Employee Report of Fraud Results in Damages Suit After Qui Tam Suit Settled

No Statutory Hearing Right Arose Because No Dental Commission Complaint, License Suspension, Revocation, Or Sanction Occurred.

Post 4855

In Abbas Mohammadi et al. v. William M. Tong et al., No. AC 47598, Court of Appeals of Connecticut (September 29, 2026) Abbas Mohammadi owned and operated Columbia Dental, P.C., which provided dental services through multiple Connecticut offices; Columbia Oral Maxillofacial Imaging, LLC served as the billing entity.

From April 2012 to February 27, 2013, Columbia Dental employed Brittany Ames Mahoney as a dental assistant. During her employment, Mahoney claimed to have discovered certain billing irregularities, including, but not limited to, false and fraudulent reimbursement claims submitted to the Department of Social Services for services rendered to Medicaid beneficiaries.  Mahoney filed a complaint and an affidavit in the United States District Court for the District of Connecticut regarding these irregularities under the federal False Claims Act. The United States, the state, Mahoney, and the plaintiffs subsequently entered into a settlement agreement to resolve the qui tam action.

The state did not suspend Mohammadi’s dental license or Medicaid billing eligibility and conducted no disciplinary hearing but it issued a press release about the suit. The plaintiffs claimed the release was inaccurate, damaged their reputations and businesses, caused insurers and financing companies to end relationships, impaired hiring and retention, and was issued without an opportunity for a hearing.

LAW

Qualified immunity is an affirmative defense to a 42 U.S.C. § 1983 damages claim; it does not affect subject matter jurisdiction and ordinarily should be raised in a motion to strike or motion for summary judgment, not a motion to dismiss.

A substantive due process claim requires identification of a protected constitutional interest and state conduct sufficiently egregious to shock the conscience.

ANALYSIS

The Appellate Court agreed that qualified immunity was improperly presented through a motion to dismiss but held that the plaintiffs waived that procedural objection by not making it below. It then reviewed the four appealed federal counts de novo.

On procedural due process, reputational injury, lost contracts, lost revenue, hiring difficulties, and social-media consequences flowed from private reactions to the press release rather than from a separate state-imposed burden. No statutory hearing right arose because no Dental Commission complaint, license suspension, revocation, or sanction occurred.

The Lanham Act theory failed because the government press release was not commercial speech. The substantive due process count failed at the threshold because the plaintiffs did not identify a protected liberty or property interest were insufficient.

The privacy count failed because the alleged disclosures involved business matters and unwanted publicity, not the narrow category of constitutionally protected personal information. Because none of the counts plausibly alleged a violation of a clearly established federal right, qualified immunity applied.

DISCUSSION

The difficulty of converting allegedly defamatory governmental speech into a federal constitutional claim failed.

Business losses and reputational harm do not become procedural due process violations unless the government itself imposes an additional legal burden or status change.

CONCLUSION

The trial court concluded that qualified immunity applied to the allegations.

The Connecticut Appellate Court affirmed the judgment dismissing the challenged counts. Counts one, two, five, and six did not plausibly allege violations of clearly established federal rights, so the defendants were entitled to qualified immunity.

ZALMA OPINION

It takes a certain amount of chutzpah (Yiddish for unmitigated gall) to sue the government after settling a false claims act suit by a dental service defrauding a governmental agency. Rather than go to trial on the fraud charge Abbas Mohammadi paid the government to settle the suit and then sued the state and federal government for reporting the settlement which Mohammadi claimed cost him business which could include restarting the fraudulent conduct that resulted in the qui tam suit.

(c) 2026 Barry Zalma & ClaimSchool, Inc.

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From October 1, 1979 – 2026

Another Anniversary

for Barry Zalma, Inc

Subscribe to ZIFL Here

THE SOURCE FOR THE INSURANCE FRAUD PROFESSIONAL

Read the full issue of ZIFL at https://zalma.com/blog/wp-content/uploads/2026/09/ZIFL-10-01-2026.pdf 

Read the full issue of ZIFL at https://zalma.com/blog/wp-content/uploads/2026/09/ZIFL-10-01-2026.pdf Forty seven years ago today I left the world of the employed and became an entrepreneur by opening my own law firm. The law practice was incorporated shortly thereafter as Barry Zalma, Inc.

When I opened for business on October 1, 1979, I had no clients and no certainty that I would have any in the future. I had borrowed money from the bank to carry me through the first six months and was concerned about my ability to pay the loan with my third child about to be born.

Much to my surprise and pleasure, on October 1, 1979, at 8:10 a.m., the best claims handler in the London market, Alan Warboys, called from London and provided me with my first case as an independent lawyer to represent Certain Underwriters at Lloyd’s, London. He, and the Lloyd’s Underwriters he represented, showed faith in me as a lawyer and insurance expert. Alan is now, although retired, and will forever be my first client and a good friend.

Since January 2, 1972, I practiced law in California. To those of you, in addition to Alan, who have honored me by retaining me as your lawyer, thank you for a long, productive and successful legal career. Since 2015 and into the near future I limit my work to acting as an insurance claims handling, insurance fraud and insurance bad faith consultant, expert witness, educator and author. That work continues to keep me busy at least 40 hours a week.

I Am Not Retired.

I continue to work five days a week. I am only slowing from my time as a lawyer by limiting my work to consulting and testifying as an expert. I am now 84 years old, my license to practice law is inactive and I no longer practice law.

I expect to continue working, using my 58 years’ experience in the insurance claims industry, forever, or at least, until I reach the century mark my mother reached before she passed away.

Read the full article and the full issue of ZIFL at https://zalma.com/blog/wp-content/uploads/2026/09/ZIFL-10-01-2026.pdf 

There is Now a  Zalma Who Understands Workers’ Compensation and Received the Theo Award

RISK & INSURANCE Magazine 2026 Theo Award Winner: Fox Corporation

Links about the Theo Awards:  Sept./Oct. 2026 Issue | Theo Award | Workers’ Comp | Workers’ Comp Forum

Stephanie Evans-Zalma (my daughter-in-law) joined Fox Corporation’s Risk Management team in January 2024. Within her first year, she was focused on something that might seem unglamorous but turned out to be foundational: relationships.

“When I started at FOX, there was an opportunity to improve on how the workers’ comp department was servicing its internal and external stakeholders,” she says. “I focused on building relationships, understanding other groups’ pain points, and opening honest dialogue with our TPA, EHS, HR, and Legal teams. My goal was for workers’ comp to be seen as an extension of those groups — not a roadblock.”

Read the full article and the full issue of ZIFL at https://zalma.com/blog/wp-content/uploads/2026/09/ZIFL-10-01-2026.pdf 

Insurers Join Request for Insurance Companies to Push TPLF Disclosure

Third Party Litigation Funding Needs to be Disclosed

Insurance executive and their counsel joined in with those from more than 200 corporations that submitted a letter to a federal court rules committee urging the development of a third-party litigation funding (TPLF) disclosure requirement.

Convicted on 29 Tax-Refund-Fraud Counts

150 Months in Prison for Tax Fraud

In United States Of America v. Thomas Addaquay, United States Of America v. Thomas Addaquay, Nos. 25-10609, 25-10611, United States Court of Appeals, Eleventh Circuit (September 9, 2026) the Eleventh Circuit affirmed all challenged convictions, the 150-month aggregate sentence, and the challenged $4,123,474.55 restitution award.

Read the full article and the full issue of ZIFL at https://zalma.com/blog/wp-content/uploads/2026/09/ZIFL-10-01-2026.pdf 

Health Insurance Fraud Convictions

Florida Men Sentenced to Prison for $34.8M Health Care Fraud Scheme Targeting Medicare Beneficiaries

Kenneth Charles Kessler III, 43, of Miami, Florida, and Michael Andrew Gomez, 43, of Miramar, Florida, owned and operated seven durable medical equipment (DME) supply companies based in Florida. Through these DME companies, they submitted millions of dollars in false claims to Medicare for medically unnecessary orthotic braces.

Read the full article and the full issue of ZIFL at https://zalma.com/blog/wp-content/uploads/2026/09/ZIFL-10-01-2026.pdf 

Glencore Faces $2 Billion Suit as It Alleges Radiant World Fraud

Glencore PLC accused Radiant World and associated companies of sending falsified invoices to lenders — just as a senior executive at the group of traders said they had filed a $2 billion lawsuit against Glencore.

The claims mark the explosive end of a business relationship that for many years was extremely close.

On September 15, 2026 Glencore said that it had ended all business with Radiant World and associated companies including Sapphire Minmetals, and “exited all obligations.”

Read the full article and the full issue of ZIFL at https://zalma.com/blog/wp-content/uploads/2026/09/ZIFL-10-01-2026.pdf 

Other Than Health Insurance Fraud Cases

Illinois Woman Sentenced to Prison for Role in Wire Fraud Conspiracy

Defendant Sought More than $4.6M in Fraudulent Refunds from IRS

An Illinois woman was sentenced this week to 27 months in prison for her role in a conspiracy to fraudulently obtain tax refunds by submitting false tax returns and fictitious financial instruments to the IRS.

Read the full article and the full issue of ZIFL at https://zalma.com/blog/wp-content/uploads/2026/09/ZIFL-10-01-2026.pdf 

‘Most Successful’ Hole-in-One Prize Insurance Operator Pleads Guilty to Fraud

Kevin Kolenda of Norwalk, Connecticut this week pleaded guilty to wire fraud in federal district court. Kolenda’s jury trial was set to begin on September 23. The federal charges against him were brought in April 2024.

The owner and operator of an unlicensed prize insurance company who for years avoided paying claims, ignored cease and desist orders, and has been convicted of illegal sales and theft has pleaded guilty to fraud.

Read the full article and the full issue of ZIFL at https://zalma.com/blog/wp-content/uploads/2026/09/ZIFL-10-01-2026.pdf 

McClenny Moseley & Associates

This is ZIFL’s latest installment of the saga of McClenny, Moseley & Associates and its problems with the federal courts in the State of Louisiana and what appears to be an effort to profit from what some Magistrate and District judges indicate may be criminal conduct to profit from insurance claims relating to hurricane damage to the public of the state of Louisiana. Although suspicion has existed for years and a long silent FBI investigation has been anticipated, this truly never-ending story is coming to a head with criminal charges being filed against suspended lawyer Richard William Huye III.

Hurricane Ida Fraud Case Moves Closer To First Guilty Plea

A Rearraignment Hearing Signals Richard Huye May Cooperate With Prosecutors Pursuing Others At The Firm

The first defendant charged in the Hurricane Ida insurance fraud case built around McClenny Moseley and Associates (MMA) is headed toward a guilty plea, the Guardian reported, citing federal court records in New Orleans.

Richard William Huye III, 34, is scheduled to appear at a rearraignment hearing on September 28 in New Orleans’s federal courthouse. Rearraignments are typically held when a defendant agrees to abandon a not-guilty plea as part of a deal with prosecutors rather than proceed to trial. A separate arraignment hearing is scheduled 90 minutes earlier the same day.

Read the full article and the full issue of ZIFL at https://zalma.com/blog/wp-content/uploads/2026/09/ZIFL-10-01-2026.pdf 

No Good Judicial Deed Goes Unpunished

Kindness in Sentencing is Often Abused and Probation Becomes Jail

In State Of North Carolina v. Tia Allen, No. COA24-1010, Court of Appeals of North Carolina (September 16, 2026) Tia M. Allen pleaded guilty on 18 April 2022 to several offenses under a plea agreement. The trial court consolidated the convictions, imposed an 11-to-23-month sentence,

Read the full article and the full issue of ZIFL at https://zalma.com/blog/wp-content/uploads/2026/09/ZIFL-10-01-2026.pdf 

Barry Zalma, Inc., 4441 Sepulveda Boulevard, CULVER CITY CA 90230-4847, 310-390-4455.

https://barryzalma.substack.com/welcome & https://zalma.com/blog & http://zalma.com/blog/wp-content/uploads/2026/09/ZIFL-09-15-2026.pdf

Read the full article and the full issue of ZIFL at https://zalma.com/blog/wp-content/uploads/2026/09/ZIFL-10-01-2026.pdf 

Defendants Successfully Moved for Summary Judgment 

Post 4854

The Party Alleging Fraud Must Establish A False Material Representation Or Concealment, Intent And Effect Of Deception, Resulting Damage, And Reasonable Reliance

In Jeffrey Wayne Phillips v. Creative Website Studios, et al., No. 5:23-CV-568-BO-BM, United States District Court, E.D. North Carolina, Western Division (September 28, 2026)  the Court needed to rule on the order and memorandum and recommendation (“M&R”) of the Magistrate.

Jeffrey Wayne Phillips had contracted with Creative Website Studios and SR Telecommunications for website and hosting services. He alleged that defendants repeatedly billed him for hosting periods he had already paid for and later took down his website. Phillips claimed the outage prevented him from bidding on U.S. government security contracts and sought roughly $300 million in consequential damages.

LAW

Under North Carolina law, fraud requires a false material representation or concealment, intent and effect of deception, resulting damage, and reasonable reliance. Obtaining property by false pretenses similarly requires an intentionally deceptive false representation that actually deceives and obtains or attempts to obtain value.

Contract damages include losses naturally flowing from the breach and foreseeable consequential damages within the parties’ contemplation, but lost profits must be proved with reasonable certainty rather than speculation.

DISCUSSION

The court treated Phillips’s general objection as insufficiently specific but reviewed his specific objections de novo. On fraud, the invoices themselves showed overlapping hosting periods, so reasonable inquiry would have revealed the inaccurate charges and defeated reasonable reliance. Phillips identified no evidence that the billing errors — generated by several employees — were intended to deceive rather than mistakes. On consequential damages, his asserted likelihood of winning a large government security contract rested only on his own estimates and confidence..

ANALYSIS

Each challenged theory failed on an essential proof requirement. The fraud claim failed because the record foreclosed reasonable reliance; the false-pretenses claim failed for lack of evidence of deceptive intent; and the consequential-damages claim failed because the claimed government-contract profits were conjectural.

While whether a party’s reliance is reasonable is often a question for the jury, summary judgment is appropriate where the facts are so clear that they support only one conclusion.

CONCLUSION

The record supported liability for breach of contract. The court therefore adopted the magistrate judge’s claim-by-claim Rule 56(f) disposition even though defendants’ own summary-judgment motion was untimely. The court overruled Phillips’s objections and adopted the memorandum and recommendation in full. It denied defendants’ summary-judgment motion as untimely, but under Rule 56(f) granted defendants summary judgment on fraud, obtaining property by false pretenses, consequential damages, and punitive damages. the undisputed material facts are clear and support entry of summary judgment in defendants’ favor.

Plaintiffs claims of fraud are based on, at bottom, defendants’ repeatedly charging him for web hosting fees for which plaintiff had already paid .It granted Phillips summary judgment on breach of contract and allowed the parties seven days to submit evidence of direct damages, capped at $1,034.

Summary judgment was GRANTED in defendants’ favor on plaintiffs fraud claims, plaintiff s claim for obtaining property by false pretenses, the issue of consequential damages, and the issue of punitive damages, and summary judgment was GRANTED in plaintiffs favor on his breach of contract claim.

ZALMA OPINION

To prove fraud fraud the party alleging fraud must establish a false material representation or concealment, intent and effect of deception, resulting damage, and reasonable reliance. Fraud was proved based on the fact that the defendant repeatedly charged him for web hosting fees for which plaintiff had already paid.

(c) 2026 Barry Zalma & ClaimSchool, Inc.

Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.

Subscribe to my substack at https://barryzalma.substack.com/subscribe

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Accused of 17 Counts Of Fraud Attempts to Keep Out Evidence of Crimes

Post 4853

Court Refuses to Grant Most Motions in Limine

In United States Of America v. Seth Allen Aikens, II, Criminal No. 22-119, United States District Court, W.D. Pennsylvania (September 23, 2026) Defendant Seth Allen Aikens II faces thirty federal counts. The indictment alleges that, from about June 2016 through March 2020, Aikens solicited start-up businesses seeking websites, applications, hosting, payment processing, and related services. The Government estimated aggregate losses of approximately $1.3 million involving about eight charged customers.

