A Video on a True Crime Story: “Help, My House Is Falling Into the Sea”

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Even Honest People are Tempted To Commit Insurance Fraud

See the full video at https://rumble.com/vfv2g1-a-video-on-a-true-crime-story-help-my-house-is-falling-into-the-sea.html and at https://youtu.be/ZcAbj9S5bsY

Career criminals are not the only people who perpetrate insurance fraud. The temptation has become so great that almost anyone who is given the opportunity, will try. Those who do not premeditate insurance fraud are called perpetrators of soft frauds. Most are small. Some are not. The story that follows is a not a soft fraud but one that was premeditated for a great deal of money by a person who should have known better.

Some years ago, residents of a hillside community received a letter from the county engineer informing them that their houses sat on an active landslide. The engineers concluded that an unusual amount of irrigation water, water from septic systems, and rainfall lubricated an ancient landslide under their homes and that the slide was moving. The engineers were concerned because it was moving at the rate of three inches a year. The houses sitting on the landslide were also moving a few inches a month. Within ten years the houses would be torn apart by the movement if nothing was done to stabilize the hillside.

Homeowners, living on the hill, noticed cracks in the plaster walls. Concrete block walls split at the mortar seams. Cracks formed in the foundation systems. Since the homes on the hill were all valued from $500,000 and $5,500,000, the monetary value of the potential loss of 300 homes on the landslide was enormous. Many of the homeowners gathered and hired counsel to pursue persons responsible for their damage.

As a lawyer the intentional concealment of a material fact with the intent to deceive an insurer to its detriment is fraud, a criminal act, and if convicted, grounds for disbarment. For that reason, the insured accepted the denial and did nothing further about the claim.

Had the insurer not done the minimum investigation and retained the services of a competent engineer it would have paid the $2,500,000.00 claim. Had the insured’s fraud been presented to a prosecutor he could have been arrested, tried and convicted of attempted insurance fraud and would have been disbarred.

He was lucky that the insurer agreed to a mutual rescission of the policy, a return of the premium, and to forget what was attempted.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/

Posted in Zalma on Insurance | Leave a comment

When an Insurer Disputes Some Elements of Coverage its Files are Protected

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The Work Product Protection & Insurance

Avatar Property & Casualty Insurance Company sought a writ of certiorari quashing an order granting a motion by its Insureds, Niulsury S. Flores and Ernesto Valdes, to compel production of documents in the Insureds’ breach of contract action for insurance coverage. Avatar Property & Casualty Insurance Company v. Niulsury S. Flores And Ernesto Valdes, Case No. 2D20-2458, District Court Of Appeal Of Florida Second District (April 16, 2021)

BACKGROUND

After their home was damaged in Hurricane Irma in September 2017, the Insureds submitted a claim under their home insurance policy with Avatar. Avatar determined that “there is coverage under [the] policy” and paid the Insureds over $24,000 in January 2018. In July 2018, the Insureds filed a single-count breach of contract action against Avatar alleging that it owed them additional payments under the same policy.

The Insureds sought discovery from Avatar, which produced some documents but withheld others on the basis of work product protection and other objections. The Insureds moved to overrule Avatar’s objections. Their motion was referred to and heard by a magistrate, who entered a recommended order granting the Insureds’ motion. The only finding of fact or conclusion of law in the recommended order states: “This is a dispute over scope and pricing of damages where coverage is not at issue. Therefore, anticipation of litigation is the standard by which to determine protection by the work product doctrine.”

The trial court entered an order generally denying Avatar’s exceptions and approving the magistrate’s recommended order but directing Avatar to submit copies of all objected-to documents for in camera inspection. Following its review of the documents, the trial court entered an order requiring production of four discrete documents (referred to as Documents #3, #5, #6, and #10) but ruling that five other requested items “are privileged and shall not be disclosed.” The trial court noted that one other disputed item had not been provided to the court for review, but the court did not order its production or otherwise address the omission. Avatar then filed its petition for writ of certiorari, contending that the trial court impermissibly ordered it to produce protected documents from its claims file.

Avatar filed the disputed documents under seal with this court. All four documents concern the same Insureds, although they are split between the hurricane loss claim at issue in the Insureds’ lawsuit and another prior claim for a water leak. Documents #5 and #6 predate the loss at issue and address Avatar’s investigation of a different claim for a pre-hurricane leak in the same home. By contrast, Documents #3 and #10 postdate the loss and address the Hurricane Irma claim now at issue. Document #3 is a composite of investigative photographs taken by Avatar’s adjuster. Document #10 is a printout of a Claim Payment Screen from Avatar’s Claims Management System addressing the Insureds’ claim.

ANALYSIS

Avatar asserts that these four documents from its claims file are investigative and claims handling material that are protected from disclosure because coverage remains in dispute. Despite the fact that Avatar has admitted that some coverage exists under the policy, the amount and nature of that coverage remains in dispute, and thus the trial court departed from the essential requirements of the law by overruling the work product objection and directing production of these privileged documents on the express basis that “coverage is not at issue.”

Material injury and a lack of an adequate appellate remedy constitute the jurisdictional threshold for our certiorari review; the first element concerns the merits of the petition. Discovery of “cat out of the bag” material, like documents protected by the work product protection, satisfies the jurisdictional prongs of this test because disclosure of such information may cause irreparable harm.

Case law in Florida is replete with opinions holding that ‘[a] trial court departs from the essential requirements of the law in compelling disclosure of the contents of an insurer’s claim file when the issue of coverage is in dispute and has not been resolved.'” Owners Ins. Co. v. Armour, 303 So. 3d 263, 267 (Fla. 2d DCA 2020).

It is true that there is no privilege under Florida law that automatically attaches to “claims file” material. Nonetheless, without question, materials within an insurer’s claim file will frequently fit within the definition of work product.

Work product is broadly defined to include documents that can fairly be said to have been prepared or obtained because of the prospect of litigation. Consequently, even preliminary investigative materials are privileged if compiled in response to some event which foreseeably could be made the basis of a claim.

Consistent with these principles, Florida courts routinely hold that materials generated during an insurer’s investigation of a claim for coverage constitute protected work product. The magistrate’s express finding, which the trial court adopted, was that the investigative and claims handling materials were not privileged because “coverage is not at issue,” presumably because Avatar admitted that some coverage existed under the policy. That finding is contrary to Florida law, which holds that, regardless of the binary question of whether any coverage exists, the issue of coverage remains disputed for these purposes where the amount of coverage remains to be determined.

When the extent of coverage  remained in dispute despite a partial payment of the policy limits, thereby precluding the simultaneous litigation of breach of contract and bad faith claims the insured’s breach of contract suit against the insurer raised a coverage issue, which was not settled by the insurer’s payment of only part of what the insured was claiming in the breach of contract action.

Since the issue of coverage remains in dispute despite Avatar’s payment of some benefits to the Insureds, the payment was made before the lawsuit was filed, and Avatar’s answer raises several affirmative defenses to coverage, including alleging that the Insureds breached their post loss obligations under the policy. Under the circumstances, the trial court departed from the essential requirements of law by ordering production of Avatar’s investigative and claims handling materials based on the express contrary conclusion that “coverage is not at issue.”

Finally, the mere fact that no litigation arose directly from the Insureds’ prior leak claim that caused Avatar to produce some of the materials at issue does not affect the determination of work-product protection. The view that materials in an insurer’s claim file could not be work product if that claim was settled without litigation is an overly circumscribed view of what constitutes work product. Instead, “the work product doctrine protects documents created in anticipation of terminated litigation as well as anticipated litigation that never materializes.

Because the trial court departed from the essential requirements of the law by ordering production of these protected claims file materials on the mistaken basis that “coverage is not at issue,” the Court of Appeal granted the petition and quashed the order.

ZALMA OPINION

The work product protection – sometimes erroneously called a “privilege” – allows a party’s lawyer’s work to be protected from disclosure to the adversary. When an insurer disputes the amount of money it owes its insured on a claim coverage is disputed and the work done by the insurer is in anticipation of litigation or by its lawyer in preparation for trial is protected from the adversary. If one side gets to read the preparation and analysis of its opponent any litigation would be unfair.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/

 

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Some New Books from Barry Zalma

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Insurance and Claims Law Books

How To Buy An Appropriate Homeowners Policy And Successfully Make A Claim To The Insurer

Of all insurance acquired in the United States, the most common is the homeowners policy and its sister the tenant’s policy that covers everything a homeowners policy covers but the structure.Homeowners insurance is nothing more than a contract between a person seeking insurance and an insurer who promises to protect the insured against the risks of loss to certain described property or liability to third parties. The insurer can be set up as a stock insurance corporation, a mutual insurance company, an interinsurance exchange or a syndicate of insurers writing through an insurance market place like Lloyd’s, London. The person insured can be an individual, a corporation, a partnership, a limited liability company, a limited liability partnership, a joint venture or any other legal entity.

Available as a Kindle Book here.   Available as a paperback here.

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.

INSURANCE AS A NECESSITY

Neither the courts nor the governmental agencies seem to be aware that in a modern, capitalistic society, insurance is a necessity. No prudent person would take the risk of starting a business, buying a home, or driving a car without insurance. The risk of losing everything would be too great. By using insurance to spread the risk, taking the risk to start a business, buy a home, or drive a car becomes possible.

Insurance has existed since a group of Sumerian farmers, more than 5,000 years ago, scratched an agreement on a clay tablet that if one of their number lost his crop to storms, the others would pay part of their earnings to the one damaged. Over the eons, insurance has become more sophisticated, but the deal is essentially the same. An insurer, whether an individual or a corporate entity, takes contributions (premiums) from many and holds the money to pay those few who lose their property from some calamity, like fire. The agreement, a written contract to pay indemnity to another in case a certain problem, calamity, or damage that is fortuitous, that is that occurs by accident, is called insurance.

In a modern industrial society, almost everyone is involved in or with the business of insurance. They insure against the risk of becoming ill, losing a car in an accident, losing business due to fire, becoming disabled, losing their life, losing a home due to flood or earthquake, or being sued for accidentally causing injury to another. The insurers, insureds, or people damaged by those insured are dependent on one another.

In a country where human interactions are governed solely by the terms of written contracts, insurance would be a simple means of spreading risk and providing indemnity based on the promises made by the contract of insurance. But, in this the real world, insurance contracts are controlled by statutes enacted to ostensibly protect the consumer of insurance, regulations imposing obligations on the conduct of insurers and the decisions of trial and appellate courts interpreting insurance contracts.

A simple insurance contract between two parties might say: “I insure you against the risk of loss of your engagement ring valued at $15,000 by all risks of direct physical loss except wear and tear for a premium paid by you of $15.00.” Anyone who could read would understand that contract. If something happens to damage, destroy or lose the ring the insurer will pay you $15,000.00. However, insurers cannot write such a simple contract because the state requires many terms and conditions that complicate the policy wording and confuse the common person. The states and courts that did so had nothing but good intentions to protect the consumer against the insurer and control the actions of the insurer.

The tort of bad faith was created because courts felt that insurers treated their insureds badly and defeated the purpose for which insurance is acquired. It has served its purpose. Fair Claims Settlement Practices laws and regulations are now available to control insurers who do not act in good faith. Insurance fraud statutes and Regulations provide assistance to insurers who have been deceived by those they insure or who are victims of attempted insurance fraud.

It is time that all contracts, including insurance contracts, are treated like any other contract, and insureds who believe the insurer breached the contract of insurance can sue to recover the benefits promised by the policy.

Available as a paperback here.  Available as a Kindle book here.

Insurance Fraud Costs Everyone

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

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

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

This book started as a collection of columns I wrote and published in the magazines “Insurance Journal,” “Insurance Week,” and “The John Cooke Insurance Fraud Report” insurance trade publications serving the insurance community in the United States. Since the last edition I have added more stories that were published in my twice monthly newsletter, Zalma’s Insurance Fraud Letter which is available free to anyone who clicks the links.

Available as a Kindle Book and Available as a Paperback from Amazon.com.

“Getting the Whole Truth: Interviewing Techniques for the Lawyer”

by Barry Zalma, Esq., CFE

Learn techniques that can help you interact with others and effectively gather the facts you need.

The purpose of an interview is to uncover the truth; the method of uncovering the truth is the art of the interview. Obtaining sufficient relevant information is imperative in everything a lawyer does to protect the interests of the client, yet interviewing techniques are not emphasized in law school training.

Getting the Whole Truth teaches lawyers–from novices meeting their first clients to experienced trial lawyers–effective methods of obtaining information by human interaction. No matter from whom you are seeking information or what your reason for desiring it, these techniques can help you meet and interact with others and effectively gather the facts you need.

$59 NON-MEMBERS, $44 MEMBERS

The Insurance Examination Under Oath Second Edition

A Tool Available to Insurers to Thoroughly Investigate Claims and Work to Defeat Fraud

A Tool Available to Insurers to Thoroughly Investigate Claims and Work to Defeat Fraud.

The insurance Examination Under Oath (“EUO”) is a formal type of interview authorized by an insurance contract. It is taken under the authority provided by the agreement of the insurer, when he, she or it acquires a policy of insurance, to submit to a condition of the insurance contract that compels the insured to appear and give sworn testimony at the demand of the insurer. Failure to appear and testify is considered a breach of a material condition.

The EUO is conducted before a notary and a certified shorthand reporter who is present to give the oath to the person interviewed. The reporter will record the entire conversation and prepare a transcript to be read, reviewed, corrected and signed by the witness under penalty of perjury or by an oath taken before a notary or judge.

The EUO is a tool only sparingly used by insurers in the United States. A professional insurer will only require an insured to submit to an EUO when a thorough claims investigation raises questions:.about the application of the coverage to the facts of the loss, the potentiality that a fraud is being attempted, or to assist the insured in the obligation to prove to the insurer the cause and amount of loss.

Although seldom used the EUO is an important tool needed by insurers when there is a question of coverage, destruction of evidence needed to prove a compensable loss or the amount of loss or evidence indicating the potential that a fraud is being attempted.The EUO and Legal Action provisions in an insurance policy are conditions precedent to an insured’s ability to file suit, and that since the insured failed to substantially comply with the terms of those provisions, the appropriate remedy is dismissal without prejudice. The insured’s failure to comply with these conditions does not bar his ability to bring suit to recover, but merely suspends his ability to bring suit until he has fully complied with those conditions.

Available as a paperback here   Available as a Kindle book here

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A Video Explaining Some “Hard Fraud”

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Hard Fraud is a Crime

See the full video at https://rumble.com/vftjrz-a-video-explaining-some-hard-fraud.html  and at https://youtu.be/-tySYDbnp24

The following types of fraud are premeditated and intentionally committed.  Those who differentiate between types of fraud would place these in the category of “hard fraud,” which is considered more egregious than “soft fraud” since it is performed with malice aforethought.

Hard fraud takes planning, scheming, and even someone on the inside to help you get money from an insurance company. An example of hard fraud would be getting into an accident on purpose so that you can claim the insurance money. This example is fairly prevalent lately; someone hits the brakes so that the person behind them can’t stop quickly enough.

Another really severe form of hard fraud would be faking your own death or murder for the life insurance death benefit.

The following types of fraud are premeditated and intentionally committed. Those who differentiate between types of fraud would place these in the category of “hard fraud,” which is considered more egregious than “soft fraud” since it is performed with malice aforethought.

Hard fraud takes planning, scheming, and even someone on the inside to help you get money from an insurance company. An example of hard fraud would be getting into an accident on purpose so that you can claim the insurance money. This example is fairly prevalent lately; someone hits the brakes so that the person behind them can’t stop quickly enough.

Abandonment:

The owner abandons a vehicle on a city street or in a parking lot, creating a morale hazard. The insured will report the vehicle stolen and attempt to collect before it is recovered.

Dumping:

When the owner disposes of a vehicle by dumping it into a lake or other body of water.  Cars have even been found buried underground and some lakes have been found to have more than 50 cars underwater.

False registration; Exaggerated Repair Costs After A Car Accident; Fires to Avoid Lease Payments; Arson for Profit


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/

 

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When You Do the Crime & Only Get Probation it is not Wise to Commit a New Crime

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Probation for Insurance Fraud Proves Futile

Hassan Wilcox, appealed from the judgment of sentence of an aggregate term of 2-4 years’ incarceration, followed by one year of probation, imposed after the trial court revoked his probation. In Commonwealth Of Pennsylvania v. Hassan Wilcox, J-S02011-21, No. 1121 EDA 2020, Superior Court Of Pennsylvania (APRIL 16, 2021) Appellant argued that the evidence introduced at the probation revocation hearing was insufficient to establish a technical violation by a preponderance of the evidence.

THE CLAIMS ON APPEAL

Wilcox claimed that whether the lower court abused its discretion by imposing a concurrent sentence of two to four years state incarceration, plus one year of probation, on the counts of insurance fraud and conspiracy, a manifestly excessive violation of probation sentence for a technical violation of probation.

Wilcox says that his actions have not shown that probation has been an ineffective vehicle to accomplish rehabilitation and not sufficient to deter against future antisocial conduct. He asked the Superior Court to reverse the revocation, contending that the evidence, specifically relating to the incident where he took personal items from a woman he had been driving in a hack/taxi, is so tenuous as to connect him with criminal activity. Where a probation revocation is based on evidence that so tenuously connects an appellant to criminal activity, a probation revocation is not predicated upon evidence of sufficient probative value’ and must be vacated.

No relief is due on this basis. Trial Judge Coyle’s opinion accurately and thoroughly disposes of the sufficiency claim raised by Appellant.

ANALYSIS

A challenge to an alleged excessive sentence is a challenge to the discretionary aspects of a sentence. However, before reaching the merits of this issue, we must determine if Appellant has preserved it for our review. Issues challenging the discretionary aspects of a sentence must be raised in a post-sentence motion or by presenting the claim to the trial court during the sentencing proceedings. Absent such efforts, an objection to a discretionary aspect of a sentence is waived. Here, Appellant only stated in his post-sentence motion that the sentence was excessive, and provided no further elaboration.

There was no consideration of Appellant’s being referred to the rehabilitative services of the probation department, such as referrals for drug treatment, employment, and anger management — is raised for the first time on appeal. It was therefore waived. Nevertheless, even if not waived, the appellate court would ascertain no abuse of discretion by the trial court in sentencing.

When reviewing sentencing matters, it is well-settled that an appellate court must accord the sentencing court great weight as it is in the best position to view the defendant’s character, displays of remorse, defiance or indifference, and the overall effect and nature of the crime.

An appellate court will not disturb the lower court’s judgment absent a manifest abuse of discretion. In order to constitute an abuse of discretion, a sentence must either exceed the statutory limits or be so manifestly excessive as to constitute an abuse of discretion. Further, a sentence should not be disturbed where it is evident that the sentencing court was aware of sentencing considerations and weighed the considerations in a meaningful fashion.

As a threshold matter, a sentencing court may select one or more options with regard to determining the appropriate sentence to be imposed upon a defendant. These options include probation, guilt without further penalty, partial confinement, and total confinement. In making this selection, the Sentencing Code offers general standards with respect to the imposition of sentence which require the sentence to be consistent with the protection of the public, the gravity of the offense as it relates to the impact on the life of the victim and on the community, and the rehabilitative needs of the defendant. Sentencing is individualized; yet, the statute is clear that the court must also consider the sentencing guidelines adopted by the Pennsylvania Commission on Sentencing.

