A Video Explaining The Creation of Insurance and the Ethical Insurer

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Benjamin Franklin and American Insurance

See the full video at https://youtu.be/-0vsvKiRU3o

Not content with the titles of statesman, scientist, inventor or author, Benjamin Franklin added insurer to his collection. In 1752, the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire became the first mutual fire insurance company in America.

Much like London in the 1600s, houses at this time were made almost entirely out of wood. Worse yet, the settlements that grew into the cities were built close together. This was originally done for security reasons but as cities grew, developers built homes very close to each other for the same reasons they do today – to fit as many homes as possible on their development plots.

Demonstrating high moral and ethical standards are vital to success in the insurance business. Insurers that have a clear vision based on ethical practices should be more successful over the long term than organizations whose personnel fail to act ethically.

Ethical insurers seldom face litigation for the tort of bad faith breach of the covenant of good faith and fair dealing and should never see a verdict concluding the insurer breached the covenant. At most, if they dispute an obligation under a policy of insurance, they are compelled to pay the indemnity promised by the contract.

Unethical insurers who breach the covenant are compelled, by the tort of bad faith, to pay contract and tort damages. Ethical values in an organization like an insurer are logically connected with success of the organization. Success follows ethical behavior because the insurer that stresses high ethical standards will also stress quality, fair, and thorough claims service. It is quality claims service that the contract of insurance promises. The insurer that provides consistent, quality insurance claims service will usually be successful over a period of time.


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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 Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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Intentional Act Without Intent to Damage is Clearly Excluded

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Eight Corners Rule Concludes Policy and Suit Establish No Occurrence

Michelle Latray appealed the trial court’s rendition of summary judgment in favor of Colony Insurance Company d/b/a Colony Specialty Insurance Company (hereinafter “Colony”).  In Michelle Latray As Receiver Of The Assets Of Clifton Boatright For The Benefit Of Judgment Creditors W.L. Roberts, Dana Roberts, Erin Leigh Roberts, And Katelyn Roberts Gonzales v. Colony Insurance Company D/B/A Colony Specialty Insurance Co., No. 07-19-00350-CV, Court of Appeals Seventh District of Texas at Amarillo (January 11, 2021) was asked to determine if an intentional act alleged in suit was sufficient to refuse both defense and indemnity to the bankrupt insured.

BACKGROUND

Boatright dumped debris onto property owned by W.L. Roberts and others. The City of Kosse hired Boatright to demolish the town’s old high school. Their agreement included Boatright’s removal and disposal of the debris resulting from the demolition. Their agreement also required Boatright to obtain a policy of liability insurance prior to the commencement of demolition. An agent for Colony issued a policy covering the planned operations.

David Garrett, a friend of Boatright’s and a long-time tenant on the Roberts’ property, asked Boatright if he could take some of the debris to use for purposes of erosion control. According to Boatright, he mistakenly believed the property on which Garrett wished to place the debris belonged to Garrett when, in fact, the property belonged to the Robertses. Neither Garrett nor Boatright sought the Roberts’ permission before placing the debris on the property.

Garrett and Boatright, without the consent of the property owner,  took debris from the demolition site and placed it on the Roberts’ property. By the end of the project, Garrett and Boatright had placed forty tons of debris on the Roberts’ property. When W.L. Roberts discovered the debris on his property, he filed suit against Boatright and others for illegal dumping and damage to his land.  Roberts subsequently obtained a judgment against Boatright for $50,000, plus $309 in court costs.

Latray sought relief under the insurance policy issued to Boatright by Colony. When Colony denied that coverage, Latray sued Colony for breach of contract, violation of the Deceptive Trade Practices Act (“DTPA”), violation of section 541 of the Texas Insurance Code, and breach of the common law duty of good faith and fair dealing. Colony argued that because Boatright’s actions were intentional, the policy did not cover Boatright’s acts and thus, it had no duty to defend nor indemnify.

The trial court granted Colony’s motion for summary judgment and denied Latray’s motion for partial summary judgment.

ANALYSIS

ISSUE ONE—DUTY TO DEFEND

Whether an insurance carrier owes a duty to defend a claim being made against an insured under an insurance policy is a question of law. Initially, the insured bears the burden of establishing coverage under the terms of the insurance policy in question. To avoid liability and a duty to defend, the insurer then has the burden to plead and prove that the loss falls within an exclusion to the policy’s coverage.

Specifically, the acts sued upon must fall within the policy coverage before a duty to defend arises. An insurer does not owe a duty to defend an insured unless the suit contains allegations of fact which fall within the scope of coverage provided for in the policy of insurance.

Texas appellate courts apply the “eight corners rule,” also known as the “complaint allegation rule” to determine the existence of a duty to defend. The court considers the allegations in the suit in light of the policy terms without considering either the truth or falsity of the allegations or what the parties know or believe the true facts to be. An appellate court may not look outside the pleadings and the policy of insurance in its assessment of whether there is a duty to defend.

Generally, the insurer is obligated to defend if there is, potentially, an action alleged within the policy coverage, even if the allegations do not clearly show there is coverage.

The policy in question defines an “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” “Accident” is not defined in the policy. However, the Texas Supreme Court has stated that an injury is accidental if “from the viewpoint of the insured, [it is] not the natural and probable consequence of the action or occurrence which produced the injury; or in other words, if the injury could not reasonably be anticipated by insured, or would not ordinarily follow from the action or occurrence which caused the injury.” [Lennar Corp. v. Great Am. Ins. Co., 200 S.W.3d 651, 663 (Tex. App.—Houston [14th Dist.] 2006, pet. denied) (citing Mid-Century Ins. Co. v. Lindsey, 997 S.W.2d 153, 155 (Tex. 1999) (quoting Republic Nat’l Life Ins. Co. v. Heyward, 536 S.W.2d 549, 557 (Tex.1976)).]

The terms of the policy establish that it does not cover intentional acts. Because there was no occurrence, there was no coverage. And because there was no coverage, Colony was under no duty to defend Boatright in the claims brought by Latray.

ISSUE TWO—DUTY TO INDEMNIFY

The damage was not an accident or occurrence within the meaning of the policy. There is not an accident when the action is intentionally taken and performed in such a manner that it is an intentional tort, regardless of whether the effect was unintended or unexpected. However, there is an accident when the action is intentionally taken but is performed negligently and the effect is not what would have been intended or expected had the deliberate action been performed non-negligently.

The undisputed evidence in the record shows Boatright intended to move the debris onto the Roberts’ property and he intended to leave it there. Furthermore, there were no allegations that Boatright was negligent in the performance of those acts. The damage sustained was the consequence of the simple presence of the debris on the Roberts’ land. Boatright intentionally removed the debris and placed it on the Roberts’ property—under the mistaken belief he had permission to do so—resulting in damage to the property from the mere presence of the debris itself, not some unintended consequence of Boatright’s intentional act.

The Court of Appeal concluded that Boatright acted intentionally even if he did not intend the result, i.e., to injure the Robertses. But Boatright’s error is not relevant to whether Boatright’s actions were intentional and thus not covered by the terms of the policy. On the contrary his erroneous conclusion did not change the fact that he intended to dump the debris on the Robert’s property.

Therefore, the trial court did not err in granting summary judgment in favor of Colony because there was no duty to indemnify under these facts. Under the express terms of the policy there was no coverage.

ZALMA OPINION

The Eight Corners rule, that I have never liked, limits the court to the allegations of the suit and the wording of the policy, when deciding to defend an insured. The suit alleged the intent to dump and the policy refused to defend anyone whose intentional acts caused damage. There was no question Boatright intended to dump the debris on Roberts’ property and, therefore, there was no “occurrence” and no duty to defend or indemnify.


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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 Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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A Video Explaining the False Swearing Defense to an Insurance Claim

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FALSE SWEARING

See the full video at  https://youtu.be/HzbP3Nqdmi4

In common language the “false swearing” provision of an insurance policy merely means that if the insured lies under oath the policy is void whether the lie is in a proof of loss or at an examination under oath. In Texas and Oklahoma, false swearing is explained this way:

Where an insured knowingly and willfully overestimates the value of property destroyed or damaged, the policy is voided and the insured’s right to recover is defeated.

The reason for the false swearing defense can be explained because it would be unjust to allow a claimant to misrepresent facts under oath that might lead to a valid defense and then allow him to escape the consequences of the falsehood simply because he had succeeded so well that the company was unable to establish the defense.

The Mississippi Supreme Court explained the reason for the “false swearing” defense that “[i]t would be unjust to allow a claimant to misrepresent facts which might lead to a valid defense and then to allow him to escape the consequences of the falsehood simply because he had succeeded so well that the company was unable to establish the defense,” Edmiston v. Schellenger, 343 So. 2d 465, 467 (Miss. 1977), cited with approval in Duke v. Hartford Fire Insurance Co., 617 F.2d 509, 510 (8th Cir. 1980) (per curiam) (applying Arkansas law).

False swearing is a crime in all states. An insured that is guilty of false swearing is subject to the possibility of criminal liability. The person swearing falsely also destroys the right to recover under a policy of insurance.

An insurer can assert false swearing as an affirmative defense to an action brought by an insured. To constitute such a defense, the false statement must have been made under oath with the knowledge that it is false and with the intent that the person to whom the statement is made will rely on it. Actual reliance is not necessary. To support a defense to a claim or a suit on a policy, the statement must be: false; and material to the claim.

Almost every policy that insures against the risk of loss of property requires the insured to submit a sworn proof of loss. The proof of loss must provide complete details regarding the property insured, the origin of the loss, and the value of the property claimed destroyed. A policy usually also requires the insured to give the insurer access to books and records to prove the claim. Where fraud is suspected, the insurer may demand that the insured be examined under oath. Significant deviations between the sworn proof of loss and the facts developed at an examination under oath can be the basis of a defense of fraud or false swearing. If false swearing is found to exist, it will normally constitute a complete defense to any claim under a property insurance policy.


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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 Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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Property Must be Replaced to Gain the Difference between ACV and RCV

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Insurer Properly Held Back Depreciation Before it was Obligated to Pay for Full Replacement Cost

In an insurance coverage dispute, plaintiff Jeanette Lanier appealed from a Law Division order granting summary judgment to defendant Farmers Mutual Fire Insurance Company of Salem County. In Jeanette Lanier v. Farmers Mutual Fire Insurance Company Of Salem County, DOCKET NO. A-1398-19T2, Superior Court Of New Jersey Appellate Division (December 31, 2020) the court dealt with the need to actually replace before a homeowners insurer is required to pay full replacement cost.

FACTS

Viewed in the light most favorable to plaintiff, the pertinent facts are as follows: In December 2016, plaintiff’s home was damaged when a pipe suddenly burst. Plaintiff submitted a timely claim under the homeowner’s insurance policy issued by defendant, which accepted the claim as a covered loss.

The parties thereafter disputed the extent of damages to plaintiff’s home and the cost of repairs. Defendant’s adjuster provided an estimate of damages, with a replacement cost value (RCV) of $48,997.31. Plaintiff retained an inspector, who estimated the RCV at $174,635. Defendant paid plaintiff $39,163.25 as the actual cash value (ACV) for damages to the building after removing $9,834.06 for depreciation.1

Plaintiff’s policy provided $305,000 in coverage for the building, with a $1000 deductible. The policy also contained the following precondition for replacement coverage:

We are not liable for payment on a replacement basis until the repair or replacement is completed by you or us, unless the total cost for full repair or replacement is less than $2,000. You may submit a claim on an actual cash value basis and then, no later than 180 days following settlement on an actual cash value basis (or our offer of such if you decline settlement) make further claim on repair or replacement. Repair or replacement is to be completed by the time you make such claim.”

It is undisputed that plaintiff did not provide proof of “repair or replacement” under the terms of the policy. Nor did plaintiff request payment of depreciation hold-back. Instead, she sued defendant, alleging: breach of contract (count one); breach of implied covenant of good faith and fair dealing (count two); and violations of the Consumer Fraud Act, (count three). Plaintiff thereafter retained an expert, who opined in his December 2018 report that the RCV was $129,166.82.

When deposed in June 2019, plaintiff said her contractor had begun repairs two weeks prior. In that regard, plaintiff produced in discovery a May 9, 2019 repair contract with a total repair price of $210,041. Plaintiff acknowledged defendant’s 2017 estimate for RCV for the structure but testified she did not select defendant’s contractor to perform the work because its estimates were “very low” compared to other estimates she had received. Plaintiff therefore assumed defendant’s contractor would “do bad, shoddy work.”

ANALYSIS

Following the close of discovery, defendant moved for summary judgment. Relevant here, defendant primarily argued plaintiff failed to produce any evidence “that the ACV of payments made” was “inadequate.” Plaintiff countered that an “impossibility of performance” excused the satisfaction of the precondition set forth in the policy. Plaintiff argued she could not afford to repair or replace the property without the insurance proceeds for the total amount of repairs sought.

In a comprehensive statement of reasons that accompanied the order, Judge Frank Covello granted defendant’s motion. Squarely addressing the issues raised in view of the governing law, the judge concluded the terms of the policy were clear and plaintiff failed to provide defendant with proof of repair or replacement. The judge further found plaintiff “did not provide evidence to show that the ACV [wa]s not sufficient.” And, plaintiff conceded “she did not produce reports on the ACV of building loss.”

Citing the decision in Ward v. Merrimack Mutual Fire Insurance Co., 332 N.J. Super. 515, 522 (App. Div. 2000), the motion judge recognized that a party to a contract may not avail itself of a condition precedent where its own conduct rendered compliance with the condition impossible. The judge noted his concern that defendant appears to have no mechanism to provide payment of RCV value until the repairs or replacements are completed, thereby requiring the insured to front the money and seek reimbursement later. But the judge nonetheless found “the plain language of the contract provides for a process whether RCV can only occur after the acceptance of a settlement amount or rejection thereof.”

The judge reiterated his earlier conclusion that the precondition “is a valid and enforceable policy provision.”

On appeal, plaintiff reprised her argument that issues of fact precluded summary judgment as to whether impossibility of performance existed, thereby excusing the policy’s replacement precondition for recovery of RCV. The appellate court affirmed the trial court because of the thoughtful and thorough reasons articulated by Judge Covello in his accompanying decision and concluded that there are no material factual disputes.

ZALMA OPINION

It is axiomatic that clear and unambiguous language in an insurance policy contract is always enforceable. The language of the policy allowed the insured to collect the actual cash value of the loss and, after completing repairs, request the held back depreciation. She did not do so but, rather, filed an overzealous and early lawsuit – ignoring the ability to have the amount of loss determined by disinterested appraisers but concluded, unilaterally, that the calculation of the insurer was based upon would “do bad, shoddy work.” The case proved the problem with assuming sine the word “ass u me” can be broken into its component parts.


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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 Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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ZALMA’S INSURANCE FRAUD LETTER

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ZALMA’S INSURANCE FRAUD LETTER JANUARY 15, 2021

See the full video at https://youtu.be/QgrIYI0K_SQ

Professional Insurance Adjusting and Insurance Fraud

At the turn of the century, insurers, in a search for profit, decimated their professional claims staff. 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 and to detect and defeat attempts at insurance fraud.

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.

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.

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.

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.

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.

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.

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.

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 my book “It’s Time to Abolish The Tort of Bad Faith 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. Consider the digest of the case that follows as an example of how difficult it is to effectively fight insurance fraud when a fraud proved with overwhelming evidence still needed to go through trial and appeal before the insurance criminal was sent to jail.


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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 Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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A Video Explaining the Three Major Responses to Insurance Fraud

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A Video Explaining the Three Major Responses to Insurance Fraud

See the full video at https://youtu.be/P2wMCMkoIDM

Insurers are faced with three major types of insurance fraud:

  1. Fraud in the inception of a policy of insurance.
  2. Fraud in the presentation of a claim by the insured.
  3. Fraud in the presentation of a claim by a third party claimant.

Fraud in the Inception

The insured misrepresents or conceals facts material to the decision of the insurer to insure or not insure the prospective insured. This is a situation where the person seeking insurance deceives the insurer about the risks it is being asked to take.

If the insured lies in the application for insurance about a matter that would have, had the truth been known, affected the decision of the insurer, the insurer may have the right to rescind the policy, determine it never existed, return the premium, and deny the claim presented by the insured;

Fraud (By the Insured) In the Presentation of The Claim. 

The insured lies about a fact material to the decision of the insurer to pay or not pay a claim. The insurer faced with a fraudulently presented claim can deny the claim in accordance with the policy provisions or declare the policy void and deny the claim; and

Fraud in the Presentation of a Claim by a Claimant Against the Insured. 

In these cases, the third party claimant makes a false and fraudulent claim against the insured.

In all three categories of insurance fraud the insurer is faced with the same challenges:

  • how to thoroughly investigate fraud and
  • how to prove that the fraud is a valid ground for denying a claim.

The author has also written a major work on insurance Fraud, Insurance Fraud & Weapons to Defeat Fraud available at Error! Main Document Only.http://zalma.com/blog/insurance-claims-library/and amazon.com.


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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 Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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Insurer Wins Some and Loses Some

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Denial for Fraud Not Bad Faith But Contract Claim Remains

Tammy Lou Hope appealed the trial court’s order granting Defendant Integon National Insurance Company summary judgment on her claims in Tammy Lou Hope v. Integon National Insurance Company, No. COA20-265, Court Of Appeals Of North Carolina (December 31, 2020).

BACKGROUND

Plaintiff sued Integon alleging that Plaintiff purchased from Defendant an auto liability insurance policy and that her vehicle was damaged. She claims that her vehicle was struck by an unidentified vehicle in a hit-and-run accident. Plaintiff’s vehicle was rendered a total loss. Plaintiff surrendered the vehicle to Defendant and sought coverage. Defendant denied coverage, contending that Plaintiff was not entitled to any compensation. because  there was evidence that Defendant’s investigator surmised that the damage was caused by Plaintiff running into a stationary object.

She alleged that Defendant did not pay Plaintiff’s claim; and that Defendant “breached the [insurance] contract.” Plaintiff also alleged an unfair trade practices claim and a claim for breach of the contract’s covenant of good faith, seeking punitive damages.

Defendant specifically noted that, in its investigation of Plaintiff’s claim, it determined that she “struck a fixed stationary object while moving in a forward motion and that none of her damages were consistent with being struck by another motor vehicle.” Defendant, in its response, noted that Plaintiff’s claim was denied for fraud and misrepresentation.

After a hearing on the matter, the trial court entered its order on summary judgment in favor of Defendant and against Plaintiff and taxed costs against Plaintiff.

ANALYSIS

Certain facts were undisputed: that Plaintiff possessed an insurance policy with Defendant, and that Plaintiff’s vehicle was damaged beyond repair. It is undisputed that Defendant denied Plaintiff’s claim for insurance benefits under the policy.