The Government also sought to introduce evidence involving three uncharged persons. Robert Polonsky allegedly paid about $10,000 for web development, hosting, and advertising services but did not receive the promised core deliverables. Brandon Canwright allegedly paid approximately $1,877 for a website and related services that were not delivered and received no promised refund. Hannah Hopper, Aikens’s former romantic partner, allegedly paid him $700–$800 to obtain an iPhone that never arrived. The defense moved to exclude this other-acts evidence, evidence of Aikens’s luxury purchases and lifestyle, and pejorative descriptions such as “scammer,” “con artist,” “schemer,” or “swindler.”

LAW

Under Third Circuit law, uncharged conduct is intrinsic only when it directly proves the charged offense or was performed contemporaneously with and facilitated the charged crime.

All other uncharged acts are extrinsic and must satisfy Federal Rule of Evidence 404(b). The proponent must establish a proper purpose, relevance through a logical chain free of propensity reasoning.

Mail and wire fraud require proof that the defendant knowingly devised a scheme to defraud, acted with intent to defraud, and used or caused the use of the mails or interstate wires to advance the scheme.

DISCUSSION

Polonsky Evidence:

The court rejected the Government’s argument but nevertheless admitted the evidence under Rule 404(b). Its similarity to the charged customer dealings made it probative of intent, knowledge, plan, absence of mistake, and modus operandi.

Canwright and Hopper Evidence:

The court also admitted the Canwright evidence because he was a business customer  but its weaker connection to the charged scheme, together with the risk of prejudice and confusion, substantially reduced its admissibility.

Luxury Purchases and Lifestyle:

The court admitted this evidence. The defense had not identified the challenged items with specificity, and the alleged use of customer funds for personal purchases directly related to the charged fraud scheme.

Pejorative Labels:

The court generally agreed that labels such as “scammer” or “con artist” may amount to improper character attacks and can be prejudicial, particularly during opening statements or witness questioning before the evidentiary record is developed.  Rather than impose a categorical pretrial prohibition, the court cautioned counsel and reserved context-specific rulings for trial.

ANALYSIS

The decision applies a narrow conception of intrinsic evidence: factual similarity and possible temporal overlap do not alone make an uncharged transaction part of the charged offense. The Government must show that the act directly proves or facilitated the charged conduct.

The court balanced the danger of prejudicial rhetoric against trial context by discouraging character labels without foreclosing descriptions that may later be supported by admitted evidence.

CONCLUSION

The court granted the parties’ motions in limine in part and denied them in part.

Evidence concerning Robert Polonsky and Brandon Canwright may be presented for proper Rule 404(b) purposes, subject to an appropriate limiting instruction if requested. Evidence concerning Hannah Hopper’s iPhone transaction is excluded on the current record. Evidence of Aikens’s luxury purchases and lifestyle is admissible as relevant to the fraud and money-laundering charges. The Government was cautioned against using pejorative character labels, with specific objections left for resolution in the context of trial.

ZALMA OPINION

Although the defense tried, with motions in limine, the evidence the government can enter to convict the defendants of multiple counts of wire fraud and other fraudulent acts and successfully limited some of the Government’s evidence but less than an amount to avoid the government presenting enough evidence to successfully take them to trial.

(c) 2026 Barry Zalma & ClaimSchool, Inc.

Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.

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Court Refuses to Honor an Illegal Agreement

Post 4854

HE claimed Ms. Kiraga had received money under such circumstances that in equity and good conscience she ought not be allowed to keep but the Equities Remained with her. 

In HE Electric, Inc. v. Edyta Kiraga, No. 1-25-2650, 2026 IL App (1st) 252650-U, Court of Appeals of Illinois, First District, Fifth Division (September 25, 2026) HE Electric, Inc. (HE) appeals the circuit court’s order dismissing its unjust enrichment claim against Edyta Kiraga HE claimed that Miroslaw Szczerbowski, Ms. Kiraga’s ex-husband, had an oral agreement with HE by which HE would put Ms. Kiraga on its payroll so that she could receive health insurance through HE.

In return, Mr. Szczerbowski would repay HE the amount it spent on Ms. Kiraga’s salary and health insurance premiums. Mr. Szczerbowski died without making any payments to HE under this agreement.

The Court of Appeals affirmed the circuit court’s dismissal of the unjust enrichment claim under the Code of Civil Procedure (Code). HE has not alleged facts on which it could be found that Ms. Kiraga’s retention of the benefits she received was unjust.

BACKGROUND

In December 2021, HE filed a complaint against Ms. Kiraga alleging unjust enrichment and tortious interference with contract. According to the operative complaint, on or around January 1, 2016, Mr. Szczerbowski and HE entered into an agreement under which HE would advance Mr. Szczerbowski money to pay for health insurance benefits for Ms. Kiraga, her stepson, and her daughter. Mr. Szczerbowski advised HE that, for Ms. Kiraga to obtain health insurance under HE’s health plan, HE would have to put her on its payroll and make regular payroll payments to her.

Although Ms. Kiraga never performed any services for HE, from 2016 to 2019, it paid her $42,162.96 in payroll payments and advanced approximately $50,000 to Mr. Szczerbowski for the payment of monthly health insurance premiums for Ms. Kiraga and her children.

Mr. Szczerbowski died on January 16, 2019. Neither Mr. Szczerbowski nor his estate ever repaid any money to HE.

Ms. Kiraga had received money under such circumstances that in equity and good conscience she ought not be allowed to keep and, instead, she should repay HE.

Ms. Kiraga moved to dismiss the unjust enrichment claim under section 2-615 of the Code. Following a bench trial, the court entered a final judgment. HE appealed the dismissal of its unjust enrichment claim.

JURISDICTION

The order became final and appealable when the circuit court entered its final judgment after the bench trial, on November 24, 2025.

ANALYSIS

A motion to dismiss filed under section 2-615 of the Code attacks the legal sufficiency of a complaint based on defects apparent on its face. The question before the Court of Appeals was whether the complaint’s allegations, viewed in the light most favorable to the plaintiff, state a cause of action upon which relief can be granted.

The plaintiff need not prove any fault or illegality on the defendant’s part. The plaintiff must prove, however, both that the defendant voluntarily accepted a benefit and that it would be inequitable for the defendant to retain the benefit without payment.

HE argues that, by accepting the benefit, Ms. Kiraga adopted the means by which the benefits were procured. Its assertion that it is “better suited” or has “a better claim” to the $92,162.96 that Ms. Kiraga has allegedly been enriched by is completely conclusory and not supported by its allegations.

There is a third, alternative reason that this claim fails: HE’s agreement with Mr. Szczerbowski was insurance fraud. Courts will not enforce an illegal contract or any rights that arise from an illegal contract, which exists where the contract’s terms violate the law or require one or both parties to perform an illegal act.

Allowing HE to recover for unjust enrichment because the illegal agreement it entered was not honored would be tantamount to enforcing the illegal agreement. That is an alternative reason that this claim fails.

CONCLUSION

For the foregoing reasons, the Court of Appeal affirmed the judgment of the circuit court of Cook County dismissing HE’s unjust enrichment claim under section 2-615.

ZALMA OPINION

Honest people needing help with medical bills that they can’t pay do less than honest things. HE was the victim of the scheme where it agreed to allow an employee get money for the needs of  HE would advance Mr. Szczerbowski money to pay for health insurance benefits for Ms. Kiraga, her stepson, and her daughter. Mr. Szczerbowski advised HE that, for Ms. Kiraga to obtain health insurance under HE’s health plan. He died before he could pay it back. HE sued to get its money back and failed because it agreed to the scheme.

(c) 2026 Barry Zalma & ClaimSchool, Inc.

Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.

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Inadequately Briefed Issues Defeats Appeal

Post 4852

Issues on Appeal Must be Adequately Briefed

In Emy Ojekwe v. Connecticut Transit District Consortium, No. AC 47389, Court of Appeals of Connecticut (September 22, 2026) Emy Ojekwe alleged that he was injured on September 24, 2020, while leaving a bus operated by Connecticut Transit District Consortium, doing business as Greater Bridgeport Transit Authority.

According to his complaint, the wheelchair ramp began to rise before he had fully exited, causing his wheelchair to fall backward and allegedly injuring several parts of his body and damaging the wheelchair. The defendant denied negligence and alleged comparative negligence. After a two-day jury trial in November 2023, the jury returned a defense verdict.

The trial court denied Ojekwe’s motion to set aside the verdict and for a new trial, and he appealed.

LAW

A trial court’s refusal to set aside a verdict because of counsel’s improper remarks is reviewed for abuse of discretion. The moving party must show both impropriety and resulting manifest injury sufficient to deprive that party of a fair trial; juries are presumed to follow curative instructions absent evidence to the contrary.

Withdrawal of counsel on the day of trial is also reviewed for abuse of discretion, and a last-minute discharge that would delay trial requires exceptional circumstances. Appellate claims receiving only cursory treatment, without record citations, supporting authority, or legal analysis, are inadequately briefed.

DISCUSSION

Improper opening remarks.

Defense counsel referred to Ojekwe’s national origin, citizenship status, and an old fraud conviction. The trial court found the remarks improper, prejudicial, and inflammatory, but immediately instructed the jury that opening statements were not evidence, citizenship was irrelevant, and any admissible conviction could be considered only for credibility.

Withdrawal And Self-Representation.

On the day trial began, counsel sought to withdraw after a client-counsel dispute concerning wheelchair damages, evidentiary rulings, and trial strategy. With a jury already selected and no exceptional circumstance shown, the trial court acted within its discretion in denying withdrawal.

Jury Selection.

Because no objection had been made before the jury was sworn, the claim was waived and the record was inadequate for appellate review.

Surveillance Video And Generalized Misconduct.

The surveillance-video challenge and the additional assertion that defense counsel repeatedly erred were presented only cursorily, without adequate record citations, authority, or legal analysis. The appellate court therefore declined to review them.

ANALYSIS

The decision turns largely on preservation, prejudice, and appellate presentation rather than on the merits of the underlying negligence claim.

The claims failed for procedural reasons: no exceptional circumstance justified disrupting trial by allowing counsel to withdraw and the evidentiary and misconduct claims were inadequately developed.

The case illustrates that even a self-represented appellant must preserve objections at the proper time and brief each appellate issue with specific record support, authority, and analysis.

CONCLUSION

For a reviewing court to judiciously and efficiently consider claims of error raised on appeal the parties must clearly and fully set forth their arguments in their briefs. The Connecticut Appellate Court in the present case, concluded that the plaintiff failed to satisfy his burden of proving that he was so prejudiced by the improper remarks that he failed to receive a fair trial.

The Connecticut Appellate Court affirmed the judgment for the defendant.

It held that the trial court did not abuse its discretion in refusing a new trial or denying counsel’s day-of-trial withdrawal and that the remaining claims were inadequately briefed and the Appellate Court declined to address most of the issues raised by the Plaintiff and the judgment is affirmed.

ZALMA OPINION

It has become axiomatic that a plaintiff who represents himself in a trial or on has a fool for a client. As a result of the failure of appellate counsel (whether in pro per or represented by a lawyer) is inadequate the chances of success on appeal are weak. In this case the failure to adequately brief the issues the appeal was lost and the trial judgment Affirmed.

(c) 2026 Barry Zalma & ClaimSchool, Inc.

Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.

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Go to X @bzalma;  Go to Barry Zalma videos at Rumble.com at https://rumble.com/account/content?type=all; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://lnkd.in/gwEYk. 

Psychiatrist Who Was Convicted of Fraud Asked the First Circuit to Reduce his Punishment

Post 4851

Fraud to Private and Public Health Insurers Doesn’t Pay

In United States v. Gustavo Kinrys, Nos. 24-1592, 24-1716, United States Court of Appeals, First Circuit (September 21, 2026) Gustavo Kinrys, a Massachusetts psychiatrist, submitted fraudulent claims to private and public health insurers from 2015 through 2018, including bills for more than 1,000 sessions when he or the purported patient was outside the country. When insurers requested supporting records, he delayed through a fictitious office manager and created false documentation.

A jury convicted Kinrys on fourteen counts. The district court imposed a 99-month sentence, calculated intended loss at slightly more than $19 million based on billed amounts, ordered $6,537,309.59 in restitution, and ordered $6,527,391.19 in forfeiture.

At sentencing, the district court calculated Kinrys’s base offense level to be seven and then added twenty-eight levels-worth of enhancements, including a twenty-level enhancement for the loss amount. This yielded a recommended guideline range of 168 to 210 months for the first seven counts of conviction, and sixty months for the remaining counts. The district court sentenced Kinrys to ninety-nine months in prison on the first seven counts and sixty concurrent months in prison on the remaining counts. It also required Kinrys to pay $6,537,309.59 in restitution and $6,527,391.19 in criminal forfeiture.

LAW:

Under U.S.S.G. § 2B1.1(b)(1), loss is the greater of actual or intended loss. When a scheme is rife with fraud, the billed amount is prima facie evidence of intended loss; the defendant may rebut it with evidence that he intended to obtain less, but the government retains the ultimate burden to prove the enhancement by a preponderance of the evidence. Subjective intent is reviewed for clear error.

Under the Mandatory Victims Restitution Act, restitution compensates victims for actual losses caused by fraud and may not produce a windfall; distinct civil claims against victims are not adjudicated at a criminal restitution hearing.

DISCUSSION:

Kinrys argued that intended loss should equal the roughly $8.3 million he expected under negotiated in-network reimbursement rates rather than the more than $19 million billed, reducing the enhancement from twenty to eighteen levels. He relied on his provider contracts and failure to collect co-pays. He also argued that restitution should be reduced by allegedly legitimate claims for which insurers had not paid him.

ANALYSIS:

The First Circuit held that the district court did not clearly err in using billed amounts. Although Kinrys’s in-network status supported his position, other evidence supported an intent to obtain as much as possible: he sued insurers for billed charges and greater damages, sometimes received full billed amounts, retained payments exceeding contract rates, and offered no contrary evidence at sentencing beyond counsel’s argument.

His failure to collect co-pays was not persuasive because collection could have exposed the scheme or discouraged patients. The restitution offset also failed because the order included only fraudulent claims, while the unpaid claims were separate, disputed reimbursement requests affected by unmet preauthorization or documentation requirements. Any entitlement to those payments belonged in a civil or administrative proceeding, not the restitution hearing.

CONCLUSION:

The First Circuit affirmed both the intended-loss calculation and the restitution order.

A criminal restitution hearing, where distinct, unrelated, and contested billing is not before the court, is not the proper venue to resolve such claims. Accordingly, the First Circuit affirmed the district court’s decision to decline offsetting the restitution order based on Kinrys’s allegedly legitimate claims.

ZALMA OPINION

Psychiatrist convicted of insurance fraud and ordered to make restitution tried to reduce the order or eliminate it unsuccessfully to the First Circuit Court of Appeal. His crime was obvious, the amount he obtained from defrauded insurers and the government was proved by the DOJ and the trial court’s decision was affirmed.

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The Collateral-Source Rule is a Narrow Exception to the Prohibition Against Double Recovery

Post 4850

A Surety Stands In The Principal’s Shoes And May Assert The Principal’s Defenses.

In Hudson Insurance Company v. Archer Western Federal, JV, No. 1:24-cv-544 (PTG/IDD), United States District Court, E.D. Virginia, Alexandria Division (September 18, 2026) Archer Western Federal, JV (“AWF”), the prime contractor for a new fire station at Marine Corps Base Quantico, subcontracted roofing work to Eastern General Contractor, Inc. (“EGC”) for $456,330.

Hudson Insurance Company (“Hudson”) issued payment and performance bonds, each with a $456,330 penal sum. EGC experienced material, manpower, scheduling, leakage, and air-barrier problems; AWF issued a notice of default, hired others and used its own forces to complete or repair work, directly paid suppliers, and withheld the $386,330 subcontract balance.

AWF later sought recovery under both bonds. It had also received $481,226.35 from builder’s-risk insurance and $80,000 from EGC’s commercial general liability carrier, for total insurance-related compensation of $561,226.35.