In considering an appeal from a sentence imposed following the revocation of probation, the court’s review is limited to determining the validity of the probation revocation proceedings and the authority of the sentencing court to consider the same sentencing alternatives that it had at the time of the initial sentencing. Revocation of a probation sentence is a matter committed to the sound discretion of the trial court and that court’s decision will not be disturbed on appeal in the absence of an error of law or an abuse of discretion.

It is the law of Pennsylvania that once probation has been revoked, a sentence of total confinement may be imposed if any of the following conditions exist in accordance with Section 9771(c) of the Sentencing Code: (1) the defendant has been convicted of another crime; or (2) the conduct of the defendant indicates that it is likely that he will commit another crime if he is not imprisoned; or (3) such a sentence is essential to vindicate the authority of the court.

The Commonwealth establishes a probation violation meriting revocation when it shows, by a preponderance of the evidence, that the probationer’s conduct violated the terms and conditions of his probation, and that probation has proven an ineffective rehabilitation tool incapable of deterring probationer from future antisocial conduct. It is only when it becomes apparent that the probationary order is not serving this desired end of rehabilitation the court’s discretion to impose a more appropriate sanction should not be fettered.

Judge Coyle determined that “Appellant had amply established that probation had been a futile rehabilitative vehicle. Zero deterrence of his anti-social and criminal conduct had resulted.” She also stated that she “had thoroughly considered Appellant’s family and community ties, as well as his rehabilitative needs when determining an appropriate sentence. Accordingly, even if Appellant’s sentencing argument was properly preserved the judgment of sentence was needed to be, and was, affirmed.

ZALMA OPINION

The kindness of the court after convicting Wilcox of Insurance Fraud allowing him to avoid jail and be placed on probation, was rewarded with an assault on an innocent person riding in his cab, resulted in revocation of his probation. He had the unmitigated gall – chutzpah – to seek further probation only to have the trial court properly conclude that probation was, as to Wilcox, a “futile rehabilitative vehicle.” He will serve his time in jail.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/

 

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A Video Explaining the Relationship Between the Insurer and Defense Counsel

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Lawyers & Adjusters Must Work Together

See the full video at https://rumble.com/vfq905-a-video-explaining-the-relationship-between-the-insurer-and-defense-counsel.html  and at https://youtu.be/Jz8SZFYqTwE

Defense Counsel

Whenever an insured is sued and requires a defense or the insurer is sued, the insurance adjuster and the defense attorney must understand their respective roles in preparing the case for trial. They must develop a rapport with each other and with the insured person or entity that is being defended, to make communication easier to maintain. Bad faith lawsuits and poorly tried bodily injury cases seem to arise when the adjuster and the defense attorney fail to communicate regularly with each other and the policy holder.

At the first meeting, the attorney and the adjuster should agree on the division of labor with regard to the preparation of the case, according to their respective training and experience. Counsel and the claims person should reach an agreement regarding the handling of the case.

Challenges to Use of in House Counsel

Defense counsel are sometimes employees of the insurance company. Some attorneys have challenged the use of in-house counsel on the ground that the insurer, as an employer of attorneys, is not licensed to practice law. They claimed that the insurer was engaged in the unauthorized practice of law—a crime. Attorneys in Texas convinced a trial court on the issue but the decision was reversed on appeal.

Attorneys have also raised challenges against house counsel because the employee attorney is alleged to be serving two different masters. As an employee of the insurer (it is alleged) the attorney cannot do justice to both his client, the insured, and his employer, the insurer.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/

 

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Insurance Benefits Not Available to Remodel Fixer Upper

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Misrepresentation at time of Application is Defense to Multiple Claims

Amy Powell appealed the district court’s order granting summary judgment in favor of USAA Casualty Insurance Co., on Powell’s claims for breach of insurance contract and for violations of the Insurance Code. Powell contends that summary judgment was improper because (1) USAA did not move for summary judgment on a ground stated in its letters rejecting her insurance claims as required by the Insurance Code, and (2) genuine issues of material fact exist regarding her breach of contract claims. In Amy Powell v. USAA Casualty Insurance Co., NO. 01-19-00308-CV, Court of Appeals For The First District of Texas (April 15, 2021) a Texas Court of Appeal was asked to provide her coverage for multiple losses.

BACKGROUND

In 2010, Powell bought a house in Houston. She moved into the house shortly after buying it, and it is her primary residence. The house was in disrepair when Powell bought it, however, and she agreed as part of the purchase to make repairs to it. She testified that she spent at least $100,000 repairing the pool, fence, air conditioner, plumbing, roof leaks, and broken windows and doors. But Powell did not replace the roof, and she estimated that the previous owner had replaced it after a fire sometime before she bought the house.

POWELL’S USAA HOMEOWNER’S POLICIES

Powell obtained three homeowner’s policies from USAA insuring her house between 2014 and 2016. The first policy issued in August 2014, but it was cancelled in May 2015. The second policy issued in September 2015, but it was cancelled on March 11, 2016. USAA issued a third policy on April 5, 2016, effective for one year.

The policy beginning April 5, 2016, which is the only policy in the record on appeal. The policy expressly excludes the following from coverage: “Unless otherwise stated … we do not insure for damage consisting of or caused directly or indirectly by any of the following[:] * * * * f. Wear and tear, marring, deterioration; * * * * m. Vermin meaning animals, other than l. above, that access real or personal property for foraging and shelter and by their presence cause damage to such property. . . .

POWELL’S CLAIMS UNDER THE USAA POLICY

On April 17 and 18, 2016, Houston flooded in the Tax Day Floods. Powell filed a claim with the Federal Emergency Management Agency (FEMA) for flood damage to her home and personal property. FEMA approved Powell’s claim and paid her $13,954.13 to repair flood damage in several rooms in her house, and $947.48 for flood damage to her personal property.

On June 14, 2016, Powell filed a claim with USAA for damage to the interior of her home from an air conditioning leak and a washing machine that overflowed. Powell hired a remediation company to dry the water from the washing machine overflow. According to USAA’s claim notes, the remediation company found water damage due to a leaking drip pan under the air conditioning unit. The remediator also stated that wind blew tree limbs onto the roof, causing water damage to various ceilings in Powell’s home. The remediator also stated that there was minor damage from the Tax Day Floods, which FEMA had already covered.

USAA also hired Stephens Engineering Consultants, Inc. (SEC), to inspect Powell’s claimed damage and to “determine the origin and cause of [the] purported damage, if any, and determine if the damage was the result of water intrusion.” SEC issued a ten-page report. The report included weather data showing that hail one inch in diameter fell at Powell’s house for more than twenty minutes on April 17, 2016. SEC inspected Powell’s roof for indications of hail and found “[a]pproximately 1/4-inch spatter marks with no corresponding indentations or areas of granule loss . . . on the roof shingles[.]”

On August 8, 2016, USAA’s adjuster inspected Powell’s property a second time. According to USAA’s claim notes, Powell made comments during the inspection that raised concerns that she may have misrepresented the condition of her house when applying for the USAA policy and when her claimed damage occurred. Based on these concerns, Powell’s claims were referred to USAA’s internal investigation unit. USAA’s investigator hired a third-party to obtain a statement from Powell.

USAA’s investigator also hired outside legal counsel to examine Powell under oath and to issue a legal opinion regarding coverage. According to the opinion, which is dated March 6, 2017, Powell had to confirm that her home had no unrepaired damage in April 2016 when she applied for the policy. Moreover, the policy effective April 2016 upgraded the quality of the roof and listed the date of its most recent replacement as 2011, whereas the prior policies listed this date as 2009.

The legal opinion obtained by USAA relied on SEC’s report that Powell’s roof damage was caused by wear and tear and maintenance issues, not wind or hail, and that her personal property damages were caused by marred vent pipe flashing in the roof. In three letters dated March 30, 2017, USAA rejected each of Powell’s claims. Each letter provided an identical claim decision: “USAA CIC has determined that you misrepresented and concealed facts in the presentation of this claim. As a result, your claim for [sic] is denied.”

All three rejection letters also stated that, when applying for the policy, Powell confirmed there was no unrepaired damage to her house on April 5, 2016, and that the quality and age of the roof was upgraded in the most recent policy application as discussed above.

POWELL’S LAWSUIT AGAINST USAA

Powell sued USAA, asserting claims for breach of contract and violations of the Insurance Code. USAA filed a traditional and no evidence motion for summary judgment. USAA also relied on two depositions of Powell: one from a prior lawsuit and one in the underlying proceedings. She acknowledged that she also sustained flood damage, but FEMA covered some exterior damage and damage to a sunken den. She saw mold begin to form after the flood damage, but she had not made any efforts to remediate the mold due to a lack of financial resources.

The trial court granted USAA’s motion for summary judgment and dismissed Powell’s claims with prejudice.

Breach of Contract

In the context of an insurance policy, a plaintiff must prove the existence of a valid insurance policy covering the denied claim and entitlement to money damages on that claim. The insured bears the initial burden to establish coverage under the policy. If the insured meets her initial burden, the insurer must then prove that one of the policy’s exclusions applies in order to avoid liability. If the insurer shows that a policy exclusion applies, the burden shifts back to the insured to establish that an exception to the exclusion restores coverage.

The relevant section of the USAA policy, Section I, states: “We insure against ‘sudden and accidental’, direct, physical loss to tangible property described in PROPERTY WE COVER—COVERAGES A AND B [the dwelling and other structures] unless excluded in Section I—LOSSES WE DO NOT COVER.”

The USAA policy uses the term “physical loss” and provides that the policy applies only to a loss which “occurs during the policy period.” No ambiguity exists in the policy and that the only reasonable interpretation of the policy is that it covers a loss that actually “occurs during the policy period,” not an earlier loss that manifests during the policy period.

USAA’s claim notes show that it also received an additional inventory of claimed property damage in March. USAA rejected Powell’s claims on March 30. Powell did not raise a genuine issue of material fact on her claims that USAA violated the Insurance Code.

ZALMA OPINION

Insurance is an indemnity contract. It is not a means of fixing up a deteriorated fixer upper house. Most of the damage done to Powell’s house – that was vacant for two years before she bought it – and was in a deteriorated condition when she bought it, obtained help from FEMA after a flood, did little or no repair and then attempted to get more benefits from USAA to repair pre-existing damage, damages caused by excluded causes, and misrepresented the condition of the property at the time of the application for insurance. It is not nice, and defeats a claim, when you lie to get insurance.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/

 

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A Video Explaining Settlements & the Ethical Burden of Attorneys

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A Lawyer May Never Lie to a Judge but May Engage in Puffing to Adversaries

See the full video at https://rumble.com/vfp37f-a-video-explaining-settlements-and-the-ethical-burden-of-attorneys.html and a  https://youtu.be/WrffMZffkP4

Settlements of litigation, whether funded by insurance or not, raise ethical issues that all parties and their attorneys must deal with before the settlement is effected. The decision to settle belongs to the plaintiff. This is especially important in cases with multiple parties and multiple attorneys.

The Third US Circuit Court of Appeals revived a proposed class action suit against a group of attorneys from southern states brought by more than 2,600 former clients from northern states who say they were cheated out of their fair share of $400 million in asbestos personal injury settlements in the Mississippi state courts when the attorneys gave larger payouts to southern plaintiffs. The northern plaintiffs claimed that their share was reduced because the southern attorneys wanted to allocate a greater percentage of aggregate settlements to southerners in order to minimize the percentages paid to the northern plaintiffs’ local counsel.

Attempts by States to Impose Stale Liabilities on Insurers

In Movsesian v. Versicherung, 578 F.3d 1052, 1053 (9th Cir. 2009), the Ninth Circuit Court of Appeals concluded that Section 354.4 of the California Code of Civil Procedure, which was written to extend the statute of limitations until 2010 for claims arising out of life insurance policies issued to Armenian Genocide victims, [The statute identified “Armenian Genocide victim” as “any person of Armenian or other ancestry living in the Ottoman Empire during the period of 1915 to 1923, inclusive, who died, was deported, or escaped to avoid persecution during that period.”] interfered with the national government’s conduct of foreign relations. The district court’s order denying the Rule 12(b)(6) motion to dismiss was reversed and the case remanded to the district court to dismiss the suit.

 


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/

 

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Class Action Covid 19 Case Fails for Lack of Direct Physical Damage

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No Matter How Many Times they Try Courts Find Direct Physical Loss is Required

Caribe Restaurant & Nightclub, Inc. (“Caribe”) initiated a class action against Defendant Topa Insurance Company (“Topa”) alleging breach of contract and seeking declaratory judgment for insurance coverage. The USDC ruled on a Covid 19 business interruption claim in Caribe Restaurant & Nightclub, Inc., individually and on behalf of all others similarly situated v. Topa Insurance Company, Case No. 2:20-cv-03570-ODW (MRWx), United States District Court Central District of California (April 9, 2021) as have almost every court in the country.

BACKGROUND

Caribe owns and operates La Luz Ultralounge (“La Luz”), a restaurant and nightclub located in Bonita, California. Caribe purchased an insurance policy (“Policy”) from Topa for the policy period of May 18, 2019, through May 18, 2020.

In March 2020, due to the COVID-19 pandemic, the State of California and County of San Diego ordered “the closure of bars” and “bann[ed] onsite dining.” In May 2020, San Diego County “permitted the resumption of onsite dining” subject to restrictions. Caribe alleged that, as a result of these civil authority orders, it was forced to “suspend or reduce business” at La Luz. Caribe also alleges that COVID-19 “impaired Caribe’s property by making it unusable in the way that it had been used before.”

Caribe alleges that its losses are covered under the Policy and identifies four specific provisions: “Business Income”; “Extra Expense”; “Civil Authority”; and “Duties in the Event of Loss” (referred to as the “Sue and Labor” provision). Caribe filed claims for coverage under these provisions, which Topa denied. Accordingly, Caribe commenced this litigation against Topa asserting that denial of coverage was a breach of contract and seeking declaratory judgment.

DISCUSSION

Topa argued the Policy provisions Caribe cites provide coverage only for “direct physical loss of or damage to” Caribe’s property and Caribe cannot recover under any of these provisions because it fails to allege “any ‘direct physical loss’ of or damage to” the insured premises. Caribe, on the other hand, insists that it has sustained “direct physical loss” of its property because it was “forced to suspend or reduce business at its location due to COVID-19” and the resultant safety orders.

Every Policy provision at issue contains language conditioning recovery on physical loss or damage to the property. Indeed, the Business Income provision states that coverage is contingent on “the necessary ‘suspension’ of [business] ‘operations'” caused by “direct physical loss of or damage to [the insured] property.”  Thus, the question before the USDC became whether Caribe has alleged “physical loss or damage” sufficient to trigger coverage under one of these provisions.

Under California law, losses from inability to use property do not amount to direct physical loss of or damage to property within the ordinary and popular meaning of that phrase. Further, only a “distinct, demonstrable, physical alteration” of property will amount to physical loss or damage that may trigger coverage. MRI Healthcare Ctr. of Glendale, Inc. v. State Farm Gen. Ins. Co., 187 Cal. App. 4th 766, 779 (2010). Detrimental economic impact alone is insufficient. Several courts in this jurisdiction have recently considered cases with facts nearly identical to this one, and these courts have reached a consensus — where an insurance policy conditions recovery on “direct physical loss or damage,” economic business impairments caused by COVID-19 safety orders do not fall within the scope of coverage.

The Policy provisions on which Caribe relies clearly condition recovery on physical loss or damage to the insured premises. Caribe alleges only that COVID-19 restrictions have prevented it from using its property for normal business operations which it claims is direct physical damage.  However, Caribe did not sufficiently allege direct physical loss or damage such as would trigger coverage. Therefore, Caribe’s failure to allege direct physical loss or damage forecloses its claim to coverage under the Policy.

Nevertheless, Caribe contends “direct physical loss” should be read to encompass the type of economic business impairments it has suffered. Even if the Policy covered permanent dispossession, which it does not, Caribe has not alleged permanent dispossession, nor could it, as COVID-19 safety orders only temporarily restricted Caribe’s use of its premises.

While the Court was sympathetic that Caribe is suffering economically from the unprecedented COVID-19 pandemic, an economic business impairment does not qualify as a physical loss or damage to the premises.

Because Caribe did not allege direct physical loss or damage, its claims were not covered and its causes of action for breach of contract and declaratory judgment fail. Therefore, the Court granted Topa’s Motion to Dismiss without leave to amend.

ZALMA OPINION

Insurance is nothing more than a contract whose terms and conditions must be enforced as written if they are unambiguous. Losing money is a real loss. When the plaintiff loses money due to an act that did not do any direct physical loss or damage, no promise made by the policy to provide indemnity to the insured was implicated. As sad as the losses are a court has no right to, nor will it, change the wording of the policy. The damage done to Caribe and those similarly situated was done by the state of California. Failing to obtain insurance benefits perhaps some creative lawyer will find a way to sue the state for its wrongful and allegedly unconstitutional orders depriving Caribe of the right to do business.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/

 

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LAW STREET MEDIA PUBLISHES VIEWPOINT ARTICLES BY BARRY ZALMA

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VIEWPOINTS

I am honored that two of my articles have been published by Lawstreetmedia’s Viewpoints site. You can read:

Crop Insurance Fraud

https://lawstreetmedia.com/viewpoints/viewpoints-crop-insurance-fraud/

 

Flood Insurance Policy Must Be Strictly Construed

https://lawstreetmedia.com/viewpoints/viewpoints-flood-insurance-policy-must-be-strictly-construed/

Law Street Media aims to revolutionize legal news by providing smart, accessible, and practical content in a modern way. Using the latest in research and analytics tools, our content is ahead of the curve and enriched with the latest insights – and we’re just getting started. https://lawstreetmedia.com/about/


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/

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A Video from Zalma’s Insurance Fraud Letter – April 15, 2021

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ZIFL 4/15/2021

Zalma’s Insurance Fraud Letter, in its 25th year is free to anyone who subscribes or goes to the Mr. Zalma’s Website where you can Subscribe to e-mail Version of ZIFL, it’s Free!  Read last two issues of ZIFL  here. Go to the Barry Zalma, Inc. web site here Videos from “Barry Zalma on YouTube”   Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

See the full video at https://rumble.com/vfnvcj-a-video-from-zalmas-insurance-fraud-letter-april-15-2021.html and at https://youtu.be/zHkVc_ozTqs

Read the full issue of ZIFL at https://lnkd.in/dfGQHC3 and at https://lnkd.in/gfZwXxi

There can Never be a Fraud Too Small to Void a Policy

Material Misrepresentation Concerning the Extent of Loss Voids Policy

After the district court ruled for the defendant insurance company on cross-motions for summary judgment, ending the action, the plaintiff appealed that summary-judgment ruling. In Meat Town Inc. v. Sentinel Insurance Company, Case No. 19-2351, United States Court of Appeals for The Sixth Circuit (March 30, 2021) was asked to find the fraud wasn’t big enough to stop the insured from collecting the remainder of its loss.

