity is being sought for a Wyoming lawsuit filed by a Wyoming resident injured in a Wyoming oilfield operated by a Wyoming business.

FACTS

Cannon Oil and Gas Well Services is an oil-and-gas exploration company based in Wyoming. When Cannon needed to lease drilling equipment, it contracted with Texas-based KLX Energy Services.

The parties memorialized their deal in a “Master Equipment Rental Agreement,” which governs “all Equipment rented . . . as well as any services provided by [KLX to Cannon].” The document includes a choice-of-law clause providing that Texas law governs the agreement. It also contains an indemnity provision under which Cannon and KLX must “protect, defend, [and] indemnify” each other against losses involving injuries sustained by the other’s employees, regardless of who is at fault.

Unlike the Master Agreement, the Work Order’s indemnity provision does not include a separate clause limiting the parties’ indemnity obligation “to the maximum extent permitted by applicable law.”

Initial discussions about the agreement occurred entirely in Wyoming, where KLX maintains a significant presence. Cannon later executed the documents in Wyoming; KLX did so in West Virginia. An employee from KLX’s Wyoming office was performing a pressure test on KLX equipment at a Cannon oil well in Southern Wyoming. The employee was injured. He then sued Cannon in state court in his home state of Wyoming.

ISSUE: Which State’s Statute Applies

If the Master Agreement’s indemnity provision is valid, KLX is ultimately on the hook for injuries suffered by its employee even if Cannon was at fault. Cannon sued seeking declaratory judgment to enforce KLX’s indemnity obligation for the Wyoming lawsuit.

After the parties filed dueling summary judgment motions, the district court ruled in KLX’s favor.  Because Wyoming bans oilfield indemnity, the indemnity provision in the Master Agreement was unenforceable. Cannon thus would have to defend itself in Wyoming state court.

ANALYSIS

The Fifth Circuit, reading the Master Agreement recognized that even under applicable Texas law, indemnity provisions will not always be enforced.

The question becomes whether the parties’ choice of Texas law is enforceable for this Wyoming-centered indemnity dispute.

Enforcing what the parties bargained for promotes efficiency and certainty. But when it comes to enforcing a contractual choice-of-law provision, freedom-of-contract values collide with a state’s interest in regulating conduct within its borders. State laws regulating contracts would lose much of their bite if parties could oust them by agreeing to apply laws from a favored jurisdiction. If regulation is desirable, then choice of law creates a race to the bottom by eroding efforts to eliminate social harms.

Texas’s choice-of-law rules, which we apply as a federal court sitting in diversity harmonize this tension. The conflict-of-laws principle of limited party autonomy. Under it, although Texas courts permit choice-of-law agreements and the default position is that they are enforceable, it is not uncommon for a party to overcome them.

Texas courts look to section 187(2)(b) of the Restatement (Second) of Conflict of Laws to determine whether to enforce a contractual choice of law. DeSantis, 793 S.W.2d at 677-78. Under that section, three things must be true for Wyoming law to override the parties’ choice of Texas law.

  1. Wyoming must have a more significant relationship with the parties and transaction than Texas does under section 188 of the Restatement.
  2. Wyoming must have a “materially greater interest” than Texas in applying its law to this set of facts.
  3. Applying Texas law must be contrary to a fundamental policy of Wyoming. Central to these inquiries is each state’s interest in the particular substantive issue to be resolved-here, indemnity.

To overcome the parties’ choice of Texas law, Wyoming must have a “more significant relationship” to Cannon and KLX’s indemnity agreement. Put differently, would Wyoming law apply had the parties not chosen Texas?

The place of performance favors Wyoming. The Supreme Court of Texas has not decided whether the relevant place of performance in indemnity cases is where the drilling or the suing takes place. The distinction does not matter here as Wyoming is the site of both the drilling and the suing. The contacts thus overwhelmingly favor Wyoming. Four favor Wyoming with one being neutral. None favor Texas.

Parties generally expect that the law of the place of negotiation, contracting, and performance-none of which were Texas here-will govern. Even if the protection of justified expectations favors applying Texas law, those expectations can be overcome if they are substantially outweighed by the interests of the state with the invalidating rule.

The extent of the interest of a state in having its rule applied should be determined in the light of the purpose sought to be achieved by the rule and by the relation of the transaction and the parties to that state. Wyoming’s concern that indemnity undermines safety has great force in a dispute seeking indemnification for an injury to one of its residents in one of its oilfields. In the absence of a choice-of-law clause, Wyoming law would apply to this indemnity demand for a Wyoming lawsuit brought by a Wyoming resident performing work in the state for a Wyoming company.