LAW

Under Virginia law, the collateral-source rule is a narrow exception to the prohibition against double recovery and may apply in contract cases only after a case-specific inquiry into the parties’ expectations, the nature of the contracts and breach, the benefits at issue, and possible subrogation rights.

A surety stands in the principal’s shoes and may assert the principal’s defenses. Liability under the bonds required EGC’s default, and the payment bond permitted the obligee to qualify as a claimant when it supplied labor or materials or incurred completion expenses.

DISCUSSION

Hudson sought a declaration discharging its bond liability; AWF counterclaimed for breach of contract and indemnity. AWF argued that its insurance proceeds were collateral and should not reduce the bond recovery. The court rejected that position because NAVFAC — not AWF — paid the builder’s-risk premiums as part of the prime-contract price, making the rationale for a contractual collateral-source windfall inapplicable. The court further held that the air-barrier system was within EGC’s subcontract scope; EGC breached by failing to procure materials, provide sufficient manpower, and timely perform; AWF validly declared default; and AWF qualified as a payment-bond claimant for work it self-performed or financed to complete EGC’s obligations.

ANALYSIS

Although EGC defaulted and AWF otherwise had valid bond claims, AWF could not recover amounts already covered by insurance, reimbursed deductibles, or the unpaid subcontract balance it retained.

The $561,226.35 in insurance-related payments plus the $386,330 withheld balance totaled $947,556.35. That amount exceeded the combined $912,660 penal limits of the two bonds by $34,896.35. Permitting an additional recovery against Hudson would therefore overcompensate AWF beyond the bonds’ aggregate limits.

CONCLUSION

Hudson’s liability under the payment and performance bonds was fully discharged. AWF was not entitled to recover under either bond for amounts already paid by builder’s-risk insurance, credited through deductible reimbursement, or retained as sums still owed to EGC.

ORDERED, ADJUDGED, AND DECREED that Hudson s liability under the Performance and Payment Bonds is fully discharged, and AWF is not entitled to recover under the Payment and Performance Bonds for amounts it has recovered from Builder’s Risk insurance, has been credited for deductibles, and still owes to EGC; and it is further. ORDERED that the Clerk enter judgment in favor of Plaintiff/Counter-defendant Hudson Insurance Company.

ZALMA OPINION

The principal failed to fulfill its contract and left open a claim. The General Contractor was damaged by the failure and in made claim to insurers who paid claims in excess of the limits of  the performance bonds and surety bonds. Since liability under the Performance and Payment Bonds was fully discharged AWF was not entitled to recover under the Payment and Performance Bonds for amounts it had already recovered.

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Injunction Refused Because Defendants Failed to Prove Irreparable Harm

Post 4849

Defendants May Not Enjoin a Suit Alleging They Defrauded the Plaintiffs

Plaintiffs, automobile insurers, sued medical professionals and healthcare entities, alleging a scheme to submit fraudulent personal injury protection (PIP) bills and supporting documentation for services that were not performed or were medically unnecessary. The complaint asserted common-law fraud, violations of the New Jersey Insurance Fraud Prevention Act (IFPA), aiding and abetting fraud, unjust enrichment, and declaratory relief.

While the action was pending, Plaintiffs moved to stay and enjoin related PIP arbitrations. A magistrate judge recommended denial. in State Farm Guaranty Insurance Company v. Tri-County Chiropractic And Rehabilitation Center P.C., Civil Action No. 22-4852, United States District Court, D. New Jersey (September 15, 2026)

After the New Jersey Supreme Court decided Allstate New Jersey Insurance Company v. Carteret Comprehensive Medical Care, P.C., the federal court reopened the case and considered the parties’ supplemental positions on that decision.

LAW

A motion to stay or enjoin arbitration is evaluated under the preliminary-injunction framework. The movant must show:

1. likelihood of success on the merits;
2. irreparable harm absent relief;
3. no substantial harm to other parties;
4. consistency with the public interest;
5.  Likelihood of success and irreparable harm are gateway factors;
6. failure to establish either permits the court to deny relief without reaching the remaining factors.

Because halting pending arbitrations requires affirmative action, the requested relief is mandatory and demands a heightened showing of irreparable harm. Monetary injury ordinarily is not irreparable when damages can provide adequate compensation.

DISCUSSION

Plaintiffs argued that the magistrate judge should have applied New Jersey authority such as Allstate Insurance Co. v. Lopez, mischaracterized the requested injunction as mandatory, and wrongly found no irreparable harm. They maintained that proceeding through numerous PIP arbitrations would fragment the alleged fraud scheme, restrict their ability to present comprehensive defenses or counterclaims, and expose them to allegedly fraudulent awards that could not practically be recovered.

ANALYSIS

The court held that the magistrate judge applied the correct federal preliminary-injunction standard and correctly treated an order halting ongoing arbitrations as mandatory relief. Plaintiffs did show a likelihood of success because an earlier ruling found a prima facie IFPA claim. They nevertheless failed to make the required clear showing of immediate, irreparable injury. The asserted harms—piecemeal proceedings, limited presentation of a broader fraud theory, defense costs, and payment of arbitration awards—were economic and potentially remediable through money damages. Plaintiffs cited no controlling authority showing that recovery would be legally or practically unavailable. Analogous federal precedent likewise held that insurers could contest individual treatments in arbitration and later recoup economic losses. Because irreparable harm was not shown, the court did not need to balance harms or assess the public interest.

Carteret did not alter that result. It held that IFPA claims are not subject to mandatory PIP arbitration, but it did not make all PIP-related disputes nonarbitrable, preclude voluntary arbitration agreements, address whether already-pending arbitrations should be stayed, or establish that monetary damages would be inadequate.

CONCLUSION

The court adopted the report and recommendation in full and denied Plaintiffs’ motion to stay and enjoin all arbitration proceedings. The dispositive point was not Plaintiffs’ likelihood of success, but their failure to prove irreparable harm.

First, Judge Waldor (the Magistrate) applied the correct standard when evaluating Plaintiffs’ Motion. As discussed, Courts in this District and Circuit apply the injunctive relief standard when evaluating motions to stay and enjoin arbitration proceedings. A mandatory injunction alters the status quo by commanding a positive act. This USDC has concluded that a plaintiff’s request to enjoin arbitration proceedings seeks to order an affirmative act rather than a stay to maintain the status quo and is thus a request for a mandatory injunction.  Where the relief ordered by the preliminary injunction is mandatory the party seeking the injunction must meet a higher standard of showing irreparable harm in the absence of an injunction

Judge Waldor appropriately concluded that Plaintiffs adequately established a likelihood of success on the merits of their claims. As Judge Salas noted in her Opinion resolving Defendants’ first motion to dismiss, Plaintiffs established a prima facie case of an IFPA violation.

Judge Waldor appropriately concluded that Plaintiffs have not established irreparable harm. A movant has the burden of establishing a clear showing of immediate irreparable injury. The availability of adequate monetary damages belies a claim of irreparable injury.

Importantly, this Court recently denied an analogous motion to stay and/or enjoin arbitration proceedings on the basis that the plaintiffs failed to establish irreparable harm. The Court rejected the plaintiffs’ arguments, reasoning that they could recoup any potential additional economic injury they are exposed to in the parallel arbitrations, and that while they may not be able to present evidence of an alleged fraudulent scheme involving multiple patients, they could make the case that the medical treatment given to specific individual patients was unwarranted or improper.

ORDERED that Plaintiffs’ Motion to Stay and Enjoin all Arbitration Proceedings is DENIED.

ZALMA OPINION

Failure of a movant to make a clear showing of immediate irreparable injury defeats the attempt to enjoin the suit by the insurers. Insurance fraud is both a tort and a crime in New Jersey. Insurers are not required to arbitrate dozens if not hundreds of fraudulent arbitrations when, if the insurers were unable to prove the fraud, the defendants could be made whole with damages and was, therefore, not facing irreparable injury by litigating the case with the insurer.

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Violate Terms of Probation and Go to Jail

Post 4848

See the full video at  https://rumble.com/v7fnxd6-no-good-judicial-deed-goes-unpunished.html  and at https://youtu.be/9SxJRPNzSWc

Kindness in Sentencing is Often Abused and Probation Becomes Jail

In State Of North Carolina v. Tia Allen, No. COA24-1010, Court of Appeals of North Carolina (September 16, 2026) Tia M. Allen pleaded guilty on 18 April 2022 to several offenses under a plea agreement. The trial court consolidated the convictions, imposed an 11-to-23-month sentence,

On 6 February 2024, her probation officer alleged that Allen had paid nothing, failed to report, and incurred new criminal charges. At the 26 March 2024 hearing, counsel admitted Allen’s nonpayment but did not admit commission of the new offenses; the court did not inquire into the failure-to-report allegation.

Defendant did not deny this probation violation. Instead, when the trial court asked whether Defendant wanted to admit any of the alleged probation violations, Defendant admitted her failure to make any payments towards restitution, court costs, and other fees owed.

The court found all alleged violations, extended probation by 24 months, imposed five months’ confinement as special probation, required reporting after release, and ordered electronic house arrest. Allen appealed and later filed a motion for appropriate relief challenging the confinement condition.

LAW

A probation violation need not be proved beyond a reasonable doubt; competent evidence must reasonably satisfy the trial judge that the defendant willfully violated a valid probation condition.

The State generally bears the burden of proving a violation, but an in-court admission of a willful violation eliminates the need for further proof.

Under N.C. Gen. Stat. § 15A-1344(d) and (e), a court may modify probation and impose special probation after a violation, with confinement capped at one-fourth of the maximum sentence and not extending beyond the probation period or two years after special probation is imposed, whichever occurs first.

DISCUSSION

Allen argued that the five-month confinement term was unlawful because it would occur more than two years after her conviction. The State relied on Allen’s admission of nonpayment and the trial court’s authority to modify probation after a violation.

ANALYSIS

Allen’s admission that she failed to make required payments supplied a competent basis for finding a willful probation violation. The five-month confinement term was lawful under § 15A-1344(e): it was less than one-fourth of the 23-month maximum sentence and would end before both the extended probation period and two years from imposition of special probation.

CONCLUSION

The Court of Appeals affirmed that the defendant violated the condition(s) of probation set forth in the Violation Report or Notice of Hearing dated 02/06/2024. The trial court’s imposition of a five-month sentence complies with N.C. Gen. Stat. § 15A-1344(e) since it does “not exceed one-fourth the maximum sentence of imprisonment imposed for the offense”-in this case, 23 months.

The Court of Appeals affirmed the probation modification based on Allen’s admitted willful nonpayment, vacated the unsupported findings that she committed new offenses and failed to report, and denied the motion for appropriate relief because the special-probation confinement complied with § 15A-1344(e).

The trial court did not abuse its discretion by concluding that Defendant willfully violated her probation after she admitted to failing to make payments towards restitution, courts costs, and other fees owed. However, the Court of Appeals vacated the findings of other violations. Additionally, it held the special condition of probation complied with N.C. Gen. Stat. § 15A-1344.

ZALMA OPINION

Some judges have a soft spot in the judicial demeanor for criminals who claim they have remorse for their criminal conduct and, although they issue a proper sentence of incarceration although, as in this case, suspend the sentence for 24 months of supervised probation, and require payment of restitution, costs, and fees. Ms. Allen took advantage of the judge’s kindness and violated the terms of the probation and found herself sentence to serve some time, only to try to keep out of jail, by appealing unsuccessfully this new sentence. The trial judge, I expect, will not be as kind to convicted criminals again.

(c) 2026 Barry Zalma & ClaimSchool, Inc.

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Insurance Expert May Not Testify to Speculative and Contains Unsupported Conclusions.

See the full video at  https://youtu.be/Ol1UUSym9Gw   and at https://rumble.com/v7fmifw-expert-may-only-testify-to-what-experience-supports.html

In Michele A. Over, and The Estate Of Paul R. Over v. State Farm Mutual Automobile Insurance Company, and State Farm Fire And Casualty Company, Civil Action No. 23-cv-02243-PAB-STV, United States District Court, D. Colorado (September 14, 2026) Michele and Paul Over sued State Farm Fire and State Farm Auto over hail-damage and stolen-vehicle claims.

The operative dispute concerned State Farm Auto’s motion to exclude or limit opinions from plaintiffs’ insurance-industry expert, Aaron Castillo. Castillo.

Law

The proponent of expert testimony must establish by a preponderance of the evidence that an expert is qualified and that the opinions are helpful, sufficiently grounded, and reliably derived and applied. Experience-based opinions must explain how the experience supports the conclusion and is reliably applied.

An insurance expert may not instruct the jury on governing law, apply law to facts to state legal conclusions, rely only on internal company practices or aspirational “best practices,” or offer speculative and unsupported conclusions.

To determine whether an expert opinion is admissible, the court must perform a two-step analysis.

1. The court must determine whether the expert is qualified by “knowledge, skill, experience, training, or education” to render an opinion.
2. If the expert is sufficiently qualified, the proffered opinions must be assessed for reliability.

Discussion

State Farm argued that Castillo lacked sufficient insurance-industry expertise and that several opinions were unreliable, speculative, unsupported by industry standards, or impermissible legal conclusions.

Analysis

The court found Castillo qualified by knowledge, skill, experience, and training. It permitted him to identify standards codified in Colorado’s Unfair Claim Settlement Practices Act and to compare those standards with specific conduct.

It excluded the opinion that State Farm Auto should have conducted an earlier physical inspection because Castillo described only a “best practice,” not an industry standard.

Castillo did not identify a supporting standard or explain how attempted reassignment caused delay. Finally, it excluded opinions concerning discontinued parts because they relied on State Farm Auto’s internal practices and did not connect the alleged delays to an identifiable industry standard

Conclusion

Castillo may testify about his qualifications, applicable insurance-industry standards, estimate handling, State Farm Auto’s procedures with Weld County Garage.

Castillo may not testify that State Farm Auto was required to perform a physical inspection, that attempted claim reassignment caused delay, or that its handling of discontinued parts violated industry standards.

In some cases, such as insurance bad faith cases, expert witnesses are permitted to testify about relevant legal standards. An expert’s testimony is not per se inadmissible simply because it requires discussion of the law. When the purpose of testimony is to direct the jury’s understanding of the legal standards upon which their verdict must be based, the testimony cannot be allowed.

Industry standards’ are those practices or procedures that, although not compelled by law, are generally and voluntarily observed by all or most participants in a certain industry for reasons such as efficiency, convenience, or uniformity.

The Court found that Mr. Castillo is qualified to opine on insurance industry standards by way of his knowledge, skill, experience, and training.

As discussed above, Mr. Castillo can rely on insurance standard statutes when identifying industry standards. Furthermore, it is proper for Mr. Castillo to opine as to whether State Farm Auto’s conduct conformed to these standards. Mr. Castillo may discuss these industry standards and compare those standards to specific, factual instances of defendant’s actions and compare those specific instances to industry standards he identifies.

Mr. Castillo failed to properly tie his opinion that State Farm Auto should have performed a physical inspection to an industry standard. Mr. Castillo merely stated it is “best practice” for a physical inspection to be performed.

ZALMA OPINION

Mr. Castillo has sufficient background, experience and knowledge of standard insurance practices and will be allowed to testify at trial but that testimony will be limited because Castillo was unable to tie some of his opinions to industry standard. Experts, including Castillo, may not testify with testimony that is speculative and contains unsupported conclusions.

(c) 2026 Barry Zalma & ClaimSchool, Inc.

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150 Months in Prison for Tax Fraud

Post 4846

See the full video at  https://youtu.be/tD1_8zhe3A        and  https://rumble.com/v7fky48-convicted-on-29-tax-refund-fraud-counts.html 

In United States Of America v. Thomas Addaquay, United States Of America v. Thomas Addaquay, Nos. 25-10609, 25-10611, United States Court of Appeals, Eleventh Circuit (September 9, 2026) the Eleventh Circuit affirmed all challenged convictions, the 150-month aggregate sentence, and the challenged $4,123,474.55 restitution award.

FACTS

Thomas Addaquay controlled United Consolidated Accounting and Business Services (UC), nominally a check-cashing business.