The Court of Appeals concluded that there is an issue of fact as to whether Plaintiff’s coverage was voided by her misrepresentation concerning the cause of the damage. She claims it was caused by an unidentified driver; Defendant claims that it was caused by her own negligence when she hit a stationary object. Accordingly, since the dispute is factual the court reversed summary judgment as to the claim for coverage under the terms of the policy that must be resolved at a trial.

Regarding Plaintiff’s claims for unfair and deceptive trade practices and for breach of the covenant of good faith and fair dealing, the court affirmed the trial court because Plaintiff offered no evidence to prove that Defendant did anything but act in an honest fashion in investigating her claim.

Defendant’s sworn evidence shows that it conducted an investigation, that it found the cause of Plaintiff’s vehicular damage differed from her account, and that it denied the claim on the basis of fraud and misrepresentation. Defendants records show that it considered Plaintiff’s version of the accident, but concluded after investigation that the accident likely did not occur as Plaintiff claims.

“Bad faith” means not based on honest disagreement or innocent mistake.  That is, an honest disagreement between parties does not constitute bad faith. With regard to Plaintiff’s claim for unfair trade practices, Plaintiff failed in her burden to produce evidence showing that Defendant acted in any unfair or deceptive way.  Accordingly, the trial court’s grant of summary judgment for Defendant on the bad faith and unfair trade practices claims, including Plaintiff’s claim for treble and punitive damages was affirmed. The issue of cause and fraud were returned to the trial court to determine whether Plaintiff attempted to defraud the insurer and the true cause of the destruction of the car.

ZALMA OPINION

When investigation by a professional claims person or Special Investigative Unit investigator determines the evidence establishes that the vehicle was destroyed by the insured running it into a stationary object and not by an unidentified hit and run vehicle there is a genuine dispute between insured and insurer. At trial the insurer will present its expert testimony and will either establish an insured against cause or that the claim presented was a fraud. Regardless, a good faith statement of decision, a disputed set of facts, is not sufficient to even consider a tort of bad faith or unfair trade practices and the court agreed.


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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 Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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A Video About The Examination Under Oath & Claflin v. Commonwealth

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The U.S. Supreme Court’s Explanation of False Swearing at Examination Under Oath that Results in a Policy Being Declared Void

See the full video at https://youtu.be/SZHkAZ33dZU

The decision of the U.S. Supreme Court in CLAFLIN and others v. COMMONWEALTH INS. CO. OF BOSTON, MASSACHUSETTS, et al, 110 U.S. 81, 3 S.Ct. 507, 28 L.Ed. 76 (January 14, 1884) is the premier precedent that establishes that a falsely sworn statement at an insurance examination under oath requires the claim to be denied and the policy voided even if the insured had no intention of deceiving the insurer about the amount of loss.

THE REASON FOR AN EUO

The object of the provisions in the policies of insurance, requiring the assured to submit himself to an examination under oath, to be reduced to writing, was to enable the company to possess itself of all knowledge, and all information as to other sources and means of knowledge, in regard to the facts, material to their rights, to enable them to decide upon their obligations, and to protect them against false claims. And every interrogatory that was relevant and pertinent in such an examination was material, in the sense that a true answer to it was of the substance of the obligation of the assured. A false answer as to any matter of fact material to the inquiry, would be fraudulent. If it made, with intent to deceive the insurer, would be fraudulent. If it accomplished its result, it would be a fraud effected; if it failed it would be a fraud attempted. And if the matter were material and the statement false, to the knowledge of the party making it, and willfully made, the intention to deceive the insurer would be necessarily implied, for the law presumes every man to intend the natural consequences of his acts. No one can be permitted to say, in respect to his own statements upon a material matter, that he did not expect to be believed; and if they are knowingly false and willfully made, the fact that they are material is proof of an attempted fraud, because their materiality, in the eye of the law, consists in their tendency to influence the conduct of the party who has an interest in them, and to whom they are addressed. ‘Fraud.’ said Mr. Justice CATRON, in Lord v. Goddard, 13 How. 198, ‘means an intention to deceive.’ ‘Where one,’ said SHIPLEY, C. J., in Hammatt v. Emerson, 27 Me. 308-326, ‘has made a false representation, knowing it to be false, the law infers that he did so with an intention to deceive.’ ‘If a person tells a falsehood, the natural and obvious consequence of which, if acted on, is injury to another, that is fraud in law.’ BOSANQUET, J., in Foster v. Charles, 7 Bing. 105; Polhill v. Walter, 3 Barn. & Adol. 114; Sleeper v. Ins. Co. 56 N. H. 401; Leach v. Republic F. Ins. Co. 58 N. H. 245.

The fact whether Murphy had an insurable interest in the merchandise covered by the policy was directly in issue between the parties. By the terms of the contract he was bound to answer truly every question put to him that was relevant to that inquiry. His answer to every question pertinent to that point was material, and made so by the contract, and because it was material as evidence; so that every false statement on that subject, knowingly made, was intended to deceive and was fraudulent. And it does not detract from this conclusion to suppose that the purpose of Murphy in making these false statements was not to deceive and defraud the companies, as is stated in the bill of exceptions and certificate, but for the purpose of preventing an exposure of the false statement previously made to the commercial agency in order to enhance his credit. The meaning of that we take to be simply this, that his motive for repeating the false statements to the insurance companies was to protect his own reputation for veracity, and that he would not have made them but for that cause. But what is that but that he was induced to make statements known to be false, intended to deceive the insurance companies, lest they might discover, and others through them, the falsity of his previous statements; in other words, that he attempted, by means of a fraud upon the companies, to protect his reputation and credit? In any view, there was a fraud attempted upon the insurers.


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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 Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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Allowing Doctor to Retain his License After Misconduct While on Probation Wrong

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Doctor Makes a Mockery of the Probation System & Loses His License to Practice

The problem with professional misconduct is that the punishment for wrongful conduct is handed down by members of the same profession. As a result more often than not the wrongdoing professional is given probation whose terms are seldom followed.

In the Matter of Muneer Imam v. New York State Board for Professional Medical Conduct et al., 2020 NY Slip Op 08138, 529258, Appellate Division of the Supreme Court of the State of New York (December 31, 2020) the Appellate Division was asked to review a determination of the Administrative Review Board for Professional Medical Conduct (ARB) that revoked Muneer Imam’s license to practice medicine in New York. the ARB concluded that, as petitioner had “received disciplinary penalties twice already that should have deterred [him] from further misconduct,” “allowing [him] to retain his [l]icense after his latest misconduct would make a mockery of the probation system.”

FACTUAL BACKGROUND

Petitioner was licensed to practice medicine in New York in 1984. In 2016, the Bureau of Professional Medical Conduct charged petitioner with committing professional misconduct by practicing the profession with negligence on more than one occasion and by failing to maintain accurate patient records. Agreeing that he could not successfully defend against “at least one of the acts of misconduct alleged,” petitioner entered a consent order with respondent State Board for Professional Medical Conduct. The consent order, which went into effect on April 12, 2016, imposed a 36-month suspension of his medical license, which was stayed during a 36-month period of probation, that is, no real suspension. The terms of petitioner’s probation required, among other things, that he “practice medicine only when monitored by a licensed physician, board certified in an appropriate specialty,” and that petitioner maintain a certain level of medical malpractice insurance coverage.

Thereafter, the Office of Professional Medical Conduct (OPMC) charged petitioner with violating the terms of his probation. A Hearing Committee of the Board for Professional Medical Conduct found that petitioner “failed to comply with the terms of probation” and imposed a six-month suspension of petitioner’s medical license, to be followed by three years of probation, and a civil penalty of $18,000. Upon review, ARB affirmed the Hearing Committee’s determination that petitioner committed professional misconduct but overturned the penalty, instead revoking petitioner’s license.

ANALYSIS

The ARB is empowered to impose a harsher penalty than the Hearing Committee, and such penalty will only be disturbed if it is so disproportionate to the offense that it is shocking to one’s sense of fairness. The fact that patient care was not implicated does not preclude revocation of a petitioner’s license.

Petitioner admitted that he continued to practice medicine from May 2016 through January 2017, despite not having a practice monitor or excess malpractice insurance in place during that time. The ARB and the Hearing Committee appropriately rejected petitioner’s assertions that he simply misunderstood the terms of the consent order and that he reasonably believed that he was entitled to practice medicine while he was attempting to comply with the requirements to obtain a practice monitor and excess insurance.

Although no patients were harmed, petitioner put his patients at risk by evading the probationary terms that were intended to protect them. Furthermore, petitioner had been placed on probation after having been found guilty of professional misconduct in 1993 and he violated his 2016 probation by ignoring the main provisions immediately after entering into the agreement.

The Appellate Division concluded that the ARB appropriately concluded that, as petitioner had received disciplinary penalties twice already, the fact of the earlier discipline should have deterred him from further misconduct and that allowing him to retain his license after his latest misconduct would make a mockery of the probation system.

Therefore, the Appellate Division concluded that the ARB did not err in revoking petitioner’s license to practice medicine.

ZALMA OPINION

The doctor was disingenuous by claiming he did not understand the terms of his probation which he violated with impunity by not obtaining the excess insurance required and by dealing with patients without being monitored by a licensed physician, board certified in an appropriate specialty. To me, the only question is why the board suggested more probation and what took the ARB so long to revoke Dr. Iman’s license after he made clear he had no intention of complying with the terms of the license.


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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 Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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A Video Explaining the Need and Methods for Testing for Mold

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Testing for Mold

See the full video at https://youtu.be/FNPhuYgzYSQ

There are many testing methods that can detect molds. Some methods can identify a portion of the types of viable molds but these may also miss or undercount those that are not viable or will not grow well on the nutrients used to incubate the sample. Even tests that are done well only give a partial estimate of the amount and types of molds actually collected in a sample or in the sampled environment.

It is necessary to recognize that a test result only gives a “snap-shot” estimate for a single point in time and a single location. Whether the test result represents other locations and times is uncertain. The amounts and types of mold in the environment change constantly. Airborne molds change significantly over the course of minutes or hours.

When interpreting mold testing, caution must be used. Unless many samples are taken over a period of time and the investigator has been mindful of building operations and activities during the testing, the results might not be accurate. Despite these limitations, there are situations where mold testing by skilled investigators may be valuable, such as when it is necessary to justify remediation expenses to an insurer or governmental entity.

Experienced investigators should evaluate whether testing is warranted. The ethical mold investigator should advise against testing whenever the problem can be corrected without it.

Every property owner, developer, contractor or investigator must recognize that doing mold testing well is often expensive.

Testing that is not needed or done poorly is a waste of money. The basic goals of any mold investigation are always to find the locations of mold growth, and to determine the sources of the moisture. If these can be answered by simpler or more cost-effective methods, mold testing is probably not a wise use of resources.


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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 Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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Appraiser with Contingency Fee Not “Disinterested” and May Not Serve as Appraiser

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Florida Makes it Impossible for a Public Adjuster to act as its Client’s Disinterested Appraiser Because a Contingency Fee Makes him Interested

Appraisal is a contractual provision of a first party property insurance policy designed to allow insurers and insureds to resolve the disputed quantum of a loss by the work of three disinterested appraisers. It works efficiently and easily when done fairly. It does not work at all when one or more of the appraisers is not disinterested and is working on a fee based on a percentage of the amount awarded.

In State Farm Florida Insurance Company v. Jon Parrish, Case No. 2D19-130, District Court Of Appeal Of Florida Second District (January 6, 2021) State Farm Florida Insurance Company (State Farm) and its insured, Jon Parrish, found themselves in a dispute over who can appraise the value of Mr. Parrish’s covered loss.

FACTS

In 2017, Mr. Parrish submitted a claim to State Farm under his homeowners insurance policy, asserting that his house had sustained damage from Hurricane Irma. He retained a public adjusting company, Keys Claims Consultants, Inc. (KCC), to represent his interests regarding his claim. Pursuant to his contract with KCC, KCC agreed to “prepare a detailed accounting of the damages and present them” to State Farm. KCC would “negotiate the damages with the insurance company representative(s)” and was authorized to invoke “the Appraisal provision” under Mr. Parrish’s insurance policy. In return, Mr. Parrish assigned to KCC ten percent “of all insurance funds, contractual and extra contractual, received” by Mr. Parrish. Mr. Parrish also gave KCC “a right to be paid as a joint payee” of State Farm under his contract with KCC.

On January 8, 2018, Bobby Sims, a KCC public adjuster, forwarded Mr. Parrish’s executed sworn statement in proof of loss to State Farm which valued Mr. Parrish’s loss at $495,079.25. Along with the sworn statement, Mr. Sims, recognizing that State Farm would dispute the claim, requested that any dispute over the amount of loss be submitted to appraisal pursuant to the policy. The policy required the appraisers to be disinterested.

Parrish designated George Keys, the president and namesake of KCC, as Mr. Parrish’s “disinterested appraiser.” State Farm issued its own demand for appraisal and appointed Bob Davis of Davis Claim Management as its appraiser. It also asked Mr. Parrish to choose a different appraiser.

THE DISPUTE

On May 5, 2018, State Farm filed a “Petition to Compel Appraisal with Disinterested Appraiser.” This “petition” set forth in enumerated paragraphs a sequence of factual allegations (not unlike a civil cause of action), a separate section of legal argument explaining why, in State Farm’s view, Mr. Keys should not be allowed to serve as a disinterested appraiser under the policy, and a request that the court “enter an order compelling [Mr. Parrish] to participate in appraisal with a disinterested appraiser not affiliated with Keys Claims Consulting, Inc.”

On December 18, 2018, the circuit court entered the order now before us in which the court determined that Mr. Keys could serve as a disinterested appraiser despite his company’s contractual relationship with Mr. Parrish and the ten percent contingency fee KCC would earn from any payment Mr. Parrish received from his claim. The order both denied the petition and then stated that it was “hereby dismissed in its entirety.” The court ordered the parties to proceed to appraisal and retained jurisdiction to award Mr. Parrish his attorney’s fees and costs in connection with the petition.

ANALYSIS

The policy does not define “disinterested.” Where the language in an insurance contract is plain and unambiguous, a court must interpret the policy in accordance with the plain meaning so as to give effect to the policy as written. Appraisals are creatures of contract and the subject or scope of appraisal depends on the contract provisions. Absent ambiguity, the plain meaning of an insurance policy controls.

The term “interested” is an adjective describing an appraiser who holds an interest — that is, a stake of some sort, whether pecuniary, proprietary, or personal — in the outcome of the appraisal process. The prefix “dis” connotes its negative — so “disinterested” means an appraiser who does NOT hold an interest in the outcome of the policy’s appraisal process.

As is clear from the policy provision, the conclusion of the appraisal process results in a recommended monetary award of some amount. Indeed, that is the point of the endeavor. And a contingency stake in a potential monetary award — such as this one — constitutes a pecuniary “interest.”

Mr. Keys, as the president of Mr. Parrish’s public adjusting firm, has a vested interest in obtaining the highest possible recovery because his compensation will be a percentage of it. KCC’s ten percent interest in the amount awarded in the appraisal process necessarily makes its president interested in the outcome of the process. For that reason alone, he is not a “disinterested appraiser.”

The plain and ordinary meaning of disinterested includes free of self-interest or pecuniary interest. When an appraiser has a direct financial interest in the outcome of the appraisal, the appraiser is not disinterested.

A contingency form of payment is uniquely problematic under this provision because the amount of the appraiser’s remuneration is inextricably tied to the amount of the award the appraiser will ultimately recommend. The bigger the award, the bigger the payment. It is that link between payment and award that makes the contingency-paid appraiser prohibitively interested in the outcome of the appraisal process, which is a condition the policy expressly prohibits.

Mr. Parrish’s public adjuster, KCC’s adjusters are professionally bound to handle Mr. Parrish’s claim with dispatch and due diligence and not approach investigations, adjustments, and settlements in a manner prejudicial to the insured.

The policy provision, which requires a “disinterested appraiser,” expresses the parties’ clear intention to restrict appraisers to people who are, in fact, disinterested. Mr. Keys cannot serve as a disinterested appraiser (in any meaningful sense of that term) in an appraisal process of his client’s dispute.

Therefore, a public adjuster that has a contingency interest in an insured’s appraisal award or represents an insured in an appraisal process is not a “disinterested appraiser” under this insurance policy’s appraisal provision.

ZALMA OPINION

The decision made by the Florida Court of Appeal should have been, and was, obvious. A person with a right to a percentage of any award cannot be disinterested in the outcome and will, as he is obligated to do as a public adjuster, do everything possible to increase the amount of the award of appraisers regardless of facts presented to the appraisers and is, at the very least, compelled to support the proof of loss that KCC created. Hopefully this decision will stop the unreasonable use of appraisal and the attempt to gain an advantage over an insurer in an appraisal proceeding. Disqualifying insured’s selected appraiser was appropriate because he had a direct financial interest in the outcome of the appraisal and because a pecuniary interest in the outcome is, by definition, a personal interest that favors one side over the other.


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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 Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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A Video Explaining the Need to Prove the Existence and Terms of a Policy

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How to Prove the Existence of a Lost or Destroyed Policy

See the full video at https://youtu.be/3R70RRxjl18

Need to Prove the Policy

The first obligation of an insured suing an insurance company is to prove the existence and the terms of the insurance policy on which the claim and suit are based. The party seeking coverage bears the burden of proving the existence of the policy as well as its material terms.

Insurer in action on life policy for disability benefits had burden to plead and prove policy provision which made giving notice and furnishing proof of disability condition precedent to recovery.

Both parties start from the proposition that the insured (Zidell) has the burden to prove coverage while the insurer (London) has the burden to prove an exclusion from coverage.

Lost or Destroyed Policy of Insurance

Insurance claims often arise long after the expiration of a policy that may still be required to provide defense and indemnity to the insured. The proof of such policies has created a new and unique profession called insurance archaeology. If damage first occurred many years after expiration or cancellation of a policy and the policy is lost or destroyed, the insured can still prove its existence and its contents through “an unsigned copy or by oral evidence.”

In Chatham v. Occidental Life Insurance Company of California, 248 Miss. 328, 158 So.2d 735 (1963), the Court quoted with approval the general well established rule that a policy of insurance may be cancelled at any time before loss, by agreement between the parties, and that such cancellation may be by consent of the parties, express or implied from the circumstances independently of the terms of the policy. When the insurance contract was effectively cancelled by agreement of the parties voluntarily and knowingly done when the Lost Policy Cancellation Release was signed and executed. T U.S. Fire Ins. Co. v. Coggins, 195 So.2d 482 (Miss., 1967).