To overcome the parties’ contrary choice of Texas law, KLX must next show that Wyoming’s interest in this indemnity matter is “materially greater” than Texas’s. It easily is. Wyoming bans oilfield indemnity provisions so that oil and gas companies “internalize the costs of their own operations” and become “more mindful of employee safety.” Lexington Ins. Co. v. Precision Drilling Co., 830 F.3d 1219, 1220 (10th Cir. 2016). This policy stems from Wyoming’s deep experience with the “hazardous undertaking” of drilling and mining.

Wyoming’s interest in promoting worker safety in its oilfields is at its zenith on these facts. The underlying state court proceeding-in which a Wyoming resident was injured in Wyoming by the alleged negligence of a Wyoming oil company-implicates Wyoming’s policy with precision. Enforcing the indemnity provision would discourage what Wyoming hopes to encourage-Cannon’s taking steps to avoid injuries in its oilfield operations.

Wyoming’s ban on oilfield indemnification is codified and voids any such agreement as being against public policy. Because Wyoming has taken the unusual step of stating the policy explicitly in a statute, and will refuse to enforce an agreement contrary to the policy even when other states connected to the agreement would enforce it, the anti-indemnity policy is a fundamental one.

The Fifth Circuit concluded, therefore, that Wyoming law applies. Its Oilfield Anti-Indemnity Act does not allow Cannon’s claim for indemnification.

ZALMA OPINION

Texas allows indemnity agreements if there is insurance available. Wyoming does not. Texas thinks its people would be protected by insurance. Wyoming stated a public policy in a statute and does not think the availability of insurance will protect its oil field workers. Since one was injured the public policy of Wyoming was applied and the attempt to choose Texas law failed.


© 2021 – Barry Zalma

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 54 years in the insurance business.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to training available at https://claimschool.com; articles at https://zalma.substack.com,  the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at https://www.rumble.com/zalma ; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

 

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Zalma’s Insurance Fraud Letter – December 15, 2021

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ZIFL – Volume 25, Issue 24

See the full video at https://rumble.com/vqtrru-a-video-of-zalmas-insurance-fraud-letter-12-15-2021.html and at https://youtu.be/MvUluttI7Os

A Christmas Fable of Fraud

ZIFL publishes this Story at Christmas Time Every Year. I Hope You like it Again.

Editorial – Anti-Fraud Resolutions

In 2009 ZIFL posted an editorial with New Year’s Resolutions for every person involved in the business of insurance. I repeat it again in this issue and add some thoughts for 2022.

Insurance fraud of all types continues to grow to epidemic levels. It is perpetrated by people of every race, religion, national origin, financial situation, sexual orientation, age, or physical condition. As the US economy tanks and the value of the dollar drops people turn to insurance fraud as a “safe” crime where their financial problems can be cured. Arson for profit, fake thefts, fake injuries all grow logarithmically as it becomes more difficult to earn an honest living. Even when convicted the fraud perpetrators receive as little as probation or one day in jail and rarely are sentenced to multiple years in jail regardless of the extent of the fraud. It often seems that everyone is involved in fraud. Governmental agencies designed to protect consumers, prosecutors, and judges all add to the problem because they have no empathy for insurers, investors, or Wall Street brokers, as victims.

Fraudster Cannot Obtain Cash Under the California Unclaimed Property Law

Money Held by the State Can’t be Given to a Fraud

ClaimSchool, Inc. – Insurance Education

Insurance Education from Barry Zalma

Defendants Claimed Their Fraud Was Obvious so Insurer was not Damaged

GEICO Proactively Fights Fraud By Suing Providers For Damages

The Coalition Hall of Shame

Health Insurance Fraud Convictions

Other Insurance Fraud Convictions


© 2021 – Barry Zalma

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 54 years in the insurance business.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to training available at https://claimschool.com; articles at https://zalma.substack.com,  the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at https://www.rumble.com/zalma ; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

 

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Private Limitation of Action Provision

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A Video Explaining the Private Limitation of Action Provision of a First Party Property Policy

See the full video at https://rumble.com/vqpgkm-a-video-explaining-the-private-limitation-of-action-provision-of-a-first-pa.html and at https://youtu.be/MkNZqQxVAyk

The phrase, “inception of the loss” in the standard fire insurance policy has been interpreted to mean the occurrence of the casualty or event insured against must, if a claim is denied, a suit must be filed within one or two years of the date of the inception of the loss. The law is clear that in most situations the limitation period will be enforced.