The government proved a three-stage tax-refund scheme that converted the resulting refund checks into usable funds through ReliaFund, which processed roughly $13 million in UC deposits.

A jury convicted him on 29 tax-refund-fraud counts, including wire fraud and aggravated identity theft. In a separate case he pleaded guilty to structuring transactions to evade reporting requirements; the cases were consolidated for sentencing.

After trial, the government disclosed one memorandum recounting Michael Awiti’s statements and three documents concerning Gianna Liady’s separate tax-fraud operation. Addaquay sought dismissal or a new trial broader discovery, and a lower loss calculation.

The district court denied the post-trial relief and imposed an aggregate sentence of 150 months.

LAW

• Sufficiency: Evidence is viewed in the light most favorable to the government; a conviction stands if any reasonable construction supports guilt beyond a reasonable doubt.
• Wire fraud: The government must prove a scheme to defraud, intent, and use or causation of interstate wires to execute the scheme.
• Aggravated identity theft: During and in relation to a predicate felony, the defendant or someone he aided must knowingly use, without lawful authority, another person’s means of identification.
• Brady: Suppressed favorable evidence warrants relief only if there is a reasonable probability that timely disclosure would have changed the outcome; multiple items are assessed cumulatively.
• Giglio: Relief requires the knowing use or failure to correct materially false testimony; additional or impeaching detail alone is not perjury.
• Loss and restitution: The government must prove loss by a preponderance. Restitution must reflect actual loss caused by the defendant, but may also rest on a reasonable estimate supported by the record.

DISCUSSION AND ANALYSIS

1. Sufficiency of the Evidence

The court held that ample direct and circumstantial evidence placed Addaquay throughout the enterprise.

The government did not need to prove that every UC check was fraudulent or that Addaquay personally filed every return or sent every wire.

The aggravated-identity-theft convictions likewise stood. Addaquay received personal information and directed forged taxpayer signatures allowed the jury to find advance knowledge and intentional assistance, satisfying Rosemond.

2. DISCOVERY

Assuming favorable evidence was suppressed, the Awiti memorandum was not material.  Independent witnesses and records strongly corroborated Addaquay’s role. The memorandum also did not establish false testimony: silence, uncertainty, or added detail was not a contradiction sufficient for Giglio.

Considered cumulatively, the four documents did not create a reasonable probability of a different verdict.

3. MOTION TO COMPEL

The district court reasonably drew a line between materials directly testing loss and speculative requests. This was tailored discovery, not improper burden shifting.

4. LOSS AND RESTITUTION

The government sampled 300 checks from the relevant pool and used IRS Transaction Code 841 as a conservative indicator of attempted refund freezes or reversals. Addaquay’s expert identified an outlier and a sampling error and proposed a median-based estimate of $5,497,966.07. The district court accepted the defense-favorable median, then reduced it another 25% to account for potentially legitimate checks, Code 841’s imperfections, and fraud insufficiently attributable to Addaquay, producing $4,123,474.55.

CONCLUSION

The Eleventh Circuit affirmed. The district court’s methodology estimated actual loss to the IRS: refunds that the IRS paid and that UC processed through ReliaFund.

ZALMA OPINION

After a jury convicted Thomas Addaquay and the District Court sentenced him to serve 150 months and pay restitution $4,123,474.55 Addaquay asked the Eleventh Circuit to change the sentence. He failed because his claims were inadequate and his sentence stood and he will be in Federal Prison for 12.5 years without a chance of parole.

(c) 2026 Barry Zalma & ClaimSchool, Inc.

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Insurer’s Insistence on Keeping Premium Defeats Claim of Voidance for Breach of Condition

After USAA Learned Ford Had Sold The BMW, It Did Not Attempt To Revoke The Policy And Refund The Amount Ford Had Paid For Coverage and was Estopped or Waived it Right to Revoke Coverage

Post 4845

In Lisa White v. USAA Insurance Agency Incorporated, et al., No. CV-24-00378-PHX-KML, United States District Court, D. Arizona (September 10, 2026) Dezmond Ford purchased a USAA automobile policy covering a 2013 BMW for August 7 through December 27, 2020, and apparently paid the full premium.

Ford later sold the BMW to Jack Eddia without notifying USAA, but kept the policy active to avoid a coverage gap. Eddia obtained title and registration and, on November 1, 2020, struck and killed Lisa White’s son while driving the BMW. USAA had accepted premiums through the accident date and, after learning of the sale, did not refund the premium attributable to the post-sale period. White obtained a $3.75 million judgment against Eddia under a Damron agreement and, as Eddia’s assignee, sued USAA for breach of contract and bad faith.

LAW

Arizona generally requires an insurer relying on an insured’s breach of a notice condition to prove actual prejudice. The statute A.R.S. § 20-1105 makes a property insurance contract enforceable only for the benefit of a person with an insurable interest, defined as an actual, lawful, and substantial economic interest in preserving the insured property. Arizona waiver and estoppel precedent also bars an insurer from treating a policy as void to deny coverage while treating it as valid to retain premiums.

DISCUSSION

USAA asserted that the policy barred transfer or assignment, Ford breached the policy by failing to report the sale, and Ford’s sale extinguished his insurable interest.

White did not rely on any transfer or assignment theory; she argued Eddia was a covered person using a vehicle listed on the declarations and that USAA waived or was estopped from asserting lack of insurable interest because it retained the premiums.

USAA offered only a conclusory declaration that it would have canceled the policy and did not establish actual prejudice. On insurable interest, the court agreed that Ford’s sale generally extinguished his interest and would ordinarily make the policy inapplicable, but held that Arizona precedent prohibited USAA from invoking that defense while retaining the unearned premium.

ANALYSIS

The decisive point was the inconsistency in USAA’s position. Arizona cases establish that an insurer may waive forfeiture or be estopped when it knowingly retains premiums for a period during which it claims the policy was void.

Although the named insured’s lack of an insurable interest favored USAA on the underlying statutory question, USAA retained the premium attributable to coverage after Ford sold the vehicle and did not explain what that premium purchased if the policy had ceased to provide any coverage.

Because the relevant facts were undisputed, waiver or estoppel could be resolved as a matter of law. By contrast, USAA’s notice defense failed at summary judgment because it lacked legal and factual proof of actual prejudice.

Because White is not pursuing these theories, USAA’s arguments addressed to them are irrelevant. USAA is not entitled to summary judgment on claims or theories White is not pursuing.

There is no dispute that after USAA learned Ford had sold the BMW, it did not attempt to revoke the policy and refund the amount Ford had paid for coverage between August and December. immediately upon the sale of the BMW.

USAA is either estopped or it waived the insurable interest requirement by retaining the portion of premium attributable to the period after the sale of the BMW. USAA’s motion for summary judgment is denied and White’s motion is granted.

CONCLUSION

The court denied USAA’s motion for summary judgment and granted White’s motion for partial summary judgment. It held that USAA could not rely on the lack-of-insurable-interest defense after retaining the post-sale premiums.

ZALMA OPINION

The competence of the underwriting and claims departments of major insurers is difficult to find. Once the BMW was sold the insured had no interest in the vehicle and the policy should have been void but the seller continued to pay the premium. Once USAA learned of the sale it knew, or should have known, its insured had no interest in the vehicle and should have given notice the policy was void as of the date of the sale and returned premium paid after the sale. It did not and as a result – for a few dollars of premium – USAA exposed itself to pay a multimillion dollar judgment.

(c) 2026 Barry Zalma & ClaimSchool, Inc.

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ZIFL Volume 30, Issue 18

Major Fraud Perpetrator Asserts Fifth Amendment Privilege to Avoid Prosecution

Post 5489

Fraudster Refuses to Answer Questions About His Alleged Fraud

See the full video at https://youtu.be/3t4X49P5TxQ     and at https://youtu.be/3t4X49P5TxQ

In Great American Insurance Co. v. Gemstone Property Management, LLC, et al., No. 23-cv-9100 (LJL), United States District Court, S.D. New York (September 8, 2026) Great American Insurance Company alleged that it was defrauded through a scheme in which Subin Associates, LLP recruited individuals to stage construction-site injuries, arranged unnecessary medical treatment and litigation funding, and pursued fraudulent personal-injury claims.

Luis Manuel Garcia Salcedo, resulted in a $6 million settlement. Non-party Jose Hernandez allegedly worked as an assistant manager at Subin, operated Hernandez Associates, and owned litigation-funding companies that shared office space with Subin and provided services to its clients.

After Great American subpoenaed Hernandez for a deposition and Hernandez Associates for documents, Hernandez answered basic background questions but invoked the Fifth Amendment when asked about his employment, affiliations, knowledge of persons and entities connected to the alleged scheme, and familiarity with relevant documents.

FIFTH AMENDMENT LAW

The Fifth Amendment privilege against self-incrimination applies in civil discovery whenever a witness reasonably believes that an answer could be used in a criminal prosecution or could lead to incriminating evidence. A court may not compel answers over a valid assertion of the privilege without authorized immunity.

The witness bears the burden of showing a substantial and real—not merely speculative—risk of incrimination. The privilege covers both directly incriminating answers and answers that could furnish a link in the chain of evidence, but it cannot be used merely to avoid testimony the witness would prefer not to give. The court evaluates each question in context, considering whether its incriminating tendency is apparent from the circumstances.

DISCUSSION AND ANALYSIS

A District Court cannot compel a witness to answer deposition questions, over a valid assertion of his Fifth Amendment right, absent a duly authorized assurance of immunity at the time. The person asserting the Fifth Amendment privilege bears the burden of establishing his entitlement to it.”

The court found Hernandez’s invocation valid. Great American’s allegations potentially implicate federal and state offenses including mail fraud, wire fraud, racketeering, money laundering, conspiracy, and aiding and abetting.

Hernandez did not need to be the scheme’s principal actor to face criminal exposure. His asserted fear was reasonable because Subin had been accused in several civil RICO and fraud cases involving staged accidents and fraudulent insurance claims; Hernandez and Hernandez Associates had themselves been named as participants in at least one related action; Great American had independent evidence tying Hernandez to Subin, claimant transportation, shared office space, and litigation-funding businesses; and Hernandez submitted an ex parte declaration that the court reviewed in camera and found supportive of a non-speculative risk of prosecution.

The court determined that Hernandez had not made an impermissible blanket assertion. He answered neutral introductory questions and invoked the privilege only when questions addressed matters that could link him to Subin, related entities, relevant documents, or the alleged fraud. Those questions could furnish evidentiary links in a possible criminal case, so the privilege applied.

Hernandez submitted an ex parte declaration, which the Court has reviewed in camera, that makes clear that his fear of prosecution is not merely speculative

Considering the evidence together, the fear of prosecution here rises far above the speculative, trifling, or imaginary.

CONCLUSION

The court denied Great American’s motion to compel Hernandez to answer the deposition questions for which he invoked the Fifth Amendment. It also denied without prejudice the motion to compel Hernandez Associates to produce documents and directed the Clerk of Court to close the motion. Great American must use evidence from sources other than the defendant who believes that he will be prosecuted if he testifies.

ZALMA OPINION

Insurance Fraud is a serious crime that is a felony in most states. Great American alleged that Hernandez was a participant in a major fraud scheme taking millions fraudulently from Great American and others. It had serious evidence and wanted information from Hernandez to tie up all loose ends in their fraud investigation. Hernandez knew he was involved in criminal activity and if he testified about that activity as Great American insisted he would be prosecuted as he admitted to criminal acts. The Fifth Amendment protected him and Great American must get its evidence from sources other than the criminal.

(c) 2026 Barry Zalma & ClaimSchool, Inc.

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Communications with Arson Investigation is Privileged

Post 5488

ACE Was Not Required To Produce Any Disputed Document Because Each Was Protected By The Attorney-Client Privilege, or The Work-Product Doctrine.

See the full video at https://youtu.be/160A3soQEaA and at https://rumble.com/v7fbzvo-arson-for-profit-is-ground-to-deny-claim.html

In Rubesne Resources LLC, a Colorado Limited Liability Company v. ACE Property And Casualty Insurance Company, a Foreign Corporation, Civil Action No. 1:24-cv-02300-DDD-SBP, United States District Court, D. Colorado (August 30, 2026) Rubesne Resources LLC sought insurance coverage from ACE Property and Casualty Company after a January 5, 2024 fire destroyed its business.

South Metro Fire Rescue classified the ignition as intentional, and ACE’s retained expert concluded that gasoline had been poured in multiple areas and ignited. ACE retained coverage and subrogation counsel, National Subrogation Services, and a cause-and-origin expert while evaluating the claim, which it ultimately denied.

In the ensuing coverage litigation, Rubesne moved to compel communications and related materials that ACE withheld under the Colorado Fraudulent Claims and Arson Information Reporting Act (AIA), attorney-client privilege, and work-product doctrine. After reviewing the disputed documents in camera, the court found that each was protected.

LAW

Federal Rule of Civil Procedure 26(b)(1) permits discovery of nonprivileged matter relevant to a claim or defense and proportional to the needs of the case. The requesting party initially must show relevance; once relevance is shown or apparent, the resisting party must substantiate its objections. Colorado Revised Statutes § 10-4-1003 requires insurers that reasonably suspect arson or insurance fraud to notify and furnish relevant information to an authorized agency. Such notifications and reports are confidential and generally not discoverable or admissible in civil litigation when the statutory immunity requirements are met. A fire department qualifies as an authorized agency. Attorney-client privilege and the work-product doctrine independently protect qualifying communications and litigation-preparation materials.

ANALYSIS

The withheld materials consisted of reports or notifications to South Metro Fire Rescue, communications among ACE, its agents and experts, and the fire department, and privileged communications with counsel. The court held that ACE met its burden to establish protection under the AIA, attorney-client privilege, work product, or a combination of those doctrines. It rejected Rubesne’s proposed reading of § 10-4-1004 as allowing ordinary civil discovery to override § 10-4-1003. Reading the statute as a whole, the mandatory disclosure duties, confidentiality rules, civil-discovery bar, and immunity provisions work together to promote candid cooperation between insurers and law enforcement. Allowing a civil litigant to obtain protected investigative communications merely by serving discovery would undermine that statutory design.

The “plain and ordinary” meaning of this statutory language compels this court to tread carefully before construing § 10-4-1004(1) to authorize an override of the AIA’s confidentiality strictures, designed to encourage the reporting of potential arson and insurance fraud, simply because a party has asked for AIA-protected materials in discovery in a civil case.

DISCUSSION

The court rejected four principal arguments. First, the AIA protects the full investigative exchange, not merely one-way statements from the insurer; otherwise, producing agency responses could reveal the substance of the insurer’s protected report. Second, the parties’ protective order did not waive privilege or convert protected material into discoverable material. Third, Brady v. Maryland did not apply because no criminal prosecution was pending; any criminal-discovery obligations would arise in a criminal case, not this civil coverage action. Fourth, the absence of criminal charges against a Rubesne affiliate and the existence of a possible suspect in nearby fires did not create a statutory exception. The record also did not identify that person as a suspect in the Rubesne fire.

CONCLUSION

The court denied Rubesne’s motion to compel.

ACE was not required to produce any disputed document because each was protected by the AIA privilege, attorney-client privilege, the work-product doctrine, or overlapping protections.

In sum, for the reasons set forth above, and being further informed by its in camera review of the documents, the court respectfully concludes that the privilege afforded by the AIA, the attorney-client privilege, and the work product doctrine have been properly invoked as to the documents at issue here. ACE has met its burden to establish that a privilege exists to shield each document from production. It will not be required to produce those documents.

ZALMA OPINION

A civil suit does not allow an insurer or its employees and counsel to disclose communications with police or arson investigators. The civil suit tried to get information that could not be obtained as part of a criminal investigation.  In my past a lawyer filed a civil suit so he could depose the fire department investigators. Regardless of the lawyer’s intent the discovery ended up causing his client to be arrested and convicted for arson. Trying to get privileged communications just didn’t work and should not work.

(c) 2026 Barry Zalma & ClaimSchool, Inc.