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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 Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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The Magic Toilet and Conviction for Insurance Fraud and Other Crimes

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Convicted of Massive Insurance Fraud by Vendor to Insurance Industry

In The People v. Cornel Lucaci, E072740, Court Of Appeal Of The State Of California Fourth Appellate District Division Two (December 23, 2020) a case that should give honor to all insurance fraud investigators and claims personnel, after a thorough investigation, a jury found defendant and appellant Cornel Lucaci guilty of multiple crimes. The convict included convictions for (1) arson of a structure (Pen. Code, § 451, subd. (c)); (2) burglary (§ 459); (3) nine counts of insurance fraud (§ 550, subds. (a)(1)), (a)(5) & (b)(1)); (4) two counts of grand theft (§ 487, subd. (a)); and (5) passing off as true a false lease (§ 470, subd. (d)). The jury found true the allegations that (A) in the arson, defendant used a device designed to accelerate the fire or delay ignition (§ 451.1, subd. (a)(5)); (B) the amount of defendant’s theft exceeded $100,000 (§ 1203.045, subd. (a)); and (C) defendant’s pattern of criminal conduct resulted in the taking of more than $500,000 (§ 186.11, subd. (a)(2)). The trial court found true the allegation that two of defendant’s crimes were committed while he was on bail. (§ 12022.1.) The trial court sentenced defendant to prison for a term of 17 years.

The defendant appealed on all couts.

FACTUAL HISTORY

Defendant and his business partner, Johnny Borsca, owned companies that cleaned buildings following water or fire damage. The companies included IJF Contractors, Vortex Fire and Water Restoration, South Coast Cleaning, and South Coast Cleaning Construction.

Defendant had a “magic toilet,” which was a defective toilet that he obtained from one of his jobs. Defendant’s wife (Wife) overheard a conversation between defendant and Elena Gherman. Gherman complained to defendant that her insurance would not pay for all the water damage to her house. Defendant told Gherman that he would bring the “magic toilet” to Gherman’s house so “when the inspector c[a]me; and he would check that toilet [then] he [would] see that the toilet is defective.”

In February 2010, defendant and Wife lived in a house in Corona. Around February 22, 2010, Wife was away for the weekend. When Wife returned home, defendant was there, and the house was flooded. In the master bedroom, on the second floor, Wife saw a hose coming through a sliding balcony door. The hose was pouring water into the house. Wife saw items in the house that had not been there when she left for the weekend. The new items included a china cabinet, dining table, and rugs. The china cabinet belonged to Gherman.

People will sometimes pad insurance claims to obtain more money from an insurance company; they will also add items such as expensive rugs and china cabinets to the list of damaged property in order to raise the amount of the insurance payout. The water damage to the house was so severe that Wife had to move out of the house. Wife did not move in with her brother. However, there was a false lease reflecting Wife and defendant rented a home from Wife’s brother at the rate of $3,475 per month.

Defendant had a renter’s insurance policy with Stillwater Insurance Company (Stillwater). In February 2010, defendant filed a claim with Stillwater for water damage at his house. Defendant told an adjuster that the house was uninhabitable so he was staying with family. Defendant sent the false lease to Stillwater in support of his assertion that he had moved out of the house. Defendant and Borsca’s company, IJF, provided an invoice or an estimate of $75,000 for mitigation work on defendant’s house, and that document was given to Stillwater. Stillwater paid over $100,000 for defendant’s claim.

As to the 2010 Stillwater claim, the jury found defendant guilty of (A) presenting a false insurance claim (§ 550, subd. (a)(1)) (Count 9); (B) preparing a document in support of a false insurance claim (§ 550, subd. (a)(5)) (Count 10); (C) making a false lease and passing it off as genuine (§ 470, subd. (d)) (Count 11); and (D) grand theft (§ 487, subd. (a)) (Count 12).

In 2012, Armen Megerdichian’s dental business experienced a significant financial decline. In May 2013, Megerdichian listed for sale his dental practice and the building in which the practice was located. Megerdichian owed $315,000 on the building mortgage and $400,000 on a loan to the practice. By March 2014, there had been two offers from one potential buyer, but no sale.

On March 26, 2014, Borsca and Megerdichian communicated with one another via their cell phones, and Borsca and defendant communicated with one another via their cell phones. On the night of March 26, 2014, defendant set Megerdichian’s building on fire. It appeared the fire was accelerated by fuel that had been poured onto cardboard boxes in different areas of the building. The building became engulfed in flames and collapsed.

Megerdichian’s building was insured by Liberty Mutual. As a result of the fire, Liberty Mutual paid $379,479.60 for the loss of the building and personal property. The policy also allowed $25,000 for debris removal. Defendant’s and Borsca’s company, Vortex, was hired for the debris removal.

As to the 2014 arson, the jury found defendant guilty of (A) arson of a structure (§ 451, subd. (c)) (Count 1); (B) burglary (§ 459) (Count 2); (C) causing to be presented a false insurance claim (§ 550, subd. (a)(1)) (Count 3); and (D) causing to be presented a false statement in support of an insurance claim (§ 550, subd. (b)(1)) (Count 4).

On August 2, 2015, defendant’s house flooded. Defendant said he spent the night at a friend’s home and when defendant returned to his house there was “water coming down from his ceilings inside the lower level of the house.” Defendant said a toilet bowl overflowed due to an obstruction in the bowl and a torn flapper in the tank that caused the water to continue running.

Approximately two weeks later, defendant hired a public insurance adjuster, Hratch Zuhrae Ghazarian, to assist him with his insurance claim. Defendant said Diamond Construction performed the mitigation work on defendant’s house. Defendant submitted two bills from Diamond Construction to Ghazarian. One bill was for $18,000, and the second bill was for $7,000 or $8,000. Ghazarian questioned the invoices because they lacked a contractor’s license number and did not identify the author. Ghazarian spoke with Stelian Onufrei of Diamond Construction and corrected the problems on the invoice. Onufrei was one of defendant’s business partners. Ghazarian submitted the invoices to Pacific.

Ninety percent of all insurance claims in the United States are included in the ISO database. If a person has a high number of claims, then that is “an indicator that [a claim] needs to be looked into further.” Wife told the insurer the water damage “was staged and fraudulent.” Wife said there was furniture in the house after the 2015 flood that had not been in the house before the flood. Wife said furniture she did not recognize had also been in the house after the 2010 flood.

In December 2015, Pacific requested that defendant submit to an examination under oath in order to evaluate defendant’s claim. The examination occurred in March 2016. During the examination, defendant said Diamond Construction did not perform the mitigation work on his house; rather, defendant performed the work with the assistance of day laborers. Defendant also said that he and Onufrei agreed to share the insurance money. Pacific denied defendant’s claim due to fraud.

Arson Investigation

Xente Baker is a fire investigator for the Corona Fire Department. Baker investigated the 2014 fire at Megerdichian’s building. As part of the investigation, Baker looked for “a history of fraud or fire insurance losses.” On March 24, 2017, the Riverside County District Attorney’s Office filed a felony complaint against defendant in case No. RIF1701070. The complaint pertained to the March 2014 arson.

DISCUSSION

A theft conviction on the theory of false pretenses requires proof that (1) the defendant made a false pretense or representation to the owner of property; (2) with the intent to defraud the owner of that property; and (3) the owner transferred the property to the defendant in reliance on the representation. Pacific did not rely upon defendant’s representation. Rather, Pacific suspected defendant’s representation was false and spent money to prove defendant’s representation was false. Therefore, substantial evidence does not support a finding that Pacific relied on defendant’s representation.

Attempt consists of (1) a specific intent to commit a crime and (2) a direct but ineffectual act done toward its commission. For grand theft, the jury was instructed that, in order to find defendant guilty, defendant must have “knowingly and intentionally deceived a property owner” and that “defendant did so intending to persuade the owner or the owner’s agent to let the defendant or another person take possession and ownership of the property.”

In finding defendant guilty of grand theft, the jury found defendant intended to defraud Pacific and deprive Pacific of its property. Defendant’s intent to defraud and deprive equates with a specific intent to commit a crime in that it shows defendant intended to use false pretenses to take Pacific’s property. By submitting the false claim to Pacific, defendant took a direct but ineffectual act toward commission of the crime. Accordingly, we will reduce defendant’s conviction in Count 8 to attempted grand theft.

The elements generally necessary to find a violation of Penal Code section 550 are (1) the defendant’s knowing presentation of a false claim, (2) with the intent to defraud. The crime is complete when a false claim for payment of loss is presented to an insurance company or a false writing is prepared or presented with intent to use it in connection with such a claim whether or not anything of value is taken or received. It is not necessary that anyone actually be defrauded or actually suffer a financial, legal, or property loss as a result of the defendant’s acts.

Insurance fraud is concerned with the act of fraud. It is not concerned with whether the fraud succeeds. Thus, the insurance fraud statute applies to completed, as well as attempted, fraud. That means the crime of insurance fraud is always applicable when a person makes a false claim to an insurance company, whether the insurance company pays or denies the claim. If the person’s false claim results in the insurance company paying more than $950, then the crime of insurance fraud overlaps with grand theft.

The difference between insurance fraud and grand theft is not any additional culpable act by defendant, but an additional act by the victim. For example, in thia case, defendant was charged with insurance fraud for making a false claim, and he was charged with grand theft because Stillwater paid the claim. Defendant did not commit any additional acts—Stillwater did.

People committing insurance fraud are likely to succeed a certain amount of the time, as defendant did. That means when people commit insurance fraud, payment by defrauded insurance companies will be something that commonly occurs. Accordingly, a violation of the insurance fraud statute will commonly result in a violation of the grand theft statute.

In regard to inadequate legal theories, jurors are not generally equipped to determine whether a particular theory of conviction submitted to them is contrary to law—whether, for example, the action in question fails to come within the statutory definition of the crime. When, therefore, jurors have been left the option of relying upon a legally inadequate theory, there is no reason to think that their own intelligence and expertise will save them from that error. The prosecutor’s theory of the case was that Megerdichian, Borsca, and defendant conspired in the arson and insurance fraud. Thus, defendant had Megerdichian’s permission to enter the building and burn it. Because burglary must be committed by a person who has no right to be in the building.

According to statute, a person is guilty of burglary if he or she enters a building or other structure listed in the statute with intent to commit grand or petit larceny or any felony. Based on common law precedent, our Supreme Court has clarified the statutory element of ‘entry’ by explaining that the crime of burglary involves ‘entry that invades a possessory right in a building, and must be committed by someone who has no right to be in the building.

At the sentencing hearing, when the prosecutor spoke of defendant’s likelihood of reoffending, he said, “He’s going to—you know, he has no money. He’s got a huge restitution. I mean, there’s ample evidence for motive and ability to re-offend.”

The appellate court concludedante that defendant’s Count 8 conviction must be reduced from grand theft to attempted grand theft. It also concluded that defendant’s burglary conviction and grand theft conviction must be reversed. Given that the sentences for those counts were all stayed, it is unlikely that a different sentence would be imposed if the matter were remanded for a full resentencing hearing. The court only required that the trial court resentence defendant on Count 8, given the reduction in the crime where attempt is punishable by one-half the term of imprisonment for the completed offense.

The trial court will also need to issue documentation reflecting that defendant does not owe $194,223.34 to Liberty Mutual and that defendant now has 12 convictions rather than 14, so the amount of the “per count” fees will need to be reduced accordingly.

ZALMA OPINION

Trial and appellate courts are simply not happy to deal with insurance fraud cases. This lengthy opinion, highly edited by ZIFL, decision, is an example where the prosecution charged many crimes, withdrew some, and overreached on another. Regardless, after a thorough analysis, the court removed the right of an insurer to receive restitution – probably uncollectible – and reduced one of the crimes. The victory the Defendant obtained was Pyrrhic since he was still required to serve a 17 year term.  Insurance fraud and arson are both serious crimes; for the crimes to be committed by a vendor to insurers, even stooping so low as to use a magic toilet to support the claim, work with arsonists to profit from their crime, and other creating floods at his home twice, deserved the lengthy sentence and proved that it is easy to catch the insurance criminal who is greedy, lazy and probably stupid for continuing to create multiple fraudulent claims.


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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 Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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Payment of an Appraisal Award is not an Admission of a Previous Denial

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Appraisal Determines the Amount of Loss and When Paid the Amount of Claim is Resolved

Appraisal under an insurance policy involves a contractual process by which the insurer and the insured select third parties to determine the amount of a claimed loss when the insurer and the insured cannot agree what the amount of the loss is. This appeal poses the question of how an insurer’s payment of an appraisal award triggers the deadlines and penalties of the act that requires insurers to timely process and pay insurance claims—the Texas Prompt Payment of Claims Act (the TPPCA or the Act).

In Sanford Crayton v. Homeowners Of America Insurance Company, No. 02-20-00037-CV, Court of Appeals Second Appellate District of Texas at Fort Worth (December 23, 2020) Sanford Crayton submitted a wind and hail claim on his homeowner’s policy against his insurer, Homeowners of America Insurance Company. Eventually, Crayton’s claims boiled down to the question of whether Homeowners violated the TPPCA by initially rejecting his claim but later paying an appraisal award on the claim after Crayton sued.

FACTS

Two days after the claim was filed, an adjuster from an independent adjusting agency visited Crayton’s property and investigated the claim. The adjuster concluded that the damage to Crayton’s dwelling totaled approximately $300 calculated on the basis of both a replacement cost value and an actual cash value. The adjuster also assessed the damage to a fence and to an outbuilding as totaling approximately $2,200 calculated on both a replacement cost value and an actual cash value.

Within six days of the inspection, Homeowners notified Crayton by letter of the adjuster’s findings and of the fact that the estimated damages were less than his policy’s deductible. Homeowners’ letter told Crayton that he should notify Homeowners should additional damage be found or if a contractor doing repairs estimated the damage to be higher than the adjuster’s findings.

There was no more communication between Crayton and Homeowners until more than a year after Homeowners’ letter when, in January 2016, counsel for Crayton sent Homeowners a demand letter claiming that Homeowners had failed to adequately adjust and pay Crayton’s claim. The demand letter enumerated a number of alleged unfair settlement practices and misrepresentations of the insurance policy. The letter claimed that Crayton’s property had suffered $31,000 in damages and that he had incurred $3,900 in expenses and $30,000 in attorney’s fees to date.

There was no more communication between Crayton and Homeowners until more than a year after Homeowners’ letter when, in January 2016, counsel for Crayton sent Homeowners a demand letter claiming that Homeowners had failed to adequately adjust and pay Crayton’s claim.

Homeowners filed a motion for summary judgment raising grounds that Crayton could not establish a violation of the TPPCA.  The trial court granted Homeowners’ motion.

The appraisers concluded that Crayton’s loss replacement cost was, before application of the deductible in Crayton’s policy, approximately $13,000 and that the loss actual cash value was approximately $11,000. Homeowners made an approximately $9,000 payment to Crayton “[i]n accordance with the appraisal award.”

ANALYSIS

Crayton responded to Homeowners’ summary-judgment motion, but he did not attach any controverting evidence to his response. Instead, Crayton noted recent authority from the Texas Supreme Court that the payment of an appraisal award did not insulate an insurer from a TPPCA claim. The trial court denied reconsideration and a new trial by written order. Crayton then filed a notice of appeal.

THE TPPCA

The TPPCA establishes a number of deadlines for insurance companies to process claims and penalizes a failure to meet its deadlines by assessing interest on the claim at the rate of eighteen percent per annum and the payment of the insured’s attorney’s fees.

This appeal deals with the interplay of the section of the Act requiring payment within sixty days, the Act’s enforcement provision, and whether that interrelation creates a fact issue that the timing of Homeowners’ payment of the appraisal award violated those provisions.

The end game of the TPPCA process is an investigation and evaluation by the insurer that culminates in a determination either that the claim is covered and the amount of loss exceeds the deductible, in which case the insurer must notify the insured that it will pay the claim, or that the claim is rejected, in which case the insured must notify the insured of the reasons—for example, because the loss is not covered, the amount of the loss does not meet the deductible, or for some other reason under the policy.

When an insurer rejects a claim, the insurer can only become liable under Section 542.060 if it later accepts the claim or is adjudged to have wrongfully rejected the claim. Here, the insured filed suit after the insurer investigated, evaluated, and ultimately rejected the claim. The insurer invoked the appraisal provision because the insured disputed the insurer’s determination that the amount of the loss was below the insured’s deductible, which resulted in rejection of the claim.

Homeowners did not accept Crayton’s claim by the manner in which it paid the appraisal award, a disparity between the original adjustment and the appraisal award is not probative of Homeowners’ and Homeowners did not violate Section 542.058 of the Act.

Without telling the court whether he seeks to establish a violation of Section 542.058 or Section 542.060, Crayton argues that “there is some evidence to support the adjudication of [Homeowners’] liability for [his] claim.”

Payment Of An Appraisal Award Does Not Trigger A Violation Of Section 542.058(A) Of The TPPCA.

In essence, to read the appraisal process into Section 542.058(a) requires the payment of an appraisal to be tied to the process of Section 542.055 by making the payment an act showing a failure of the insurer to act after having “all items, statements, and forms reasonably requested and required under Section 542.055.”

CONCLUSION

Homeowners made its payment by noting that it was doing so “[i]n accordance with the appraisal award.”

Homeowners’ payment of the appraisal did not constitute a retroactive acceptance of Crayton’s claim that triggered the TPPCA’s deadlines. Nor did the payment of the appraisal award have probative value as to whether Homeowners’ original claim decision was in error such that it raised a fact issue as to Homeowners’ liability. Finally, the court of appeal concluded that when an insurer pays an appraisal award after a sixty-day deadline contained in one of the Act’s provisions, there is not a violation of the TPPCA and that the insurer can free itself from that violation only by proving that it had no liability because the insured’s claim is “invalid.”

ZALMA OPINION

In a more than 50 page opinion the appellate court made clear that when an insurer denies a claim because its evaluation found the loss to be less than the insured’s deductible, it did not violate the statute or act wrongfully when it paid the claim in accordance with an appraisal award. Appraisal awards are subject to being made a judgment of the amount of loss and compel an insurer to pay on the judgment. By paying before it became a judgment Homeowners acted properly and deserved the favorable result after a long review of a Texas Supreme Court decision.


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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 Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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Who Got Caught Committing Insurance Fraud – A Video

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Guilty of Insurance Fraud

See the full video at https://youtu.be/avv-v9eai-k

People who commit insurance fraud think it is a crime without punishment or concern. When they are caught, prosecuted and convicted, the perpetrator is so amazed that he or she is one of the few unlucky ones who were caught that they use their ill-gotten
gains to fund unfounded and frivolous appeals.

Peter Costas bribed dozens of people addicted to heroin and other drugs to enter rehab centers so the Red Bank, N.J. man and his cronies could illegally soak up money for lucrative referrals. Costas worked with several marketing firms to recruit potential
patients who had robust private health insurance from New Jersey and elsewhere. Costas paid them up to several thousand dollars each. Costas stayed in touch with the patients at the rehab facilities. He instructed them to stay long enough to generate referral payments. Sometimes he directed patients to different rehab facilities month after month to generate multiple referrals. The facilities paid the marketing firms $5,000-$10,000 per patient referral, and about half went to Costas and other body brokers. Costas received 13 months in federal prison.