Two Types of Soft Fraud that are Ignored

“GOOD CAUSE” FRAUD

Morally and criminally, insurance fraud is always wrongful. Many people, within the insurance industry and outside it, believe that because insurers are so well funded that there are good causes for committing insurance fraud. A frightening trend is emerging where judges, jurors and administrative law courts are refusing to convict or hold responsible perpetrators of fraud if the court is convinced that the fraud is for a good cause.

Good News From the Coalition Against Insurance Fraud

Health Insurance Fraud Convictions

Criminal Must Pay Restitution Order

Mr. Speights was a very bad man who pled guilty to multiple criminal acts causing damage to the victims. Ohio has logically stated that a crime victim who is reimbursed by an insurer for its losses should not receive restitution. What they fail to understand is that, if the losses are insured, then the insurer is the victim and entitled to any payment of restitution since, allowing an insured to receive indemnity from its insurer and restitution would unjustly enrich the victim who should turn over anything received to its insurer.

Other Insurance Fraud Convictions


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/

Posted in Zalma on Insurance | Leave a comment

A Video Explaining the Equitable Remedy of Salvage

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How to Determine the Priority of Rights to Salvage

See the full video at https://rumble.com/vfmqk7-a-video-explaining-the-equitable-remedy-of-salvage.html and at https://youtu.be/9HwucSSYDYs

One case involved a dispute among three groups of divers for the right to salvage silver from the cargo of a ship sunk and for the title to whatever silver is recovered. In resolving the problem, the court considered the common law of finds that treats property that is abandoned as returned to the state of nature and thus equivalent to property, such as fish or ocean plants, with no prior owner.

The first person to reduce such property to “possession,” either actual or constructive, becomes its owner. [R. Brown, The Law of Personal Property 15 (2d ed. 1955) as cited in Hener v. United States, 525 F. Supp. 350 (S.D.N.Y. 10/15/1981).] A mere “searcher” has no rights in abandoned property even if he succeeds in locating it; in particular, he has no right to exclude others from the attempt to recover it. Any competing searcher is entitled to enter the area where the abandoned property is and to seek to reduce it to his possession, as long as he or she acts without infringing on the concurrent rights of other searchers.

The opinion in Eads v. Brazelton, 22 Ark. 499 (1861) comprehensively sets out the law of finds. It refers to, and relies on, a broad range of authorities for its conclusions, and its premise that a finding requires both intent and some form of possession remains accurate. In Eads, for example, had Brazelton placed his boat over the wreck with the means to raise its valuables, and had he persisted in “efforts directed to raising the lead,” his conduct would have constituted “the only effectual guard over it” and thus a judicially recognizable warning that other “longing occupants” would have been obliged to regard.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/

Posted in Zalma on Insurance | Leave a comment

Criminal Must Pay Restitution Order

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Insurance Recovery by Victim of Crime is not Entitled to Restitution

Lamar Speights appealed the trial court’s restitution order. He contends that the trial court erred in ordering him to pay $299,337.83 in restitution because, among other things, the trial court failed to inquire about “obvious” insurance coverage prior to ordering restitution. In State Of Ohio v. Lamar Speights, No. 109733, 2021 Ohio 1194 Court Of Appeals Of Ohio Eighth Appellate District County Of Cuyahoga (April 8, 2021) the Court of Appeals ruled in favor of the state.

FACTUAL BACKGROUND

On January 13, 2017, a Cuyahoga County Grand Jury indicted Speights and 11 other defendants on numerous counts related to a series of ATM “smash and grab” thefts. Speights was charged in 71 counts relating to 10 separate incidents.

On February 5, 2019, Speights pled guilty to 17 counts — one count of engaging in a pattern of corrupt activity, four counts of aggravated burglary, one count of attempted aggravated burglary, one count of failure to comply, seven counts of receiving stolen property and three counts of breaking and entering. These counts related to Speights’ role in eight different ATM “smash and grabs.” Speights also agreed to a recommended aggregate sentence of between 13 and 17 years. In exchange for his guilty pleas, the remaining counts were dismissed.

The victims 7-Eleven, Rite Aid, LoanMax, Drug Mart, Cardtronics, and Carroll Companies for whom the state sought restitution. The parties agreed that the amount of any restitution would be determined by the trial court at the sentencing hearing.

At or prior to the sentencing hearing, the state submitted a “restitution packet.” The packet was broken down into eight tabbed sections. Each section corresponded to an ATM theft with respect to which Speights had entered guilty pleas. The packet included a chart that identified the date, location, victim(s) and total losses sustained in connection with each of the ATM thefts and the specific counts to which Speights had pled guilty that related to each ATM theft. The tabbed sections contained invoices, repair estimates, portions of police reports, correspondence from victims, photographs and other documentation detailing the property damage and other losses claimed by the victims in each of the incidents, totaling $299,337.83.

On March 4, 2019, the trial court sentenced Speights to an aggregate prison sentence of 16 years. It imposed five years’ mandatory post-release control and ordered Speights to pay $299,337.83 in restitution, joint and several with his codefendants.

After the trial court imposed its sentence, defense counsel stated: “[A]t this point, Mr. Speights is in agreement with the restitution amount.”

LAW AND ANALYSIS

Speights argued that the restitution ordered by the trial court should be vacated or reduced because (1) there was no competent, credible evidence of the victims’ economic losses, (2) there was no competent, credible evidence that Speights caused these losses and (3) the trial court failed to inquire about “obvious” insurance coverage prior to ordering restitution.

A trial court may order restitution to the victim of the offender’s crime or any survivor of the victim in an amount that does not exceed the amount of the economic loss suffered by the victim as a direct and proximate result of the commission of the offense. The court may base the amount of restitution imposed on an amount recommended by the victim, the offender, a presentence investigation report, estimates or receipts indicating the cost of repairing or replacing property, and other information. The amount of the restitution imposed must be supported by competent, credible evidence from which the court can discern the amount of the restitution to a reasonable degree of certainty.

Speights did not object to the trial court’s restitution order at the sentencing hearing. Where a defendant fails to object to an order of restitution or the amount of restitution below, the defendant forfeits all but plain error. The party asserting plain error bears the burden of proof to demonstrate plain error on the record.

Speights, however, has not even asserted that plain error exists except with respect to the trial court’s alleged failure to inquire and reduce the restitution amount by any insurance proceeds covering the victims’ losses. Evidence of a victim’s claimed losses is not required to support an order of restitution where the amount of restitution is not disputed.

The state presented competent, credible evidence from which the trial court could discern both the amount of restitution to a reasonable degree of certainty and that the losses for which restitution was ordered were a direct and proximate result of the commission of offenses to which Speights pled guilty. The damages and losses resulting from each of the ATM thefts at issue were linked to the specific counts to which Speights pled guilty.

Speights surmised that because a number of the victims to which restitution was ordered were large, national corporations, “it was likely” that at least some portion of the victims’ damages and losses would have been covered by insurance. If a victim has insurance that reimbursed the victim for a loss that occurred as a result of an offender’s criminal conduct, in Ohio, the victim has not suffered an economic loss for the purposes of imposing restitution. There was, however, nothing in the record indicating that any of victims had insurance coverage that might cover all or part of the damages or losses at issue.

ZALMA OPINION

Mr. Speights was a very bad man who pled guilty to multiple criminal acts causing damage to the victims. Ohio has logically stated that a crime victim who is reimbursed by an insurer for its losses should not receive restitution. What they fail to understand is that, if the losses are insured, then the insurer is the victim and entitled to any payment of restitution since, allowing an insured to receive indemnity from its insurer and restitution would unjustly enrich the victim who should turn over anything received to its insurer. Every insurer should instruct courts that they are also “victims” and entitled to restitution.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/

 

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A Video Explaining Negotiation of Settlement of a First Party Property Claim

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It is the Obligation of the Adjuster to Negotiate Settlement with Insured

See the full video at https://rumble.com/vflso5-a-video-explaining-negotiation-of-settlement-of-a-first-party-property-clai.html and at https://youtu.be/JpnTWlQWdkQ

After the adjuster has completed the bid comparison and established the objective amount of the loss, he or she should meet with the insured and present each of the estimates and the bid comparison. The adjuster will then advise the insured that the settlement of the building or structure loss will be based on the objective value of the loss determined by the bid comparison.

The decision on which contractor to use is always made by the insured not the insurer. The insured may believe he knows someone who can do the work better or who, from experience, the insured knows will satisfy him, and will accept the dollar amount offered by the insurer.

The adjuster should never demand that a particular contractor be used since the insurer is only obligated to pay indemnity, not to reconstruct a building.

Building, Contents and Guaranteed Replacement Cost


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/

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Insurer Wins Some, Loses Some, and Avoids Bad Faith

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A Reasonable Dispute of Facts Concerning Coverage is not Bad Faith

USAA General Indemnity Company and the plaintiff, Bobby Fuentes, in his capacity as Administrator of the Estate of Alejandro Santos, decedent, (“Santos”), both moved for summary judgment based on disputed facts concerning the residence of the decedent. In Bobby Fuentes, Administrator Of the Estate of Alejandro Santos v. USAA General Idemnity Co., Civil Action No. 3:19-1111, United States District Court Middle District Of Pennsylvania (April 1, 2021) Fuentes presented a claim for underinsured motorist (“UIM”) benefits with defendant seeking coverage related to Santos’ fatal accident and the parties basically dispute whether Santos qualifies as an insured “family member” under the insurance policy defendant issued to plaintiff.

FACTUAL BACKGROUND

This case arises from a tragic car accident that occurred on December 25, 2015. Santos was a passenger in an automobile driven by Alaysia English. Santos owned the automobile English was driving and it was insured by Garrison Insurance Company. Frank May was operating a motor vehicle traveling eastbound on Long Pond Road. Plaintiff alleges that May and English operated their vehicles in “negligent, reckless and careless manners that resulted in a violent collision between the vehicles. As a result of the accident, Santos suffered fatal injuries and was pronounced dead in the evening of December 25, 2015.

The plaintiff was covered by an automobile insurance policy (the “Policy”), issued by the defendant USAA. The Policy had underinsured motorist (UIM) coverage limits of $100,000.00 per person and $300,000.00 per accident. May was uninsured at the time of the accident. Santos’ car that English was driving had $15,000 in liability coverage under his Garrison policy, which was separate from plaintiff’s Policy. On May 30, 2017, Garrison tendered to plaintiff the full amount of the limits on the policy issued to Santos.

Plaintiff made an UIM claim with the defendant under his Policy because he alleged that Santos’ damages exceeded the $15,000 policy limits on the Garrison policy issued to Santos. Plaintiff alleged that Santos was an insured family member under his Policy and entitled to UIM coverage at the time of the accident since he was living in the plaintiff’s household. In particular, plaintiff was married to Santos’ mother and Santos was plaintiff’s stepson.

Prior to the accident, in September 2015, plaintiff Fuentes directed defendant to remove Santos as a listed driver on his Policy. Before the accident, and after plaintiff had removed Santos as a listed driver on his Policy, Santos purchased a 2011 Chevrolet Cruze in October 2015. Santos then obtained his own Pennsylvania Auto Policy with Garrison Property and Casualty Insurance Company (“Garrison”), and his policy listed the Cruze as the insured vehicle. The policy indicated that Santos’ address was 345 Coach Road, Tobyhanna, Pennsylvania. The full amount of coverage was tendered to plaintiff by Garrison with respect to plaintiff’s first-tier UM claim under Santos’ auto Policy but plaintiff alleges that this was inadequate to cover the losses suffered by Santos.

With respect to plaintiff’s UIM claim on behalf of Santos Estate under his Policy, while investigating the claim, defendant identified a coverage issue, i.e., whether Santos resided primarily in the plaintiff’s household at the time of the accident. USAA issued a Reservation of Rights to plaintiff and informed him that it had identified coverage issues that it was investigating. Defendant indicated that it did not have sufficient information to confirm that Santos was covered by plaintiff’s Policy. Thus, defendant requested information regarding the issue of whether Santos was covered by plaintiff’s Policy, i.e., that it was seeking documents with respect to the residency status of Santos at the time of the accident.

Santos’ High School student transcript from Pocono Mountain East High School listed his address as plaintiff’s house, 1057 Delaware Lane, Stroudsburg, PA, at the time of his death.

Eva stated that Santos got mad at her and plaintiff in early December of 2015, and that he stayed with English for a few days until things cooled down. English, on the other hand, testified that Santos came to live with her after he got into an argument with his parents in the summer of 2015 and not in early December 2015.

Ultimately, defendant denied plaintiff’s UIM claim stating that coverage for UIM benefits under plaintiff’s Policy did not extend to Santos since he was not a “Covered person” under the Policy at the time of the accident.

DISCUSSION

At issue is whether Santos was an insured family member or covered person under the plaintiff’s Policy on December 25, 2015, the day of the accident, who resided primarily in the household of plaintiff, the named insured of the Policy that provided UIM coverage. Santos needed to be a resident of the plaintiff’s household in order for his Estate to recover UIM benefits under plaintiff’s Policy. There is evidence to support the positions of both parties regarding Santos’ residence and the court found that there are simply too many disputed material facts as to whether Santos was a “resident”, in the insurance policy context, of plaintiff’s house or a resident of English’s Tobyhanna house at the time of the accident.

The conclusion that the Policies’ definition of “family member” is not ambiguous and requires that an insured individual, however related to the policyholders, reside in the policyholders’ household. The court concluded that the definition in plaintiff’s Policy of “family member”, which requires the person related to the insured to reside primarily in the insured’s household, is not ambiguous and must be interpreted as written.

English and her mother stated that Santos was living with them in their Tobyhanna house as of September 2015, when he had an argument with his parents. English stated that she and Santos shared a bedroom and a bathroom in her mother’s house and that he had taken almost all of his clothes and shoes from his parents’ house and bought them to her house. Although Santos used both addresses for certain documents and received mail at both addresses, defendant points to the evidence that in September 2015 plaintiff removed Santos from his auto Policy and when Santos bought his own car in October 2015, he used English’s address.

Because there was a material dispute of the facts the court denied defendant’s motion for summary judgment with respect to plaintiff’s Underinsured Motorist and Breach of Contract Claims, Counts One and Two of his complaint. The court also denied defendant’s counterclaim for Declaratory Judgment and the plaintiff’s motion for summary judgment regarding Counts One and Two of his complaint. In short, there exist too many disputed material facts as to whether Santos was a “family member” of plaintiff’s household at the time of the accident.

Under Pennsylvania law, an insured party can receive punitive damages and other relief if the insurer acts in bad faith toward the insured party.

The plaintiff has the burden in establishing the defendant acted in bad faith. To succeed on a bad faith claim, a plaintiff must demonstrate by clear and convincing evidence (1) that the insurer lacked a reasonable basis for denying benefits; and (2) that the insurer knew or recklessly disregarded its lack of reasonable basis. The plaintiff in a bad faith case carries the burden of proof, and a mere preponderance of the evidence is not enough — Plaintiff must prove bad faith by clear and convincing evidence. This requires a plaintiff to show that the evidence is so clear, direct, weighty and convincing as to enable a clear conviction, without hesitation, about whether or not the defendants acted in bad faith.

Plaintiff did not present clear and convincing evidence that the defendant acted in bad faith when it denied his claim for UIM benefits for Santos Estate under his Policy. Defendant relied upon the statements of English and Garcia that Santos was living with them, as well as the facts that after he moved into Garcia’s house, plaintiff removed Santos from his Policy and that Santos bought his own car and obtained his own auto policy in which he listed his address as Garcia’s house. Defendant had more than a reasonable basis to investigate where Santos was really residing at the time of the accident since it had ample evidence to show that he may have moved out of plaintiff’s house months before the accident. Defendant’s denial of plaintiff’s UIM claim made on behalf of Santos Estate was, therefore, not an act in reckless disregard of its obligations under plaintiff’s Policy.

As a result the court granted defendant’s motion for summary judgment with respect to plaintiff’s bad faith claim.

ZALMA OPINION

It seems, recently, that every claim denial – no matter how well reasoned and handled – will result in a bad faith claim. This case teaches that although there was a dispute of material facts as to coverage sufficient to defeat a motion for summary judgment there was no material dispute about the reasonableness of the decision to deny coverage based on the evidence that Santos did not live in the Plaintiffs’ house. Therefore, as a matter of law, thankfully there was no case to even try the issue of bad faith, only the issue of coverage.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/

 

 

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A True Crime Video of Insurance Fraud

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The Flying Carpet

See the full video at https://rumble.com/vfiktd-a-true-crime-video-of-insurance-fraud.html and at https://youtu.be/lQ0gk1LahNM

A Fictionalized True Crime Story of Insurance Fraud from an Expert who explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The stories help to Understand How, and why, my book Insurance Fraud in America is Costing Everyone was written to explain to those who buy insurance thousands of dollars every year and why insurance fraud is safer and more profitable for the ­­­perpetrators than any other crime. The names of the perpetrators and the locations were changed to protect the guilty.

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

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

Before the ISO changed the homeowners program to include a special limit of liability for theft of antique rugs, homeowners insurers found themselves faced with reports of the thefts of thousands of antique Persian rugs valued between $10,000 and $20,000 each. Although most of the claims appeared suspicious, the insurers were unable to prove the nonexistence of the rugs and were compelled to pay claims.

When the special limit of liability was adopted, the rash of Persian rug thefts stopped. It was as if a ring of burglars suddenly left the country.

The fraudulent Persian rug claim industry ceased doing business.

Immigrant communities in Los Angeles, New York, Chicago and other major cities found other ways to earn money.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/

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California Allows Bad Faith for Failure to Settle Even When there is no Offer Within Limits

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Insurer May Be Punished Even If It Defends And Settles Suit Within Policy Limits Based on the Testimony of an “Expert” who Concluded a Subrogating Insurer Will Always Accept a Policy Limits Demand

I have never been a fan of the tort of bad faith. In Planet Bingo LLC v. The Burlington Insurance Company, E074759, Court Of Appeal Of The State Of California Fourth Appellate District Division Two (March 18, 2021) extended the tort for failure to negotiate a settlement of a subrogation claim because it should have expected the subrogating insurer was willing to accept a policy limits settlement.

FACTS

An electronic gaming device designed and supplied by Planet Bingo, LLC (Planet Bingo) caused a fire in the United Kingdom. Several third parties made demands that Planet Bingo pay their damages resulting from the fire. AIG the subrogating British Insurer demanded more than Burlington’s policy limit and eventually sued Planet Bingo who was defended by Burlington and the AIG suit was eventually settled for the policy limits.  Planet Bingo, claiming damages for delay, sued for breach of contract and bad faith against Burlington.

In the suit against Burlington by Planet Hollywood, the trial court granted summary judgment for Burlington; in essence, it ruled that Burlington had provided all of the benefits due under the policy.

Planet Bingo appealed. It contended that Burlington conducted an inadequate investigation. It also contendd that Burlington wrongfully failed to settle the third-party claims; instead, Burlington denied coverage, in the hope that the claimants would sue Planet Bingo in the United Kingdom, which would have let Burlington off the coverage hook. Planet Bingo asserts (and Burlington does not dispute) that it lost profits because the fire claims remained pending and unsettled.