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Referral of Claims to its SIU Is Not Bad Faith

Post 5487

In WIZ Collision, LLC, on behalf of itself and as assignee of Jawara Small, Chester Street LLC, and Aziz Brooks v. GEICO Corporation, No. 25-cv-4201 (KAM)(JAM), United States District Court, E.D. New York (August 28, 2026) Wiz Collision, a New York City auto-body shop, regularly repaired vehicles and submitted insurance claims for customers. It alleged that GEICO repeatedly approved claims and repairs, then referred certain claims to its Special Investigations Unit, stopped issuing payments, and delayed resolution despite ultimately finding no fraud.

Wiz Collision sued on its own behalf and as purported assignee of three customers, asserting contract, good-faith, consumer-protection, and injunctive claims. GEICO removed the case and moved to dismiss under Rule 12(b)(6).

LAW

Under Rule 12(b)(6), a complaint must plead facts supporting a facially plausible claim. Article III standing requires a concrete injury, causation, and redressability.

An assignee may sue only if the assignment transfers title or ownership of the claim, not merely authority to sue or collect.

Under New York law, an implied-covenant claim requires a contract between the parties and distinct supporting facts; duplicative claims may be dismissed. A General Business Law § 349 claim requires consumer-oriented conduct, a materially misleading act or practice, and resulting injury. Dismissal with prejudice is appropriate when pleading defects are incurable.

DISCUSSION

The court dismissed Counts One through Four because the customers’ repair authorizations and directions to pay did not transfer ownership or title to their claims; at most, they conferred authority resembling a power of attorney. Count Five failed because it duplicated the customer-based contract allegations and because Wiz Collision did not plead any contract or privity with GEICO. Count Six failed because the dispute concerned a limited business-specific claims process rather than conduct directed at consumers generally, and GEICO’s conduct was not plausibly deceptive: GEICO investigated the claims and released payments when no fraud was found. Count Seven had already been voluntarily withdrawn.

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.

When deciding a motion to dismiss, a court must accept the allegations in the complaint as true, but conclusory statements, “threadbare recitals the parties’ submissions, the Court found, on August 28, 2025, that GEICO, the of the elements of a cause of action,” and legal conclusions will not suffice.

ANALYSIS

The decision turns on the legal relationship between the repair shop, its customers, and the insurer. Wiz Collision’s allegations of delay and business harm could not substitute for a valid transfer of claim ownership or a direct contract with GEICO. The ruling also distinguishes a targeted commercial dispute from the broader public-facing deception required by § 349. Because these deficiencies concerned standing and the absence of contractual privity — not merely missing factual detail—the court viewed amendment as futile.

Wiz Collision fails to allege that it is in privity of contract with GEICO. Under New York law, a plaintiff must allege four elements to state a breach of contract claim: “(i) the formation of a contract between the parties; (ii) performance by the plaintiff; (iii) failure of defendant to perform; and (iv) damages.”

CONCLUSION

Wiz Collision does not even allege that similar customers submitting claims through other third parties are experiencing similar issues. Indeed, Wiz Collision’s complaint alleges that this is an issue specific only to Wiz Collision because of a GEICO employee’s alleged animus towards Wiz Collision.

The Court was thus far from persuaded that the alleged conduct affects the public-at-large.

The court granted GEICO’s motion and dismissed all seven counts with prejudice. Judgment was directed for GEICO, and the case was closed.

ZALMA OPINION

It is not a viable cause of action for a body shop to sue GEICO on the ground that GEICO employees don’t like the body shop when the allegations is limited to claims that GEICO’s refusal to pay for claims sent to Wiz by a suspect entity while it pays for claims presented directly by people insured by GEICO.

(c) 2026 Barry Zalma & ClaimSchool, Inc.

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Crime Requires 121-151 Months of Imprisonment 

Post 5486

Mr. Baiyewu Is Liable For The Loss Resulting From Acts Directly Attributable To Him And For The Loss Resulting From The Reasonably Foreseeable Acts Of Others Taken In Furtherance of the Criminal Activity

In United States Of America v. Oluwasegun Baiyewu, CRIMINAL No. 21-395 (RAM), United States District Court, D. Puerto Rico (August 26, 2026) the court dealt with a case after on October 20, 2021, a grand jury in the District of Puerto Rico returned a single-count Indictment charging Mr. Baiyewu with conspiracy to commit money laundering, in violation of 18 U.S.C. § 1956(h). About a year and a half later, on March 31, 2023, a grand jury returned a single-count Superseding Indictment charging Mr. Baiyewu and four co-defendants with conspiracy to commit money laundering, in violation of 18 U.S.C.

CONVICTION

Baiyewu was convicted by a jury of conspiracy to commit money laundering under 18 U.S.C. § 1956(h). The charged conspiracy, operating from May 2020 through October 2021, involved proceeds from business-email-compromise schemes, romance scams, and unemployment-insurance fraud.

Funds were routed through vehicle-auction accounts.

LAW

At sentencing, a court may rely on a Pre Sentence Report (PSR) when its factual assertions bear sufficient indicia of reliability, but disputed allegations must have an adequate evidentiary basis. Under Federal Rule of Criminal Procedure 32(i)(3)(B), the court need not resolve a dispute that will not affect sentencing. U.S.S.G. § 2S1.1(a)(2) applies when the defendant did not commit the underlying offense or its offense level cannot practicably be determined.

A four-level increase under § 2S1.1(b)(2)(C) applies when the defendant was in the business of laundering funds, assessed under the totality of the circumstances. Section 3B1.1(a) provides a four-level organizer-or-leader enhancement where the activity involved five or more participants or was otherwise extensive and the defendant organized or led at least one participant.

Loss is proved by a preponderance of the evidence and may be reasonably estimated, but the estimate must rest on reliable evidence; when criminal and legitimate funds are commingled and the criminal portion cannot practicably be determined, the total commingled amount may be used.

ANALYSIS

The court partially sustained factual objections where the PSR overstated or imprecisely described trial testimony. It rejected other factual objections as accurate or immaterial.

The evidence showed sustained laundering activity: Baiyewu sourced funds through intermediaries, directed deposits and auction payments, coordinated transfers of Nigerian naira, used multiple sources, and operated over an extended period. That record supported the “business of laundering funds” enhancement. On loss, however, the government’s proposed $4,053,739.95 figure included deposits outside the conspiracy period and was insufficiently tied to reliable proof. The court instead used $3,140,000, the total deposits during the conspiracy into the three relevant accounts, because the legitimate and criminal funds were commingled and the criminal portion could not practicably be isolated.

DISCUSSION

The court demanded transcript-level accuracy for disputed PSR statements and a dependable evidentiary basis for the amount calculation, while permitting use of the full commingled amount once a narrower criminal-funds figure could not be determined without undue complication. Restitution remained unresolved because the court left the record open for 90 days after sentencing.

A PSR generally bears sufficient indicia of reliability to permit the district court to rely on it at sentencing. Where an objection has been raised, the mere inclusion in the PSR of factual allegations does not convert facts lacking an adequate evidentiary basis with sufficient indicia of reliability into facts a district court may rely upon at sentencing.

Guideline § 2Sl.l(a)(2) applies where the defendant did not commit the underlying offense, or where the defendant did commit the underlying offense, but the offense level for the underlying offense is impossible or impracticable to determine.

CONCLUSION

In this case, Mr. Baiyewu is liable for the loss resulting from acts directly attributable to him and for the loss resulting from the reasonably foreseeable acts of others taken in furtherance of the jointly undertaken criminal activity, but the government bears the burden of proving a victim’s losses by a preponderance.

Baiyewu’s total offense level was 32, with criminal history category I, producing an advisory imprisonment range of 121 to 151 months and a fine range of $35,000 to $350,000. The scope of Mr. Baiyewu’s criminal activity and the fact that he led or organized one or more of the five or more individuals involved in his criminal activity, he qualifies as a leader or organizer.

Here, the evidence does not provide a sufficient basis for attributing the Government’s proposed amount of $4,053,739.95 to Defendant.

At trial, Government exhibits showed Mr. Baiyewu personally deposited multiple funds from the criminal activity. The Court found, based on the evidence before it, that the appropriate estimate of the value of laundered funds was $3,140,000. Defendant’s offense level will be increased by 16 levels instead of the 18 levels provided by the Second Amended PSR.

Mr. Baiyewu has a total offense level of 32 with a criminal history category I and an applicable guideline sentencing range of 121-151 months of imprisonment and a fine range of $35,000 to $350,000.

ZALMA OPINION

Federal courts are required to follow guideline set by statute. The court followed the guidelines as fairly and effective as possible. Baiyewu will serve more than 12 years, an appropriate sentence following the guidelines.

(c) 2026 Barry Zalma & ClaimSchool, Inc.

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Insurance Requires Fortuity to be an Insured Risk

Post 5485

In Industrial Park Center, LLC, doing business as Mainspring Capital Group v. Great Northern Insurance Company, a foreign insurer, No. CV-25-0330-CQ, Supreme Court of Arizona (September 1, 2026).

The United States Court of Appeals for the Ninth Circuit certified the following question to this Court:

Is damage to property a “fortuitous” loss when, based on the insured’s knowledge at the time the insurance policy issued, it was reasonably foreseeable that such damage was almost certain to occur if certain preventative measures were not taken?

FACTUAL BACKGROUND

Mainspring owned commercial property leased to Star Fisheries for decades. Star Fisheries’ use of water and salt allegedly caused structural damage over time. In 2010, Mainspring learned of damage and made some repairs but did not implement all recommended preventive measures. In 2021–2022, additional similar structural damage was discovered, and Mainspring submitted a claim under its all-risk policy with Great Northern Insurance Company (GNIC). GNIC denied coverage, arguing the loss resulted from long-term deterioration and excluded causes. The federal district court granted summary judgment to GNIC, finding the loss reasonably foreseeable and almost certain to occur.

GNIC reviewed the loss and retained an engineering firm, Nelson Forensics LLC (“Nelson”), to investigate the damage and its cause. Nelson claimed the deterioration was largely around the space Star Fisheries leased, and the damage was consistent with exposure to a corrosive environment for years or even decades. Nelson also concluded that while Star Fisheries’ water and salt usage “may have exacerbated” damage to a different portion of the building, some of the other damage could not be attributed to the use of water and salt.

Ultimately, GNIC denied coverage for Mainspring’s loss, explaining that the loss was the result of “poor/inadequate soil preparation and compaction, settlement, and long-term corrosion,” and concluding the loss was within the policy’s inherent-vice, faulty-workmanship, settling, and wear-and-tear exclusions. Mainspring requested that GNIC reconsider the denial.

LAW

Arizona recognizes that all-risk insurance policies cover only fortuitous losses, even if the policy does not expressly say so. Insurance exists to cover risk, not certainty. Because Arizona had not previously defined “fortuitous loss,” the Court adopted the Restatement definition: a fortuitous event is one that, so far as the parties are aware, depends on chance.

ANALYSIS

The Arizona Supreme Court rejected an objective “reasonable foreseeability” test. It reasoned that many insured risks are foreseeable; if foreseeability alone defeated coverage, all-risk insurance would lose much of its purpose.

Instead, the proper test is subjective and focuses on what the insured actually knew when coverage attached.

LACK OF FORTUITY

A loss is not fortuitous merely because the insured knew there was a risk, even a serious one.

It becomes non-fortuitous only if the insured knew the loss-causing event had already occurred, was already underway, or was certain to occur because no meaningful contingency remained.

The Supreme Court also emphasized that insurers can protect themselves through underwriting, premiums, and express exclusions. Courts should not rewrite policies to deny coverage for risks the insurer could have excluded more clearly.

DISCUSSION

The Supreme Court found consistent Arizona insurance law and public policy national authority, especially cases rejecting hindsight-based determinations of inevitability. The Supreme Court disagreed with the Ninth Circuit’s reasoning to the extent it suggested that reasonable foreseeability can make a loss non-fortuitous.

CONCLUSION

The Arizona Supreme Court answered the certified question by holding:

A loss is non-fortuitous only when the insured knew, at the time coverage attached, that the loss-causing event had already occurred, was already in progress, or was certain to occur because no material contingency remained between the facts known to the insured and the loss-causing event.

The standard is subjective, focusing on the insured’s knowledge at the time of contracting — not on hindsight or objective foreseeability.

ZALMA OPINION

When an insured is aware of a risk that would cause an injury or where the injury had already occurred before the inception of the policy, it is not fortutious, was already in progress, or was certain to occur because no material contingency remained.

(c) 2026 Barry Zalma & ClaimSchool, Inc.

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Attempt to use Constitution to Stop a Qui Tam False Claims Act Case

Post 5486

FCA’s Qui Tam Provisions do not Violate the Appointments Clause.

In United States Of America, Clarissa Zafirov, ex rel; Dr. v. Florida Medical Associates, LLC, d.b.a. Vipcare, Physician Partners, LLC, Anion Technologies, LLC, Freedom Health, Inc., Optimum Healthcare, Inc., Physician Partners Specialty Services, LLC, et al., No. 24-13581, United States Court of Appeals, Eleventh Circuit (September 1, 2026).

The False Claims Act (“FCA”) allows the Attorney General to bring civil suits against perpetrators of fraud against the government. This case involves another portion of the FCA-the qui tam provisions-which allow people, called relators, who have knowledge about fraud against the government to pursue a case against the perpetrator of the fraud.

Dr. Clarissa Zafirov filed a qui tam action under the False Claims Act on behalf of the United States against Florida Medical Associates, LLC, doing business as VipCare, and related entities. She alleged that the defendants knowingly submitted false diagnosis codes to Medicare to obtain payments greater than those to which they were entitled. After years of litigation, the defendants moved for judgment on the pleadings or dismissal, arguing that the FCA’s qui tam provisions violated Article II of the Constitution.

LAW:

The Appointments Clause requires presidential appointment, with Senate confirmation unless otherwise provided, for “Officers of the United States.” Under Supreme Court precedent, a person is an officer only if the person occupies a continuing position established by law and exercises significant authority pursuant to federal law.

ANALYSIS:

The Eleventh Circuit disagreed with the district court’s conclusion that FCA relators are officers of the United States. The court held that relators do not occupy a continuing position because their role is tied to a single case, is intermittent and temporary, provides no continuing compensation, and involves duties that are personal to the relator rather than duties that continue when the individual changes.

DISCUSSION:

The court rejected the defendants’ argument that the FCA creates a continuous “office of relator.” It reasoned that the term does not appear in the FCA and that the proper inquiry is whether the individual relator occupies a continuing position, not whether multiple private parties may file qui tam suits at different times. The court also distinguished relators from independent counsel because independent counsel could be replaced, received compensation from public funds, and held duties that continued beyond the individual officeholder. Relators, by contrast, pursue personal claims based on case-specific knowledge and cannot be replaced by another relator if they abandon the case.

CONCLUSION:

The Eleventh Circuit held that FCA relators are not officers of the United States because they do not occupy a continuing position established by law. Therefore, the FCA’s qui tam provisions do not violate the Appointments Clause. The court vacated the district court’s dismissal and remanded for consideration of the defendants’ remaining Take Care Clause and Vesting Clause arguments.

Relators are not officers of the United States because they do not occupy a continuing position established by law. Accordingly, we join our sister circuits that have addressed this issue and hold that the qui tam provisions of the FCA do not violate the Appointments Clause. Therefore, the Eleventh Circuit vacated the district court’s order dismissing this case and remand for the district court to evaluate the defendants’ remaining constitutional arguments.

Zafirov and the United States are correct that relators do not hold a continuing position, which is sufficient to determine that relators are not officers who must be presidentially appointed. Accordingly, the Eleventh Circuit had no need to reach any of their remaining arguments.

Because the Eleventh Circuit concluded that relators  are not officers of the United States subject to the Appointments Clause the case must continue.

CONCLUSION

The qui tam provisions of the FCA do not violate the Appointments Clause. Accordingly, the Eleventh Circuit vacated the district court’s order dismissing this case and remand for the district court to evaluate the defendants’ Take Care Clause and Vesting Clause arguments.