Thousands of healthy people plus patients with diseases like Alzheimer’s and dementia were falsely told they had just 6 months to live so they could be enrolled in Medicare hospice for $150 million of  fraudulent billing. Rodney Mesquias ran a hospice chain called Merida Health Care group, in Texas. In many cases, people were still walking, driving and even coaching sports when Merida’s marketers told them they were dying. Mesquias even sent chaplains to discuss last rites and prepare people for imminent death — while enrolling them at group homes, nursing homes and housing projects. People were kept in hospice for years — lining the pockets of Mesquias and his conspirators. Sometimes Mesquias had doctors do emergency surgical procedures to keep hospice patients alive and the false bills flowing. Physicians also were paid kickbacks to qualify patients for hospice. Mesquias forged medical records to create the illusion that his patients were dying. He bought luxury cars, jewelry, clothing, real estate, season tickets for the San Antonio Spurs, and bottle service at Las Vegas nightclubs. He treated marketers to parties and tens of thousands of dollars worth of booze. Mesquias was handed 20 years in federal prison.

Read last two issues of ZIFL here https://zalma.com/zalmas-insurance-fraud-letter-2/

 


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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 Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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Light Burden to Bind a Claim of Arson to Trial Still Needs Evidence

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Insurance Investigator Establishes Fire Accidental and Defeats Attempt to Bind Insured to Trial for Arson and Fraud

One New Year’s Eve, Clare Eugene Prisbrey’s house caught fire. It took firefighters more than an hour to get the fire under control, and the house sustained severe damage. After examining the scene that night and the next day, fire officials came to suspect that Prisbrey had set the blaze intentionally, and the State later charged him with aggravated arson and filing a false insurance claim. At a preliminary hearing, however, the magistrate found no probable cause that Prisbrey had committed those crimes, and declined to bind the case over for trial. The State appeals that determination, and we affirm.

In State Of Utah v. Clare Eugene Prisbrey, 2020 UT App 172, No. 20190569-CA, Utah Court Of Appeals (December 24, 2020) the state failed to prove there was enough evidence to bind Prisbrey to trial for arson and insurance fraud and appealed the decision of the magistrate.

BACKGROUND

On December 31, 2017, Prisbrey and his girlfriend (Girlfriend) were together at Prisbrey’s house, celebrating the holiday. A few weeks earlier, Prisbrey had decorated his living room (the great room) with Christmas decorations, including a miniature Christmas village—a collection of decorative ceramic houses arranged on foam blocks, wood, and synthetic snow—set up on a table against the wall. Around 9:30 that evening, Prisbrey lit several candles in the Christmas village display and, later, around 10:00 p.m., he and Girlfriend opened a bottle of sparkling grape juice and watched New Year’s Eve fireworks displays happening in “different time zones.”

A few minutes later, Prisbrey and Girlfriend left the house; Prisbrey explained to fire officials that he had made a “last minute” decision to propose marriage to Girlfriend that evening, and wanted to do so on the grounds of the local temple of the Church of Jesus Christ of Latter-day Saints.

Just as Prisbrey and Girlfriend arrived at the temple and pulled into a parking spot, Prisbrey received a phone call from one of his neighbors informing him that his house was on fire. Fire crews arrived at “about the same time” and began attempts to extinguish the fire. At that point, the fire was already “50 percent involved,” with “fire showing from the roof and from the windows.

Once the fire was contained, Chief began inspecting the damaged remains of the house, and noticed some “red flags” that he thought might indicate that the fire had been intentionally set. Nevertheless, this piece of information added to Chief’s suspicions, and based on all of the information he had at the time, he made the decision to notify the office of the Utah State Fire Marshal to ask it to investigate.

Before entering the house, Marshal spoke with Prisbrey, who was sitting in his vehicle in front of the house. Prisbrey told Marshal about leaving the six candles lit in the Christmas village. After interviewing Prisbrey, Marshal then inspected the house. Perhaps most significantly, Marshal noticed, along the wall between the garage and the great room, “two holes in the wall” that were located very close to where the Christmas village display had been (on the great room side) and where the gas cans were (on the garage side).

Despite conducting no further investigation, Marshal testified at the preliminary hearing that, in his opinion, “this was an arson.”

Marshal reaffirmed that his opinion was not based on the presence of accelerants, but was instead based on “the hole[s] in the walls, [the] location of the gas cans, as well as the lit candles.”

Soon after the fire, Prisbrey notified his insurance company and submitted a claim, therein representing to the insurance company that he did not intentionally cause the fire. On January 2, 2018, the insurance company hired its own investigator (Investigator) to inspect the home and offer an opinion as to whether the fire was arson, so that the insurance company could make a decision about whether to pay the claim.

Investigator also focused on the two holes in the wall between the great room and the garage. In particular, he examined the relative damage on the two sides of the wall, as well as on the gypsum and the paper in the drywall along the sides of the holes, and concluded that the holes had been created after the fire, and not before. Investigator also noted the absence of any fire damage inside the garage, observing that a fire burning intensely enough to burn the drywall inside the room “would have gone into the garage” if the holes had existed while the fire was burning.

Investigator notified the insurance company that his preliminary conclusion was that the fire was accidental, and he later submitted a final written report reaffirming that conclusion and detailing the basis for it. Based in part on Investigator’s conclusion, the insurance company approved Prisbrey’s claim, ultimately paying him “over $350,000 in benefits” for, among other things, repair to the house and for temporary housing.

After the insurance company paid the claim, the State charged Prisbrey with aggravated arson, a first-degree felony, and with filing a false insurance claim, a second-degree felony.

After the State rested, Prisbrey called Investigator and Girlfriend.  At the end of the hearing, the magistrate declined to bind Prisbrey over on either charge, determining that, even though the State’s burden “is not very high,” the State had failed to meet that burden.

ANALYSIS

The preliminary hearing is a fundamental procedural right guaranteed by article I, section 13 of the Utah Constitution. The State need only present reasonably believable evidence—as opposed to speculation—sufficient to sustain each element of the crime(s) in question.

Despite the relatively low evidentiary threshold at a preliminary hearing, a magistrate may deny bindover in certain situations. Indeed, when properly construed and applied, the probable cause standard does not constitute a rubber stamp for the prosecution but, rather, provides a meaningful opportunity for magistrates to ferret out groundless and improvident prosecutions. Similarly, a magistrate may properly deny bindover where the facts presented by the prosecution provide no more than a basis for speculation.

Over the course of a case, inferences that once appeared reasonable may, upon further investigation, be proven to be unreasonable or no longer based on facts in evidence. And in exceptional cases, evidence put forward by a defendant at a preliminary hearing may overcome a prima facie showing of probable cause. The magistrate adjudged this case to be one of those rare cases in which the State’s evidence did not surmount the low probable cause bar. And in this unique case, for two related reasons, we discern no abuse of the magistrate’s limited discretion in reaching that conclusion.

The evidence of the insurance company’s investigation presented by the defense at the preliminary hearing served to overcome any remnants of reasonable inference that remained in the State’s references to accelerants or the holes in the wall. It bears noting that—at the time it investigated the claim—the insurance company was fully aware that local fire officials were wondering about arson; indeed, that is why the company dispatched its own investigator to the scene. And it goes almost without saying that the insurance company—given the $350,000 insurance claim at stake—had every interest in making sure the fire had not been started intentionally.

After considering all of the evidence as presented at the preliminary hearing, the magistrate determined that the State’s case was based on speculation and not on reasonable inferences grounded in evidentiary facts. The State’s theories did not hold up against an actual investigation by an entity with every incentive to validate them.

ZALMA OPINION

Insurance companies are obligated, in every fire claim, to conduct a complete, thorough, and fair investigation of every claim, even when a state fire investigator and a state prosecutor believe that the insured set an arson fire to defraud the insurer. Although the insurer’s investigator established by a thorough investigation – unlike the investigation conducted by the state – that the cause of the fire was accidental and paid its insured more than $350,000. The state charged the insured, regardless, only to have the attempt to bind the insured over to trial on the arson charge, and have a Magistrate dismiss the charge for lack of evidence.


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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.

https://zalma.com/zalmas-insurance-fraud-letter-2/ Read last two issues of ZIFL here.

Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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A Video Explaining What Happens When Retained Defense Counsel Provides an Incompetent Defense

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Insurers Must Careful When Considering Suing Counsel Appointed to Defend an Insured

See the full video at https://youtu.be/NOylKfx7tMo

There appears to be a growing trend in the United States where insurers file malpractice suits against counsel retained to defend their insureds. When an insurer retains a defense lawyer to represent its insured only to find they are incompetent or committed malpractice in providing the defense, rather than admit the error in choosing a poor lawyer for the insured the insurer sues the lawyer for malpractice seeking reimbursement for the amount paid to indemnify the insured.

Where the insurer retained defense counsel and there was no reservation of rights, courts have allowed the primary insurer to bring a cause of action against the attorney for malpractice, finding that the attorney represents the insurer, along with the insured, where they have common interests.

Insurance defense counsel must manage their potential exposure to suits brought against them by insurers who ask them to defend insureds. This should cause defense counsel to reevaluate the limits of their malpractice policies and to understand all the potential parties who may bring a malpractice claim against them.

Likewise, insurers should recognize their own exposure with respect to claims of vicarious liability. They must also select defense counsel with the utmost care and diligence because they may not be able to sue their chosen defense counsel if a mistake occurs. Insurers also need to make sure that the attorneys who represent their interests make appropriate disclosures to the insured’s independent counsel.

Great American attempted to sue its defense counsel for providing an incompetent defense to one of its insureds in Great American Insurance Co. v. Dover, Dixon Horn. The Eighth Circuit Court brought relief to the insurance defense bar when it refused to allow the insurer to successfully sue counsel—retained to defend an insured—for legal malpractice. The law of Arkansas only allows malpractice actions to be filed against those with whom the parties are in privity.


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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.

https://zalma.com/zalmas-insurance-fraud-letter-2/ Read last two issues of ZIFL here.

Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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Pro Se Plaintiff Shoots Herself in Foot When Suing Insurers

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The Person Who Represents Herself in Litigation Has a Fool for a Client

When a pro se plaintiff has little or no knowledge of the law, litigation, and the purposes of an appeal, the chances of succeeding on an appeal are usually slim and most likely none.

In ShaRon Hassan v. Liberty Mutual Insurance Corporation, et al. H044053, Court Of Appeal Of The State Of California Sixth Appellate District (December 30, 2020) after a trip and fall causing her injury Plaintiff ShaRon Hassan filed, in propria persona, three separate lawsuits for damages based on the incident. The plaintiff’s actions included Liberty Mutual Insurance Company (Liberty Mutual) and Golden Eagle Insurance Corporation (Golden Eagle) (collectively, Insurance Defendants). The three actions were consolidated by the trial court, and the action against the City became the lead case. The trial court sustained the demurrer of the Insurance Defendants without leave to amend. Plaintiff appealed.

The Court of Appeal, trying to understand Plaintiff’s briefing found that the only appealable judgments or orders are (1) the December 4, 2015 judgment in favor of the Insurance Defendants (see § 904.1, subd. (a)(1)) and (2) the March 28, 2016 order denying Hassan’s motion to reconsider the judgment in favor of the Insurance Defendants, which was predicated on various provisions of the Code of Civil Procedure and may be appealable.

DISCUSSION

It is a fundamental principle of appellate procedure that a trial court judgment is ordinarily presumed to be correct and the burden is on an appellant to demonstrate, on the basis of the record presented to the appellate court, that the trial court committed an error that justifies reversal of the judgment. This is not only a general principle of appellate practice but an ingredient of the constitutional doctrine of reversible error. In the absence of a contrary showing in the record, all presumptions in favor of the trial court’s action will be made by the appellate court.

The appellate court is ordinarily confined in its review to the proceedings that took place in the court below and are brought up for review in a properly prepared record on appeal. Factual matters that are not part of the appellate record will not be considered on appeal and such matters should not be referred to in the briefs.

Hassan forfeited for review all cognizable issues not supported by legal argument, citation of legal authority, and specific citation to the appellate record.

Judgment in Favor of Insurance Defendants

Hassan asserts that the trial court’s consolidation of the cases resulted in unfair, prejudicial hearings and orders against her by the lower courts and the defendants.

The order sustaining the Insurance Defendants’ demurrer without leave to amend was entered on May 14, 2015. Even assuming that the appeals court may review the consolidation order insofar as it concerned the Insurance Defendants, Hassan failed to present any comprehensible legal argument, supported by legal authority, to establish that (1) the trial court committed legal error by consolidating the cases and (2) the order prejudiced her action against the Insurance Defendants. Consequently, it deemed the claim forfeited.

Hassan did not establish, by specific citation to the appellate record, that (1) the parties failed to meet and confer before the Insurance Defendants filed their demurrer to the second amended complaint or that (2) before the trial court ruled on the demurrer, she objected on the ground that the Insurance Defendants had failed to meet and confer with her.

A reviewing court ordinarily will not consider a challenge to a ruling if an objection could have been but was not made in the trial court. The purpose of this rule is to encourage parties to bring errors to the attention of the trial court, so that they may be corrected. Moreover it is a principle of appellate review that a lower court’s judgment or order is presumed correct and that error must be affirmatively shown on appeal.

Order Sustaining Insurance Defendants’ Demurrers Without Leave to Amend

On appeal, Hassan argued that a trial court commits reversible error in sustaining a demurrer without leave to amend if the plaintiff shows “either in the trial court or on appeal” that there exists “a reasonable possibility [that] any defect identified by the defendant can be cured by amendment.”

The Insurance Defendants demurred to each of the 13 causes of action contained in the second amended complaint. They demurred on three grounds: (1) each cause of action did not state facts sufficient to constitute a cause of action; (2) there was a misjoinder of parties and (3) each cause of action was impermissibly uncertain, vague, and ambiguous as to them.

The trial court noted that Hasan had conceded that the Insurance Defendants did not own the property at issue. The trial court sustained the Insurance Defendants’ demurrer without leave to amend agreeing with the Insurance Defendants.

As the appellant, Hassan had the burden to show either that the demurrer was sustained erroneously or that the court abused its discretion in sustaining the demurrer without leave to amend. Given the lack of any meaningful legal argument, the Court of Appeal deemed any challenge to the court’s ruling sustaining the Insurance Defendants’ demurrer without leave to amend was forfeited on appeal.

Where the law allows an appeal from a judgment or order, it is appealable even though void. Therefore, the December 4, 2015 judgment in favor of defendants Liberty Mutual Insurance Company and Golden Eagle Insurance Corporation is affirmed. The March 28, 2016 order denying plaintiff Hassan’s motion to reconsider the judgment was reversed as void. Hassan shall bear costs on appeal.

ZALMA OPINION

The patience and consideration give to the Plaintiff by the Court of Appeal is commendable even though, and after,  its decision established the the Plaintiff absolutely abused the legal process in bringing her suit against the Insurance Defendants for a trip and fall accident and then showing unbelievable chutzpah by appealing the order sustaining the insurers demurrers without leave to amend. Making her pay costs is something but not a sufficient deterrent to others acting similarly to waste the time of litigants and courts.


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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.

https://zalma.com/zalmas-insurance-fraud-letter-2/ Read last two issues of ZIFL here.

Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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A Video Explaining the Equitable Remedy of Salvage and Insurance

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Salvage

See the full video at https://youtu.be/-yh92QBQzL0

The term “salvage” simply means used or damaged property that retains an asset value. It does not connote equipment that was valueless or incapable of use. [G.J. Leasing, Co. v. Union Elec., 854 F. Supp. 539 (S.D.Ill. 06/6/1994).]

Historically, courts have applied the maritime law of salvage when ships or their cargo have been recovered from the bottom of the sea by those other than their owners. Under this law, the original owners still retain their ownership interests in such property, although the salvors are entitled to a very liberal salvage award. Such awards often exceed the value of the services rendered, and if no owner should come forward to claim the property, the salvor is normally awarded its total value. On salvage generally. [3A M. Norris, Benedict on Admiralty: The Law of Salvage (7th ed. rev. 1991)].

Salvage is another equitable remedy, like subrogation, that the adjuster should never ignore. An insurer that pays for a loss is entitled, in equity, to receive the salvage for which it has paid. If the debris is left to the insured to sell, he or she will receive more than the indemnity bargained for when the policy of insurance was obtained. In essence, by paying a claim, the insurer is buying the salvage.

The adjuster should always protect the possible salvage and be sure a salvor is standing by to take possession. By taking salvage the adjuster helps to reduce the total amount of the loss paid without reducing the indemnity the insured receives.

The insurer has a right to salvage proceeds when the insured incurs a loss greater than the policy limits. However, most first party property policies today do not refer to the term “salvage.”


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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.

https://zalma.com/zalmas-insurance-fraud-letter-2/ Read last two issues of ZIFL here.

Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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Assignment of Bad Faith Suit in Violation of Court Orders on Disbarred Lawyer is Invalid

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Disbarred Lawyer Has no Standing to Take a Bad Faith Assignment

Lawyers who have been disbarred are quite creative. A lawyer of my acquaintance who was disbarred after conviction for insurance fraud immediately started working as a “paralegal” for various unscrupulous lawyers and continued to stage accidents and create and profit from insurance fraud.

In Allen L. Feingold v. Palmer & Barr; Theresa Mogavero Simmons; John Mcgrath;
State Farm Insurance Company, AKA State Farm; State Farm Mutual Automobile Insurance Company, AKA State Farm; State Farm Automobile Insurance Company, aka State Farm; State Farm Fire And Casualty Company, aka State Farm; State Farm Mutual Insurance Company, aka State Farm; Thomas Delevie; Barbara J. Lyons; Bcmac; Walter S. Jenkins; Mark S. Kardos; John Barr, No. 19-2621, United States Court Of Appeals For The Third Circuit (December 24, 2020) another disbarred lawyer refused to follow the orders that were conditions of his disbarment.

Allen Feingold— a previously disbarred lawyer, currently a pro se plaintiff—sued State Farm Insurance Company, naming its counsel and arbitrators as additional defendants, asserting a claim of bad faith under 42 Pa.C.S. § 8371. The claim arose from an underinsured motorist action of Feingold’s former client, Dawn McAteer, who assigned her bad faith insurance claim to Feingold. All defendants filed motions to dismiss and the District Court for the Eastern District of Pennsylvania granted them.

Statutory permission is required to assign bad faith claims. As the District Court found, Feingold has none. According to Feingold, bad faith claims are freely assignable. But Feingold’s reliance on stated prejudice is misplaced. As the District Court correctly held, without a valid assignment, Feingold lacks standing to bring a bad faith suit.