The California Court of Appeal held that Planet Bingo made out a prima facie case that Burlington is liable for failure to settle even though none of the claimants made a formal offer to settle within the policy limits, one subrogee sent a subrogation demand letter; according to Planet Bingo’s expert witness, in light of the standards of the insurance industry, this represented an opportunity to settle within the policy limits.

In July 2014, attorneys representing AIG Europe Ltd. (AIG) wrote to Planet Bingo. They reported that Leisure had settled with Beacon for £1.6 million and that AIG was Leisure’s insurer. They demanded that Planet Bingo pay the £1.6 million. They also stated: “With the objective of avoiding the costs of litigation, our client is prepared to enter into alternative forms of dispute resolution.

THE EXPERT TESTIMONY

Planet Bingo’s expert on insurance claim handling testified that “[s]uch a letter is routine in industry practice and offers a clear invitation to negotiate a settlement for less than that amount . . . .” Moreover, there is a “very well[-]known industry custom in such subrogation claims of accepting policy limits for a full release o[f] the insured.”

Planet Bingo sued Burlington. The operative (second amended) complaint asserted causes of action against Burlington for breach of contract, breach of the implied covenant of good faith and fair dealing, and declaratory relief.

The trial court granted summary judgment in favor of Burlington.

PRELITIGATION FAILURE TO SETTLE

Although an insurance policy normally only carries an express statement of a duty to defend, an insurer’s duty to settle is derived from the implied covenant of good faith and fair dealing which is part of any contract.

This case is different than the usual failure to settle cases. First, a settlement offer within the policy limits was never actually on the table. In July 2014, AIG demanded payment of £1.6 million — an amount well in excess of the policy limits. It did also offer to participate in alternative dispute resolution; nevertheless, it never committed to accept any lesser amount.

Second, there was never any excess judgment. AIG did eventually sue, but Burlington managed to settle that action for the policy limits. Nevertheless, Planet Bingo claims it was damaged because Burlington’s failure to settle before litigation was filed damaged its business reputation and ultimately destroyed its business in the United Kingdom.

Thus, it has been said that an insured’s claim for bad faith based on an alleged wrongful refusal to settle first requires proof the third party made a reasonable offer to settle the claims against the insured for an amount within the policy limits.

The Court of Appeal stated that it “is significant that AIG was claiming as subrogee, and its letter was a subrogation demand letter.” This raised a triable issue of fact as to whether the letter represented an opportunity to settle within the policy limits. There was at least a potential for coverage, depending on whether Planet Bingo was ultimately sued in the United States or Canada.

The injuries here were the injuries to Planet Bingo’s primary rights under the policy and under the implied covenant of good faith and fair dealing. They are the flip side of Burlington’s alleged misconduct — its inadequate investigation and its failure to settle. Thus, the lost profits alleged in the second amended complaint resulted from the same misconduct and the same injuries that were alleged in the original complaint.

Because the trial court granted summary judgment, it never ruled on Burlington’s request for summary adjudication “that [Burlington] cannot be liable for punitive damages.” On remand, the court is directed to rule on this aspect of the motion. It may, in its discretion, receive additional briefing, evidence, or argument; however, it is not required to do so.

ZALMA OPINION

This decision, if it stands an appeal to the Supreme Court, has expanded the tort of bad faith to failure to settle a suit because an “expert” concluded that a subrogation demand far in excess of the insurer’s policy limits was “really” an offer to settle within limits because of the custom and practice of the industry. This ruling opens a Pandora’s Box of bad faith torts and punitive damages when an insurer does, as did Burlington, everything required of it by the policy and both defended and indemnified its insured. By this case an expert’s contention that Burlington should have negotiated a settlement – or offered its limits – immediately allowed for a finding of bad faith. I testify as an expert and could not testify that a subrogating insurer, like AIG, would always accept a policy limits offer when the defendant has assets and understand that experts often differ.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/

 

 

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A Video Asking Whether the Tort of Bad Faith Has Run Its Course

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The Law of Unintended Consequences and the Tort of Bad Faith

See the full video at https://rumble.com/vfhi55-a-video-asking-whether-the-tort-of-bad-faith-has-run-its-course.html and at https://youtu.be/iRMAZrOvGKw

US law was first organized using English common law. When a contract was breached, only contract damages could be recovered. Tort damages were limited to tortious conduct and the two categories of damages were mutually exclusive.

The primary purpose of damages for breach of a contract is to protect the promisee’s expectation interest in the promisor’s performance. Damages should put the plaintiff in as good a position as if the defendant had fully performed as required by the contract. Insurance, like all parts of modern society, is subject to the deprivations of the law of un­intended consequences. The law can be defined as the understanding that actions of people—and especially of government or the courts—always have effects that are unanticipated or unintended. Insurance is controlled by the courts, through appellate decisions, and by governmental agencies through statute and regulation. Compliance with the appellate decisions, statutes and regulations—different in the various states—is exceedingly difficult and expensive.

Insurance contracts can be simple or exceedingly complex, depending upon the risks taken by the insurer. Regardless, insurance is only a contract whose terms are agreed to by the parties to the contract. Over the last few centuries almost every word and phrase used in insurance contracts has been interpreted and applied by one court or another. Ambiguity in contract language became certain. However, the average person saw the insurance contract as incomprehensible and impossible to understand. Ostensibly to protect the public, regulators decided to require that insurers write their policies in easy-to-read language. Because they were required to do so by law, insurers changed the words in their contracts into language that people with a fourth grade education could understand. Precise language interpreted by hundreds of years of court decisions was disposed of and replaced with imprecise, easy-to-read language.

After the creation of the tort of bad faith, if an insurer and insured disagreed on the application of the policy to the factual situation, damages were no longer limited to contract damages as in other commercial relationships. If the court found that the insurer was wrong, it could be required to pay the contract amount and damages for emotional distress, pain, suffering, punishment damages, attorney’s fees and any other damages the insured and the court could conceive.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/

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Unlicensed Lawyer Breached Almost Every Rule of Professional Conduct

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Attorney Who Mishandled Insurance Claim while Unlicensed was Disbarred

Celio Warren Young violated Maryland’s Rules of Professional Conduct 1.1, 1.2, 1.3, 1.4, 1.5, 1.8, 1.15, 1.16, 5.5, 7.3, 8.1, and 8.4. These violations principally arose from Respondent’s unauthorized practice of law in Maryland without a license; intentional misrepresentations to his client about the status of his case; failure to properly maintain client funds in an attorney trust account; failure to advise his client to seek independent advice before settling a legal malpractice claim against him; failure to use funds to negotiate lower medical expenses for his client as agreed upon in a settlement agreement; and failure to respond to numerous requests for information from Bar Counsel.  In Attorney Grievance Commission Of Maryland v. Celio Warren Young, Misc. Docket AG No. 23, Court Of Appeals Of Maryland (March 31, 2021) a Maryland Court Explained why it had no choice but to disbar Young.

FACTS

Celio Warren Young, an attorney working in the District but not licensed in Maryland faced discipline by the Maryland Court of Appeals. Notwithstanding that he was not then, nor is now, licensed to practice law in this state, Mr. Young  solicited and undertook representation of Mr. Joseph E. O’Pharrow, III, in a personal injury action and related matters arising from an automobile accident in Prince George’s County, Maryland, in which Mr. O’Pharrow was seriously injured. The representation spanned several years. Eventually, Mr. O’Pharrow filed a complaint with the Attorney Grievance Commission.

Based on the record the Court of Appeals concluded that Young committed multiple violations of the Rules of Professional Conduct.

Young was admitted to the District of Columbia Bar on December 6, 1989. He is not, and has never been, a member of the Maryland Bar. At all times relevant to this attorney grievance matter, Respondent maintained an office for the practice of law in the District of Columbia.

The violations of the Rules of Professional Conduct with which Respondent was charged originate from his representation of Joseph E. O’Pharrow, III, a Maryland resident. On April 29, 2014, Mr. O’Pharrow was seriously injured in an automobile accident in Prince George’s County, Maryland. Mr. O’Pharrow was determined not to be at fault in the accident.

Mr. O’Pharrow suffered extensive injuries resulting from the accident, requiring that he undergo several surgeries. His medical expenses exceeded $100,000. Mr. O’Pharrow spent some time recuperating in the hospital. During that time, his parents, Joseph and Earnestine O’Pharrow (“the O’Pharrows”), stayed with him at the hospital as needed.

Mr. O’Pharrow’s mother retained Respondent on behalf of her son to represent him on a contingency fee basis. The hearing judge found that Respondent intentionally misled Mr. O’Pharrow to believe that Respondent was licensed to practice law in Maryland when he was not.

In the summer of 2014, Respondent, evidently with the agreement of at least the O’Pharrows, if not also their son, filed a claim with Government Employees Insurance Company (“GEICO”), the insurance carrier of the driver who was determined to be at-fault in the automobile accident. In or about August 2014, the O’Pharrows accepted the GEICO policy limit of $30,000 as a settlement on behalf of Mr. O’Pharrow. Respondent received the $30,000 settlement check from GEICO in August 2014 but did not deposit and maintain the settlement funds in an attorney trust account. Of the $30,000, Respondent retained $6,400 for his attorney fees and remitted $23,600 to Mr. O’Pharrow.

Also in the summer of 2014, Respondent filed an underinsured motorist claim with Mr. O’Pharrow’s insurance carrier, Erie Insurance Company (“Erie”). In that filing, Respondent failed to provide to Erie the requisite written notice and a copy of GEICO’s prior settlement offer. As a result, Erie denied Mr. O’Pharrow’s underinsured motorist claim. The hearing judge found that Erie’s denial of the claim was the “result of [Respondent’s] legal malpractice.”

In May 2016, Respondent offered to settle a malpractice claim that, at the time of the offer, Mr. O’Pharrow either was contemplating filing or had filed. As part of the Settlement Agreement, Respondent agreed to execute a confessed judgment promissory note for the entire settlement amount, to be reduced by any of his payments.

DISCUSSION

On September 8, 2020, the hearing judge concluded that Respondent violated Rules 1.1, 1.2(a), 1.3, 1.4(a) and (b), 1.5(a), 1.8(a) and (h), 1.15(a), 1.16(a), 5.5(a) and (b), 7.3(a), 8.1(b), and 8.4(a), (b), (c), and (d).

Among other violations found by the hearing judge Respondent failed to advance Mr. O’Pharrow’s cause by doing almost nothing in connection with the personal injury matter beyond obtaining a $30,000 settlement with GEICO, the at-fault driver’s insurer. Respondent did not investigate the assets of the at-fault driver, nor did he determine the scope of Mr. O’Pharrow’s underinsured motorist coverage. When Erie denied Mr. O’Pharrow’s claim—the result of Respondent’s failure to comply with the requirements set forth in Ins. Art. § 19-511—Respondent failed to notify Mr. O’Pharrow in a timely manner that the Erie claim had been denied. He further misled Mr. O’Pharrow to believe that Erie’s adverse determination was not final.

Respondent, not a member of the Maryland bar, solicited the O’Pharrows to represent their son in his personal injury matter in Maryland. Before and during his representation of Mr. O’Pharrow, Respondent knowingly and intentionally misled Mr. O’Pharrow to believe Respondent was authorized to practice law in Maryland.

Respondent knew of Erie’s denial of the underinsured motorist claim but concealed that material fact from Mr. O’Pharrow for about nine months. Then, when finally he told Mr. O’Pharrow about the denial of the claim, Respondent intentionally misrepresented to his client that the decision was not final.

THE SANCTION

In setting a sanction the Supreme Court recognized that the purpose of attorney discipline is to protect the public, not punish the attorney. In determining the appropriate sanction, we also weigh the attorney’s misconduct against any existing mitigating and aggravating factors.

Respondent demonstrated a dishonest and selfish motive; he engaged in a pattern of misconduct; he committed multiple rule violations; he demonstrated bad faith obstruction of the disciplinary proceedings; he had substantial experience in the practice of law; and he showed indifference to making restitution. Based on the established facts set forth in the record, the Supreme Court concluded that all of Bar Counsel’s proposed aggravating factors are supported by clear and convincing evidence.

Respondent intentionally misrepresented to Mr. O’Pharrow that he had a license to practice law in Maryland. Further, he showed a lack of the basic attorney skills of competence, diligence, and communication while representing his client: he did not hold settlement funds in an attorney trust account; he concealed the denial of the Erie claim from Mr. O’Pharrow for approximately nine months and lied about its status; and he did not advise Mr. O’Pharrow to secure independent legal advice before entering into a settlement agreement on the legal malpractice claim, all while practicing law in Maryland without a license.

Respondent’s misconduct necessitated that he be disbarred. Respondent violated numerous Rules of Professional Conduct. The Court of Appeals did not overlook that the misconduct in this case stems from the representation of one client. It did not ignore that Respondent has been practicing law for more than 31 years, albeit not always lawfully, as this matter demonstrates.

Respondent claimed, but did not establish that the illness and stress stemming from the surgery he underwent in 2018 and the death of his mother in 2017, which he raised for the first time in his late-filed “Show Cause Order Response” to this Court, constitute mitigation or contributed to his misconduct towards Mr. O’Pharrow, the majority of which occurred before 2016. Disbarment was ordered as the appropriate sanction for Respondent’s misconduct.

ZALMA OPINION

It takes a great deal of wrong doing to be disbarred by a state where the lawyer is not licensed to practice law. Hopefully, the bar in the District of Columbia will take notice and disbar him from practicing law there since his actions in mishandling simple tort claims and a simple, easy to prove, underinsured motorist claim requires that government of all jurisdictions to protect the public from a dishonest lawyer who violated almost every possible rule of professional conduct.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/

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A Video Explaining the Development of the Tort of Bad Faith

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Some of the First Cases

See the full video at https://rumble.com/vfgfo5-a-video-explaining-the-development-of-the-tort-of-bad-faith.html and at https://youtu.be/fm1Oaulr1v4

Comunale v. Traders & Gen. Ins. Co

In Comunale v. Traders & Gen. Ins. Co., 50 Cal. 2d 654 (1958), the insurance company wrongfully refused to defend its insured who had been sued in the underlying action for damages arising out of an automobile accident. It also refused to conclude the suit after receiving an offer of settlement for about 25 percent of the ultimate judgment obtained against its insured. The refusal resulted in an excess judgment against its insured. In the subsequent bad faith action the insurer was held liable for the entire judgment including the excess limits and other resulting damages. This was clearly an extra-contractual recovery since under a straight breach of contract claim the insurer would have been liable for only the amount of the policy.

Critz v. Farmers Ins. Group

The court in this case held that a wrongful refusal to settle sounded only in contract was expressly disapproved. The court stated that, in determining whether to accept a settlement offer, the insurer must give the interest of the insured at least as much consideration as its own. When there is a great risk of an excess judgment, good faith requires acceptance of an offer within policy limits. 

Crisci v. Security Ins. Co.

In Crisci v. Security Ins. Co., 66 Cal. 2d 425, 58 Cal. Rptr. 13 (1967), Crisci, an underinsured landlady, was sued by a tenant who fell on a staircase. Her liability policy had a limit of $10,000, which was 25% of the $40,000 claimed damages. However, prior to trial the tenant’s demand was substantially reduced and he expressed a willingness to settle the case for $10,000. In spite of strong evidence of both liability and substantial damages, the defendant insurance company refused to settle for more than $3,000. A final settlement offer of $9,000, of which Crisci agreed to pay $2,500, was likewise rejected. Following a jury trial in the underlying action, the tenant received a judgment for $100,000, of which the insurance company paid the $10,000 policy limit. Crisci was unable to pay the remaining $90,000 and was rendered indigent.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/

 

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By Establishing When a Claim was Asserted a Risk Transfer Agreement was Sustained by Seventh Circuit

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Contract Transferring Risk from One Party to Another is Effective

Wisconsin Central, Ltd. entered into an agreement that included the purchase of rail lines from Soo Line Railroad Company. Part of that agreement allocated responsibility for future environmental liabilities. Years later, contamination was discovered near one of those lines in Ashland, Wisconsin on the shore of Lake Superior. In Wisconsin Central Ltd. v. Soo Line Railroad Company, No. 19-3129, United States Court of Appeals For the Seventh Circuit (March 31, 2021) the Seventh Circuit was asked to reverse a decision of the USDC that Wisconsin Central owed indemnity to Soo Line who had transferred the risk of loss by a decades old agreement.

The railroads jointly defended and settled responsibility for the investigation and remediation of that site. Then they each sought indemnification from the other. The district court awarded summary judgment to Soo Line for damages, attorneys’ fees, and costs.

On appeal, the railroads dispute when a claim was first asserted, and how much of the cost of defending and settling the matter was related to the rail lines and their operation. Indemnification under the agreement turns on both issues.

BACKGROUND

In a 1987 Asset Purchase Agreement (“Agreement”) Wisconsin Central purchased various assets of Soo Line’s Lake States Transportation division, including physical rail lines in Minnesota, Wisconsin, and Michigan (“LST”). The Agreement provided for a detailed allocation of liability and indemnification of each party by the other. Soo Line agreed to retain liability and indemnify Wisconsin Central for “all claims for environmental matters relating to ownership of the Assets or the operation of LST that are asserted” within ten years of the closing of the deal (the “claim period”). After the end of the claim period, Wisconsin Central would in turn assume all liability and indemnify Soo Line for any such claims, regardless of whether Soo Line was at fault. The deal finally closed on October 11, 1987, and the claim period ran through October 11, 1997.

A few years into the Agreement, local and state authorities discovered contamination in Ashland in what used to be an industrial area but is now a public recreational area called Kreher Park. Running through the park is a railroad right-of-way purchased by Wisconsin Central under the Agreement. The Wisconsin Department of Natural Resources (“WDNR”) identified an old manufactured gas plant as the likely source of the contamination, and the agency issued a “potentially responsible party” (“PRP”) letter to its owner, Northern States Power Company (“Northern States”), requiring it to investigate and potentially clean up the contamination.

Northern States undertook an extensive campaign to shift responsibility to the railroads. Northern States urged the WDNR to name the railroads as PRPs “as soon as possible.”

At no point during the claim period did Northern States or the WDNR threaten to take legal action against either railroad company.

Years later, in 2002, the Environmental Protection Agency became involved and designated an area including Kreher Park as a Superfund site under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), 42 U.S.C. § 9601, et seq. The EPA also obtained from Wisconsin Central and Soo Line a consent decree and settled the claims by the EPA and Northern States for a combined $10.5 million plus interest, with each railroad paying half of that amount and reserving the right to seek indemnification from the other.

Wisconsin Central then sued Soo Line for breach of contract, arguing that the environmental claims were asserted during the claim period and that Wisconsin Central was entitled to indemnification for the entire amount that it paid in the settlement, plus interest, fees, and costs. Soo Line brought a counterclaim for the same, arguing that no claim was asserted until after the claim period had expired. The district court granted summary judgment to Soo Line, The court awarded Soo Line damages of $10,799,427, plus prejudgment interest, as well as $1,776,764 for attorneys’ fees for the present case.

Wisconsin Central appealed.