ZALMA OPINION

The False Claims Act is a serious weapon used against people defrauding units of the United States like Medicare, Medicaid, National Flood Insurance Program and Crop Insurance. From the inside they see the fraud and give the DOJ the right to join. Whatever the Relator obtains for the United States he or she gets a percentage. The fraudsters don’t like it and tried to argue that Dr. Clarissa Zafirov was a officer of the US and not able to bring her qui tam claim. The attempt failed because relators do not hold a continuing position sufficient to determine that relators are not officers and the action must continue.

(c) 2026 Barry Zalma & ClaimSchool, Inc.

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You Only Get One Chance to Sue

Litigation is a Win or Lose Proposition.

Post 5484

In David Cromp v. Johnny Harkrider, Monique Harkrider, and their Marital Community, dba Able Plumbing Plus, No. 61678-5-II, Court of Appeals of Washington, Division 2 (August 25, 2026) David Cromp hired Able Plumbing Plus in 2018 to install plumbing, including two toilets, at his residence. In 2019, both toilets allegedly leaked, causing damage. Insurance claims were submitted through Able’s contractor policy, but the insurer eventually denied the claims.

Cromp sued Able in 2022 for breach of contract based on the allegedly defective toilet installation. During that case, Cromp attempted to add claims related to Able’s conduct during the insurance claim process, including fraud, bad faith, tortious conduct, and bond-related claims, but the superior court denied leave to amend. The 2022 breach-of-contract claim was later dismissed with prejudice on summary judgment as time-barred.

On the same day the 2022 case was dismissed, Cromp filed a new 2024 lawsuit against Able asserting claims arising from both the defective installation and Able’s alleged conduct during the insurance claim process. The superior court dismissed the 2024 case on summary judgment based on res judicata and collateral estoppel and struck Cromp’s motion to compel discovery as moot.

LAW

The key doctrine was res judicata, also known as claim preclusion. Under Washington law, res judicata bars a later lawsuit when there has been a final judgment on the merits and the later case shares identity with the prior case in:

1. subject matter,
2. cause of action,
3. persons and parties, and
4. the quality of the persons for or against whom the claim is made.

Res judicata also bars claim splitting, meaning a plaintiff may not bring separate lawsuits based on the same transaction or occurrence when the claims could have been litigated in the earlier action.

DISCUSSION

The court concluded that Cromp’s 2022 case ended in a final judgment on the merits because the breach-of-contract claim was dismissed with prejudice on summary judgment, even though the dismissal was based on the statute of limitations.

The court then found all four res judicata elements satisfied. The 2022 and 2024 lawsuits involved the same subject matter because both arose from Able’s toilet installation and related events. The causes of action were sufficiently identical because they arose from the same transactional nucleus of facts: the plumbing contract, the alleged leaking toilets, and Able’s conduct after the leaks were discovered. Although Cromp framed the 2024 claims as fraud, negligence, bad faith, insurance fraud, and emotional distress, the court emphasized that res judicata bars not only claims actually litigated but also claims that could have been brought with reasonable diligence in the earlier case. The court also found identity of parties and quality of parties because Cromp and Able were parties in both lawsuits in the same capacities.

The superior court therefore did not abuse its discretion by striking the motion as moot.

ANALYSIS

The court’s reasoning turned less on the labels Cromp attached to his later claims and more on the factual basis underlying both lawsuits. Cromp knew of the alleged insurance-related misconduct during the 2022 case and even attempted to add similar claims by amendment. Because those claims arose out of the same contractual relationship and sequence of events, he was required to pursue them in the original action rather than filing a second lawsuit after the first case was dismissed.

Washington law prohibits filing two separate lawsuits based on the same event or claim splitting. As a threshold requirement of res judicata, there must be a final judgment on the merits in the prior suit. If claim splitting were permitted, the practice would lead to multiple suits and force a defendant to incur the cost and effort of defending multiple suits. The prohibition on claim splitting generally arises under the doctrine of res judicata, also commonly known as claim preclusion. We review de novo whether res judicata bars an action.

Even a plaintiff who later pleads different legal theories cannot avoid res judicata if the later claims arise from the same factual transaction and could have been litigated previously. The ruling also shows that a dismissal with prejudice on statute-of-limitations grounds can have preclusive effect.

Res judicata rests upon the ground that a matter which has been litigated, or on which there has been an opportunity to litigate, in a former action in a court of competent jurisdiction, should not be permitted to be litigated again. It puts an end to strife, produces certainty as to individual rights, and gives dignity and respect to judicial proceedings.

CONCLUSION

The Court of Appeals affirmed the superior court. It held that Cromp’s 2024 lawsuit was barred by res judicata because it constituted impermissible claim splitting following the final judgment in his 2022 case. The court also affirmed the order striking Cromp’s motion to compel discovery as moot.

The Court of Appeals held that Able was entitled to judgment as a matter of law because Cromp’s 2024 lawsuit constituted impermissible claim splitting barred by res judicata. Accordingly, it affirmed the superior court’s summary judgment dismissal of Cromp’s claims and its decision to strike Cromp’s motion to compel discovery as moot.

ZALMA OPINION

Litigation is a win or lose proposition. You sue, you win or you lose. And when you lose a lawsuit you cannot sue again to get another chance to win. Cromp lost. He tried suing again using different legal concepts. The Court of Appeals put an end to the strife betweem the homeowner and the contractor. Res Judicata produced certainty as to individual rights, and gave dignity and respect to the judicial proceedings.

(c) 2026 Barry Zalma & ClaimSchool, Inc.

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Habeas Corpus Petition Granted 

Post 5483

Over Staying Visa & Charge of Insurance Fraud Still Entitled to Habeas Relief and a Bond Hearing

In Hernan Guillermo Palomino-Crespo v. Warden, Glades County Detention Center et al., No. 2:26-cv-02322-SPC-NPM, United States District Court, M.D. Florida, Fort Myers Division (August 26, 2026) Hernan Guillermo Palomino-Crespo’s Amended Petition for Writ of Habeas Corpus, the government’s response and Palomino-Crespo’s reply.

FACTUAL BACKGROUND

Palomino-Crespo is a native and citizen of Colombia who lawfully entered the United States on a B-2 non-immigrant visa on February 24, 2017. He resides in Miami, Florida with his wife and two minor children, owns and operates a residential restoration and remodeling business, and files U.S. tax returns.

On June 4, 2026, the State of Florida charged Palomino-Crespo with insurance fraud and theft and released him pending trial. He has no prior criminal history.

On June 27, 2026, roving Border Patrol agents arrested Palomino-Crespo and commenced removal proceedings by serving a notice to appear. In a bond hearing held on July 23, 2026, Immigration Judge Jennifer Mazza found Palomino-Crespo subject to mandatory detention under 8 U.S.C. § 1226(c) due to the pending state charges.

Palomino-Crespo claimeds he did not meet the requirements for mandatory detention under § 1226(c) because he was admitted into the United States. The government conceded the point and acknowledged Judge Mazza’s decision is legally incorrect.

The Government argued that Palomino-Crespo is not subject to mandatory detention under § 1226(c). But it argues his detention is nevertheless lawful under § 1226(a) because Judge Mazza included this line at the end of the bond order: “Even if Respondent was not subject to Mandatory Detention, Respondent also failed to demonstrate that he does not present a risk of flight.”

The parties agree that as a noncitizen detained under § 1226(a), Palomino-Crespo has a right to an individualized bond hearing. They disagree on whether he already received one.

The USDC found he did not. Palomino-Crespo alleges that the Department of Homeland Security incorrectly argued for § 1226(c) mandatory detention at the bond hearing, and that Judge Mazza accepted that argument and did not consider any other evidence or allow Palomino-Crespo’s attorney to present any argument regarding danger to the community or risk of flight.

The government does not contest Palomino-Crespo’s characterization of the bond hearing. Palomino-Crespo has not received the individualized, merit-based bond hearing he is entitled to.

The Court will thus order the respondents to either bring Palomino-Crespo before an immigration judge for an individualized bond hearing within ten days or release him.

To satisfy this Order, the hearing must include—and the resulting order must reflect—consideration of evidence properly submitted by the petitioner and the factors announced in In re Guerra, 24 I. & N. Dec. 37 (BIA 2006), and the government must bear the burden of proof. The Court is aware the EOIR is the agency that conducts bond hearings, it is not a party to this action, and it may decide not to hold a hearing that satisfies these requirements. But to be clear, subjecting Palomino-Crespo to mandatory detention under § 1225(c) is unlawful.

If the respondents are unable to ensure Palomino-Crespo receives a bond hearing that complies with this Order within ten days, they must release him.

Accordingly, it is hereby ordered that Hernan Guillermo Palomino-Crespo’s Petition for Writ of Habeas Corpus is granted (1) Within ten days of this Opinion and Order, the respondents shall either (1) bring Palomino-Crespo for an individualized bond hearing before an immigration judge or (2) release Palomino-Crespo under reasonable conditions of supervision. If the respondents release Palomino-Crespo, they shall facilitate his transportation from the detention facility by notifying his counsel when and where he may be collected.

ZALMA OPINION

Although rare, in this case Habeas was granted. Insurance fraud is a serious crime and is, in my experience, conducted by people of every race, religion, national origin or gender. Since Palomino-Crespo was on a Visa since 2017 the detention was probably correct for overstaying a Visa.

He had been charged with insurance fraud, but not yet tried or otherwise resolved, and was innocent of the crime until proven guilty. Since the government failed to fulfill its obligation for Palomino-Crespo to receive a bond hearing the court ordered the government to provide the hearing or release him immediately.

(c) 2026 Barry Zalma & ClaimSchool, Inc.

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ZIFL Volume 30, Issue 17

Subscribe to ZIFL Here

THE SOURCE FOR THE INSURANCE FRAUD PROFESSIONAL

Zalma’s Insurance Fraud Letter (ZIFL) continues its 30th year of publication dedicated to those involved in educing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/

This issue contains the following articles about insurance fraud:

Bad Faith Suit Fails 

State Farm Must Try Breach of Contract Claim Only

Breach of Condition is Ground to Deny Claim and Void Policy

In Arutyun Darakchyan v. State Fann General Insurance Company et al., No. 2:25-cv-03880-CAS-AJRx, United States District Court, C.D. California (August 11, 2026) Plaintiff Arutyun Darakchyan sued State Farm General Insurance Company after State Farm denied his homeowners burglary claim for losses allegedly sustained at his Tarzana residence.

Read the rest of the article and the full issue of ZIFL here. 

AI-Enabled Fraud Tops List Of Emerging Claim Severity Risks, Survey Finds

AI-enabled fraud and data authenticity is the factor most likely to increase claim severity over the next three to five years, according to nearly a third, or 32%, of attendees surveyed at the 2026 RIMS conference by CorVel.

Read the rest of the article and the full issue of ZIFL here. 

Department of Justice Announces Launch of National Fraud Detection Center 

NFDC Opens with Widespread Collaboration with Inspectors General and Law Enforcement Agencies

Today, August 26, 2026, the U.S. Department of Justice announced the launch of the National Fraud Detection Center (NFDC), a prosecutor-led, multi-agency team designed to investigate the most harmful actors defrauding federal government programs, including illicit actors overseas and those operating fraud schemes across federal programs.

Read the rest of the article and the full issue of ZIFL here. 

Health Insurance Fraud Convictions

Justice Department’s Fraud Division Announces Unprecedented Fraud Enforcement Actions 

Press Release: Thursday, July 30, 2026

VP Vance’s Anti-Fraud Efforts are Going Strong: On April 7, the Department of Justice announced the creation of the National Fraud Enforcement Division (Fraud Division).

Read the rest of the article and the full issue of ZIFL here. 

A 23rd Person Has Been Sentenced To Prison for the $250 Million Feeding Our Future Scandal.

Abdinasir Mahamed Abshir, 34, of Lakeville, Minnesota, was sentenced to 78 months in prison for his role in a $250 million fraud scheme that exploited

Read the rest of the article and the full issue of ZIFL here. 

Outstanding Refugee’ Award Winner Charged With Medicaid Fraud 

Salman Ahmed Elmi, a Somali refugee who received Minnesota’s 2021 Outstanding Refugee Award for Entrepreneurship, has been charged with eight felonies tied to the operation of Reva Health.

Read the rest of the article and the full issue of ZIFL here. 

Phantom Pets, Real Fraud

On August 21, 2028 the City of London Police reported that it had arrested a man who fraudulently claimed more than £31,000 from multiple insurers by repeatedly reporting dogs as dead has been convicted following an investigation by the City of London Police’s Insurance Fraud Enforcement Department (IFED).

Robert Daniel Cretu, 40 from Liverpool was found guilty of fraud by 30 separate fraudulent pet insurance claims submitted to a number of insurers.

Read the rest of the article and the full issue of ZIFL here. 

Other Than Health Insurance Fraud Cases

Mississippi Man Pleads Guilty to Evading $2M in Taxes

Eric Brian Rosenberg, a Mississippi man, pleaded guilty August 19, 2026 to evading the payment of more than $2 million in federal income taxes.

Read the rest of the article and the full issue of ZIFL here. 

Auto Insurance Fraud Conviction Stands

Habeas Relief from an Insurance Fraud Conviction Based on an Incorrect Factual Determination Unavailable

In Bryce A. Nickelson v. Secretary, Department Of Corrections, No. 8:23-cv-1081-KKM-SPF, United States District Court, M.D. Florida, Tampa Division (August 17, 2026) Bryce Nickelson, a Florida prisoner, was convicted by a state jury of making a false and fraudulent insurance claim and sentenced to 92.55 months in prison.

Read the rest of the article and the full issue of ZIFL here. 

Department of Justice Announces Launch of National Fraud Detection Center 

NFDC Opens with Widespread Collaboration with Inspectors General and Law Enforcement Agencies

Monday, August 24, 2026 a Press Release from the Office of Public Affairs

Read the rest of the article and the full issue of ZIFL here. 

Barry Zalma

Barry Zalma, Inc., 4441 Sepulveda Boulevard, CULVER CITY CA 90230-4847, 310-390-4455.  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.

Read the full issue of ZIFL here. 

Fraud & Murder

Post 5438

Not Every Evidentiary Error, However, Leads to a New Trial.

In United States of America v. Darius Carter, No. 24-3418, United States Court of Appeals, Eighth Circuit (August 25, 2026) Darius Carter, a convicted felon, could not lawfully buy a firearm. His girlfriend, Sarah Mason, was also unable to purchase one because she was only 20 years old. Carter and Mason therefore used Carter’s mother to buy firearms from a pawn shop. Carter and Mason allegedly selected the guns, supplied most of the money, and made payments, while Carter’s mother completed Form 4473 and falsely certified that she was the actual buyer.

Months later, Mason was found dead from a gunshot wound to the back of the head, and investigators traced one of the firearms to the pawn-shop transactions. Carter was charged with making, and conspiring to make, false statements in connection with firearm purchases.

LAW

The USCA considered whether the evidence was sufficient to support convictions for conspiracy under 18 U.S.C. § 371 and false statements in firearm acquisition under 18 U.S.C. § 922(a)(6), including accomplice liability under 18 U.S.C. § 2. It also reviewed whether testimony about Mason’s death was admissible under the Federal Rules of Evidence, particularly rules governing relevance and other-act evidence.

At sentencing, the USCA considered whether U.S.S.G. § 2K2.1(c)(1) permitted a cross-reference to the first-degree murder guideline, requiring findings that Carter murdered Mason and that the firearm used was cited in the offense of conviction.

DISCUSSION

The Eighth Circuit concluded that the government presented sufficient evidence for the jury to find both a conspiracy and affirmative participation by Carter. Evidence included Carter’s discussion of using his mother as a straw buyer, payments matching withdrawals from Carter and Mason rather than his mother, Carter’s text referring to one firearm as “my gun,” and testimony that Carter helped arrange and complete the purchases. Although Carter argued the guns could have been gifts, the Eighth Circuit held the jury was not required to accept that alternative explanation.

ANALYSIS

The court held that testimony describing Mason’s death as “suspicious” was irrelevant and should not have been admitted because it did not make Carter’s participation in the firearm-purchase offenses more or less likely.

The testimony improperly suggested unrelated misconduct, but the error was harmless.  At sentencing, the majority upheld the cross-reference to first-degree murder, finding no clear error in the district court’s conclusion that Carter killed Mason that formed the basis of the false-statement offenses.