Assignment Itself is Evidence of Contact with Previous Clients

If that were not enough, Feingold is a disbarred attorney who is prohibited from having any contact with previous clients. As the District Court deduced, Feingold could not have obtained a signed contract from McAteer without having had any contact with her. Thus, even if McAteer’s assignment were recognized under Pennsylvania law, enforcing it would violate public policy.

Feingold argues there is no actual evidence of contact. But the contract itself is the evidence. It stretches the imagination to believe Feingold could have procured a signed contract from McAteer, assigning her bad faith claim to him, absent any contact between them. Construing the facts alleged in the light most favorable to the non-moving party—which Feingold suggests the District Court erred in not doing—does not require us to assume the impossible.

Without a valid assignment of a claim of bad faith, Feingold lacks standing. The Third Circuit Court of Appeal affirmed the District Court’s order, dismissing Feingold’s claim.

ZALMA OPINION

Feingold was disbarred in 2008. Upon learning that he had continued to hold himself out as an attorney and to represent clients, the Commonwealth of Pennsylvania obtained two state court injunctions designed to enforce his disbarment. The first barred Feingold from entering his office or filing court documents without court approval, and the second appointed a conservator over his office and files. As part of his unlawful conduct Feingold contacted a client and obtained an assignment of her bad faith suit against State Farm, a violation of various restraining orders and the public policy of the state of Pennsylvania. This case is more proof that even a disbarred lawyer can take up the time of the courts and courts of appeal on actions that have no validity and should be punished accordingly. A mere dismissal of the lawsuit was insufficient to deter him from further wrongful conduct.


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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.

https://zalma.com/zalmas-insurance-fraud-letter-2/ Read last two issues of ZIFL here.

Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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Free Continuing Education and Training on Insurance Law and Claims Handling from an Internationally Recognized Expert

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Do You Employ Insurance Claims Personnel or are a Claims Person? If so, You Need the Free Educational Materials

Now available, at no cost, are more than 100 15-20 minute videos on insurance claims handling, insurance coverage, insurance fraud and insurance law from Barry Zalma, Esq., CFE on Rumble.com at https://rumble.com/c/c-262921  and at YouTube.com and Videos from “Barry Zalma on YouTube” .

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 a library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals available at http://zalma.com/blog/insurance-claims-library/.

My original channel does not allow me to add posts so I have created a new channel, Barry Zalma available at Zalma on Insurance Videos and at https://rumble.com/c/c-262921 where I post a new video almost every day in addition to my rumble.com channel. I also publish insurance claims, coverage and insurance law books at the Insurance Claims Library https://zalma.com/blog/insurance-claims-library/.

Insurance Claims, Coverage and Insurance Law Videos

The videos presently available, free of charge, include, but are not limited to:

The California Fair Claims Settlement Practices Regulations 2020
A Video Explaining Why Rescission Is a Remedy That Must be Used with Care
Some Cases Where Insurers or Insurance Agents or Brokers Were Convicted of Insurance Fraud
The California Fair Claims Settlement Practices Regulations 2020
A Video Explaining Why Rescission Is a Remedy That Must be Used with Care
Some Cases Where Insurers or Insurance Agents or Brokers Were Convicted of Insurance Fraud
A Video Explaining the Consideration for Early Settlement of a Construction Defect Suit
A Video Explaining the Statutes of Repose

A Video Explaining the Need to Apply the 14th Amendment to the Tort of Bad Faith
A Video Explaining “Collapse” Coverage
A Video Explaining Intentional Acts Exclusions
A Video Explaining The Duties of the First Party Property Adjuster
A Video Explaining Some Advertising Injury Coverage
A Video Explaining the Need for Excellence in Claims Handling
A Video Explaining Exclusions for Inherent Vice, Latent Defects and Wear and Tear
A Video Explaining Exclusions for Mysterious Disappearance and Loss Discovered after Inventory
Interpretation of First and Third Party Insurance Policies
A Video Explaining “Other Insurance” Clauses in Liability Insurance Policies
A Video Explaining the Tax Consequences of Bad Faith Punitive Damages
A Video Explaining What Happens When a Lawyer Acts Unethically
A Video Explaining Insurance Contract Law and the Law of Unintended Consequences
A Video Explaining Why Insurance is a Necessity to Everyone in a Modern Society
A Video Explaining How to Read Your Homeowners Insurance Policy
A Video Explaining the Controls on Punitive Damages
A Video Explaining the First Party Property Insurance Adjuster’s Duties and Obligations
A Video Explaining How To Become a Professional Liability Claims Adjuster
A Video Explaining the Preparation Necessary for a Statement or an Examination Under Oath
A Video Explaining Some Grounds for the Tort of Bad Faith
A Video Explaining What Mold Inspections Cannot Do
A Video Explaining Some Grounds for the Tort of Bad Faith
A Video Explaining How to Deal with Insurance Fraud and Innocent Co-Insureds
A Video Explaining an Insurer’s Dispute or Denial of a Claim
A Video Explaining Ethics and the Development of the Covenant of Good Faith
A Video Explaining Some Appellate Decisions on the Equitable Remedy of Rescission
A Video Proposal to Defeat Insurance Fraud Because It Takes Courage to Fight Insurance Fraud
A Video Explaining Insurance Fraud by “Staged” Losses
A Video Explaining the Preparation Necessary for a Statement or an Examination Under Oath
A Video Explaining The Role of the Insurer’s Attorney After Ending the EUO
A Video Explaining the Tax Consequences of Bad Faith Punitive Damages
Zalma’s Insurance Fraud Letter – November 1, 2020 A Video Explaining Insurance Contract Law and the Law of Unintended Consequences
A Video Explaining the Importance of Warranties in Insurance Contracts
A Video Explaining the Underwriting Concerns About Unacceptable Risks
A Video Explaining the First Party Property Insurance Adjuster’s Duties and Obligations
A Video Explaining Some Construction Defects that Result in Claims or Litigation
A Video Explaining the Duty of Good Faith Owed by the Insured to the Insurer
A Video Explaining How To Become a Professional Liability Claims Adjuster
A Video Explaining how to Calculate and Award Punitive Damages
A Video Explaining the Tort of Negligence and Construction Defect Insurance
A Video Explaining the Ethical Basis of the Covenant of Good Faith and Fair Dealing


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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.

https://zalma.com/zalmas-insurance-fraud-letter-2/ Read last two issues of ZIFL here.

Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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Zalma’s Insurance Fraud Letter – January 1, 2021

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Zalma’s Insurance Fraud Letter

January 1, 2021

Read last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/

See the full video at https://youtu.be/fG51kpYUTwM

Happy New Year – 2021 Must, and will be, Better than 2020

Guilty of Insurance Fraud

People who commit insurance fraud think it is a crime without punishment or concern. When they are caught, prosecuted and convicted, the perpetrator is so amazed that he or she is one of the few unlucky ones who were caught that they use their ill-gotten gains to fund unfounded and frivolous appeals. For example, in The People of The State Of New York v. Troy M. Cordell, Jr., 637 KA 13-02114, 2020 NY Slip Op 06606, Supreme Court of The State Of New York Appellate Division, Fourth Judicial Department (November 13, 2020) Troy M. Cordell, Jr. filed such an appeal. Cordell had been convicted by a jury of insurance fraud in the fourth degree (Penal Law § 176.15) and falsifying business records in the first degree (§ 175.10), Cordell contended that the evidence is legally insufficient to establish his intent to defraud.

Famous Lawyer’s Assets Frozen by Federal Court

Thomas Girardi, a prominent Los Angeles attorney faced a federal judge in Chicago who froze the assets of his firm after finding that he misappropriated at least $2 million in client funds that were due to the families of those killed in the crash of a Boeing jet in Indonesia.

Girardi is one of the nation’s leading civil lawyers, and gained notoriety in 1993 for his role in a lawsuit against the Pacific Gas and Electric Company of California that went on to inspire the 2000 movie Erin Brockovich.

Most-Brazen Insurance Fraudsters Elected to the Coalition Against Insurance Fraud’s Hall of Shame

Health Insurance Fraud Convictions

Videos on YouTube And Zalma On Insurance from Barry Zalma

62 Videos describing important insurance issues described by Barry Zalma and available to anyone who views or subscribes to the YouTube account.  Issues include insurance fraud, definition of insurance, insurance as a contract of personal indemnity, millions for defense and not a dime for tribute and the tort of bad faith. Please subscribe. The 62 Videos are at https://www.youtube.com/channel/UCFg7qxC0tVgKcMUqoUfnwPw/videos bit I have had some difficulty posting new videos to my YouTube channel and have decided to post all future videos on insurance, insurance claims, insurance law, and insurance fraud to this YouTube Channel and my blog, https://zalma.com/blog.

Other Insurance Fraud Convictions

New Book: “It’s Time to Abolish The Tort of Bad Faith

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

Zalma on Insurance Videos

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 a library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals available at http://zalma.com/blog/insurance-claims-library/. My original channel does not allow me to add posts so I have created a new channel, Barry Zalma available at Zalma on Insurance Videos and at https://rumble.com/c/c-262921 where I post a new video almost every day.


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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.

https://zalma.com/zalmas-insurance-fraud-letter-2/ Read last two issues of ZIFL here.

Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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A Video Explaining the Use of the Crime-Fraud Exception in Bad Faith Cases

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The Crime-Fraud Exception to the Attorney-Client Privilege and the Work Product Protection

See the full video at https://youtu.be/PJ6Ue297NeE

The Crime-Fraud Exception

A waiver of the privilege also may result when the carrier is sued for bad faith and/or fraud. For example, California Evidence Code Section 956 provides: “there is no privilege under this article if the services of the lawyer were sought or obtained to enable or aid anyone to commit or plan to commit a crime or a fraud.” Even without a statute, the license to practice law, is not a license to commit a crime.

One federal court ruled that a bad faith claim not involving fraud is insufficient to trigger the exception. In Freedom Trust v. Chubb Group of Insurance Cos., 38 F.Supp.2d 1170 (C.D. Cal. 1999) the insured argued that the privilege had been waived because the insurer denied coverage in bad faith. The court recognized that the attorney “does not have to be aware of the fraud for the crime-fraud exception to apply” and that the fraud exception includes civil fraud. The court noted a split in authority nationally as to whether a bad faith claim triggers the crime-fraud exception.

The crime-fraud exception applies only where there is probable cause to believe that the particular communication with counsel or attorney work product was intended in some way to facilitate or to conceal the criminal activity. [Blumenthal v. Kimber Mfg., 265 Conn. 1, 18 (2003)] The crime-fraud exception to the attorney-client privilege, therefore, is a limited one, and the burden of proof is on the party seeking to pierce the privilege. The exception applies only after a determination by the trial court ‘that there is probable cause to believe that a crime or fraud has been attempted or committed and that the communication was in furtherance thereof.


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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.

https://zalma.com/zalmas-insurance-fraud-letter-2/ Read last two issues of ZIFL here.

Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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.

https://zalma.com/zalmas-insurance-fraud-letter-2/ Read last two issues of ZIFL here.

Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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Liability Insurance Only Provides Defense or Indemnity for a Fortuitous Action

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No Coverage for Intentional Acts or For Independent Counsel Retained Without Proper Cause

Plaintiffs Outdoor Venture Corporation (OVC), J.C. Egnew, and L. Ray Moncrief appealed a district court judgment denying their requests that defendants Grange Mutual Casualty Company and Scottsdale Indemnity Company reimburse them for the attorneys’ fees and costs incurred by the plaintiffs in defending themselves in underlying lawsuits. In Outdoor Venture Corporation, J.C. Egnew, and L. Ray Moncrief v.  Philadelphia Indemnity Insurance Co., et al No. 20-5306. United States Court Of Appeals For The Sixth Circuit (December 22, 2020) the Sixth Circuit was asked to reverse the District Court’s summary judgment in favor of the insurers.

FACTUAL BACKGROUND

The plaintiffs in this matter are three corporations and two individuals who were officers of the corporations. The three corporations (together, “OVC”) and Kentucky Highlands Investment Corporation. The two individual plaintiffs are J.C. Egnew and L. Ray Moncrief. During at least the relevant time, Egnew was the president of OVC. Moncrief was a director of OVC and an officer of Kentucky Highlands.

The root of this dispute is three lawsuits filed against various of the plaintiffs by a company called LEEP, Inc. and one of LEEP’s insiders, Roger Blanken. LEEP alleged that it entered into “joint venture negotiations” with OVC. During the negotiations, Egnew signed on OVC’s behalf a non-disclosure and non-circumvention agreement (the “NDA”) which prevented OVC from contacting LEEP’s lenders or customers.

At the time, LEEP owed more than $7 million to Fortress Credit Corporation and was in default under the terms of the parties’ financing agreement. After joint venture negotiations between LEEP and OVC ceased, Kentucky Highlands purchased Fortress’s rights under the financing agreement. Kentucky Highlands then repossessed LEEP’s assets and sold the assets to plaintiff Stearns Manufacturing, which is a subsidiary of OVC. Stearns Manufacturing no longer exists; OVC now owns Stearns’ assets and liabilities.

With the three lawsuits underlying this action, LEEP and Blanken asserted that Kentucky Highlands wrongfully repossessed their assets.

Kentucky Highlands, OVC, Egnew, and Moncrief were insured by at least one of the defendant insurers in this action: Grange Mutual Casualty Co., Scottsdale Indemnity Company, or Auto-Owners/Owners Insurance Company (together, “Owners”). These insurers asserted, however, that the claims brought by LEEP and Blanken against their insureds were not covered under the applicable insurance policies. Grange refused to defend their insureds at all. Owners offered to defend the insureds under a “reservation of rights” and appointed counsel to represent them. Scottsdale did the same, except with regard to Moncrief, who Scottsdale refused to defend at all.

The Plaintiffs, however, retained their own counsel to represent them. They sued the insurers seeking reimbursement for the amounts they paid to defend themselves in the three lawsuits.

After the plaintiffs voluntarily dismissed their claims against Philadelphia Indemnity Insurance Company, the district court issued a lengthy opinion in which it concluded that summary judgment should be entered in favor of the insurers.

The only issues remaining on appeal involved the plaintiffs’ claims that Grange and Scottsdale are liable for reimbursement of the expenses incurred by the plaintiffs in obtaining independent counsel to defend themselves in the underlying lawsuits.

DISCUSSION

The Kentucky Supreme Court has held consistently that the construction of insurance contracts generally is considered a matter of law to be determined by the court and the determination of whether a defense is required must be made at the outset of the litigation.

Claims Against Grange

The district court ruled that Grange had no duty to defend the plaintiffs against the allegations made by LEEP and Blanken. Specifically, concluding that Grange was required to defend its insureds only from claims of “bodily injury,” “property damage,” or “personal and advertising injury.” Because, according to the district court, the lawsuits filed by LEEP and Blanken did not allege actions that fell within the definitional parameters of those contractual terms, no duty to defend ensued.

Because the policies defined an “occurrence” to mean “an accident,” coverage—and thus a duty to defend—was excluded in situations in which the bodily injury or property damage was “expected or intended from the standpoint of the insured.” Both complaints alleged that actions undertaken by the plaintiffs resulted in machinery and other assets belonging to LEEP or to Blanken being taken without legal authorization. The policies provided for coverage to exist for such property damage, the physical injury or the loss of use must not have been “expected or intended from the standpoint of the insured” and must not have arisen out of a failure by the insured (or a person acting on the behalf of an insured) “to perform a contract or agreement in accordance with its terms.”

The insureds insisted that, although they did intend to repossess the LEEP and Blanken assets, they did not intend to interfere with any legitimate and senior rights of LEEP and Blanken.  Such a formulation of the plaintiffs’ actions turns the concepts of accident and fortuity on their heads. Indeed, the plaintiffs intended the exact damage that occurred—the seizure of the assets of LEEP and Blanken.

Because Grange had no duty to defend the plaintiffs in the underlying actions alleging property damage, Grange also has no responsibility for now reimbursing the plaintiffs for attorneys’ fees and costs associated with retaining independent counsel.

Personal and Advertising Injury

Kentucky law calls upon courts to determine an insurer’s duty to defend “at the outset of litigation” by reference to the allegations in the underlying complaint. Here, the allegations of “personal and advertising injury” in LEEP’s complaint made clear that the actions undertaken by the plaintiffs fall outside the coverage provisions of Grange’s policies because of the plaintiffs’ alleged knowledge of the consequences of those actions.

The lawsuit clearly alleged that the actions of the plaintiffs in this case were taken with full knowledge of the fact that they would violate the rights of others, that the plaintiffs gained entry into a premises only as a result of violating the terms of a confidentiality agreement, and that representations made by Egnew disparaged an “organization’s goods, products, or services.” Consequently, Grange also bears no liability for reimbursing the plaintiffs for the costs they incurred in employing independent counsel for their defense.

Claims Against Scottsdale

Plaintiffs, as a last gasp, contend that, even though Scottsdale appointed counsel to defend them in the lawsuits filed by LEEP and Blanken, the insurance company now should reimburse them for the costs of employing their own independent counsel.

The plaintiffs admitted that they are not suggesting that appointed counsel did anything wrong in these cases. In fact, the plaintiffs admit that they “did not explicitly . . . reject the defense offered by their insurance carriers” prior to hiring their own counsel.”  Under the terms of the Scottsdale policy, the plaintiffs had to seek the written consent of the insurer before incurring any additional expenses, and Plaintiffs did not seek such permission.

Kentucky law does not require reimbursement for the counsel plaintiffs selected. OVC and Egnew not only failed to identify any injury that they suffered as a result of Scottsdale providing them with legal counsel, they also failed to take the steps necessary to justify the actions for which they now seek reimbursement

The Sixth Circuit concluded that the district court did not err when it concluded that the claims against the plaintiffs for “bodily injury or property damage” and for “personal and advertising injury” by LEEP and Blanken fell within exclusions to coverage in the Grange policies.

Because Grange thus had no duty to defend those claims, it was not liable for the costs incurred by the plaintiffs in retaining their own counsel. Additionally, Scottsdale did provide OVC and Egnew with legal representation—representation that the plaintiffs failed to reject prior to hiring their own counsel. The district court thus also did not err in denying OVC and Egnew reimbursement for the fees they incurred in hiring independent counsel.

ZALMA OPINION

The Plaintiffs forgot that an insurance contract contains mutual promises that are limited by the wording of the policy. No insurance policy can respond to claims that the insured acted intentionally to harm a third party. Since the Plaintiffs conduct causing the harm that was the subject of the lawsuits against them was intentional and not accidental there could be no coverage for defense or indemnity. And, when Scottsdale provided a defense under a reservation of rights, the Plaintiffs had no right to unilaterally, without cause and without the insurers consent, retain independent counsel, they had no right to reimbursement.