ANALYSIS

The relevant part of the Agreement’s indemnification clause states: “… [Wisconsin Central] shall assume the following liabilities and obligations of Soo [Line]: …all claims for environmental matters relating to the ownership of the Assets or the operation of LST that are asserted after the tenth anniversary of the Closing Date …”

In the cited cases by Wisconsin Central a government regulator took some formal action against the party or the property of the party against whom a “claim” (or “suit”) was then deemed to have been asserted. “Potentially Responsible Party” and “Request for Information” letters bear deceptive names. Such communications are not friendly requests for materials, or mere notices that a party might become liable in the future. Rather, they are the formal mechanisms by which a party is brought under the authority of the regulator.

In this case the facts show that the WDNR took no action against the railroads during the claim period. No authority cited to the appellate court recognizes a transitive property that converts Northern States’ efforts — to convince the regulator to send a PRP letter to the railroads and to persuade the railroads to voluntarily join the cleanup effort — into the equivalent of a regulator actually sending a PRP letter or taking other official action that would constitute a “claim.”

Northern States’s actions did not meet the definition of “claim.” The problem is not that Northern States failed to include in its communications a monetary amount or the precise legal basis for its right to relief — Wisconsin Central forcefully argues that those are not requirements for the existence of a claim. Rather, Northern States did not assert any right to relief, nor make any demands for relief, against either railroad during the claim period.

Making comments to the press, asking a party to voluntarily contribute, unsuccessfully asking (even begging) a third party to assert a claim, and meeting with parties to try to persuade them to voluntarily join a remediation effort by convincing them that a regulator will take formal action—all of these are distinct from “asserting a claim.”

Under Minnesota law, every contract has an implied covenant of good faith and fair dealing. For Wisconsin Central to seek a PRP letter — that is, to seek to have a claim asserted against it just to secure indemnification from Soo Line — risks breaching that covenant. Likewise, it would have been a breach of the covenant for Soo Line to try to delay the issuance of such a letter until after the claim period just to secure indemnification from Wisconsin Central. Neither party alleges that anything like that occurred.

There was no “claim” concerning the Kreher Park environmental contamination site asserted against the railroads during the Agreement’s claim period. During that period, Northern States neither threatened litigation nor invoked its right to sue the railroads, and the WDNR did not take any action that imposed any legal duties or impending legal peril on either railroad. Under the Agreement, the responsibility to defend and indemnify against the environmental claims thus belonged to Wisconsin Central, not to Soo Line.

The liability and related damages in the Superfund matters were not limited to ownership of the land. Rather, the record shows that the settlement amount here was based on the polluting activities allegedly carried out by the railroads. It was by owning the “Assets” that the parties could become jointly and severally liable for the Superfund site in the first place. Therefore, if the railroads had not been accused of contributing to the pollution but were instead held strictly liable as landholders — other facts being the same — the appellate court would still require Wisconsin Central to indemnify Soo Line under the “ownership of the Assets” part of the indemnification clause.

Liability was premised on the historical actions of the parties and their predecessors, and the parties memorialized the allocation of that liability between them in a contract. All liability for these claims is related to the operation of LST, so under the Agreement, Wisconsin Central is responsible for 100% of the environmental damages, plus interest, attorneys’ fees, and costs. The district court’s grant of summary judgment to Soo Line was affirmed.

ZALMA OPINION

For there to be a “claim” under an indemnity contract or an insurance contract, there must be a demand for money or other action such as a PRP letter. A claim was made but it was made after the expiration of the indemnity agreement just as it would have if a claim was made on an insurance contract after it expired.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/

 

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A Video Discussing Some of the Cases That Gave Birth to the Tort of Bad Faith

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Silberg and Egan and Why There is a Tort of Bad Faith

See the full video at https://rumble.com/vff3u7-a-video-discussing-some-of-the-cases-that-gave-birth-to-the-tort-of-bad-fai.html and at https://youtu.be/GlLMQaaQEOQ

In Silberg v. California Life Ins. Co., 11 Cal. 3d 452 (1974), the insurer advertised an accident policy with the phrase “Protect Yourself Against the Medical Bills That Can Ruin You.” It issued an accident policy to Mr. Silberg. The policy excluded injuries covered by workers’ compensation. Silberg was injured while performing incidental services at his place of employment. His employer’s compensation carrier denied coverage. Mr. Silberg found himself with substantial medical bills which California Life also refused to pay.

Many courts recommend that the two insurers attempt to agree to share the costs equally and work out their differences later. If such an agreement cannot be reached then the company you represent should front the money under a reservation of rights, take an assignment from the insured, and sue, in the insured’s name, the other insurer for all the money paid plus damages incurred by the insured.

In Egan v. Mutual of Omaha Insurance Company Egan was allowed to retain both compensatory and punitive damages as a result of the bad faith conduct of the insurer since he was able to prove the four elements required by the Supreme Court because the insurer wrongfully accused him of fraud and cut off his disability payments.

For the insurer to fulfill its obligation not to impair the right of the insured to receive the benefits of the agreement, it again must give at least as much consideration to the latter’s interests as it does to its own. The insured in a contract like the one before us does not seek to obtain a commercial advantage by purchasing the policy, rather he seeks protection against calamity.

An insurer is sometimes considered to be like a fiduciary, although it is never a fiduciary, to its insured. In Frommoethelydo v. Fire Insurance Exchange, 42 Cal. 3d. 208, 228 Cal. Rptr. 160 (1986), Mr. Frommoethelydo was arrested and tried on charges of insurance fraud, he was tried and acquitted. The Supreme Court found the failure of the insurer to investigate the basis of the acquittal was evidence of bad faith.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/

 

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Additional Premium Due on Audit Can Be Difficult to Prove

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Evidence, or Clear Policy Wording About Audit Procedures, is Needed to Prove Right to Additional Premium

Arch Specialty Insurance Company (“Arch” or “Plaintiff”) sued TDL Restoration, Inc. (“TDL” or “Defendant”), asserting claims for breach of contract, unjust enrichment, and account stated. Currently before the USDC is Plaintiff’s Motion for Summary Judgment on its breach of contract and account stated claims.  In Arch Specialty Insurance Company v. TDL Restoration, Inc., No. 18-CV-6712 (KMK), USDC, Southern District Of New York (March 31, 2021) the USDC found it difficult to deal with a motion for summary judgment where some parts were proved and some were not.

BACKGROUND

Arch Policy and Audit

Plaintiff issued an insurance policy that provided Defendant with commercial general liability coverage from March 28, 2016 to March 28, 2017 (the “Arch Policy” or the “Policy”). Under the Policy, Plaintiff agreed to provide this coverage in exchange for Defendant’s payment of policy premiums. Defendant’s initial premium payment (the “Initial Premium”) was based on its estimated exposure during the effective dates of coverage. But because the Initial Premium was based on estimated exposure, the Policy was also “subject to audit based on the actual exposure during the effective dates of coverage.” Depending on the results of the audit, Defendant would either owe additional premium to Plaintiff, or Plaintiff would owe a return of premium to Defendant.

It is undisputed that Plaintiff fulfilled its obligations under the Policy and provided insurance coverage to Defendant during the effective dates of coverage. After the coverage period had ended, and consistent with the terms of the Policy, an audit was performed on or about May 16, 2017. The audit found that Defendant owed Plaintiff $171,339.00 in additional premium (the “Additional Premium”). Although Defendant acknowledges this was the result of the audit, it has not conceded “the accuracy of the underlying determination.”

Pursuant to the Policy, Plaintiff sent Defendant an invoice for the Additional Premium on June 6, 2017. Plaintiff also asserts that “as a result of the Additional Premium[,]” Defendant owes an additional $6,476.61 in New York state taxes and fees (the “Taxes and Fees”), which consists of a New York Surplus Lines Tax and a New York State Stamping Fee. Thus, Defendant owes a total balance of $177,815.61.

Defendant’s Discovery of Purported Payment Records

After the close of discovery, Plaintiff filed a Motion for Summary Judgment. Defendant’s lawyer attached the document to an affirmation and submitted that it was a “true and accurate record from the Plaintiff’s records evidencing payment of the Audit Premium.”

However, after additional discovery Defendant admitted that, after conducting a “very diligent search” of its financial records, it was unable to locate any proof that it had paid the Additional Premium.

DISCUSSION

Plaintiff only moved for summary judgment on its breach of contract and account stated claims.

Defendant did not dispute the existence of an agreement, nor did it dispute that Plaintiff adequately performed its obligations under that agreement. Since Defendant concedes that after conducting a “very diligent search” of its financial records, it has located no proof that it paid the Additional Premium Defendant and there is no genuine dispute that Defendant has breached its agreement with Plaintiff under the Policy, Plaintiff has satisfied the third element of its breach of contract claim.

Even when a plaintiff provides documentation that purports to illustrate the computation of a premium amount, a court is under no obligation accept Plaintiff’s claims. Plaintiff submitted in response to the court’s order for additional information, the Guman Declaration, has served as a useful guide in making sense of Plaintiff’s methodology and calculations.

The Guman Declaration explained how Defendant’s estimated exposure for each type of service in a particular location was sometimes multiplied by two rates—one for contracted operations, and another for product-completed operations—to derive the Initial Premium amount. The Guman Declaration also explains how the May 2017 audit produced the actual exposure figures set forth in the Audit Report. The calculation of Defendant’s actual exposure during the coverage period is significant for a simple reason.

As the Guman Declaration explains, the Audit Endorsement takes the actual exposure figures from the Audit Report and compares them to the estimated exposure figures from the Arch Policy.

In sum, Plaintiff has not established that there is no genuine dispute of material fact regarding the amount of damages to which it is entitled. At the same time, however, it is clear that Plaintiff is entitled to some amount of damages.

ACCOUNT STATED

Under New York law, an ‘account stated’ refers to a promise by a debtor to pay a stated sum of money which the parties had agreed upon as the amount due. To establish its claim for account stated, Plaintiff must show that: (1) an account was presented; (2) it was accepted as correct; and (3) Defendant promised to pay the amount stated.

It is well-established, however, that an account stated claim may not be utilized simply as another means to attempt to collect under a disputed contract. As a matter of law, a defendant cannot be found liable on both an account stated claim and a breach of contract claim in connection with the same allegations of a failure to pay monies owed.

Plaintiff’s account stated claim is congruent with, and duplicative of, its claim for breach of contract. Because the Court has found Defendant liable under Plaintiff’s breach of contract claim, it may not be found liable on Plaintiff’s account stated claim “as a matter of law.” The Court therefore denied summary judgment with respect to Plaintiff’s account stated claim. Plaintiff’s Motion was granted in part and denied in part.

ZALMA OPINION

The methodology used by Arch to calculate the additional premium was complex and difficult for the court to understand and, even with additional information provided by a declaration from Arch, the issue of the true amount owed became unclear. The court concluded that Arch was owed additional premium and that the Defendant breached the contract but will need a trial to determine the total amount owed. This case teaches that with an audit policy where the full amount of premium is only determined after the policy expires, that the wording of the policy should contain a clear and unambiguous manner of determining the premium owed at audit.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/

 

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A Video Explaining Setting Insurance Reserves

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Setting Reserves & Discovery of the Insurance Claims File

See the full video at https://rumble.com/vfdwhn-a-video-explaining-setting-insurance-reserves.html and at https://youtu.be/fIX1cXUDXa8

The insurer is required to evaluate a claim based upon its merits, and without regard to policy limits. Eastham v. Oregon Auto Ins. Co., 542 P. 2d 895 (Or. 1975). The adjuster must determine the value of the claim without a thought to limits of liability in the policy and then compare the evaluation with the limits available.

Reserves should be set realistically and are recorded in the claim file. Reserves are the adjuster’s estimate of the potential recovery the claimant would receive from a jury. Reserves should be reviewed regularly, and revised if necessary. Failure to do so can be a factor in holding the insurer responsible for an excess verdict. Kunkle v. United Security, 168 N.W. 2d 723 (S.D. 1969). (For further assistance in setting reserves see Chapter 13, “Evaluation and Settlement.”) New York uses a definition of insurance reserves that can be used everywhere.

It defines insurance reserves as:

The referenced provision states that: every insurer shall . . . maintain reserves in an amount estimated in the aggregate to provide for the payment of all losses or claims incurred on or prior to the date of statement, whether reported or unreported, which are unpaid as of such date and for which such insurer may be liable, and also reserves in an amount estimated to provide for the expenses of adjustment or settlement of such losses or claims (Insurance Law Section 1303 [emphasis supplied]). Majewski v. Broadalbin-Perth Central School District, 91 N.Y. 2d 577, 696 N.E. 2d 978, 673 N.Y.S. 2d 966 (N.Y. 05/12/1998).

When presented with a challenge to discovery of insurance reserves information, the trial court is required to make a preliminary determination of whether the requested information is relevant in that it is admissible or is reasonably calculated to lead to the discovery of admissible evidence. In making a determination in the context of discovery about the relevancy of insurance reserves information, the trial court should take into account the nature of the case, the methods used by the insurer to set the reserves and the purpose for which the information is sought, and only grant requests for disclosure when its findings of fact and conclusions of law support a determination that the specific facts of the claim in the case before it directly and primarily influenced the setting of the reserves in question. [State ex rel. Erie Ins. Co. v. Mazzone, 625 S.E.2d 355, 218 W.Va. 593 (W. Va., 2005)]

 


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/

 

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No Good Deed Goes Unpunished

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Providing a “Courtesy Defense” Does Not Create Coverage by Estoppel

An insured who refused liability coverage and only insured the vehicle for property damage to the insured vehicle, cannot demand payment for defense or indemnity when sued for negligent operation of an automobile. No cover even though the insurer – denying coverage for the injuries to a third party – still provided what was called a “courtesy defense” by paying for something it claimed it did not owe.

In Security National Insurance Co. v. Maria Gonzalez, Juan Gonzalez, Alma Reyes, and Hermelo Reyes, Alma Reyes and Hermelo Reyes, v. Maria Gonzalez And Juan Gonzalez, Case No. 2D18-3427, Case No. 2D19-2050, District Court Of Appeal Of Florida Second District (March 26, 2021) a claim for bodily injury brought by Juan and Maria Gonzalez, husband and wife, arising out of an automobile accident, obtained a judgment against  Security National Insurance Company (“Security”). Security admitted it  insured the other vehicle driven by Alma Reyes and owned by her father Hermelo Reyes, but only for material damage to their automobile.

FACTS

The origins of this case involve an automobile accident that occurred in May 2012. Reyes’ minor daughter was driving a vehicle owned by him and collided with the Gonzalezes’ vehicle. Maria Gonzalez was injured in the accident.  The Declarations page of the policy issued by Security National provided only for property damage up to $10,000 for each of the Gonzalezes’ vehicles; no bodily injury coverage or additional supplemental policy was listed on the Declarations page.

The Gonzalezes sued with a three-count complaint against the Reyeses for damages arising from the accident, including damages for bodily injury, property, and loss of consortium. On September 26, 2012, Security National wrote the Reyeses informing them that their policy did not provide coverage for the Gonzalezes’ bodily injury and loss of consortium claims for the reason that the Reyeses “did not elect bodily injury or uninsured motorist coverage.” In that same correspondence to the Reyeses, Security National claimed its reservation of rights to disclaim coverage; citing the policy language, Security National advised the Reyeses they had no duty to defend claims not covered by the policy and that, based upon their rejection of bodily injury coverage, the Reyeses would become legally responsible for those damages.

After the dismissal of the covered property damage claims, Security National continued its “courtesy defense” of the Reyeses as to the bodily injury and loss of consortium counts. In June 2016, the case went to trial, and the jury returned a verdict in favor of the Gonzalezes for $762,805.63, which the trial court later reduced to $679,526.03 in the final judgment.

ANALYSIS

Courts cannot create coverage where it does not exist. In this case Security National represented at all times to the Reyeses that the policy did not provide coverage for the Gonzalezes’ claims other than for property damage. Throughout the pendency of this action, Security National advised the Reyeses and the Gonzalezes, through their counsel, that the policy did not provide coverage for bodily injury as the Reyeses’ policy contained a “Florida Bodily Injury Rejection Form.” Thus, there was never a dispute regarding whether the policy afforded coverage for Maria Gonzalez’s bodily injuries.

The Gonzalezes argued that coverage was created by Security National’s continued “courtesy defense” of the Reyeses after the only covered claim was dismissed. Even though Security National at all times advised the Reyeses it was continuing to defend them in the action, even after the property damage covered claim was dismissed, under a “courtesy defense” — for which it had no duty — the Gonzalezes argue this was not sufficient.

From the beginning, Security National asserted that the policy did not provide coverage for the Gonzalezes’ bodily injury claim. From our review of the record, Security National was not asserting a “coverage defense” under Florida statutes. Security National always unequivocally maintained that the policy did not provide coverage and that it was providing a courtesy defense.

Additionally, even if Security National had not clearly and unequivocally informed all parties that the policy did not provide coverage for the Gonzalezes’ bodily injury claim, it would not change the outcome here.

The Florida Supreme Court, in  AIU Ins. Co. v. Block Marina Inv., Inc., 544 So. 2d 998, 999 (Fla. 1989) noted, as have the courts of most states, that “while the doctrine of estoppel may be used to prevent a forfeiture of insurance coverage, the doctrine may not be used to create or extend coverage.” A claim of coverage by estoppel presents grave constitutional questions, the impairment of contracts and the taking of property without due process of law.

Where all parties agreed there was no coverage for the bodily injury claims, the fact Security National maintained at all times that the policy did not provide coverage of anything other than the Gonzalezes’ property damage claim, but continued to provide its “courtesy defense” did not invent coverage for the bodily injury and loss of consortium damages, even under an estoppel theory, where coverage did not otherwise exist.

Because the Reyeses rejected bodily injury coverage under their policy and such coverage was never in dispute, Security National was improperly joined as a party defendant to the final judgment under the non-joinder statute.

The doctrine of equitable estoppel cannot, and the court refused to use it to, create coverage when all parties understood there was no coverage for the bodily injury claims despite Security National’s “courtesy defense” of those claims. Accordingly, the amended final judgment was reversed and remanded with instructions for the trial court to enter a second amended final judgment solely against Hermelo Reyes.

ZALMA OPINION

Security, as an expression of charity, provided what it called a “courtesy defense” to its insured even though there was no question the policy provided no coverage for bodily injury to third parties since the insureds had rejected that coverage in accordance with Florida law. To try to change its courtesy – charity – eleemosynary action into coverage to pay the $679,526.03  judgment was improper, unfair, and unconscionable. The court properly refused to make an insurer pay a claim it did not agree to by the clear and unambiguous terms of the policy. It had no duty to defend and the “courtesy defense” it provided should have been accepted with good grace. Instead, the good deed was punished with litigation.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and Read last two issues of ZIFL here.

 

 

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A Video Explaining the “Loss in Progress Rule”

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The Loss in Progress Rule

See the full video at https://rumble.com/vfbyrx-a-video-explaining-the-loss-in-progress-rule.html   and at https://youtu.be/k2TWLiMdfw0

The “Loss in Progress Rule” has been described as follows:

[t]he point at which a threat of loss is so immediate that it may fairly be said that the loss was in progress and the insured knew of it at the time the policy was applied for or issued is generally a question of fact. Sentinel Ins. Co. v. First Ins. Co., supra, 875 P. 2d at p. 920; Inland Waters Pollution Control, Inc. v. National Union Fire Ins. Co. (6th Cir.1993) 997 F. 2d 172, 178.