The Sixth Circuit held that a one-year limitations period after the inception of loss or damage in an insurance contract did not conflict with Kentucky law and was reasonable. [Smith v. Allstate Ins. Co., 403 F.3d 401, 402-04 (6th Cir. 2005); Miller v. Seneca Specialty Ins. Co. (W.D. Ky., 2019)]

The inception of loss means “the time when the loss was first incurred or began to accrue.” [Tucker v. State Farm Mut. Auto Ins., 2002 UT 54, ¶¶ 13-14, 53 P.3d 947].

In Oregon, the Supreme Court held that “[t]he loss occurs and has its ‘inception’ whether or not the insured knows of it.” See also Zuckerman v. Transamerica Ins. Co., supra, 133 Ariz. at 145 (“the phrase ‘inception of the loss’ is not ambiguous and clearly denotes the time at which the loss occurs”). Moore v. Mutual of Enumclaw Insurance Co., 317 Or. 235, 855 P. 2d 626 (Or. 07/29/1993).

An insured’s suit on the policy will be deemed timely if it is filed within one year after “inception of the loss,” defined as that point in time when appreciable damage occurs and is or should be known to the insured, such that a reasonable insured would be aware that his notification duty under the policy has been triggered. “Once any damage becomes reasonably apparent the time begins to run, even if the full extent of the damage is unknown. The inception of the loss occurs when the insured should have known that “Appreciable Damage” had occurred, not when the homeowner learned the true extent of the damage.” (Doheny Park Terrace Homeowners Assn., Inc. v. Truck Ins. Exchange 132 Cal.App.4th 1076, 34 Cal. Rptr. 3d 157 (2005) and Prudential-LMI Com. Ins. v. Superior Court, 51 Cal. 3d 647, 798)

An insured’s belated discovery of potential coverage is irrelevant to the inception of loss date. [Abari v. State Farm Fire & Casualty Co. 205 Cal.App.3d 530, 535 Cal. Rptr. 565 (Ct. App. 1988)]

The limitations period is tolled in California from the time the insured gives notice of the damage to the insurer until the insurer formally denies coverage. “This has been construed to mean ‘unequivocal’ denial in writing.” [Migliore v. Mid–Century Ins. Co. 97 Cal.App.4th 592, 118 Cal. Rptr. 2d 548 (2002)] “The reason for the tolling rule is to avoid penalizing the insured for the time consumed by the insurer investigating the claim, while preserving the ‘central idea of the limitation provision that an insured will have only 12 months to institute suit.’” [Marselis v. Allstate Ins. Co. 121 Cal.App.4th 122, 16 Cal. Rptr. 3d 668 (2004)] There is no requirement, however, that the insurer take “firm, unmovable positions” [Liberty Transport, Inc. v. Harry W. Gorst Co. 229 Cal.App.3d 417, 280 Cal. Rptr. 159 (Ct. App. 1991)] or use particular “magic” words, even the word “deny” to achieve the requisite unconditional denial.

The 12-month private limitations of action provision of first party property policies has been upheld as valid and enforceable by every California Appellate Court, and almost every court in every state that has been asked to consider it. Only one California court and some courts in other jurisdictions cited by it have extended the statutory 12-month limitation. [Zurn, supra.] Other jurisdictions apply a much more liberal interpretation construing “inception of the loss” generally in terms equating the phrase with accrual of a cause of action against the insurer.

However, even the Zurn court recognized the effectiveness of the private limitation of action provision and only started the running of the limitation period at a later date than the date of the actual injury. As Zurn considered special facts, it liberally construed the phrase “inception of loss” (which no longer appears in current policies) to be the date when the insured is capable of presenting a proof of loss to the insurer. As will be seen below, the California Supreme Court adopted some of the analysis of the Zurn court.

ZALMA OPINION

For more detail on the subject check out Zalma on Insurance Claims Part 104, Third Edition which is available from amazon.com as a paperback or a Kindle book.


© 2021 – Barry Zalma

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 54 years in the insurance business.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to training available at https://claimschool.com; articles at https://zalma.substack.com,  the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at https://www.rumble.com/zalma ; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

 

 

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