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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.

https://zalma.com/zalmas-insurance-fraud-letter-2/ Read last two issues of ZIFL here.

Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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A Video Explaining Strict Liability in Tort, Absolute Liability and Ultrahazardous Activities

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Important Torts that are Neither Negligent nor Intentional

See the full video at https://youtu.be/stgUHfL8UdI

Strict Product Liability

Strict product liability is a legal rule that says a seller, distributor or manufacturer of a defective product is liable to a person injured by that product regardless of whether the defendant did everything possible to make sure the defect never happened.

Strict product liability is “a manufacturer’s or seller’s tort liability for any damages or injuries suffered by a buyer, user, or bystander as a result of a defective product. Products liability can be based on a theory of negligence, strict liability, or breach of warranty.” This rule applies even if the seller exercises all possible care in the preparation and sale of the product, and the user or consumer has not bought the product from or entered into any contractual relation with the seller.

Absolute Liability—Liability for Dangerous Animals

A person who possesses or harbors a dangerous animal, whether wild or domestic, is absolutely liable for injuries inflicted by it, where he knows or should know of its dangerous propensities. In the case of wild animals, scienter (evil intent) is presumed. In the case of domestic animals—the type an adjuster will normally see—it is necessary to establish scienter. Knowledge of the dangerous propensities must be proved by the plaintiff to establish liability.

Ultrahazardous Activity: Liability Without Fault

Certain activities create such a serious risk of danger that it is justifiable to place liability for the loss on the person engaging in the activity.


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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.

https://zalma.com/zalmas-insurance-fraud-letter-2/ Read last two issues of ZIFL here.

Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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Plaintiff Must Allege and Prove Standing to Sue for Bad Faith

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Attempt at Class Action Fails for Lack of Privity & Damage – No Harm, No Case

It is axiomatic that to claim a breach of an insurance contract it is necessary that the person making the claim is a party to the insurance contract. When an insurer reduced payment to health care providers based upon an agreed upon schedule rather than the amount billed by the provider, the provider – not a party to the contract – has no standing to allege it was damaged by the insurer.

In Stephanie Allen, Mark Allen, As Individuals, And Absolute Life Wellness Center, Inc., A Texas Professional Services Corporation, On Behalf Of Themselves And For All Others Similarly Situated v. United Services Automobile Association, USAA Casualty Insurance Company, USAA General Indemnity Company, Garrison Property And Casualty Insurance Company, And USAA County Mutual Insurance, No. 01-20-00305-Cv, Court Of Appeals For The First District Of Texas (December 22, 2020) the “Allens”, and Absolute (collectively, “appellants”), challenged the trial court’s order ruling that they lacked standing to bring suit, both individually and on behalf of classes of other policyholders and health care providers, against United Services Automobile Association, (USAA) for breach of contract and violations of the Texas Insurance Code and the Deceptive Trade Practices Act (“DTPA”).

Background

In their second amended petition, appellants allege that in March 2018, the Allens were insured under a standard USAA “Texas Auto Policy” with Personal Injury Protection (“PIP”) coverage. According to appellants, the policy provides “coverage for all ‘reasonable’ and ‘necessary’ expenses” of up to $5,000 for each insured “that result from a covered automobile collision—without regard to the fault of the collision.” Under the policy, “USAA promises to—or have someone on their behalf—review and investigate, by audit or otherwise, ‘claims for benefits under this coverage to determine whether fees and expenses were reasonable and whether treatment was medically necessary and appropriate.'” USAA also “promises to pay for the medically ‘necessary’ and ‘reasonable’ charges.”

The Allens were injured in a car accident. They authorized their health care providers to file claims under their PIP policies with USAA. The reimbursable amount of the Allens’ claims for payment of all reasonable and necessary treatment was reduced based on coded fee reductions. Appellants state that USAA automatically reduce PIP claims then provides, with a fee reduction, an explanation that “[t]he charge exceeds a reasonable amount for the service provided.”

Appellants alleged that, as a result of USAA’s arbitrary fee reductions and unreasonable investigation procedures, they and the putative class members have been injured and “suffered damages in the form of economic loss, loss of the benefit of the applicable insurance coverage, delay in payments, and administrative or other out of pocket costs associated with the reductions and denials to the bills submitted on USAA . . . PIP claims.”

USAA denied the allegations and asserted that the Allens lack standing to bring suit against the USAA entities that did not issue an insurance policy to them and Absolute lacks standing to bring suit under the DTPA because it is not a “consumer.” And Absolute cannot claim standing based on any policyholder’s alleged assignment of rights, because the insureds’ claims under the DTPA and Texas Insurance Code chapter 541.060 for unfair settlement practices are non-assignable.

Trial Court Conclusions

The trial court made certain findings of fact:

  • The Allens do not allege that they were subjected to any delay;
  • Neither of the Allens was “balance-billed” by their health care providers, and no treatment was withheld, so they have no actual damages caused by any of the billing practices allegedly implemented by USAA;
  • Stephanie’s claim was paid in full after her provider submitted the necessary information;
  • The Allens admit that after they filed suit, USAA resubmitted and paid the original claims to the in-network provider; and
  • Absolute alleges that it has received untimely explanations of benefits from USAA but does not allege that the delay caused a loss of benefits to which it was entitled.

The trial court also concluded that Absolute lacks standing because it is not a party to an insurance contract with USAA and DTPA and Texas Insurance Code claims are non-assignable.

Standing

The test for standing requires that there be a real controversy between the parties that will actually be determined by the judicial declaration sought. Without a breach of a legal right belonging to the plaintiff, no cause of action can accrue to its benefit. A plaintiff has standing if:

  1. it has sustained, or is immediately in danger of sustaining, some direct injury as a result of the wrongful act of which it complains;
  2. there is a direct relationship between the alleged injury and claim sought to be adjudicated;
  3. it has an individual stake in the controversy;
  4. the challenged action has caused it some injury in fact, either economical, recreational, environmental, or otherwise; or
  5. it is an appropriate party to assert the public’s interest in the matter as well as its own interest.

Analysis

A plaintiff has the burden of alleging facts that affirmatively demonstrate a court’s jurisdiction to hear a case. The standing inquiry requires careful judicial examination of a complaint’s allegations to ascertain whether the particular plaintiff is entitled to an adjudication of the particular claims asserted. A challenge to standing cannot be used to require the party to prove its entire case but should be limited to facts that might be characterized as primarily jurisdictional.

Under Texas law, to have standing a party must have suffered a threatened or actual injury. The insured in this case does not claim that she has any unreimbursed, out-of-pocket medical expenses. She does not assert that the providers withheld medical treatment as a result of the insurer reducing its bills, or threatened to sue her for any deficiency, or harassed her in any other manner. From all appearances, her medical providers have accepted the amount the insurer paid them without complaint, thereby satisfying the insurer’s obligation under the policy.

The Allens do not allege that they paid, or were asked by their health care providers to pay, any portion of the bills that USAA had declined to fully reimburse. Nor have they alleged that they incurred any out-of-pocket expenses as a result of USAA’s discounting and claim processing practices. Absolute has not asked its patients to pay any portion of its bills that USAA has not reimbursed or alleged that it has refused to accept the discounted reimbursements as payment.

As USAA points out, its policy also expressly prohibits the assignment of policy rights without USAA’s consent. Anti-assignment clauses are enforceable unless rendered ineffective by a statute. Texas courts have consistently enforced non-assignment clauses in various situations. The Prompt Payment of Claims Act requires proof that an insurer is liable under the policy. A right to statutory damages under the Texas Insurance Code requires as a predicate the breach of a contractual right belonging to the insured. Therefore, since the trial court did not err in concluding that appellants lack standing to bring their claims against USAA the trial court had no authority to do anything but dismiss appellants’ case.

ZALMA OPINION

It is important to every insurer that it pays claims as promised. It is equally important that an insurer refuse to pay claims it does not owe. An insured, who was paid as the insurer promised, has suffered no loss and, therefore, has no available cause of action to sue its insurer. Similarly, the health care provider assignee of an insured in the face of a “no assignment” clause in a policy has no privity and no standing to sue an insurer of its patient for more than it accepted. As the great basketball announcer, the late Chick Hearn, would always say: “no harm, no foul” and therefore no case.


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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.

https://zalma.com/zalmas-insurance-fraud-letter-2/ Read last two issues of ZIFL here.

Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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A Video Explaining the Need to Apply the 14th Amendment to the Tort of Bad Faith

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The Tort of Bad Faith Should be Abolished or Insurers Should be Allowed to Gain Tort Damages from Insureds who Breach the Covenant of Good Faith and Fair Dealing

See the full video at https://youtu.be/ensgrGkorI0

Insurance companies are understood to be persons who operate in the United States and are entitled to all the rights, benefits and protections of the U.S. Constitution. The Fourteenth Amendment provides in clear and unambiguous language:

No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

If the law allows an insured to sue for tort damages as a result of a breach of the covenant of good faith and fair dealing equal protection should allow an insurer to sue the insured for tort damages as a result of the breach of the same covenant. Some litigants cannot, under our system of constitutional law, be more equal than others. Yet, until a court agrees, insureds are more equal than their insurer.

Although the courts may think so, the insured’s breach of the covenant of good faith and fair dealing is also separately actionable as a contract claim and that some forms of misconduct by an insured will void coverage under the insurance policy. (Imperial Cas. & Indem. Co. v. Sogomonian (1988) 198 Cal.App.3d 169, 182.

The court in Agricultural Ins. Co. v. Superior Court, 82 Cal.Rptr.2d 594, 70 Cal.App.4th 385 (Cal. App. 2 Dist., 1999) believed that contract remedies “adequately serve to protect an insurer from the insured’s misconduct without creating the logical inconsistencies and troublesome complexities of a defense of comparative bad faith.” In so doing the California Court of Appeal ignored the logical inconsistencies and troublesome complexities of the tort of bad faith. What is good for the insured should be good for the insurer and upheld the insured’s demurrer to the reverse bad faith tort theories, and the trial court sustained without leave to amend.

The Court of Appeal, explaining its decision stated: “An insurer has no claim against its insured in tort for breach of the covenant of good faith and fair dealing. A breach of this covenant is, at base, a breach of contract. A relationship including specialized circumstances of reliance and dependence is necessary to transmute such a contractual breach into a tort.


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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.

https://zalma.com/zalmas-insurance-fraud-letter-2/ Read last two issues of ZIFL here.

Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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No Reason or Right of a Property Owner to Rely on Forced Placed Insurance

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Forced Placed Insurance Only Protects the Lender

Mortgage lenders include within the terms and conditions of the deed of trust allows the lender to unilaterally select insurance to protect its interest in case the property owner fails to purchase insurance naming the lender as a named mortgagee. If the owner fails the lender can buy insurance for its sole protection and bill the borrower for the premium.

In Mark R. Bautzer, as Trustee v. Select Portfolio Servicing, Inc., et al., E072733, Court Of Appeal Of The State Of California Fourth Appellate District Division Two (December 24, 2020) Mark R. Bautzer, sued the mortgage servicing company (Select Portfolio Servicing, Inc.) and the provider of fire insurance (Assurant, Inc.). He claimed Select procured, or Assurant provided, a policy with limits insufficient to cover the loss from a fire that destroyed the property.  The trial court sustained Select’s demurrer without leave to amend and granted Assurant’s motion for judgment on the pleadings, resulting in a dismissal of the entire action. Bautzer appealed.

FACTS

Bautzer sued in his capacity as the trustee of his deceased mother’s revocable trust, which owns real property in Ojai containing a single-family residence. He claimed that in July 2014, “while acting as an agent of Assurant,” Select “offered [him] to have the premises protected by fire insurance through an insurance policy that Select would purchase from Assurant.”

When a fire destroyed the home in December 2017, Assurant paid out the policy limit of $866,977, which covered neither the cost to rebuild the residence nor the balance of the mortgage (which at that time was approximately $1,013,000). Select applied the proceeds to the mortgage, then initiated foreclosure proceedings to collect the remaining balance of about $150,000. Although the value of the land was appraised at only $645,000, Select would not accept payments from Bautzer that were less than “what was called for by the terms of the loan.”

The deed of trust required that “Borrower shall keep . . . the Property insured against loss by fire.” (Italics added.) However, it also says if the borrower “fails to maintain any of the coverages,” including fire insurance, the “Lender may obtain insurance coverage, at Lender’s option and Borrower’s expense.” (Italics added.) The insurance industry often commonly refers to this type of insurance scenario as “force-placed” or “lender-placed” insurance.

After a demurrer was sustained with leave to amend Bautzer filed a first amended complaint (FAC) that was identical to the original complaint except it added allegations to demonstrate his standing to sue. Select once again demurred and raised the same arguments against the merits of Bautzer’s claims as it had in its demurrer to the original complaint.

The court granted Select’s request for judicial notice and concluded Select was correct—Bautzer failed to allege an additional insurance agreement apart from the covenants in the deed of trust.

ANALYSIS

The Breach of Contract Claims Fail

Bautzer articulated for the first time in his opposition admits that (a) the deed of trust is the applicable contract and (b) the insurance Select purchased was force-placed, obtained in the event the borrower defaults on their obligation to purchase insurance.

Bautzer cannot state a claim for breach of contract against either Select or Assurant under the deed of trust. That document makes quite clear that when a borrower fails to obtain fire insurance, the lender may, “at [its] option,” obtain fire insurance, but is not required to. What’s more, the deed of trust also warns that although any force-placed or lender-placed insurance the lender does procure will be “at . . . Borrower’s expense,” it “might not” protect the borrower’s interest in the property and need not be of any specific type or in any specific amount.

In short, once Bautzer failed to obtain insurance, the deed of trust permitted Select to purchase any type or amount of insurance for the lender’s benefit (to protect its security interest in the loan). Assurant, in turn, was not in privity with Bautzer. Its customer was the lender (and its mortgage servicer, Select), not the borrower.

Since Bautzer himself admitted that Select had “elect[ed]” to purchase force-placed insurance that admission contradicts his allegation that Select had instead offered to act as something like an insurance broker and obtain insurance to his specifications. Where, as here, judicial notice is requested of a legally operative document—like a contract—the court may take notice not only of the fact of the document and its recording or publication, but also facts that clearly derive from its legal effect.

The essential elements of contract formation are capacity to contract, a lawful object, mutual consent of the parties to be bound, and sufficient consideration. A complaint must indicate on its face whether the contract is written, oral, or implied by conduct. If the action is based on an alleged breach of a written contract, the terms must be set out verbatim in the body of the complaint or a copy of the written instrument must be attached and incorporated by reference. Bautzer’s complaint satisfied none of these requirements. Importantly, it contained no allegations demonstrating that he provided Select with any consideration for promising to procure an insurance policy “sufficient” for his purposes.

The Negligence and Unfair Business Practice Claims Fail

The fact that the insurance covenants in the deed of trust control and do not require Select to purchase any particular type of fire insurance means that Bautzer’s other two causes of action also fail. In California, as a general rule, a financial institution owes no duty of care to a borrower when the institution’s involvement in the loan transaction does not exceed the scope of its conventional role as mere lender of money. Loan servicers do not owe a duty to the borrowers of the loans they service. Select did not owe Bautzer a duty of care. Its obligations to Bautzer sound in contract, not tort.

Select is the servicer of the loan; Bautzer never alleged he hired it to act as an insurance broker for him. Nor did Assurant owe Bautzer a duty of care. Its relationship to Bautzer is even more attenuated than Select’s, as Assurant was never in privity with him. Select obtained the insurance policy from Assurant then, as authorized under the deed of trust, billed Bautzer for the premiums. Assurant did not owe a legal duty to Select (let alone to Bautzer) to make any particular insurance available or to advise of any inadequacies in the policy limits.

Bautzer’s arguments on appeal were boiled down to an insistence that, because the case was at the demur stage, the court should look at his complaint only and ignore the terms of the deed of trust. He argues that since he alleged Select promised to find him an acceptable insurance policy, the court should accept that as the truth.

Legal principles and common sense dictate that the court should not. Bautzer’s allegations and the judicially noticed deed of trust reveal, as a matter of law, that none of his theories of liability is tenable.

ZALMA OPINION

When a person acquires property with a mortgage he, she or it is required to insure against the risk of loss of the property by fire and other enumerated perils to protect the owner’s interest and the interest of the lender. When, as here, the borrower fails to acquire the insurance mandated by the deed of trust, the lender has the option to protect its interest with forced placed insurance that only protects the interest of the lender. Bautzer, without any logical basis, relied on the forced placed insurance to protect his interest as well as that of the lender. He made a major error that cost him and his mother’s estate severely and allowed an asset valued at more than a million dollars to be destroyed without any insurance protection for Bautzer or the estate.


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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.

https://zalma.com/zalmas-insurance-fraud-letter-2/ Read last two issues of ZIFL here.

Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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A Video Explaining “Collapse” Coverage

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How to Deal with a Claim that a Property Collapsed or Collapse was Imminent

See the full video athttps://youtu.be/yuaDAN6Ln1E

A collapse is a sudden or relatively abrupt occurrence causing serious structural damage, and not a gradual occurrence over a period of time:

[A] homeowners insurance policy will most likely provide “collapse” coverage for “any serious impairment of structural integrity…” Consequently, the term “collapse,” in its plain, common and ordinary sense “means a falling down, falling together, or caving into an unorganized mass. [“Property Insurance Coverage for Building Collapse: A Mini-Primer,” by Stephen P. Groves, Sr., in Tort And Insurance Practice Committee News, Winter 2002.]

In Rosen v. State Farm General Insurance Co., 30 Cal.4th 1070, 70 P.3d 351, 135 Cal.Rptr.2d 361 (Cal. 06/12/2003), the California Supreme Court reversed the Court of Appeal’s choice to not enforce a clear, unambiguous, and explicit policy clause because it found the existence of “an overriding public policy that mandates such coverage. In reversing the dangerous Court of Appeal decision, the Supreme Court refused to follow the so-called “public policy” basis for the Court of Appeal’s decision to compel coverage because such logic, without restraint, would allow courts to convert life insurance into health insurance. Re-writing the coverage provision to conform to their subjective notions of sound public policy, “the trial court and the Court of Appeal exceeded their authority,” disregarded the clear language of the policy, and the equally clear holdings of the Supreme Court.

To rewrite the provision imposing the duty to indemnify in order to remove its limitation to actual collapse would compel the insurer to give more than it promised and would allow the insured to get more than it paid for, thereby denying their freedom to contract as they please. [Rosen v. State Farm General Insurance Company, 30 Cal.4th 1070, 70 P.3d 351, 135 Cal.Rptr.2d 361 (Cal. 06/12/2003).]