At least one court has seen the loss in progress rule as an attempt to “swallow up” the “expected or intended” exclusion. [ City of Johnstown v. Bankers Standard Insurance Company, 877 F. 2d 1146 (2d Circuit, 1989).] The defense is independent of the exclusion for losses that are “expected or intended” by the insured. A majority of states, unlike California, have overruled the old marine rule under which a false representation of fact that the insured warranted to be true automatically voided coverage, regardless of the materiality of the misrepresentation. [Peril and Fortuity, supra, p. 795; Kenneth S. Abraham, A Theory of Insurance Policy Interpretation, 95 Mich. L. Rev, 531, 532 (1996).]

In Chemstar, Inc., v. Liberty 1993 WL 13626320 the court concluded that “since an insurer may only insure against contingent or unknown risks of loss, a policy issued after the ‘loss in progress’ has begun does not cover such loss.”

The California Supreme Court, in Prudential LMI v. Superior Court, 51 Cal. 3d 674, 274 Cal. Rptr. 387 (1990). made it clear that there is a stark difference between first and third party insurance. The California Supreme Court said:

As one court observed, in first party cases applying the rule finding coverage only on actual occurrence of injury, no damage or injury of any kind has taken place until manifestation; the cause instead lies dormant until it later causes appreciable injury. Ins. Co. of North America v. Forty-Eight Insulations, 633 F. 2d 1212, 1222, fn. 18.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/

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There can Never be a Fraud Too Small to Void a Policy

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Material Misrepresentation Concerning the Extent of Loss Voids Policy

After the district court ruled for the defendant insurance company on cross-motions for summary judgment, ending the action, the plaintiff appealed that summary-judgment ruling. In Meat Town Inc. v. Sentinel Insurance Company, Case No. 19-2351, United States Court Of Appeals For The Sixth Circuit (March 30, 2021) was asked to find the fraud wasn’t big enough to stop the insured from collecting the remainder of its loss.

INSURANCE POLICY INTERPRETATION

A fundamental tenet of Michigan law is that unambiguous contracts must be enforced as written according to their unambiguous terms because doing so respects the freedom of individuals freely to arrange their affairs via contract.

Consequently, while exclusionary clauses in insurance policies are strictly construed in favor of the insured, it is impossible to hold an insurance company liable for a risk it did not assume, and, thus, clear and specific exclusions must be enforced.

The insurance policy in this case voids all coverage if the insured conceals or misrepresents material facts concerning its claim; e.g., commits fraud. Under Michigan law, to effectuate such a provision, the insurer must prove that the claim was (1) knowingly false or made in reckless disregard for the truth, and (2) material, such that the insured intended to induce the insurer to act upon it. Furthermore, under Michigan law, it matters not that the fraud was perpetrated in connection with only a portion of the loss claimed by an insured.

To void the policy, the insured is not required to lie about all of his or her losses; rather a lie related to a single loss operates to void the policy. In simple language you can’t be a little bit dead.

FACTS

Meat Town Inc. was a retail butcher and grocer in Detroit, Michigan. Meat Town was the insured of a “Business Owner’s Policy” with Sentinel Insurance Company, Ltd., that insures against the risk of loss of the real property, fixtures and equipment, inventory, and business interests due to, among other things, vandalism or fire.

On December 24, 2015, Meat Town filed a claim under this policy for losses arising from an after hours break-in, robbery, and vandalism that occurred on November 10, 2015, which is referred to as the “Vandalism Event.” On March 7, 2016, Meat Town filed a second, separate claim for losses arising from a fire on December 19, 2015, which is referred to as “the Fire.” On October 4, 2016, Meat Town’s President, Pete Demopolis, signed, with notarization, a “Sworn Statement in Proof of Loss,” claiming $487,879 in loss and damages from the Vandalism Event.

Sentinel was suspicious that the claims were fraudulent and began an investigation, which eventually turned those suspicions into convictions that the claims were fraudulent.  In August 2018, while discovery was underway, Sentinel sent Meat Town a four-page letter denying both claims. The letter quoted several provisions from the policy, with the most pertinent being the misrepresentation, concealment or fraud condition.

Just before noon the day of a large delivery the electric utility company shut off Meat Town’s electricity. Neither Meat Town’s owner, Peter Demopolis, nor its manager, Alan Gluck, was at Meat Town when the electricity went off, but the floor manager called them and was told to “sit tight.” After about 30 minutes of sitting in the dark, the floor manager locked the store, activated the security system, and left with the other three employees.

According to the security company, the Vandalism Event began at 5:25 p.m., when the vandals breached the front door and triggered the alarm. Meat Town never reopened for business after the November 10 Vandalism Event and, on December 19, 2015, while Meat Town’s landlord was in the process of evicting Meat Town from the property, an arsonist set the Fire. Ultimately, Sentinel concluded that Meat Town’s claims were not merely erroneous or exaggerated, but were knowingly, irrefutably, and indefensibly fraudulent.

As a ready example, Sentinel pointed to the November 10 delivery from Kap’s.  Kap’s controller, Allen Cohn, attested in an affidavit that those orders were cancelled “without sale or delivery to Meat Town,” such that Meat Town neither paid for nor received “any of the products reflected on th[ose] invoices.” In addition, among its claims of loss for the meat discarded from its vandalized display cases and freezers, Meat Town claimed $8,739 for the meat received from Quality Meats. Meat Town supported this claim with copies of four bills of lading from Quality Meats. Significantly, none of those bills was dated. The President/CEO of Quality Meats, Jeff Davis, attested in an affidavit that Quality Meats did not sell or deliver any meat to Meat Town in November 2015. When Quality Meats produced its copies of those same four bills, each clearly depicted a date (three dated September 12 and one dated October 3). A comparison of the respective copies revealed that Meat Town’s copies had no visible dates, but instead had an unmistakable white space where the date was located on Quality Meats’ copies.

ANALYSIS

The district court found that Meat Town had made material misrepresentations in its claims to Sentinel, that those misrepresentations voided the policy, and that Sentinel—and not Meat Town—was entitled to summary judgment. Meat Town v. Sentinel Ins. Co., Ltd., 413 F. Supp. 3d 671, 671 (E.D. Mich. 2019).

Even though the false Kap’s claims were enough to decide the case, the court added the Quality Meats analysis to “bolster” its conclusion. The false representation about Quality Meats was Meat Town’s claim that it purchased that meat on November 7 and 10, when, in reality, Quality Meats had delivered the last of those orders on October 3rd.

On the intent issue, the district court considered Meat Town’s argument that—even accepting that it did not receive the Kap’s products—its claims that it had received those products and seen them in its shattered display cases covered in glass and debris were not deceitful but simply mistaken, due to the dark and disarrayed condition of the store.  To survive summary judgment, Meat Town had to do more than hypothesize that these might have been inaccuracies, inconsistencies, or honest and innocent mistakes. Meat Town had to produce some evidence, such as an affidavit or other evidence admissible at trial, that could persuade a reasonable juror that this was a mistake that did not rise to the level of reckless disregard for the truth. Meat Town did not produce any evidence to challenge, much less disprove, this inference.

The first thing to recognize here is that Sentinel’s position was that Meat Town violated the policy and Meat Town’s entire small-portion theory or argument, though accepted and analyzed by the district court, is entirely irrelevant to the Sixth Circuit’s analysis. Sentinel argued successfully that the small-portion position of Meat Town had no basis in Michigan law. A statement is material if it is reasonably relevant to the insurer’s investigation of a claim. Under Michigan law, it matters not that the fraud be perpetrated in connection with only a portion of the loss claimed by an insured. To void the policy, the insured is not required to lie about all of his or her losses; rather a lie related to a single loss operates to void the policy.

Nothing in any case the Sixth Circuit identified in its research supported the contention that a knowing, intentional, and “clearly culpable” misrepresentation by the insured cannot satisfy a policy’s fraud provision unless the jury finds the amount sufficiently large.

The trial court found that Meat Town had not produced any evidence to prove that Kap’s had delivered the order and, therefore, that question was not in dispute. The same is true for the Quality Meats bills of lading: Meat Town produced no evidence to explain how or why its copies were missing the dates, thus failing to dispute the unmistakable inference that Meat Town had removed them.

ZALMA OPINION

If the only consequence of a fraudulent misrepresentation is to reduce the amount paid under the policy, there is every incentive for insureds to lie. If the lie is undetected the insured will have obtained excessive coverage for which he has not paid. If the lie is detected  the insured will still obtain what he could have had if he had told the truth. In essence, the insured has everything to gain and nothing to lose by lying. The victims will be the honest insureds who tell the truth and whose premiums will rise over the long run to pay for the excessive insurance proceeds paid out as a result of undetected misrepresentations in fraudulent claims [New York Life Ins. Co. v. Johnson, 923 F.2d 279 (3d Cir. 01/15/1991)].


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/

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A Video Explaining the Burden Imposed on a First Party Property Insurance Insured

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Burden of Proof & Exclusions

See the full video at https://rumble.com/vf9fpl-a-video-explaining-the-burden-imposed-on-a-first-party-property-insurance-i.html?mref=6zof&mrefc=2 and at https://youtu.be/EO-8PL3veps

It is the obligation of the insured to prove that property has been physically damaged. The loss of marketability is not a peril insured under a property policy; only physical damage to tangible property is insured.

In Lundstrom v. United Servs. Auto. Ass’n-CIC, 192 S.W.3d 78 (Tex. App. 2006), a case involving a leaking water pipe, the US Court of Appeal affirmed the District Court for the Eastern District of Pennsylvania and found that a leaking water pipe can bring about a loss of personal property. [Gatti v. The Hanover Insurance Company, 774 F. 2d 1151 (1985).] One of the insured’s employees noticed that the ground was saturated with water and that the water meter was spinning rapidly. This led to the conclusion that the water from the underground pipe was escaping after passing through the water meter. Confirmation of this conclusion came in the form of a water bill for $39,523.45. The insureds contended that the all risk policy should cover this expense, but the insurer disagreed and argued that this was a pecuniary loss as distinguished from a physical loss of property.

The court disagreed and found coverage, stating that the insurer’s position “ignored the common sense meaning of the phrase ‘physical loss.’” The water became the property of the insured once it passed through the water meter, and therefore the subsequent escape of water was a physical loss of the insured’s personal property—the water.

Coverage was denied an insured in Chadwick v. Aetna Insurance Company, 9 N.C. App. 446, 176 S.E. 2d 352 (1970), when evidence tended to show that jewelry was stolen from a jeweler by an unidentified man and woman who pretended to be customers at the plaintiff’s jewelry store. The loss was discovered during a “spot check” of the inventory approximately nine days after the alleged theft. The Chadwick court found that the facts of the case did not warrant recovery and ordered a new trial, noting that the language of the policy plainly “bar[s] recovery for unexplained losses or for mysterious disappearances, however they come to light.”


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and Read last two issues of ZIFL here.

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Misrepresentation on Life Insurance Modification Invalid

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Alleged Wife of Decedent has no Right to Life Benefits Because Decedent Wrongfully Claimed Common-Law Marriage

Florinda Lynch moved for Summary Judgment to which pro se Cross-Defendant Royal Martin, Jr. objected.  In Metropolitan Life Insurance Company v. Florinda Lynch, et al., No. CV-19-08056-PCT-JJT, United States District Court For The District Of Arizona (March 23, 2021) the USDC was asked to determine who was entitled to interpleaded funds when the insurer could not determine who was entitled to the death benefits because of the need to apply the law of the Navajo Nation.

BACKGROUND

In this interpleader action, Lynch and Martin, Jr. both claim they are the rightful beneficiaries to a life insurance benefit from Interpleader Plaintiff Metropolitan Life Insurance Company (“MetLife”) in the amount of $135,869.86 arising from Royal Martin, Sr.’s death. Interpleader MetLife deposited the disputed funds with the Court.

Decedent was employed by the Navajo Nation and a participant in the Navajo Nation Benefit Plan issued by MetLife, which included a group life insurance policy. The plan allowed participants to designate beneficiaries, and on June 21, 1995, Decedent designated Martin, Jr., his son, as sole beneficiary to plan benefits by way of an Employee Enrollment Form. On May 4, 1999, Decedent completed an Application for Coverage Update designating Lynch as the sole beneficiary to plan benefits and identifying her as “spouse common law.” Upon his death in 2017, the New Mexico death certificate indicated that Decedent remained married to Naomi Platero; they married in 1983 and later separated but they never divorced.

After Decedent’s death, Lynch submitted a claim for the plan benefits and identified herself as Decedent’s “former spouse.” Upon inquiry, she informed MetLife that she and Decedent were married and had separated but, because it was a common law marriage, there was no divorce decree. Because Arizona law provides that a divorce ordinarily revokes a beneficiary designation to the former spouse, but neither a marriage certificate nor divorce decree exist to formalize the relationship of Decedent and Lynch, MetLife filed this interpleader action for resolution of the question whether Lynch or Martin, Jr. is entitled to the plan benefits.

ANALYSIS

This dispute turns on the validity of the designation of Lynch as plan beneficiary at the time of Decedent’s death.  Decedent lived in Arizona at the time of plan enrollment and his death and Arizona law governs the plan. Both Decedent and Lynch explicitly held themselves out to be married under common law to MetLife, and Lynch has also so claimed to the Court.

The Navajo Nation, in which Decedent lived, allows common law marriages and Arizona generally recognizes and gives effect to Navajo Nation law.

Navajo Nation law permits contracts for marriage only between unmarried people, so if Decedent was still married to Platero, he could not have also been married to Lynch. But it is clear that Decedent and Lynch held themselves out to be married under Navajo Nation law. Decedent explicitly indicated as such on the Coverage Update. Decedent and Lynch sought the recognition and benefits of common law marriage under Navajo Nation law, which Arizona law recognizes, including in the forms associated with the MetLife plan benefits.

Under Arizona law a divorce revokes a life insurance beneficiary designation to the former spouse. Because Lynch averred that the common law marriage between her and Decedent ended MetLife questioned the validity of the designation of Lynch as beneficiary at the time of Decedent’s death.

At the time he entered into a common law marriage with Lynch and so indicated on the Coverage Update, if Decedent was not still legally married to Platero and the common law marriage was valid, then the Court must find that the end of the marriage to Lynch revoked the beneficiary designation to Lynch. The language of that statute indicates the clear intent that life insurance benefits to the spouse end with the end of the marriage. Lynch cannot now claim not to be divorced from Decedent simply to obtain the plan benefits.

If Decedent was still legally married to Platero at the time he submitted the Coverage Update, then identifying Lynch as his common law spouse was a material misrepresentation in violation of the terms of the Coverage Update itself, which require truthful information and warn that “inaccuracy or omission may result in a loss of coverage and unpaid claims.” Under any marital property regime, marital status is material with respect to the distribution of marital assets. Moreover, accepting a contention that a valid divorce of a prior marriage occurred when it did not would validate a subsequent bigamous marriage of a participant therein. In such an instance, the Court must, and did, conclude that the Coverage Update was invalid and unenforceable.

Because the beneficiary designation to Lynch is not enforceable in either scenario, the Court concluded it must give effect to the prior beneficiary designation at the time of Decedent’s death, namely, to Decedent’s son, Martin, Jr. and judgment was entered in favor of Royal Martin, Jr., who appears pro se in this matter and is, according to the record, and Royal Martin, Jr. is entitled to $135,869.86, representing the death benefits due under a life insurance policy on the life of Royal Martin, Sr., issued by Metropolitan Life Insurance Company and deposited with the Court on August 6, 2019 (Doc. 22), plus any accrued interest. The Clerk of Court shall forthwith dispense the interpleader funds identified above in the amount of $135,869.86 plus any accrued interest, to Royal Martin, Jr. pursuant to Judgment of the Court.

ZALMA OPINION

It is axiomatic that where there is a will, there are relatives. Similarly, where there is life insurance, there are relatives seeking the benefits. The USDC, in a Solomon-like decision, concluded that the common-law-marriages entered into by the decedent, even though allowed by the Navajo Nation and Arizona that supports Navajo law, were invalid and only the first named beneficiary could get the benefits because of the misrepresentation made by the decedent when he sought to change the beneficiary to his common-law spouse.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and Read last two issues of ZIFL here.

 

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Zalma’s Insurance Fraud Letter – April 1, 2021

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Not a Joke – Zalma’s Insurance Fraud Letter Volume 25, Number 7

See the full video at https://rumble.com/vf8brt-zalmas-insurance-fraud-letter-april-1-2021.html  and at https://youtu.be/A-NUCx-M7Lg

Arson for Profit Conviction Affirmed in Pennsylvania

John M. Sekerak appealed from the January 16, 2020 judgment of sentence entered in the Court of Common Pleas of Berks County (“trial court”), following his jury convictions for two counts of arson, recklessly endangering another person (“REAP”), and insurance fraud. In Commonwealth of Pennsylvania v. John M. Sekerak, J-S47005-20, No. 387 MDA 2020, Superior Court of Pennsylvania (March 15, 2021) the Pennsylvania court considered the convicted arsonist’s claims of error only to find that he was guilty beyond a reasonable doubt.

Seven and a Half to Fifteen Years for Fraud

After a judgment was entered by the Supreme Court, New York County (Justice, Neil E. Ross, J.), rendered December 4, 2018, convicting defendant Sharif King, upon his plea of guilty, of criminal possession of stolen property in the second degree, forgery in the second degree, identity theft in the first degree and insurance fraud in the third degree, and sentencing him, as a second felony offender, to an aggregate term of 7½ to 15 years.

False Estimate By “Consultant” Adopted by Insured Is Fraud

Jennifer Mezadieu (“the Homeowner”) appeals the trial court’s entry of final summary judgment in favor of SafePoint Insurance Company (“SafePoint”) in her breach of contract action. The trial court entered final summary judgment pursuant to the policy’s “concealment or fraud” provision after determining that the repair estimate prepared by the Homeowner’s loss consultant included material false statements. In Jennifer Mezadieu v. SafePoint Insurance Company, No. 4D20-2, District Court of Appeal of The State of Florida Fourth District (March 26, 2021) the court sought to be excused from her reliance on the consultant and adoption of the false estimate.

Good News From the Coalition Against Insurance Fraud

Health Insurance Fraud Convictions

Insurance Fraud – The Bane of the Insurance Industry

Next to tax fraud, insurance fraud is the most practiced crime in the world. It is perpetrated by members of every race, religion, and nationality. It is found in every profession. The possibility of a tax-free profit when coupled with the commonly held belief that criminal prosecution will probably not occur, is sometimes too difficult for normally honest people to resist.

Other Insurance Fraud Convictions

Hard Fraud & Soft Fraud

Those who try to put fraud in more than one category move from soft fraud to what they call “hard fraud.” Hard fraud is considered a fraud or attempted fraud that is premeditated and intentionally committed.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and Read last two issues of ZIFL here.