CONCLUSION

The Eighth Circuit affirmed Carter’s convictions and sentence. It held that the evidence supported the firearm false-statement and conspiracy convictions, that the erroneous admission of testimony about Mason’s suspicious death was harmless, and that the sentencing court properly applied the murder cross-reference under the Guidelines.

The government made no attempt to connect Mason’s death to the false statements or the firearm purchases. Evidence of any other crime, wrong, or act is not admissible to prove a person’s character in order to show that on a particular occasion the person acted in accordance with the character.

Not every evidentiary error, however, leads to a new trial.

The Eighth Circuit concluded that once the case reached sentencing, Mason’s death was fair game. In this case, application of the cross-reference resulted in a 159-month increase to the statutory maximum of 180 months.

ZALMA OPINION

People with little understanding of fraud consider fraud to be a non-violent crime. They are wrong. Fraud is often violent when murder is involved. The murder was not charged but it effected the sentence rendered and the increased sentence was confirmed.

(c) 2026 Barry Zalma & ClaimSchool, Inc.

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No Summary Judgment for Bad Faith for Lack of Evidence

Post 5437

Genuine Dispute of Material Fact Avoids Summary Judgment

In Riley and Rebecca Ross v. Allstate Vehicle And Property Insurance Company, and Illinois Corporation, No. 2:25-CV-00006-JAG, United States District Court, E.D. Washington (August 18, 2026), Pending before the USDC was Defendant’s Motion for Partial Summary Judgment the plaintiffs brought claims against Allstate arising from its handling of an insurance claim. They alleged Allstate failed to make proper payment, adequately investigate the loss, retain an expert, respond to communications, and properly value damages including alternative living expenses and damage to a hydronic heating system.

Plaintiffs argued Defendant failed “to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies.”

ISSUES

Allstate sought dismissal of the plaintiffs’ claims under the Insurance Fair Conduct Act (IFCA), Consumer Protection Act (CPA), insurance bad faith, and negligent claims handling. Allstate also sought to bar recovery of attorney’s fees.

LAW

The USDC applied the summary judgment standard: summary judgment is proper only where there is no genuine dispute of material fact and the movant is entitled to judgment as a matter of law.

For the IFCA claim, Washington law permits suit where an insurer unreasonably denies coverage or payment of benefits. The USDC rejected an expanded “constructive denial” theory.

For the CPA claim, the plaintiffs had to show an unfair or deceptive act, trade or commerce, public interest impact, injury, and causation. Violations of certain insurance regulations can constitute per se unfair or deceptive acts.

For bad faith, plaintiffs had to show unreasonable conduct by the insurer. Summary judgment is improper if material facts remain disputed regarding the reasonableness of the insurer’s actions. Fees are available in coverage disputes, not merely disputes over claim valuation or damages.

DISCUSSION / ANALYSIS

Where the insurer pays or offers to pay a paltry amount that is not in line with the losses claimed, is not based on a reasoned evaluation of the facts (as known or, in some cases, as would have been known had the insurer adequately investigated the claim), and would not compensate the insured for the loss at issue, the benefits promised in the policy are effectively denied.

The court dismissed the IFCA claim because Allstate had not denied coverage or benefits. The court concluded that Washington law does not recognize a constructive denial theory under IFCA where the insurer made substantial payment but disputed the amount owed.

The CPA claim survived in part. The court dismissed CPA theories based on failure to adopt investigation standards, failure to affirm or deny coverage, failure to acknowledge communications, and settlement standards because plaintiffs failed to identify sufficient supporting facts. However, CPA theories based on allegedly unreasonable investigation and alleged underpayment sufficient to compel litigation survived because factual disputes remained.

The bad faith and negligent claims handling claims also survived. Plaintiffs presented enough evidence to create a factual dispute over whether Allstate’s investigation and valuation were reasonable, including the lack of an in-person adjuster inspection and handling of the heating-system damage.

The court rejected fees because the dispute concerned claim valuation and damages, not coverage. Allstate acknowledged coverage.  The disagreement was over the extent and value of the loss.

CONCLUSION

Allstate’s motion for partial summary judgment was granted in part and denied in part. The IFCA claim was dismissed with prejudice. CPA claims based on WAC 284-30-330(4) and (7) remained. The plaintiffs’ breach of contract, bad faith, declaratory judgment, and negligent claims handling claims remained pending.

The USDC concluded that as to the IFCA claims, no issue of genuine factual dispute exists, consequently summary judgment is appropriate. Plaintiff also presented a genuine issue of fact regarding the Bad Faith and Negligent Claims Handing claim. Lastly, the USDC found fees do not apply.

ZALMA OPINION

Bad faith is a tort that requires a finding of unreasonable conduct by the insurer. The facts to prove that tort was not proved but the plaintiff presented sufficient evidence to raise a genuine issue of fact regarding the Bad Faith and Negligent Claims Handing claim. Whether they proved the torts at trial will be established by a jury.

(c) 2026 Barry Zalma & ClaimSchool, Inc.

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Courts Have Established a Duty to Read an Insurance Policy

Post 5436

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You will read from this link until you reach the the end of this blog post as the free part of Excellence in Claims Handling. You should consider joining as a paid member to get full access to articles for members only, to our news, analysis, insurance coverage, claims, insurance fraud and insurance webinars, by clicking at the button above.

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Every person that acquires a policy of insurance, whether designed to protect a dwelling, a commercial property, agriculture, crops from destruction by the actions of nature, or from liability arising from claims of torts, or cyber-attacks, must read and understand the policy before it is acquired to determine whether it provides the coverage requested. If a loss that could be subject to insurance it must be read again before making a claim to an insurer.

A majority of the courts that have been called upon to interpret an insurance policy require that the person seeking insurance must read the insurance contract or B at the very least B have, a lawyer or insurance professional read, understand and explain the policy to the person acquiring the insurance.

For the last 58 years I have asked people making claims on an insurance policy whether they have read and understood their insurance policy. Most just laughed and claimed they never tried. Two, in my career, answered Ayes@ only to find after further questioning it became obvious that both lied since they knew nothing about the terms or conditions of the policy, they claimed they had read and understood. These facts horrify me as an insurance coverage lawyer, a consultant and an expert witness testifying in courts across the United States about the purchase and sale of insurance contracts and insurance claims handling.

My career, starting as a trainee adjuster in 1967 and later as an insurance coverage lawyer required that I read, understand and apply insurance policies issued by my clients to individuals and businesses. I have written, edited or revised, policies of insurance on behalf of insurer clients. I even read insurance policies I acquire to protect my property and protect me against tort liability before I order the policy. I know I am unusual, but I should not be. My practice should be the norm. Before beginning to read an insurance policy you seek you must first understand what insurance is.

What is Insurance?

Many states have different definitions of the word Ainsurance@ but each have the same essential elements:

1. It must be a written contract.
2. One party (the insurer) must agree with the other (the insured) as to the insurance provided.
3. The insurer, for consideration (payment of a premium) agrees to indemnify the insured against a contingent or unknown event.
4. The promise to indemnify is limited to certain identified risks of loss arising from a fortuitous, contingent or unknown events.

Insurance is a contract like all other contracts. Lawyers and judges believe no one should enter into a contract ignorant of its terms and conditions. Many people would never sign a lease without reading it. No businessperson will sign a lease until he or she has been advised by a lawyer representing the businessperson alone, of its terms, conditions, limitations, and whether it is favorable to the person seeking to lease commercial property. No one should agree to the terms of a mortgage without reading the contract.

Insurance contracts, however, are almost universally not read by the person insured. Some are not read by the agent, broker or underwriter who sell the insurance, nor the lawyers retained to enforce it. Yet hundreds of hours of the work of insurance professionals are involved in the writing of policies of insurance.

Modern insurance policies, as a result of state statutes, are required to be written in plain language or easy to read language sufficient for anyone with a fourth‑grade education to understand. I describe the modern language of insurance policies as ASesame Street English.@ There is no reasonable excuse available for not reading an insurance policy.

Why, then, do people fail to read their insurance policy?

Insurance policies have a bad reputation. People believe insurance policies are impossible to understand. Courts in the past have encouraged this belief. Policies are believed by the common person to be confusing and complicated. Sections of the contract are frequently cross‑referenced to other sections of the policy, often in a convoluted way.

Only a Fiduciary is Obligated to Read or Explain the Terms of the Policy to the Insured

An agent or broker has no duty to read or explain the terms of the contract to the insured absent a special, fiduciary relationship. [Smith v. Union Nat’l. Life Ins. Co., 286 F.Supp.2d 782, 787 (S.D.Miss. 2003)]. Mississippi law imposes no fiduciary duties on an insurance agent to an insured. [Walden v. Am. Gen. Life, 244 F.Supp.2d 689, 696-97 (S.D.Miss. 2003); Hicks v. N. Am. Co. for Life & Health Ins., 47 So.3d 181, 191 (Miss. Ct. App. 2010; Wilson v. Kemper Corp. Servs. (S.D. Miss. 2022)]

When a court held that there may be no duty to read an insurance policy where misrepresentation and concealment are alleged under certain circumstances an insurer may be liable for misrepresentation or failure to deliver agreed‑upon coverage where the agent misleads the insured as to the extent of coverage, even though the insured did not read the policy and discover the actual extent of the coverage. [Lin v. John Hancock Variable Life Insurance Company, B189108 (Cal. App. 4/30/2007) (Cal. App., 2007)]

It has long been the law in Oklahoma that an insured=s failure to promptly examine a policy and discover departure from an insurance agent=s assurances does not defeat reformation of the policy. [Commercial Casualty Insurance Co. v. Varner, 160 Okl. 141, 16 P.2d 118 (1932), followed by Warner v. Continental Casualty Co., 534 P.2d 695 (Okla.App.1975).] Under Oklahoma law, an insured has no duty to read his written policy and notice discrepancies between it and previous representations of a soliciting agent. [Business Interiors, Inc. v. Aetna Cas. and Sur. Co., 751 F.2d 361 (10th Cir., 1984)]

The Insurance Contract is Usually Enforceable as Written

If the contract is accepted, it should be binding upon both parties as long as it is clear and unambiguous and none of the exceptions to the requirement that the policy must be read by the insured it will be enforced as written.

I don=t believe it is necessary to change the language used by a court interpreting an insurance contract. I only expect that the court will interpret the contract as binding as long as it is clear and unambiguous and was not obtained as a result of mistake, misrepresentation of material fact, concealment of material fact or fraud.

There is no question that most people, regardless of case law, do not read their insurance policy. Whether read or not all of those contracts are enforceable, and no one should argue that the terms should be ignored because they were not read.

Courts, interpreting insurance policies, seeking to deal fairly and in good faith with both parties to the insurance contract, must:

1. Recognize that all parties to the insurance contract are required to treat each other with the utmost good faith and do nothing to deprive the other of the benefits of the contract.
2. Read every word in the insurance policy from:
3. the cover sheet, to
4. the declarations page, to
5. the basic wording, to
6. all endorsements, and every other word, up to
7. the signature by the insurer.
8. Identify all parties to the contract.
9. Determine whether the policy was acquired from an insurance agent representing the insurer or a broker representing the insured.
10. Determine if the insured actually read the policy before ordering it.
11. Determine if the insured read the policy after it was issued and delivered to the insured.
12. Determine if any specialist lawyer, risk manager, insurance consultant, agent or broker advised the insured about the contents of the policy.
13. Determine if any mistakes were made in the production of the policy wording.

The Law of Unintended Consequences

It took quite a few years but finally the Legislatures enacted the “easy to read” statutes compelling insurers to use common language easily understood by the public. In so doing, policies became less precise and contrary to the intent of the statutes, there is more litigation claiming ambiguities in insurance contracts that must be construed against the insurer.

The law of unintended consequences took hold and easy to read policies have grown insurance coverage litigation logarithmically.

(c) 2026 Barry Zalma & ClaimSchool, Inc.

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Trial Court Must Determine What Part of the Insurance Proceeds Plaintiff was Entitled to Receive

Post 5435

Specific Performance is an Equitable Remedy

See the full video at https://rumble.com/v7eoiz4-insurance-proceeds-available-in-specific-enforcement-action.html and  https://youtu.be/SsphXy_Y4xw 

In Landon Cole v. Coty Link, No. 2024AP1372, Court of Appeals of Wisconsin, District III (August 18, 2026) Cole and Link entered into a purchase agreement for real property at 102 Knapp Street in Chetek, Wisconsin, for $105,000. The property consisted of a small lot with a building, and Cole accepted the property in its current as-is condition after receiving disclosures identifying structural defects. The agreement also included a maintenance clause and a property-damage clause governing damage occurring between acceptance and closing.

FACTUAL BACKGROUND

Before closing, the building’s roof collapsed after heavy snowfall. Cole elected to proceed with the transaction despite the damage and claimed entitlement to insurance proceeds under the property-damage provision. Link refused to close after the building was razed, and Cole sued for specific performance.

After a non-evidentiary hearing, the circuit court issued a written decision and order denying Cole’s summary judgment motion because the purchase agreement, when read as a whole, was ambiguous and “material issues of fact” existed.

The court interpreted the maintenance and property damage provisions together with the provision that Cole accepted the Property “as-is” to conclude that the purchase agreement was ambiguous and, therefore, unenforceable

LAW

Specific performance is an equitable remedy, reviewed under a two-tiered standard: legal questions are reviewed newly while the ultimate discretionary decision is reviewed for erroneous exercise of discretion.

Contract interpretation seeks to give effect to the parties’ intent. If contract language is clear and unambiguous, courts enforce its plain terms; if ambiguous, extrinsic evidence may be considered.

Impossibility and frustration of purpose generally do not excuse performance when the parties anticipated and allocated the relevant risk in the contract.

ANALYSIS

The Court of Appeals concluded that the purchase agreement was not ambiguous. The agreement plainly covered the sale of the entire property — the lot and building — not merely the building. It also expressly addressed the possibility of pre-closing property damage exceeding five percent of the purchase price, giving Cole the right either to terminate the agreement or to proceed and receive related insurance proceeds and any deductible credit.

Because the roof collapse was the type of pre-closing damage contemplated by the property-damage clause, Link could not rely on impossibility or frustration of purpose to avoid performance. Those defenses were unavailable as a matter of law because the parties had contracted with reference to the risk that later occurred. Link’s refusal to close therefore constituted a default under the agreement.

Before a court orders specific performance, it must be satisfied that the claim is fair, just, reasonable, and not the product of an unconscionable or oppressive bargain. A court faced with a request for specific performance must find that there are revealed factual or legal considerations which would make specific performance of the contract unfair, unreasonable or impossible.

The Court of Appeals concluded that the purchase agreement was not ambiguous because it was clear from the agreement’s language that the parties agreed to the sale and purchase of the Property and that they contemplated that the Property could be damaged between acceptance of the agreement and closing.

Link had agreed to sell the Property and Cole agreed to pay $105,000 for that Property. Both parties knew that the building on the Property had structural defects, and their acknowledgment of those defects is shown by the purchase agreement’s terms regarding Cole’s receipt of the disclosure report and his acceptance of the Property in its current as-is condition.

DISCUSSION

The decision emphasized that courts will enforce negotiated risk-allocation provisions in real estate contracts according to their plain language. The maintenance and as-is provisions did not override or limit the property-damage clause; rather, the provisions operated together to show that Cole accepted the known condition of the property while the parties separately allocated the risk of later damage before closing.

Although the Court of Appeals held that Cole was entitled to specific performance and conveyance of the property, it acknowledged equitable concerns about the amount of insurance proceeds Cole should receive.

Since specific performance is equitable, the court remanded the case to the trial court for it to determine the proper extent of Cole’s entitlement to insurance proceeds based on evidence and relevant factors, including the property’s value before and after the collapse, the building’s value, razing costs, actual insurance payments, and other relevant considerations.

CONCLUSION

The Court of Appeals reversed the judgment dismissing Cole’s action and remanded with directions to the trial court. The circuit court was ordered to enforce the purchase agreement by requiring conveyance of the property to Cole and to determine, in equity and based on the record, the extent to which Cole was entitled to insurance proceeds under the property-damage provision.