The Washington state Supreme Court, answering an inquiry from a U.S. District Court, concluded that rather than adopt a fixed definition of “collapse” for all insurance contracts, it would apply Washington law to interpret the ambiguous term “collapse” in the insurance contract before the Ninth Circuit. The Supreme Court concluded “that in the insurance contract, ‘collapse’ means ‘substantial impairment of structural integrity.’ ‘Substantial impairment of structural integrity’ means substantial impairment of the structural integrity of a building or part of a building that renders such building or part of a building unfit for its function or unsafe and, under the clear language of the insurance policy here, must be more than mere settling, cracking, shrinkage, bulging, or expansion.” [Certification from the U.S. Court of Appeals for the Ninth Circuit in Queen Anne Park Homeowners Ass’n v. State Farm Fire & Cas. Co., 183 Wash.2d 485, 352 P.3d 790 (Wash., 2015)]


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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.

https://zalma.com/zalmas-insurance-fraud-letter-2/ Read last two issues of ZIFL here.

Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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It Does Not Pay to Lie on an Insurance Policy Application

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False Answers to Material Insurance Application Questions Requires Rescission

Insurance is a contract of the utmost good faith that requires that both parties to the contract of insurance do nothing to deprive the other of the benefits of the policy. In Michael Favreau et al. v. Navigators Insurance Company et al., G056718 c/w G056938, Court Of Appeal Of The State Of California Fourth Appellate District Division Three (December 15, 2020) Favreau sought reversal of a summary judgment granted to Navigators claiming he wasn’t treated fairly.

FACTS

Michael Favreau and Favreau’s Custom Woodworking, Inc., (FCW) were denied coverage by Navigators Insurance Company (Navigators) for claims made against them in an underlying construction defect lawsuit. In this case, Favreau and FCW sued both Navigators alleging various causes of action arising out of that denial of coverage.

Navigators successfully moved for summary judgment based on its cross-complaint alleging rescission of the insurance policy.

Favreau’s and FCW’s waiver argument is based on the assertion that Navigators’ rescission of the policy was based on the same facts it relied upon in denying coverage in the underlying case. Navigators denial of coverage for the underlying action was based on the fact that the work done by Favreau and FCW which gave rise to the underlying lawsuit fell outside the scope of the policy’s coverage. Navigators’ subsequent rescission of the policy, on the other hand, was based on false statements made by Favreau and FCW in applying for the policy.

Navigators began insuring FCW in November 2007, through an Artisans Contractors Program administered by Navigator’s agent. That program serves specific trade contractors including cabinetmakers. It excludes general contractors and construction managers. The initial policy described FCW’s business as “Carpentry – Interior.”

FCW renewed its Navigators policy for the last time in 2011. The renewal application included a provision under the heading “Special Conditions,” which indicated FCW was paying a lower premium because “no new residential construction work prior to certificate of occupancy is allowed.”

The application represented that FCW “is a licensed contractor performing residential and commercial cabinetry and wood shop operations,” that the “value of its largest current or planned job” was $2600, and that the value of its largest job in the past three years was $3750. The application also represented that 100 percent of FCW’s business was “non-structural remodel,” and that 0 percent of its business was new construction or “structural remodel.” It represented that FCW’s annual gross receipts were $150,000.

The application included, among others, several “eligibility questions” and FCW falsely answered “No” to each of the questions. The application also included a section titled “Trade Specific Eligibility Questions.” FCW falsely answered “No” to almost every eligibility question.

In April 2013, Christopher and Theresa Ruiz initiated a lawsuit against Favreau, a company called Favreau’s Construction Management—a fictitious business name established by Favreau—as well as FCW. The complaint alleged multiple causes of action including fraudulent inducement of contract, negligent misrepresentation, breach of warranty and fraud, and breach of contract; every claim related to the construction of their new custom home in 2011 and 2012. More specifically, they alleged that Favreau induced them to hire him to build their custom home through various misrepresentations and false promises about his licensure, his qualifications, and the qualifications of the subcontractors he would hire to work on the project. The Ruizes also alleged FCW engaged in a “civil conspiracy” with Favreau and Favreau’s Construction Management to commit those misdeeds.

In June 2014, after conducting an investigation of the claim, Navigators formally denied coverage because (1) the policy excluded coverage for the expense of repairing, replacing or removing FCW’s own work, (2) the policy excluded any construction management performed for a fee (and does not list Favreau’s Construction Management as an insured); and (3) the policy excluded work performed on new construction of a dwelling prior to the certificate of occupancy.

The Ruiz lawsuit went to trial in 2016, without Navigators’ further involvement. In April 2016, the court issued a judgment againts Favreau and in favor of the Ruizes for $700,000 in damages, measured by the diminution in value of the home. The court awarded a further $700,000 in punitive damages against Favreau.

Navigators claimed rescission was justified based on various misrepresentations made in FCW’s 2011 policy application, including material misrepresentations regarding its past—and planned—work on new residential construction before issuance of a certificate of occupancy; the size of its planned projects, the fact that its principal intended to act as construction manager on a job it was involved in, and its participation in waterproofing work.

The trial court concluded summary judgment was warranted.

DISCUSSION

A misrepresentation or concealment of a material fact in connection with an application for insurance is grounds for rescission of the policy. An actual intent to deceive need not be shown. An insurer does not waive its right to rescind a policy on the ground of false representations if it was unaware of the falsity of those representations. Also, an insurer has the right to rely on the insured’s answers to questions in the insurance application without verifying their accuracy.

There was no evidence that Navigator knew that FCW had already been planning to perform this work when it submitted its policy application. To be sure, Navigators had some reason to suspect that was the case, because it also had a copy of the Ruiz complaint, which alleged that Favreau was committed to acting as construction manager on the project before the application was submitted. But those allegations had not yet been proven, and Navigators could not rescind the policy based solely on an unsupported third party assertion against its insured.

The general rule that delay in seeking rescission may result in forfeiture of the right to rescind where the delay results in prejudice to the other party exists but Favreau and FCW do not offer any evidence suggesting they were prejudiced by Navigators’ failure to assert rescission until they filed their claim for bad faith against it. The court of appeal concluded, therefore, that Favreau and FCW have failed to raise a triable issue of fact on the issue of whether Navigator’s waived its right to rescind the 2011 policy.

Misrepresentations Justifying Rescission

Navigators relied on Favreau’s deposition testimony to demonstrate that FCW had been involved in at least three new residential construction projects before it applied for the 2011 policy. Favreau also testified that in 2009, he became the “partner” of a general contractor, Charlie Bogner, and that they “built a couple of houses together.” Favreau further testified that he and Bogner partnered on the “complete remodel,” of a second home, including structural elements, during the same general time frame—and FCW was hired to build and install the cabinets on that project as well.

Navigators demonstrated in its motion that Favreau submitted his proposal to manage the construction of the Ruizes’ new home in March of 2010. And among the line items proposed at that time was “painted cabinetry per our plans and specs” at a cost of $87,869. Then, in March of 2011 – seven months before Favreau signed the 2011 insurance application on behalf of FCW – Favreau signed a contract with the Ruizes on behalf of Favreau’s Construction Management for “services in connection with the new construction of a single family residence.”

It is axiomatic in California that the fact that the insurer has demanded answers to specific questions in an application for insurance is in itself usually sufficient to establish materiality as a matter of law. (Imperial Casualty & Indemnity Co. v. Sogomonian (1988) 198 Cal.App.3d 169, 179 (Imperial Casualty).)

The materiality of a misrepresentation or concealment is determined solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the disadvantages of the proposed contract, or in making his inquiries.  This is a subjective test viewed from the insurer’s perspective. Thus, a misrepresentation or concealment is material if a truthful statement would have affected the insurer’s underwriting decision.

In this case, Navigator’s evidence clearly established that the issue of FCW’s planned participation in new construction projects was material in its determination of whether it should issue the policy and, if it did, how to price it. Why else, the court asked, would Navigators ask the questions?

The undisputed facts demonstrate that Favreau anticipated the Ruiz job would generate profit far in excess of $2,600 for FCW, long before he signed the 2011 insurance application on its behalf. Having concluded that Favreau and FCW raised no triable issues of fact regarding the misrepresentations relied upon by Navigators in rescinding the policy, the court of appeal had no option but to find no error in the trial court’s decision to grant summary judgment in Navigators’ favor.

ZALMA OPINION

As my mother said to me 70 years ago: “Liars never prosper!” In this case Favreau lied on the application for insurance claiming to be a small time cabinet maker when, in fact, he was working as a general contractor building new houses from scratch, remodeling houses from the foundation up, and not acting as a tiny cabinet maker taking jobs worth less than $3,000 when in fact he was taking on jobs worth hundreds of thousands of dollars. The court concluded he lied to his insurer and that his lie was material to its decision to insure or not insure him against the risk of loss of third party liability claims. The equitable remedy of rescission was applied and Favreau recovered nothing.


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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.

https://zalma.com/zalmas-insurance-fraud-letter-2/ Read last two issues of ZIFL here.

Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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A Video Explaining Intentional Acts Exclusions

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For Liability Insurance to Apply the Acts Complained of Must be Fortuitous

See the full video at https://youtu.be/GbNnNF1-a_A

Intentional Acts

In Automobile Insurance Co. of Hartford v. Cook, the court was faced with the legal question of whether an individual’s homeowner’s insurance policy affords coverage when that individual is sued for wrongful death after killing a person in self-defense. On February 20, 2002, defendant Alfred S. Cook shot and killed Richard A. Barber, the decedent, after a disagreement over a business arrangement spun out of control. The decedent had entered Cook’s home without permission. During their discussions, Cook, armed with a handgun, retreated to his bedroom to retrieve a 12-gauge shotgun and then returned to the living room, where the fatal confrontation occurred.

Cook was indicted for a number of crimes, including murder in the second degree, stood trial, and was acquitted on all counts of the indictment. The jury concluded in the criminal case that the prosecution failed to prove beyond a reasonable doubt that the 120-pound Cook did not have legal justification for shooting the 360‑pound decedent, who had previously attacked and injured Cook after he refused to leave Cook’s home.

Finding no coverage, the majority held there was no possible interpretation other than that the acts were intentional.

In a case where “the policy language does not refer to an intentional act but, rather, contains an exclusion that applies to ‘assault and/or battery committed by any insured * * * or any other person.’ Application of the exclusion does not depend upon the perpetrator’s mental state or whether [injured person] was the intended victim.” When the perpetrator was convicted of battery on the claimant the exclusion applies regardless of the perpetrator’s mental state.

In 1978, the California Supreme Court in Clemmer v. Hartford Insurance Co.71 dealt with a shooting that resulted in the death of the victim. Regardless, it still led to a finding by the Supreme Court of California of a need for defense and indemnity. The court concluded that Hartford had no duties with regard to Dr. Lovelace’s intentional acts in the killing of Dr. Clemmer but was obligated to defend him. If there was a finding of nonintentional conduct in the shooting, however, it would be obligated to defend and its refusal to do so was wrongful.


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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.

https://zalma.com/zalmas-insurance-fraud-letter-2/ Read last two issues of ZIFL here.

Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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Additional Insured Not Automatic Without Contractual Agreement

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No Requirement for “Additional Insured” Status if not Called for by the Construction Contract

In Lucy Assevero, etc. v. Hamilton & Church Properties, LLC, Scottsdale Insurance Company, (and other third-party actions), 2020 NY Slip Op 07529, 2017-07316, Supreme Court Of The State Of New York Appellate Division, Second Judicial Department (December 16, 2020) the appellate division was asked to reverse a finding by the trial court that determined additional insured provision did not exist in the contract between the parties.

FACTS

The plaintiff allegedly was injured while working at premises owned by Hamilton & Church Properties, LLC (hereinafter Hamilton & Church). Castle Construction Group (hereinafter Castle), was a subcontractor on the job site, insured by a policy issued by Scottsdale Insurance Company (hereinafter Scottsdale). After the plaintiff sued for personal injuries, Hamilton & Church sued Castle, seeking contractual and common-law indemnification and damages for breach of contract for allegedly failing to procure insurance. Hamilton & Church also sued Scottsdale seeking a declaration that it was an additional insured under the policy Scottsdale issued to Castle, and that Scottsdale was required to defend and indemnify it in the underlying personal injury action.

The Supreme Court, among other things, denied those branches of Hamilton & Church’s motion which were for summary judgment and granted that branch of Castle’s cross motion which was for summary judgment dismissing the third-party cause of action to recover damages for breach of contract for failure to procure insurance. In deciding these motions, the court found that the subcontract did not require Castle to procure liability insurance for Hamilton & Church.

Scottsdale subsequently moved for summary judgment declaring that Hamilton & Church is not an additional insured under the policy that Scottsdale issued to Castle, and that Scottsdale had no duty to defend or indemnify Hamilton & Church in the action to recover damages for personal injuries. Hamilton & Church cross-moved for summary judgment declaring that it was an additional insured under the policy that Scottsdale issued to Castle, and that Scottsdale had a duty to defend and indemnify it in the personal injury action. The Supreme Court granted Scottsdale’s motion and denied Hamilton & Church’s cross motion. Hamilton & Church appeals.

ANALYSIS AND CONCLUSIONS

The blanket additional insured endorsement in the policy issued by Scottsdale to Castle defines an additional insured as “any person or organization whom you are required to add as an additional insured on this policy under a written contract, written agreement or written permit.”

In order for Hamilton & Church to qualify as an additional insured under the policy, Castle was required to have entered into a written contract or agreement requiring it to name Hamilton & Church as an additional insured on the policy. The appellate division concluded that a provision in a construction contract cannot be interpreted as requiring the procurement of additional insured coverage unless such a requirement is expressly and specifically stated. The court determined that there was no provision in the subcontract expressly and specifically requiring Castle to procure additional insurance coverage for Hamilton & Church.

Since there was no written agreement in which Castle agreed to name Hamilton & Church as an additional insured on the Scottsdale policy the appellate court agreed with the Supreme Court’s determination that Hamilton & Church was not an additional insured under that policy.

The appellate court, after reaching its decision, sent the case back to the Supreme Court, Kings County, for the entry of a judgment declaring that Hamilton & Church is not an additional insured under the policy issued to Castle, and that Scottsdale had no duty to defend or indemnify Hamilton & Church in the action to recover damages for personal injuries.

ZALMA OPINION

Many CGL policies have a provision that will automatically make a person involved in a contract with the named insured as an additional insured if the contract between the parties require the named insured to make the other party an additional insured. Like insurance contracts, all contracts must be read in their entirety. If Hamilton & Church wanted Castle to make it an additional insured on Castle’s policy with Scottsdale it needed to say so in the subcontract documents. It failed to do so and wasted its time, money and the time of the court by asserting a claim for additional insured status because it did not read its own contract with Castle.


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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.

https://zalma.com/zalmas-insurance-fraud-letter-2/ Read last two issues of ZIFL here.

Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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A Video Explaining Some Advertising Injury Coverage

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Advertising Injury/Wrongful Solicitation of Customers

See the full video at https://youtu.be/J_gGcOaYKBc

In Maryland Cas. Co. v. Blackstone Intern. Ltd 442 Md. 685, 706, 114 A.3d 676, 688 (2015) Maryland’s highest court concluded that none of the acts of the plaintiffs involved advertising injury and there was no obligation on the Insurers to defend or indemnify Blackstone.

In Brohawn v. Transamerica Insurance Company, 276 Md. 396, 347 A.2d 842 (1975), the Maryland high court recognized an insurance company’s duty to defend its insured for all claims which are potentially covered under an insurance policy.

A court should consider three inquiries when determining whether a policy provides coverage for advertising injury:

  • Is there an ‘advertising injury’ offense as defined by the policy?
  • Was the offense committed in the course of advertising your goods, products or services? And
  • Is there a causal connection between the advertising and the injury?”

Advertising injury provisions are typically specified risk coverages whose terms are designed to provide coverage for the enumerated claims only and not to provide generalized liability coverage. A highly attenuated connection to advertising is not sufficient to create coverage. To meet the causal connection requirement, the advertising injury claimed must be caused by an offense committed in the course of advertising. The question is whether the advertising did in fact contribute materially to the injury.


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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.

https://zalma.com/zalmas-insurance-fraud-letter-2/ Read last two issues of ZIFL here.

Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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Clear & Unambiguous Insurance Policy Must be Interpreted as Written

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Scheduled Auto Policy Provides No Coverage for Accident Involving Vehicle not on Schedule

On December 9, 2016, a 1992 Mack dump truck (the “Tractor”) driven by former Defendant James Moore collided with another vehicle, killing Patrick Glisson. At the time of the accident, Moore was an employee of Defendant Tru Blu Trucking, LLC and/or former Defendant B&N Trucking, Inc. and the Tractor was owned by Defendant Tru Blu Trucking.

In Progressive Mountain Insurance Company v. Numbers Enterprise, LLC; Stanley J. Smart; Tru Blu Trucking, LLC; Scott & Sons Trucking, LLC; and Patrick Styblo, Individually and as the Court-Appointed Personal Administrator of the Estate of Patrick Glisson; CASE NO. CV419-166, United States District Court For The Southern District Of Georgia Savannah Division (December 15, 2020) the USDC was asked to declare no coverage because the Tractor was not scheduled on Progressive’s policy.

BACKGROUND

After the accident, Defendant Patrick Styblo, as the Administrator of Glisson’s estate, sued seeking wrongful death damages and survival damages against several defendants, including Defendants Numbers Enterprise, LLC, Stanley J. Smart, and Tru Blu Trucking, LLC. Although Progressive was not involved in the State Court action, at the time of the accident, Defendant Numbers Enterprise was insured under a Commercial Auto Policy issued by Progressive (the “Policy”).

To resolve any uncertainty as to the availability of insurance coverage under the Policy, Progressive sued seeking a declaration that it is not responsible for and does not owe defense or indemnity for any claims arising from the accident because the Tractor is not a covered vehicle under the terms of the Policy.

THE POLICY

Progressive contended that the Policy is a “scheduled auto” policy, wherein “the coverage is tied to a specific auto [] described . . . or that auto’s replacement or temporary substitute.”

Under the Policy, Progressive provides liability coverage for bodily injury or property damage that an “insured” becomes legally responsible to pay because of an accident arising from the use of an “insured auto.”

The Policy defines “insured auto” as: “a. Any auto specifically described on the declarations page; or b. An additional auto for Part I-Liability to Others and/or Part II-Damage to Your Auto on the date [Numbers Enterprise] [became] the owner … Any replacement auto on the date [Numbers Enterprise] become[s] the owner…”

When used in Part I-Liability to Others, “insured auto” also includes: “1. Trailers designed primarily for travel on public roads, while connected to [Numbers Enterprise’s] insured auto that is a power unit; 2. Mobile equipment while being carried or towed by an insured auto; and 3. Any temporary substitute auto.”

The Policy further defines “temporary substitute auto” as: “Any auto [Numbers Enterprise] do[es] not own while used with the permission of its owner as a temporary substitute for an insured auto that has been withdrawn from normal use due to breakdown, repair, servicing, loss or destruction.”