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A Video Explaining why There is No Tort Remedy for Non-Insurance Bad Faith

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Third Party Claimant has no Right to Tort Damages for Bad Faith by Other Party’s Insurer

See the full video at https://rumble.com/vf6z1v-a-video-explaining-why-there-is-no-tort-remedy-for-non-insurance-bad-faith.html?mref=6zof&mrefc=2 and at https://youtu.be/wf_si02jebc

The Supreme Court of California was faced with the question of “whether an insurance company’s breach of the covenant sounds in tort when it retroactively overcharges a premium it knows is not owed.”

In Jonathan Neil & Associates v. Jones, a dispute between Jones Trucking and Jonathan Neil & Associates arose after an audit of the Joneses’ operations found the trucking company was subcontracting business to other trucking companies. A rule governing the state’s assigned risk plan called for Jones Trucking to pay for the subcontractors’ insurance. Cal-Eagle, the insurer, sought to retroactively collect increased premiums from the Joneses, and brought in Jonathan Neil & Associates, a collection agency.

A breach of this duty of reasonable settlement gives rise to tort damages. However, the Supreme Court of California has, in the past, refused to extend the tort remedy to breaches of contracts other than insurance contracts. The question raised was whether bad faith conduct not involving a claim entitled an insured to tort damages. The court rejected the expansion of tort damages.

“Imposing a duty of good faith and fair dealing running from the Insurer to the [plaintiffs] would ‘create a serious conflict of interest for the [I]nsurer’ by obligating it to safeguard both the [plaintiffs’] and Gonzalez’s interests.” Plaintiffs, as third party claimants, have no contractual relationship with the insurer and cannot sue the insurer for breach of the implied covenant of good faith and fair dealing. In so arguing, the court applied the law as stated by the California Supreme Court in Moradi-Shalal v. Fireman’s Fund Ins. Companies (1988) 46 Cal.3d 287 (Moradi-Shalal).

The Supreme Court held that a third party claimant—an individual who is injured by the alleged negligence of an insured party—does not have a private right of action against the insurer for unfair settlement practices.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and Read last two issues of ZIFL here.

 

 

 

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False Estimate by “Consultant” Adopted by Insured is Fraud

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False Estimate by “Consultant” Adopted by Insured is Fraud

Jennifer Mezadieu (“the Homeowner”) appeals the trial court’s entry of final summary judgment in favor of SafePoint Insurance Company (“SafePoint”) in her breach of contract action. The trial court entered final summary judgment pursuant to the policy’s “concealment or fraud” provision after determining that the repair estimate prepared by the Homeowner’s loss consultant included material false statements. In Jennifer Mezadieu v. SafePoint Insurance Company, No. 4D20-2, District Court Of Appeal Of The State Of Florida Fourth District (March 26, 2021) the court sought to be excused from her reliance on the consultant and adoption of the false estimate.

On appeal, the Homeowner argued that summary judgment was improper because issues of material fact remained as to whether:

  • the estimate contained false statements;
  • the false statements were material; and
  • the Homeowner intended to rely on the false statements.

FACTS

The Homeowner owns a home insured by SafePoint. On February 25, 2016, the Homeowner submitted a notice of claim with SafePoint alleging that the residence sustained damage caused by a water leak in the second-floor bathroom. The notice identified Contender Claims Consultants (“Contender”) as the Homeowner’s loss consultant.

SafePoint had the home inspected by an independent adjuster and a building scientist. According to SafePoint’s building scientist, a loss consultant from Contender was present during the inspection and directed SafePoint’s agents to parts of the home claimed to have sustained damage from the leak, including the kitchen located directly below the second-floor bathroom. After concluding its investigation, SafePoint determined the alleged damages were consistent with chronic moisture exposure occurring over a minimum period of six weeks in duration prior to the reported date of loss, and inconsistent with the damage being caused by a one-time leak. SafePoint accordingly denied the claim pursuant to Section I of the policy, which excludes coverage for damages caused by “[c]onstant or repeated seepage or leakage of water or steam . . . which occurs over a period of time.”

In response, Homeowner sued SafePoint. In her complaint, the Homeowner asserted she provided SafePoint “with a damage estimate for a covered loss in the amount of $43,181.01,” and that she “sustained unpaid damages in the amount of $43,181.01.” The Homeowner later filed the detailed, itemized estimate—prepared by Contender—with the court. The estimate sought damages for nearly every room of the house. Notably, the estimate included line items for the replacement of the kitchen cabinets.

In her sworn interrogatory responses the Homeowner responded to the question of damage as follows: “$43,181.01, as per the written estimate prepared by [Contender] submitted with Plaintiff’s Responsive Documents to Defendant’s Request for Production.”

At the deposition of the Homeowner she confirmed that, consistent with the estimate, she was claiming $43,181.01 in damages. When questioned about the line items in the estimate, however, the Homeowner all but conceded that the estimate contained false statements. For example, when asked if the reported leak caused damage to the kitchen cabinets, the Homeowner disclosed that the cabinets had actually been damaged by a prior leak in the kitchen—a leak which the Homeowner made a claim for with a different insurer—and that the leak at issue did not cause any damage to the kitchen cabinets.

Based on the Homeowner’s sworn interrogatory answers and deposition testimony, SafePoint amended its answer to include an affirmative defense based on the policy’s “concealment or fraud” provision. That provision states that SafePoint will not provide coverage for an otherwise covered loss if, whether before or after the loss, one or more “insureds” have:

(1) Intentionally concealed or misrepresented any material fact or circumstance;

(2) Engaged in fraudulent conduct; or

(3) Made material false statements; relating to this insurance.

SafePoint moved for summary judgment pursuant to that provision.

ANALYSIS

At no point prior to the hearing did the Homeowner seek to revise the estimate or otherwise submit a new estimate. At the hearing, the Homeowner’s attorney made the following concessions:

  • The Homeowner “has never said that she does not agree with [the] sworn proof of loss;”
  • the Homeowner adopted the estimate; and
  • the estimate should not have included $11,000 for damages to the kitchen and that it would therefore be appropriate for the trial court to grant partial summary judgment, or alternatively, strike $11,000 from the total damages claimed by the Homeowner.

At the conclusion of the hearing, the trial court found that the uncontroverted summary judgment evidence established the estimate contained material false statements. The court also concluded that the false statements were attributable to the Homeowner because she adopted the estimate as her own in both her sworn interrogatory answers and deposition testimony, and because Contender was acting as her agent.

It is well established that a party is bound by his or her admissions under oath, be it by deposition or interrogatories. The Homeowner adopted the estimate as her own statement. As the estimate undisputedly included at least $11,000 in repairs unrelated to the leak, the Homeowner made material false statements relating to the claim.

Even after the Homeowner acknowledged during her deposition testimony that the kitchen cabinets were not damaged by the leak, she still made no attempt to revise the estimate prior to the summary judgment hearing. Even if the Homeowner did not intend to rely on the false statements contained in the estimate, a showing of intent is not required under the policy’s concealment or fraud provision. In Universal Property & Casualty Insurance Co. v. Johnson, 114 So. 3d 1031, 1036 (Fla. 1st DCA 2013). the court analyzed the same “concealment or fraud” clause, albeit in the context of a false statement made on an insurance application, and held that the material false statement need not be intentional. In so holding, the Johnson court explained that “given the language of subsection [(1)], subsection [(3)] would be superfluous if a ‘false statement’ under [(3)] included only intentionally false statements.”

Simply put, an insured cannot blindly rely on and adopt an estimate prepared by his or her loss consultant without consequence. This is not to say that an insured will always be bound by the representations made in an estimate prepared by his or her loss consultant.

When an insured relies on or adopts an estimate containing material false statements to support his or her claim, the insured is bound by the estimate and cannot avoid application of the concealment or fraud provision simply because he or she did not prepare the estimate.

ZALMA OPINION

A “loss consultant” or “public insurance adjuster” usually takes an assignment of the funds the insured is to collect from the insurer due to the claim presentation. Regardless, the claim is presented by the insured and if the loss consultant – as Contender did in this case – the insured knew that the presentation by Contender was false and so testified at deposition. In so doing she admitted that she adopted the fraudulent claim prepared by Contender and attempted to defraud her insurer. Although she may have had a legitimate claim – which is doubtful – the fraud defeated her attempt to obtain money from her insurer.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and Read last two issues of ZIFL here.

 

 

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A Video Explaining the Availability of Coverage for Defense if there is a Potential for Indemnity

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The Duty to Defend and Potentiality

See the full video at https://rumble.com/vf5p91-a-video-explaining-the-availability-of-coverage-for-defense-if.html and at https://youtu.be/t6iJrxHe3VE

In the leading case of Gray v. Zurich Ins. Co. 65 Cal.2d 263, 54 Cal. Rptr. 104 (1966) the Supreme Court of California set the basic rule followed in most jurisdictions for deciding whether an insurer owes a duty to defend or not. It found that insurers issuing dual-promise policies (a promise to both defend and indemnify) are required to defend any suit in which there is a potentiality that the insurer will have to indemnify.

The insured in Gray was alleged to have assaulted and battered the plaintiff. The policy, and the statutes of California, prohibited indemnity for an intentional act of an insured. Assault and battery are, by definition, intentional acts, so the insurer argued that it owed no defense.

The complaint against the insured only alleged the intentional tort of battery. The court concluded the insurer should be compelled to defend since there was a potential that the complaint could be amended, or the jury could find, the insured’s actions were merely negligent. The court’s decision was founded in the wording of the policy, concluding that the duty to defend was broader than the duty to indemnify. The insurer’s agreement to defend suits even if they were “false or fraudulent” caused the court to conclude that the insurer agreed to extend the duty to defend far beyond those acts for which coverage for indemnity might exist.

The potentiality concept has expanded the exposure of insurers insuring personal and commercial risks. Even though a policy excludes liability arising from violations of law, there is the potentiality that the jury would find there was no violation of law and that the policy provided coverage.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and Read last two issues of ZIFL here.

 

Posted in Zalma on Insurance | Leave a comment

“Cause Theory” Applied to Determine One Accident from Two Collisions

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When Plaintiff was Involved in One Accident When Plaintiff Never Gained Control

The two parties to an uninsured/underinsured litigation asked the Eleventh Circuit to define and apply the term “accident” as used in an automobile insurance policy to an auto accident where the plaintiff was struck by two different autos. In William Benjamin Danner, Jr., Mary Danner v. Travelers Property Casualty Insurance Company, No. 20-12553, United States Court Of Appeals For The Eleventh Circuit (March 18, 2021) the trial court found one accident and the plaintiffs appealed.

FACTS

William Danner was involved in a multi-car wreck in which he was hit twice—once by a truck and once by an SUV. Afterward, he and his wife filed a declaratory judgment action against their insurer, Travelers Property Casualty Insurance Company, asserting that their policy limits were applicable to each collision separately because each collision was a separate “accident” under the policy. The district court granted summary judgment for Travelers, holding that the collisions were one single “accident” under the policy.

William B. Danner Jr. was driving home one afternoon when a white pickup truck crossed into his lane and hit him head-on. Danner had no time to react in a way that would have avoided the truck. Then, shortly after the initial crash, a blue sport utility vehicle struck Danner’s car from behind. Importantly, Danner had not yet regained control of his car when he was hit by the blue SUV. He was not even aware that there had been a second collision at the time he left the scene. Later, he testified that he could not recall being hit by the blue SUV. Nor could he recall how much time passed between colliding with the white pickup and being hit by the blue SUV.

At the time of the wreck, Danner was insured by an automobile insurance policy issued by Travelers. The policy included coverage for injuries caused by uninsured motorists with limits of $250,000 per “any one person in any one auto accident.”  The policies on the pickup and SUV that collided with Danner each covered less than $250,000.

The Danners filed an action in state court seeking, among other things, a declaratory judgment regarding the amount of uninsured motorist coverage available under their Travelers policy. They alleged that under the policy each collision was a distinct “accident,” meaning that the $250,000 limitation on uninsured motorist liability applied separately to each collision for a total of $500,000.

After considering the filings, the district court denied the Danners’ motion for summary judgment and granted Travelers’ motion. The trial court declared that the policy provided only $250,000 in uninsured motorist coverage for Plaintiff’s claims arising out of the May 31, 2018 accident.

ANALYSIS & The “Cause” Theory

Courts applying Georgia law rely on the “’cause’ theory” to aid in the construction of the word “accident”. Under this theory the number of accidents is determined by the number of causes of the injuries, with the court asking if there was but one proximate, uninterrupted, and continuing cause which resulted in all of the injuries and damage.

Where an automobile accident involves a sequence of collisions, courts look to whether, after the cause of the initial collision, the driver regained control of the vehicle before a subsequent collision, so that it can be said there was a second intervening cause and therefore a second accident.

The Eleventh Circuit concluded that the district court correctly determined that there was one “accident.” Danner was injured when the white pickup crossed the center line and hit him head-on. Because of that collision Danner’s car was stopped in the road, at which point he was rear-ended by the blue SUV. Danner himself testified that at no point between the first and second collision did he regain control of his car. As he put it: “I had no control over it at all.” Based on these undisputed facts, the district court determined that there was one “proximate, uninterrupted, and continuing cause” of Danner’s injuries, and thus one “accident” under the policy.

The district court was not required to wait for a jury to apportion fault for the wreck before applying the “cause theory” to determine the number of accidents under the policy. Juries resolve disputes of material fact. In this declaratory judgment action, there are none.

The Eleventh Circuit found that the undisputed facts support the district court’s determination that the two impacts Danner suffered were part of the same “accident.” As a result the Eleventh Circuit affirmed the trial court’s decision.

ZALMA OPINION

What this case teaches is that one should never try to save money by limiting the available underinsured motorist coverage. No one should carry less UM/UIM coverage than the liability coverage they find available for a third party the insured may injure. It is not the number of collisions that determine the number of accidents but the fact that there was an uninterrupted series of collisions with Danner’s vehicle disabled, out of control, when it was struck a second time all part of the same proximate event.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and Read last two issues of ZIFL here.

 

Posted in Zalma on Insurance | Leave a comment

A Video Explaining the Trigger of Coverage for Property Damage

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The Property Damage Trigger of Coverage

See the full video at https://rumble.com/vf2fn5-a-video-explaining-the-trigger-of-coverage-for-property-damage.html and at https://youtu.be/6UDMJHAZL5U

The term “trigger of coverage” means “what event must occur for potential coverage to commence under the terms of the insurance policy” and “what must take place within the policy’s effective dates for the potential of coverage to be ‘triggered.'” [In Re Feature Realty Litig., 468 F. Supp.2d 1287, 1295, n.2 (E.D. Wash. 2006)]

After the California Supreme Court adopted a continuous trigger in Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645, 685, 42 Cal.Rptr.2d 324, 913 P.2d 878 (Montrose) in the case of successive policies, property damage that is continuous or progressively deteriorating throughout several policy periods is potentially covered by all policies in effect during those periods, so that the insurer’s duty to defend arose under those policies. Insurers, trying to limit their coverage, revised the policy wording.

Therefore, the precise question is what result follows under the language of the policies of insurance to which the parties agreed. The “continuous injury” trigger has been applied mostly in cases involving gradual release of pollutants and other environmental harms. After Montrose, the insurer revised its policies to use the language for the very purpose of “obviat[ing] the application of the ‘progressive damage-continuous trigger’ articulated in Montrose.” As a result, the defendant’s policies state that property damage “which commenced prior to the effective date of this insurance will be deemed to have happened in its entirety prior to, and not during, the term of this insurance.” [Ins. Co. of Pa. v. Am. Safety Indem. Co., 32 Cal.App.5th 898, 244 Cal.Rptr.3d 310 (Cal. App., 2019)]

In King Cnty. v. Travelers Indem. Co. (W.D. Wash., 2019) the Louisiana Court of Appeals ruled that allegations by a property owner that an environmental consultant failed to detect the presence of pollutants on its property did not trigger coverage under the consultant’s liability policies. The Court found that the “occurrence” giving rise to the claims against the insured took place years prior to the issuance of the policies in question. [Herzog Contracting Corp. v. Oliver, No. 40, 918 So.2d 516 (La. App. Cir.2 12/16/2005).]


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and Read last two issues of ZIFL here.

Posted in Zalma on Insurance | Leave a comment

Agent’s Special Relationship with Insured Requires Advice on Coverage Needed

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Agent’s Failure to Advise Need for Substantial Ordinance and Law Coverage Breaches Duty Owed to Insured

Foy Insurance Group, Inc. (Foy) appealed a verdict rendered after a jury trial in favor of the plaintiff, 101 Ocean Blvd., LLC (Ocean), finding that Foy was negligent for failing to advise Ocean to purchase sufficient insurance coverage to rebuild a hotel, damaged in a 2015 fire, in compliance with the current building code and awarding damages to Ocean. In 101 Ocean Blvd., LLC v. Foy Insurance Group, Inc. & a., No. 2019-0067, Supreme Court Of New Hampshire (March 19, 2021) the Supreme Court established how the Plaintiff Established the special relationship to hold an agent liable to an insured for inadequate coverage.

FACTS

Ocean is owned by Albert J. Bellemore, Jr., a businessman and real estate developer. In 2006, Ocean purchased the Ocean Boulevard hotel in Hampton. The hotel had been constructed in the 1920s, and did not conform to contemporary building codes. The hotel had a convenience store on the ground level that sold “pretty much everything.” The hotel also had a lobby floor, a second floor with an office and “a small two-bedroom apartment,” and third and fourth floors with hotel rooms.

Since the early 2000s, Bellemore worked with Foy as his insurance agent for several properties. Shortly after purchasing the hotel in 2006, Ocean, through Foy, purchased a $1.3 million replacement cost policy for the structure. By 2015, Bellemore “had 14 or 15 different [insurance] policies in force with Foy.”  In 2011, Bellemore’s primary contact at Foy, Heidi SanSouci, expressed concerns about the limits of Ocean’s coverage on the hotel property, and recommended that he increase it to approximately $2 million. Bellemore declined at that time because of the recession. SanSouci made the same recommendation in 2012 and 2013. In 2013, Bellemore took SanSouci’s advice and purchased the additional coverage, which she placed with Lloyd’s of London.

Bellemore frequently relied upon SanSouci’s recommendations because he did not “know anything about insurance,” he trusted her judgment and insurance experience, and he appreciated her attention to detail and good service. On occasion, Bellemore asked SanSouci to review policies that he had obtained from other insurance agents. SanSouci occasionally told Bellemore that he should “stay with a different carrier for coverage,” even though doing so meant that she would “lose out on some business.” For instance, in a 2015 e-mail to Bellemore, SanSouci said, “Unfortunately, I have not been able to find better pricing for the builder’s risk for above. Although I hate to have you go someplace else for this coverage, I think you should move forward with the other quote.” In that e-mail, she advised Bellemore “to secure premises liability coverage” for that property “so that [he would be] fully covered.”

Through the “surplus lines” market, Foy found coverage for Ocean with AIX Specialty Insurance Company, a subsidiary of The Hanover Insurance Company. In April 2014, Ocean purchased a $2 million replacement cost policy. In addition to the replacement cost coverage, the AIX policy provided for $10,000 in law and ordinance insurance coverage. Law and ordinance coverage is designed to pay for the increased costs associated with complying with current building codes and other laws and ordinances when rebuilding a structure after a loss. At no time did Foy recommend that Bellemore purchase additional law and ordinance coverage on behalf of Ocean.