In sum, the Policy limits liability coverage to accidents involving (1) autos specifically described on the declarations page to the Policy; (2) after-acquired autos; (3) replacement autos; and (4) temporary substitute autos.

ANALYSIS

Progressive argued that the Tractor is not an “insured auto” because the Tractor is not specifically described on the declarations page to the Policy and also that the Tractor does not constitute an after-acquired auto, replacement auto, or temporary substitute auto under the Policy. Because the Tractor is not an “insured auto” under the Policy, Progressive argued, therefore, that it had no duty to defend or indemnify any individual or entity in relation to claims, lawsuits, or actions arising from or relating to the accident, including but not limited to Defendant Styblo’s State Court action. Defendant Styblo agreed.

It is undisputed that Georgia’s law of contract interpretation applies in this case. Georgia follows the lex loci contractus rule, under which contracts are to be governed as to their nature, validity and interpretation by the law of the place where they were made. Under Georgia’s rules of contract interpretation, where “the terms and conditions of an insurance contract are clear and unambiguous, they must be given their literal meaning.

The unambiguous terms of the Policy exclude coverage on the Tractor. The Tractor’s VIN number (1M2P264C2NM01878) is not described on the declarations page of the Policy and Defendant Styblo has not demonstrated that the Tractor was an after-acquired auto, replacement auto, or a temporary substitute auto as defined under the Policy.

Because the Tractor is not an “insured auto” under the Policy, Progressive is not obligated to defend or indemnify any individual or entity in relation to claims, lawsuits, or actions arising from or relating to the accident on December 9, 2016.

ZALMA OPINION

This case is an insurance company lawyer’s dream since the defendant who could benefit from the claims against Progressive’s insureds agreed with Progressive’s interpretation of its policy and Progressive’s insureds did not contest its claim. The policy wording limiting coverage to losses involving only vehicles listed on the policy was clear, unambiguous and obvious, even to the defendants. Progressive played it safe although it would probably not have been sued to provide coverage. Since both parties agreed on the policy interpretation there should be no chance of an appeal.


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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.

https://zalma.com/zalmas-insurance-fraud-letter-2/ Read last two issues of ZIFL here.

Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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A Video Explaining the Need for Excellence in Claims Handling

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Excellence in Claims Handling Needed by Every Insurer

See the full video at https://youtu.be/vnxWGryxvGI

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. The accountants were happy. The quarterly profits increased. None of the happy people were insurance professionals.

The promises made by an insurance policy are kept by the professional claims person. Keeping a professional claims staff dedicated to excellence in claims handling is cost-effective over long periods of time. A professional and experienced adjuster will save the insurer millions by resolving disputes, paying claims owed promptly and fairly, and by so doing avoiding litigation.

The professional claims person is an important part of the insurer’s defense against litigation by insureds against insurers for breach of contract and the tort of bad faith. Claims professionals resolve more claims for less money without the need for either party to involve counsel. A happy 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 public insurance adjusters and lawyers. Every study performed on claims establishes that claims with an insured or claimant represented by counsel cost the insurer more than those where counsel is not involved.

An Excellence in Claims Handling program, by the author, is available from experfy.com and illumeo.com that is made up of hours of lecture that can be listened to at the convenience of the student.


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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.

https://zalma.com/zalmas-insurance-fraud-letter-2/ Read last two issues of ZIFL here.

Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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Surprised by Conviction of Insurance Fraud Defendant Files Useless Appeal

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Guilty of Insurance Fraud

People who commit insurance fraud think it is a crime without punishment or concern. When they are caught, prosecuted and convicted, the perpetrator is so amazed that he or she is one of the few unlucky ones who were caught that they use their ill-gotten gains to fund unfounded and frivolous appeals. For example, in The People of The State Of New York v. Troy M. Cordell, Jr., 637 KA 13-02114, 2020 NY Slip Op 06606, Supreme Court Of The State Of New York Appellate Division, Fourth Judicial Department (November 13, 2020) Troy M. Cordell, Jr. filed such an appeal. Cordell had been convicted by a jury of insurance fraud in the fourth degree (Penal Law § 176.15) and falsifying business records in the first degree (§ 175.10), Cordell contended that the evidence is legally insufficient to establish his intent to defraud.

The appellate court noted that Cordell failed to preserve that contention for review inasmuch as he failed to renew his motion for a trial order of dismissal after presenting evidence. Viewing the evidence in light of the elements of the crimes as charged to the jury it concluded that the verdict is not against the weight of the evidence.

Because Cordell failed to preserve his procedural challenge to Supreme Court’s disposition of his application and, in any event, the challenge lacked merit. By denying defendant’s challenge, the court thereby implicitly determined that the race-neutral explanations given by the prosecutor for exercising peremptory challenges with respect to the two prospective jurors in question were not pretextual.

In any event, the court concluded that any improprieties were not so pervasive or egregious as to deprive defendant of a fair trial. Since the court concluded that there was no prosecutorial misconduct, it rejected Cordell’s further contention that he was denied effective assistance of counsel based on defense counsel’s failure to object to certain alleged improprieties.

In addition, when the jury’s request is ministerial in nature and therefore requires only a ministerial response the note at issue only necessitated the ministerial action of informing the jury that the requested item was not in evidence.  Although the record does not establish whether the court responded to the note, the need for a ministerial response was obviated by the fact that the jury reached a verdict only 23 minutes after making the subject inquiry.

ZALMA OPINION

The New York appellate court gave serious consideration to a useless appeal that was based on allegations of error that were not preserved during trial, claimed his lawyer was inadequate, and simply tried every possible excuse for his conviction. The appellate court, faced with a verdict that took the jury 23 minutes to decide on his guilt, based on overwhelming evidence, and a ministerial answer to a request from the jury that what they asked about was not in evidence, worked very well to convince the court to unanimously affirm the conviction and make sure that Cordell spends an appropriate amount of time in the gray bar hotel.


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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.

https://zalma.com/zalmas-insurance-fraud-letter-2/ Read last two issues of ZIFL here.

Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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A Video Explaining The Duties of the First Party Property Adjuster

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First Party Property Claims

See the full video at https://youtu.be/JnhxB2a9uIU

What Is an Adjuster?

An “adjuster” or “insurance adjuster” is by statutory definition, a person, co-partnership or corporation who undertakes to ascertain and report the actual loss to the subject-matter of insurance due to the hazard insured against. Insurance companies create, by issuing an insurance policy, a contractual obligation to pay its insureds’ valid claim. To do so insurers understand that the person insured is not able to prove the cause and extent of loss without assistance. Therefore, insurers dispatch a person with special knowledge – the adjuster – to separate fact from fiction, to establish cause and origin of the claimed loss, and determine sufficient information to enable the insurance company determine the amounts necessary to indemnify the insured as the policy promised. The adjuster is also present to distinguish the valid claim from a claim for which the insurance company is not liable under its policy.

Some policies specifically state that the claimant must use his own judgment in estimating the amount of loss and that the assistance of an insurance adjuster is a “courtesy only” — the claimant must still send a proof of loss within 60 days after the loss even if the adjuster does not furnish the form or help you complete it. As a general rule, “[w]hen an insurer gives its insured written notice of its desire that proof of loss under a policy of fire insurance be furnished and provides a suitable form for such proof, failure of the insured to file proof of loss within 60 days after receipt of such notice, or within any longer period specified in the notice, is an absolute defense to an action on the policy” [Stopani v. Allegany Co–op Ins. Co., 83 A.D.3d 1446, 920 N.Y.S.2d 559, 2011 N.Y. Slip Op. 2588 (N.Y. App. Div., 2011)]


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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.

https://zalma.com/zalmas-insurance-fraud-letter-2/ Read last two issues of ZIFL here.

Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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Lack of Protective Safeguards and False Statement on Application Voids Coverage

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Fraudulent Statements in Application Voids Coverage & Exclusion Applies

Restaurant fryers and cooking surfaces are common causes of destructive and unfriendly fires. Insurers who insure against the risks of loss to restaurant property know this and usually require that the insured maintain fire suppression systems over the cooking surfaces and fire alarm systems as a condition precedent to effecting fire insurance protection for a restaurant.

In United Specialty Insurance Company, a Delaware corporation v. Shot Shakers, Inc., a Washington corporation; Scott Simpson, a Washington resident; Michelle Simpson, a Washington resident, No. 19-35192, United States Court Of Appeals For The Ninth Circuit (December 16, 2020) Shot Shakers, Inc. and Michelle and Scott Simpson (collectively, Appellants) appealed the district court’s summary judgment in favor of their insurer, United Specialty Insurance, on coverage issues following a fire.

THE INSURANCE

United Speciality issued a policy covering the Simpsons’ family business, the Roosevelt Ale House (Ale House). The policy included a “Concealment, Misrepresentation or Fraud” condition that voided the policy “in any case of fraud” relating to coverage, the covered property, interest in the covered property, or a claim. It also contained a protective safeguards endorsement requiring fire suppression and alarm systems.

Following a fire at the Ale House, United Specialty denied coverage based on the fraud condition and the protective safeguards endorsement that required the insured to maintain an automatic sprinkler system and fire alarm in conformity with a defined schedule. The schedule, in turn, required a “[f]ully functional actively engaged fire extinguishing system over the entire cooking area with an automatic shut off for the heat source with a semi-annual service contract.”:

ANALYSIS

Under Washington law, a clause voiding an insurance policy due to fraudulent statements is enforceable. The insurer may void the policy if “false statements were knowingly made in the application for the policy and [if], in making them, the applicant had an intent to deceive the company.”

In their insurance application, Appellants represented that:

  • their fire extinguishing system covered all cooking surfaces and deep fryers, and
  • their hoods, ducts, and filters were cleaned at least every six months or more frequently.

Appellants were aware, at the time they were made, that these statements were false. Their hoods, ducts, and filters were not cleaned at least every six months and their system did not protect all cooking areas and deep fryers.

Where a false statement has been knowingly made, there is a presumption that it was made with intent to deceive. Therefore, the district court did not abuse its discretion by refusing to consider Appellants’ arguments, newly raised in their final reply brief, on the admissibility of the application.

Under the exclusion and the protective safeguards endorsement, coverage could be denied if Appellants knew of any suspension or impairment in any protective safeguard listed in the Schedule and failed to notify the insurer of that fact; or failed to maintain any protective safeguard listed and over which the insured had control, in complete working order.

Appellants failed to raise a material issue of fact regarding coverage denial under the exclusion because the fire suppression system did not cover the broiler that was the source of the fire.

In addition, Appellants had ample notice through inspection reports to make the necessary adjustments to the fire suppression system.

ZALMA OPINION

Conditions precedent to insurance must be enforced, even by the Ninth Circuit, when they are clear and unambiguous. The Appellants lied on the application for the insurance and by doing so voided the policy. They also accepted a protective safeguards warranty and condition precedent to coverage that they knew at the time was not fulfilled, and continued to violate the condition, until a fire occurred in the place where they were required to have fire suppression equipment. They have no one to blame but themselves.


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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.

https://zalma.com/zalmas-insurance-fraud-letter-2/ Read last two issues of ZIFL here.

Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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A Video Explaining Exclusions for Inherent Vice, Latent Defects and Wear and Tear

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Exclusions In Property Insurance Policies

See the full video at https://youtu.be/zGHcpyD2kQQ

Inherent Vice

Inherent vice relates to internal decomposition or some quality which brings about the object’s own injury or destruction, not an extraneous cause. [Employers Casualty Company v. Holm, 393 S.W. 2d 363, 367 (Tex. Civ. App. 1965).] The subjective test for fortuity raises questions regarding whether the inherent vice exclusion is effective.

Latent Defect

A latent defect is a defect that could not be discovered by any known or customary test. General Motors Corp. v. The Olancho, 220 F. 2d 278, 2d. Cir. 1955. Analysis indicates that the latent defect and inherent vice exclusions are attempts to embody, in the text of the policy, the need for fortuity. An insurer can only reasonably be expected to insure against the happening of a contingent or unknown risk of loss.

Wear and Tear

The wear and tear exclusion, perhaps because it is so obvious, has seldom been the subject of appellate review. The phrase has been defined as:

[C]onstruing the words “wear and tear” in their every day common usage, we are convinced that the words . . . mean simply and solely that ordinary and natural deterioration or abrasion which an object experiences by its expected contacts between its component parts and outside objects during the period of its natural life expectancy. Cyclops Corporation v. The Home Insurance Company, 352 F. Supp. 931 (W.D. Pa. 1973).

 


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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.

https://zalma.com/zalmas-insurance-fraud-letter-2/ Read last two issues of ZIFL here.

Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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Insurance Law in Washington State Interprets “Pedestrian” to Include Riding a Vehicle

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In Washington State You are a Pedestrian When Riding a Bicycle When Interpreting an Insurance Policy

Insurance law is seldom logical. People who ride on bicycles are subject to vehicle laws, must stop a boulevard stops, must signal for turns and must obey all the rules of the road. Yet, when injured while riding a bicycle in Washington state, and the rider’s policy excludes injuries while on a vehicle the court made the bicycle rider a pedestrian to provide coverage. Logic and common meaning of the term was overruled in Todd Mclaughlin, a Washington resident v. Travelers Commercial Insurance Company, a foreign corporation, No. 97652-0, Supreme Court Of The State Of Washington (December 10, 2020).

Todd McLaughlin was riding his bicycle on a Seattle street when the door of a parked vehicle opened right into him. McLaughlin fell, suffered injuries, and sought insurance coverage for various losses, including his medical expenses.

McLaughlin’s insurance policy covered those expenses if McLaughlin was a “pedestrian” at the time of the accident. Clerk’s Papers (CP) at 39. McLaughlin argues that a bicyclist is a pedestrian, relying on the definition of “pedestrian” found in the Washington laws governing casualty insurance.

FACTS

McLaughlin used to live in California and bought his automobile insurance policy there. That policy included medical payments, or MedPay coverage, which is similar to the personal injury protection (PIP) coverage that is required under Washington law. The was asked to interpret the meaning of the undefined term “pedestrian” in McLaughlin’s insurance policy. As explained below, under the terms of McLaughlin’s insurance policy he was covered for medical payments, in the amount designated in the policy, for his bicycle-car accident if he qualified as a “pedestrian.”

The trial court ruled that the a bicyclist is not a “pedestrian” and the policy provides no coverage. The Court of Appeals affirmed but relied largely on its view that the Washington statute defining pedestrian for purposes of casualty insurance excludes bicyclists.

The policy defined “insured” in part as “You . . . as a pedestrian when struck by[] a motor vehicle.” The policy did not define “pedestrian.” Of course, the common meaning of “pedestrian” is someone walking or running on foot, as I do every day I pursue my constitutional.

Travelers denied coverage because McLaughlin was not a “pedestrian” under the policy.  Travelers quoted definitions of “pedestrian” purportedly from the Washington and California vehicle codes, both of which explicitly exclude bicyclists.

McLaughlin sued Travelers for, among other claims, breach of contract. The trial court disagreed finding that an ordinary and common meaning of pedestrian does not include bicyclist. The court granted Travelers’ motion for partial summary judgment and denied McLaughlin’s. The Court of Appeal agreed.  The only issue for appeal to the Supreme Court was whether, under the insurance policy, does the word “pedestrian” include bicyclists?

ANALYSIS

The Washington state legislature has defined “pedestrian” for purposes of casualty insurance in Washington as follows: “‘Pedestrian’ means a natural person not occupying a motor vehicle as defined in RCW 46.04.320.” Here, McLaughlin’s bicycle did not contain a motor and thus was not a motor vehicle. McLaughlin’s injuries occurred while he was riding his bicycle on a Seattle street and was struck by an opening door of a parked car. He was not occupying a motor vehicle at the time of the accident. Under the noted statute, he qualifies as a “pedestrian” at the time of the accident; accordingly, he was “a pedestrian . . . struck by[] a motor vehicle” resulting in injuries and thus an “insured” under the Travelers policy.

The Court of Appeals felt it necessary to “harmonize” the definition of “pedestrian” found in RCW 48.22.005(11) with RCW 46.04.400, which expressly excludes bicyclists from the definition of “pedestrian,” favoring the latter statute. The Supreme Court noted that Washington courts have long recognized that relevant statutes are read into insurance contracts. Since the state may regulate insurance, so closely is that industry affected with the public interest, that regulatory statutes become a part of the policy of insurance. Thus, a valid statute becomes a part of and should be read into the insurance policy.

To the Supreme Court application of RCW 48.22.005(11)’s definition of pedestrian here comports with Washington’s strong public policy in favor of the full compensation of medical benefits for victims of road accidents. Concluding that the term “pedestrian” has several different meanings in Washington state, the vigorous debate in this case over the meaning of “pedestrian” demonstrates that the term is susceptible to more than one reasonable interpretation.

Further, where multiple reasonable definitions of an undefined term in an insurance policy exist, (such as the various statutory definitions of pedestrian noted above, e.g., RCW 48.22.005(11) (defining pedestrian in the casualty insurance context), RCW 46.04.400 (defining pedestrian in the motor vehicles context), and RCW 47.04.010(23) (defining pedestrian in the public highways and transportation context)), courts adopt the definition that most favors the insured.

The Supreme Court concluded, therefore, that under McLaughlin’s insurance policy an insured would expect to be covered when injured in a collision with an automobile whether the insured was walking, skateboarding, using a wheelchair, standing on a sidewalk, sitting on a park bench, riding a bike, or doing something else. The average purchaser of insurance would expect to be covered by this policy when injured by an automobile.

As the prevailing insured in this insurance coverage case, McLaughlin is entitled to fees.

The undefined term “pedestrian” in the insurance contract at issue must be considered ambiguous in light of the various definitions of “pedestrian” discussed in this opinion. Being ambiguous, the Supreme Court concluded that it must construe the insurance term favorably to the insured. Accordingly, we reverse the Court of Appeals and remand for further proceedings.

ZALMA OPINION

This case, using the finding of an ambiguity, took form over substance and allowed a desire to compensate an injured person to overcome common sense or logic. Because the legislature was less than clear about what constituted a pedestrian by defining it differently in different statutes. For example, not mentioned in the opinion, was Washington code 46.61.261 that provides that “The driver of a vehicle shall yield the right-of-way to any pedestrian, bicycle, or personal delivery device on a sidewalk. The rider of a bicycle shall yield the right-of-way to a pedestrian on a sidewalk or crosswalk…” which makes it obvious that the state considers there is a difference between a pedestrian and a person riding a bicycle. The Supreme Court made it so, except for the purpose of insurance.


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 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.

https://zalma.com/zalmas-insurance-fraud-letter-2/ Read last two issues of ZIFL here.

Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance https://anchor.fm/dashboard/episodes Zalma on Insurance

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/

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