After a fire at the hotel an engineering firm told Bellemore that the cost to replace the existing structure would be approximately $1.1 million, and that, in order to rebuild a structure that complied with the current building code, it would cost an additional $905,070. He decided to demolish the structure rather than rebuild it. After accounting for depreciation, Ocean’s insurer paid Ocean $910,141 for the replacement cost of the structure — an amount that did not include the additional cost necessary to rebuild the structure in compliance with the building code.

Ocean sued Foy, alleging that, because the parties had a “special relationship,” The jury returned a verdict in favor of Ocean and then apportioned 25% fault to Ocean and 75% fault to Foy.

ANALYSIS

Ocean’s Closing Argument

Foy argued that during Ocean’s closing argument, counsel made certain “factually inaccurate and prejudicial statements to the jury.” With respect to a closing argument in a civil jury trial, any objection must be raised either during or immediately after the closing argument. At trial, Foy failed to object to any of the statements it characterized as “highly prejudicial.”

Although the alleged misstatements were not so egregious as to impose upon the trial court an obligation to intervene. The statements Foy contests on appeal would have been cured by the trial court’s jury instructions. Although the Supreme Court would not condone the challenged portions of Ocean’s closing argument, under the circumstances of the case, it could not conclude that the trial court’s failure to interrupt Ocean’s closing and/or immediately provide additional instructions amounted to a plain error that affected Foy’s substantial rights.

SPECIAL RELATIONSHIP

The trial court instructed the jury sufficiently about a the special relationship needed to find Foy liable to Ocean.  It said a “special relationship” between an insurance agent and client does not impose a general duty of care to give advice regardless of the availability or sufficiency of coverage. The trial judge advised that:

“However, the existence of a ‘special relationship’ between the insurance agent and the client may impose upon an insurance agent an affirmative duty to provide advice regardless of the availability or sufficiency of insurance coverage. An insured . . . can demonstrate . . . a ‘special relationship’ by showing that there exists something more than the standard insurer-insured relationship between the parties. This depends upon the particular relationship between the parties and is determined on a case-by-case basis. Examples include an express agreement between the insured agent and client, a long-established relationship or entrustment in which the agent clearly appreciates the duty of giving advice, the paying [of] an additional compensation apart from the premium payment, and the agent holding himself or herself out as a highly-skilled expert coupled with reliance by the insured. Also, a ‘special relationship’ between the parties may exist when the insured relies upon the agent’s offered expert [advice] regarding the question of coverage, or when there is a course of dealings over time putting the agent on notice that his or her advice is being sought and relied upon. If a ‘special relationship’ exists between the parties, the Plaintiff must demonstrate not only the existence of the relationship, but also that he or she was justified in relying upon the relationship.”

The Supreme Court concluded the evidence was sufficient to establish a special relationship and the instruction given by the trial court was appropriate.

EVIDENCE OF CAUSATION

Viewing the evidence and all reasonable inferences in the light most favorable to Ocean, the Supreme Court concluded that the evidence was sufficient for a rational trier of fact to have found that additional law and ordinance coverage was generally available in the marketplace and was specifically available to Ocean.

Since a rational trier of fact could have found, based upon the plaintiff’s expert’s testimony, that there would have been little difference between what Ocean paid in premiums under its then-current coverage and what it would pay in premiums if replacement coverage were reduced to $1,300,000 or $1,100,000 and law and ordinance coverage were increased to $700,000 or $900,000, other than an endorsement processing fee of $500.

ZALMA OPINION

The actions of Foy and its employees set up a special relationship with Ocean, even to the point of advising him to use a different agent who obtained better coverage than that that Foy could obtain, advised Ocean of limits to obtain, and coverages to obtain for Ocean’s multiple properties. The special relationship was established. Agents and brokers must be exceedingly careful in the advice given when there is a special relationship and should have known that $10,000 in law and ordinance coverage was obviously inadequate when applied to a hotel more than 100 years old.

 


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and Read last two issues of ZIFL here.

 

 

 

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A Video Explaining the Disbarment of the Naive Lawyer and Insurance Fraud

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Lawyers May Never Share Fees With a Non-Lawyer

See the full video at https://rumble.com/vf15at-a-video-explaining-the-disbarment-of-the-naive-lawyer-and-insurance-fraud.html  and at https://youtu.be/e8XPLp64NU4

The decision, In re Oheb, No. 99-C-11161 (Cal. Bar Rev. 07/16/2004) a hearing judge’s recommended that respondent Tamir Oheb be placed on four years’ stayed suspension and on four years’ probation with conditions, including two years’ actual suspension. Oheb admitted that “[t]he detailed findings of the Hearing Department are amply supported by the record” and that “[t]he degree of discipline recommended by the Hearing Department is well-supported and should be adopted” by the review department.

Oheb, after pleading nolo contendere, he was convicted in the Los Angeles Superior Court on two felony counts of violating Penal Code section 549 for accepting referrals of personal injury clients with reckless disregard for whether the referring party or the referred clients intended to make false or fraudulent insurance claims.

Given that either reckless disregard or knowledge of intent of another to commit insurance fraud is an element of the offense – since Oheb pled to the “reckless disregard” element the Bar concluded it was unable to conclude that Penal Code section 549 inherently involves moral turpitude.

Oheb was told, and believed, that Gottlieb had been a very successful “attorney for 25 years plus, that [Gottlieb] was a litigator, [that Gottlieb] had worked for a number of famous attorneys,” that Gottlieb had a “huge book of business” that he was willing to refer to respondent, and that he was willing to teach respondent how to litigate.

As silly and patently illegal was the offer, Oheb in financial difficulty, agreed with Gottlieb to split the attorney’s fees on each case Gottlieb referred to Oheb: 25 percent to Oheb and 75 percent to Gottlieb whenever Gottlieb had to buy the case or otherwise had to pay money to someone in connection with the case, and 50 percent each whenever Gottlieb did not have to buy the case or otherwise have to pay for some expense related to the case or whenever Gottlieb bought the case from a specific individual who did not charge much for cases.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and Read last two issues of ZIFL here.

 

Posted in Zalma on Insurance | Leave a comment

Bad Faith in California Requires Unreasonable Conduct or Conduct Without Proper Cause

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Even an Ineffective Refusal to Defend is not Bad Faith if Made in Good Faith

In, hopefully the last appeal between the parties, First One Lending Corporation and John Vescera (collectively, “Appellants”) appealed the district court’s grant of summary judgment to The Hartford Casualty Insurance Company on its claim for the amount of a settlement to a third party and bad faith and punitive damages in First One Lending Corporation; John Vescera v. The Hartford Casualty Insurance Company, No. 20-55016, United States Court Of Appeals For The Ninth Circuit (March 19, 2021)

FACTS

Appellants’ claim sought $1.5 million in indemnification, the amount Appellants paid to settle a prior lawsuit that the Neighborhood Assistance Corporation of America (NACA) brought against Appellants.

The NACA settlement agreement resolved NACA’s claims against Appellants under the Lanham Act and for harm to NACA’s reputation. These were covered claims under the insurance policy’s provision for “personal and advertising” injuries. Hartford failed to create a genuine dispute of material fact in arguing that the NACA settlement included non-covered restitution. There is no suggestion that NACA itself received restitution from the settlement. Nor did Hartford shown that the NACA settlement included restitution for homeowners, which the insurance policy would not have covered. Homeowners were not parties to NACA’s suit against Appellants, nor was there any “final adjudication” in the NACA litigation of Appellants’ alleged wrongs against homeowners. It is also undisputed that nothing required NACA to use its settlement proceeds to reimburse homeowners, even as NACA may have chosen to do so.

Hartford claimed that Vescera’s statements in his criminal proceedings require a different conclusion under the doctrine of judicial estoppel. Hartford has not explained how Vescera’s statements could estop First One, which was not a party to the criminal proceedings. Nor has Hartford shown that Vescera’s statements in the criminal proceedings were “clearly inconsistent” with Appellants’ position in the case before the Ninth Circuit. In both instances, Vescera and Appellants maintained that NACA had no obligation to pay homeowners, even as they may have hoped that NACA would do so.

Hartford’s alternate argument that California Insurance Code § 533 precludes coverage similarly fails. Section 533 states that “[a]n insurer is not liable for a loss caused by the wilful act of the insured . . . .” Cal. Ins. Code § 533. The Ninth Circuit has previously held that the claims in NACA’s complaint did not fall under § 533 because the Lanham Act trademark infringement claim did not require a showing of willfulness and at least some claims in the complaint were not inseparably intertwined with willful conduct.

While this appeal involves the duty to indemnify, the NACA settlement included payment for the Lanham Act claims and Hartford has not shown that all or part of the $1.5 million settlement was for willful conduct. Nor does the settlement fall within the policy’s exclusion of personal and advertising injury resulting from the rendering of, or the failure to render, financial services. The NACA settlement agreement only included covered claims and in arguing otherwise, Hartford points to the same evidence we in an earlier case involving the same subjects.

The district court correctly granted summary judgment for Hartford on Appellants’ claims that Hartford denied insurance coverage in bad faith. To show a bad faith denial of coverage, a plaintiff must prove that “(1) benefits due under the policy were withheld; and (2) the reason for withholding benefits was unreasonable or without proper cause.” Guebara v. Allstate Ins. Co., 237 F.3d 987, 992 (9th Cir. 2001). Although the Ninth Circuit previously concluded that Hartford had to defend Appellants in the NACA litigation and now conclude Hartford must indemnify Appellants for the NACA settlement, Hartford did not act unreasonably in denying coverage, particularly given Vescera’s statements during his criminal trial.

Because Hartford failed to defend Appellants, it has the burden of proving by a preponderance of the evidence that the settlement payments were allocable to claims not actually covered, its defense is ineffective.

While California case law precludes indemnification and reimbursement of claims that seek the restitution of an ill-gotten gain, Hartford did no prove that all or part of the NACA settlement was for non-covered restitution or otherwise excluded claims.

The district court’s grant of summary judgment to Hartford on Appellants’ claim for $1.5 million in indemnification was, therefore, reversed and the Ninth Circuit directed the district court to enter judgment for Appellants on that claim. However, the Ninth affirmed the district court’s grant of summary judgment to Hartford on Appellants’ bad faith and punitive damages claims because its position on the claim, although not enforceable, was reasonable because of the testimony of a person involved in a criminal case.

ZALMA OPINION

Even when an appellate court finds that an insurer wrongfully failed to defend its insured, that fact is not sufficient to allow a cause of action for bad faith tort damages if its acts were reasonable. In light of a criminal conviction and testimony in a criminal trial the insurer had a reasonable ground to deny defense. Since Hartford couldn’t provide enough evidence to establish excluded actions involved in the settlement reached by NACA, it was required to pay the settlement reached by NACA.  This case teaches that it would have been prudent for Hartford to provide a defense under a reservation of rights and get involved in the settlement talks so that it could have the proof needed for reimbursement and would have saved several appeals. Defense should only be refused if there is absolute, convincing evidence that there was no coverage for defense.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and Read last two issues of ZIFL here.

 

Posted in Zalma on Insurance | Leave a comment

A Video Explaining Insurer Underwriting Personnel

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An Explanation of What is Needed to Obtain Insurance After Completing an Application

See the full video at https://rumble.com/vezy11-a-video-explaining-insurer-underwriting-personnel.html and at https://youtu.be/yGFGcTr0dr0

The Underwriter

The person who makes the decision to insure or not insure a prospective insured, in modern practice, is called an underwriter.  Unlike the original underwriters at Lloyd’s the person with the title “underwriter” is usually an employee of an insurer who was employed to evaluate risks the insurer employer is willing to take.

The agent or broker deals directly with the insurer’s underwriter or an agent appointed by the insurer to act as its underwriter. The agent and broker try to present the risk to the insurer and underwriter best suited for the risk.

The underwriter is the risk taker. He or she decides whether the risk presented by the broker or agent is the type of risk that the insurer is willing to take. Each insurer has specialized underwriters who look at risks differently and use their own criteria to evaluate them.

The Loss Prevention Engineer

If the risk the prospective insured proposes is large, he or she will often be visited by a loss prevention engineer. This person, employed by the insurer, is obligated to inspect the prospective insured’s real and personal property and to interview him or her to ascertain that the insured and the property meet the requirements the insurer insists upon before it will accept a risk for insurance.

The Pre-Risk Inspection Service

If the risk is residential or a specialty type of business the insurer will have it inspected by a specialized company called a “pre‑risk inspection service.” Its inspectors are often experienced claims adjusters who understand the types of hazards faced by prospective insureds and their prospective insurers. The pre‑risk inspection service seeks much the same information for the insurer as the loss prevention engineer. In addition, it determines if there is any specialized information needed by the insurer because of the type of risk.

After the policy comes into effect the insured should have no contact with the insurer except when it comes time to renew the insurance or pay premium. At the time of renewal the insured may see the same people he or she saw to acquire the policy or no one at all. If the insured has presented no claims during the policy term he or she may merely receive an offer from the insurer to renew the insurance for a specified premium. The insured will either accept the offer or find insurance with another insurer at a better price.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and Read last two issues of ZIFL here.

 

Posted in Zalma on Insurance | Leave a comment

Filed Rate Doctrine and Lender Placed Insurance

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Homeowner Owes to Pay Lender Placed Insurance Premium to Mortgagee

Robert Lewis (“Lewis”) sued his mortgage loan servicer, M&T Bank (“M&T”), in connection with flood insurance coverage purchased by M&T on his behalf. Lewis also sued three subsidiaries of the insurance company Assurant, Inc. (collectively, the “Assurant”). Lewis alleges that, in “force-placing” flood insurance on his mortgaged property, M&T and Assurant violated the Racketeer Influenced and Corrupt Organizations Act (“RICO”). In Robert R. Lewis v. M&T Bank Corp., Et Al., Civil Case No. 3:20-CV-00552 (JCH), United States District Court District Of Connecticut (March 19, 2021) the USDC dealt with the defendants motions to dismiss the Complaint.

BACKGROUND

In July 2010, Lewis took out a mortgage on his property in Branford, Connecticut. To protect the lender’s interest, the loan agreement signed by Lewis requires him to maintain hazard insurance on the property for the life of the loan. Should Lewis fail to maintain adequate hazard insurance, the loan agreement permits the lender to purchase such coverage on his behalf, known as lender-placed insurance (“LPI”), and then seek reimbursement from him.

The flood insurance policy Lewis had obtained expired in June 2017. That same month, ASIC—with whom M&T had contracted to monitor its loan portfolio, sent Lewis a notice on M&T’s behalf informing him that his flood insurance had lapsed and that, if he did not provide proof of coverage, M&T intended to purchase LPI for his property. The notice stated that the insurance purchased by M&T might “be significantly more expensive than the insurance [Lewis could] buy [him]self” and concluded that “obtaining [his] own insurance was in [Lewis’s] best interest.”

When Lewis failed to obtain or provide proof of coverage, M&T purchased LPI from ASIC. That insurance was purchased at rates approved by, and on file with, the Connecticut Insurance Department (“CID”). M&T, in turn, sought reimbursement from Lewis in that amount.

Lewis alleged that the amount M&T billed him for LPI was inflated because those charges did not reflect hidden rebates received by M&T on its LPI purchase from ASIC. Specifically, Lewis alleged that M&T agreed to buy LPI exclusively from Assurant. In exchange for this exclusive right, Assurant agreed to take over from M&T certain mortgage servicing functions—e.g., monitoring M&T’s loan portfolio for lapses in coverage, sending notice letters like those received by Lewis, and customer service—either at a discount or for free, thereby reducing M&T’s operational expenses. In addition, Assurant pays M&T “unearned commissions,” unmerited “expense reimbursements,” and “illusory reinsurance premiums” in exchange for the exclusive right to be M&T’s LPI provider.

LEGAL STANDARD

When deciding a motion to dismiss the court must determine whether the plaintiff has stated a legally cognizable claim by making allegations that, if true, would plausibly show that the plaintiff is entitled to relief. The court takes all factual allegations in a complaint as true and draws all reasonable inferences in the plaintiff’s favor.

A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Dismissal is appropriate when it is clear from the face of the complaint, and matters of which the court may take judicial notice, that the plaintiff’s claims are barred as a matter of law.

ANALYSIS

In a case before the Second Circuit  plaintiffs’ claims were barred by the filed rate doctrine which avers that under the filed rate doctrine, any filed rate—that is, one approved by the governing regulatory agency—is per se reasonable and unassailable in judicial proceedings brought by ratepayers. Two principles underpin the doctrine: First, the principle of “nonjusticiability” holds that the courts should not undermine agency rate-making authority by upsetting approved rates; and second, the principle of “nondiscrimination” holds that litigation should not become a means for certain ratepayers to obtain preferential rates. A claim that implicates either principle is barred.

The theory behind the claims is that Plaintiffs were overbilled when they were charged the full LPI rates (which were approved by regulators), instead of lower rates net of the value of loan tracking services provided by the insurance company affiliate. That theory can succeed only if the arrangement with the affiliate should have been treated as part and parcel of the LPI transaction and reflected in the LPI rates. But, under the nonjusticiability principle, it is squarely for the regulators to say what should or should not be included in a filed rate.

As an initial matter, the state of Connecticut has conferred power on the CID to determine the reasonableness of the rates at issue here. An insurer must file its premium rates for personal and commercial risk insurance with the CID Commissioner and obtain approval before charging those rates. ASIC had applicable rates on file with CID in 2017, 2018, and 2019, when it issued the respective flood LPI policies that were purchased by M&T on Lewis’s behalf.

CID did in fact approve the premium rates charged by ASIC for the flood LPI purchased by M&T in 2017, 2018, and 2019. It follows that this case implicates the nonjusticiability strand of the filed rate doctrine. M&T sought from Lewis reimbursement in precisely the amount it paid ASIC for LPI. Lewis complains that the amount billed to him by M&T was inflated because the charges did not reflect the alleged kickbacks received by M&T from ASIC. However, because the amount billed to Lewis is equal to the premium rates approved by the CID, Lewis’s claims necessarily rest on the premise that the rates approved by regulators were too high.

Because Lewis’s suit would require this court to examine LPI premium rates filed with and approved by the CID, the filed rate doctrine bars his claims. The case law is clear on the effect of the filed rate doctrine when there is a filed rate in effect. He thus has not plausibly alleged facts that would entitle him to relief. For the foregoing reasons, Assurant’s and M&T Bank’s respective Motions to Dismiss were granted.

ZALMA OPINION

Insurers admitted to do business in a state, like Connecticut, must submit their rates to the Department of Insurance for approval. Once approved no court – due to the filed rate doctrine – has the right or ability to contest the rates charged. Lewis sought to have free flood insurance and in so doing breached the terms of his mortgage and tried – by litigation – to have a court sustain his breach as proper. His attempt failed since the bank only sought to recover the premium paid. They warned him twice and twice he ignored the warning.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 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 the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; 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/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and Read last two issues of ZIFL here.

Posted in Zalma on Insurance | Leave a comment