ZALMA OPINION

When parties agree that if the property being purchased that the buyer will take insurance proceeds if the property is damaged before the sale is closed the buyer can recover specific performance of the insurance provisions of the purchase agreement. Since Cole had an insurable interest in the property he could have purchased his own insurance and avoided the need to sue for the equitable remedy of Specific Performance.

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Policy Limits Demand Accepted Settles Claim

Post 5434

See the full video at https://youtu.be/b8Ls3QN2Egk and at https://rumble.com/v7en1mq-offer-made-and-accepted-creates-enforceable-contract.html

A Contingent Offer Accepted Ends the Dispute

In Farmers Insurance Exchange, a California Reciprocal Insurance Exchange,  The Superior Court For The County Of San Bernardino, Kathleen Ann Wood, E087128, California Court of Appeals, (July 9, 2026) Farmers Insurance Exchange insured Doyle Archer under an automobile policy with bodily injury limits of $15,000 per person and $30,000 per accident.

FACTUAL BACKGROUND

Archer rear-ended Kathleen Ann Wood at a red light, causing Wood to assert a bodily injury claim against him. Wood’s counsel sent Farmers a pre-litigation settlement demand offering to resolve Wood’s claim for the available policy limits, stating that if the $100,000 demand exceeded the policy, the offer was for the policy limits.

Farmers timely responded in writing, agreed to pay Wood the $15,000 per-person policy limit, and provided the requested declarations page confirming the applicable limits.

Wood later refused to complete the settlement documentation after reviewing Archer’s asset declaration and discovering possible additional assets.

Wood filed suit against Archer, and Farmers separately sued Wood for breach of contract, declaratory relief, and specific performance.

LAW

A settlement agreement is governed by ordinary contract principles.

Contract formation requires mutual consent to lawful terms, generally shown through an offer and an acceptance. Mutual assent is evaluated objectively by the parties’ outward manifestations, not by undisclosed subjective intent.

ANALYSIS

The Court of Appeal concluded that Wood’s July 30, 2021 letter objectively offered to settle her bodily injury claim for the available policy limits if Farmers accepted in writing by the stated deadline and provided the declarations page. Farmers satisfied those conditions by timely tendering the $15,000 per-person limit and supplying policy documentation.

Because the demand letter expressly converted the $100,000 figure into a policy-limits demand if the policy limits were lower, Farmers’ $15,000 acceptance was not a counteroffer but was an acceptance with consideration.

The Court of Appeals rejected Wood’s argument that Archer’s asset declaration altered or defeated the settlement. Wood’s demand did not condition settlement on a satisfactory asset declaration, and Farmers’ later inclusion of such a declaration did not create a novation (a new contract) noR rescind the agreement, nor add a new material term.

The enforceable agreement was formed when Farmers accepted the policy-limits demand on August 25, 2021.

DISCUSSION

The decision emphasizes that policy-limits settlement demands are interpreted according to their objective wording. An insurer may accept by tendering the actual policy limit.

Post-acceptance paperwork generally does not undo an otherwise formed settlement unless the original offer made that paperwork a condition of acceptance or the parties clearly agreed to substitute new obligations.

Enforcement of clear pre-litigation settlement  communications discourages parties from avoiding settlement based on later dissatisfaction with collateral information not made a condition of the offer.

BENEFIT TO INSRERS

For insurers, the case reinforces the importance of timely written acceptance and complete compliance with the demand’s stated conditions.

FOR CLAIMANTS

The decision highlights the need to expressly include any asset-disclosure or additional documentation requirements as conditions of settlement if they are intended to affect contract formation.

CONCLUSION

The Court of Appeal granted Farmers’ writ petition and directed the trial court to vacate its order denying summary judgment or summary adjudication and to enter a new order granting summary adjudication on Farmers’ declaratory relief cause of action.

The court held that Farmers’ August 25, 2021 response created a binding settlement agreement resolving Wood’s bodily injury claim against Archer for the $15,000 policy limit.

ZALMA OPINION

Claimants, hoping to create a bad faith case against an insurer often make immediate policy limits demands before litigation. In this case the Plaintiff made a $100,000 demand or a policy limits demand if the limit is less than $100,000. Farmers accepted and paid and the Plaintiff refused to honor the acceptance of the demand. Basic contract law was applied, the plaintiff made an offer, Farmers accepted the offer and paid consideration. The contract was confirmed and the settlement was enforced.

(c) 2026 Barry Zalma & ClaimSchool, Inc.

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Mere Negligence, Poor Judgment, Delay, Inadequate Investigation, Valuation Disagreement, or an Honest Mistake May Not Establish Bad Faith.

Post 5433

In Joseph Russell Falasco v. USAA Casualty Insurance Company, No. 25-2632, United States Court of Appeals, Eighth Circuit (August 18, 2026) Joseph Russell Falasco insured a restored 1974 Porsche 911S through USAA. After the Porsche caught fire in August 2023, Falasco reported the loss and initially believed the vehicle was a total loss. USAA investigated the origin and cause of the fire, sent a reservation-of-rights letter, retained an appraiser, and referred the claim to its special investigations unit after questions arose about whether the fire was accidental.

The investigation ultimately indicated the fire likely resulted from deteriorated fuel lines rather than intentional conduct.

USAA offered $46,106.75 based on a CCC valuation using two comparable Porsche vehicles. Falasco disputed the valuation, argued the comparables were inappropriate, and proposed higher-value comparables from Bring a Trailer.

USAA declined to use those comparables, later obtained a Sotheby’s appraisal valuing the Porsche at about $65,000, and paid the difference between that appraisal and its prior payment.

A jury later awarded Falasco damages on his breach-of-contract claim, but the district court granted summary judgment to USAA on Falasco’s bad-faith and unfair-settlement-practices claims.

LAW

Under Arkansas law, an insurer commits the tort of bad faith only when it engages in affirmative misconduct that is dishonest, malicious, or oppressive. The required state of mind must reflect hatred, ill will, or a spirit of revenge. Mere negligence, poor judgment, delay, inadequate investigation, valuation disagreement, or an honest mistake does not establish bad faith.

DISCUSSION

Falasco argued that USAA acted in bad faith by undervaluing the Porsche, conducting a fraud or arson investigation to pressure him, misrepresenting policy terms and claims procedures, and repeatedly seeking title to the vehicle before settlement. The Eighth Circuit rejected each theory. It reasoned that valuation is inherently subjective, USAA could rely on CCC’s third-party appraisal, USAA responded to Falasco’s proposed comparables, and USAA later obtained and paid based on a higher Sotheby’s appraisal. The Eighth Circuit also held that USAA was entitled to investigate a fire of unknown origin, especially because no report identified the cause of the fire when Falasco submitted the claim.

The Eighth Circuit further concluded that USAA’s inaccurate statements about an appraisal clause, “arbitration law,” fire-report requirements, policy access, and automated settlement emails were mistakes or miscommunications rather than evidence of malicious or oppressive conduct. It also found no conversion or bad-faith title procurement because Falasco initially consented to USAA’s possession of the Porsche, USAA had contractual inspection rights, and the repeated title requests appeared to result from communications problems involving USAA and Copart.

ANALYSIS

The majority treated Falasco’s evidence as showing, at most, disputed valuation, delay, investigation, and negligent or mistaken claim handling. Because Arkansas bad-faith law sets a demanding threshold, the court separated each alleged act and found none showed affirmative misconduct carried out with the required culpable state of mind. The fact that USAA substantially paid the claim after further appraisal and that only a relatively small additional amount remained after trial supported the majority’s view that USAA reasonably attempted to discharge its contractual obligations.

CONCLUSION

The Eighth Circuit affirmed the district court’s grant of partial summary judgment for USAA on Falasco’s bad-faith claim. The undisputed facts did not show dishonest, malicious, or oppressive conduct under Arkansas law.

Judge Grasz dissented, concluding that a reasonable jury could infer bad faith from the totality of the circumstances and that the claim should have proceeded further.

ZALMA OPINION

Many people, and lawyers, believe that the refusal to pay an insured what he wants to resolve a claim is sufficient to prove the tort of Bad Faith. Although a 1974 Porsche might be considered antique or highly valuable it is just a car that, like any other product, can be valued. USAA used CCC, a valuation organization to value the car and later, when Sotheby’s showed it was worth more than the CCC evaluation it paid it. The investigation and adjustment was less than perfect but there was none of the dishonest, malicious or oppressive conduct required to prove the tort. Just being wrong is not bad faith.

(c) 2026 Barry Zalma & ClaimSchool, Inc.

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Federal Court Should Not Conflict With State Court Action

Post 5432

New Mexico State Lawsuits Cannot be Confused with a Federal Declaratory Relief Action

In Old Guard Insurance Co. v. Rudolfo Rodriguez; Emilio Pinon; et al,  The City Of Albuquerque; Mayor Tim Keller; Jesse Valdez; And Consolidated Builders Of New Mexico et al., No. 1:26-cv-00073-MIS-JMR, United States District Court, D. New Mexico (August 18, 2026), Old Guard Insurance sought a federal declaratory judgment that it owed no duty to defend or indemnify Consolidated Builders and related defendants in asbestos-related New Mexico state lawsuits arising from renovation work at Albuquerque’s Gibson Health Hub/Gateway Center.

FACTS

On January 15, 2026, Old Guard filed the instant lawsuit seeking a declaration that there is no coverage for various asbestos-related claims under the Policy

Old Guard initially denied coverage to Consolidated Builders when the underlying state suits were filed, but reversed its denial of coverage on May 19, 2025, and began supporting Consolidated in all of the personal injury suits and the City’s breach of contract suit.

The district court declined to exercise jurisdiction under the Declaratory Judgment Act and the Tenth Circuit’s precedent, concluding that the state proceedings were the better forum because the federal action would not fully resolve the parties’ coverage dispute, could create friction with ongoing state litigation, and involved duty-to-defend and duty-to-indemnify issues better resolved in the consolidated state actions.

Old Guard issued commercial general liability and umbrella policies to Consolidated Builders, which performed renovation work at the Gibson Health Hub/Gateway Center. Multiple state-court plaintiffs alleged they were exposed to asbestos and other hazardous materials during the project. The City also sued Consolidated Builders for contractual defense and indemnity, later adding Old Guard. Old Guard filed this federal declaratory judgment action seeking a ruling that asbestos-related claims were excluded from coverage.

LAW:

Under the Declaratory Judgment Act, federal courts may declare parties’ rights but are not required to do so. The court considered whether the declaratory action would settle the controversy, clarify legal relations, constitute procedural fencing, increase friction with state courts, and whether a better alternative remedy existed. New Mexico law also treats the duty to defend as broader than and distinct from the duty to indemnify, with doubts about potential coverage resolved in favor of the insured at the defense stage.

Discussion/Analysis:

The court found that a federal declaration focused on the asbestos exclusion would not fully settle the parties’ dispute because the underlying complaints also referenced other hazardous substances and theories that might implicate coverage outside the asbestos exclusion. Although the court found insufficient evidence of procedural fencing, it concluded that exercising jurisdiction would risk friction with New Mexico courts because the state actions were already consolidated, involved overlapping facts, and could resolve coverage-related issues more effectively. The court emphasized New Mexico’s preference for resolving exclusion and duty-to-defend issues in the primary litigation when factual development may be necessary.

CONCLUSION:

Here, given the consolidation of the tort cases, the significant time that has already been spent in the litigation process, and the fact that the same judge presides over all the consolidated tort cases and the City’s action against Consolidated and Old Guard, the Court found that refraining from exercising jurisdiction is appropriate at this juncture and the best remedy rests with the state court actions. Even if the Court were to declare Old Guard had no duty to defend or indemnify with respect to the asbestos policy, there are other facts mentioned in the underlying complaints that potentially fall outside asbestos exclusion provision.

As such the declaratory judgment action at issue here would still leave controversy and not resolve all potential claims, nor does it place the Court in a position to fully clarify the legal relations at issue. The federal court granted defendants’ motions to dismiss, declined to proceed with Old Guard’s declaratory judgment action, and closed the case.

ZALMA OPINION

Federal Courts refuse to screw with state court actions. The case brought to federal court covered many of the issues pending in New Mexico State Court and that is why the USDC dismissed the federal action to avoid contradictory judgments and to accept the fact that the state court was capable of dealing with the insurance issues. The USDC found that  exercising jurisdiction would risk friction with New Mexico courts because the state actions were already consolidated, involved overlapping facts, and could resolve coverage-related issues more effectively.

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Habeas Relief from an Insurance Fraud Conviction Based on an Incorrect Factual Determination Unavailable

Post 5431

A Prisoner Seeking A Writ Of Habeas Corpus Has No Absolute Entitlement To Appeal A District Court’s Denial Of His Petition.

In Bryce A. Nickelson v. Secretary, Department Of Corrections, No. 8:23-cv-1081-KKM-SPF, United States District Court, M.D. Florida, Tampa Division (August 17, 2026) Bryce Nickelson, a Florida prisoner, was convicted by a state jury of making a false and fraudulent insurance claim and sentenced to 92.55 months in prison.

The evidence showed that Nickelson’s Dodge Durango had been damaged before he obtained comprehensive coverage from Progressive. After the policy took effect, he filed a vandalism claim and represented that the damage occurred after coverage began, even though the vehicle had already been at the repair shop for the same damage.

Progressive denied the claim for misrepresentation, and Nickelson later admitted he had not been truthful when initiating the claim.

A state court’s findings of fact are presumed correct, and a petitioner can rebut the presumption of correctness afforded to a state court’s factual findings only by clear and convincing evidence. Even where a petitioner succeeds in rebutting the presumption, he must show that the state court’s decision is “based on” the incorrect factual determination.

LAW:

Federal habeas relief under 28 U.S.C. § 2254 is limited and may be granted only when a state-court merits decision is contrary to, or an unreasonable application of, clearly established Supreme Court precedent, or is based on an unreasonable factual determination. Ineffective-assistance claims are governed requiring deficient performance and prejudice, with federal revie. Claims not fairly presented in state court are procedurally defaulted unless an exception such as cause and prejudice, actual innocence.

DISCUSSION:

Nickelson raised four habeas grounds. Grounds One and Three alleged ineffective assistance of appellate counsel for failing to challenge the denial of a continuance and limits on testimony from Tiffany Cartwright. Ground Two alleged ineffective assistance of trial counsel for failing to object to hearsay-related statements in Detective Morris’s recorded interview and also asserted defaulted Confrontation Clause theories. Ground Four alleged due process error based on the admission of two alleged surprise witnesses.

ANALYSIS:

The court held that the state appellate court reasonably rejected the ineffective-assistance-of-appellate-counsel claims. The continuance issue lacked a clear adverse ruling, appeared unpreserved, and did not show fundamental error or appellate prejudice. The trial-counsel hearsay claim was procedurally defaulted and not substantial because the State’s evidence of knowing misrepresentation was strong.

CONCLUSION:

The district court denied Nickelson’s § 2254 petition in full, denied a certificate of appealability, denied leave to appeal in forma pauperis, directed entry of judgment for the respondent, and ordered the case closed.

A prisoner seeking a writ of habeas corpus has no absolute entitlement to appeal a district court’s denial of his petition. Instead, a district court or court of appeals must first issue a certificate of appealability (COA). Nickelson has not made the requisite showing. Finally, because Nickelson is not entitled to a COA, he is not entitled to appeal in forma pauperis.

ZALMA OPINION

In my experience the 92.55 months prison sentence is unusual and probably shocked Mr. Nickelson. His only opportunity to avoid a long prison sentence was the attempt to obtain habeas relief and the USDC saw through the attempt and he will serve the full sentence. The decision needs to be publicized since the rather severe sentence will, if made public, deter others who thought they would profit from insurance fraud.

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Covid Emergency Eviction Moratorium Punishes Landlord

Post 5428

In Koble Investments v. Elicia Marquardt v. James Miller, Intervenor-Appellant, Supreme Court, 420 Wis.2d 304, No. 2022AP182 (June 5, 2026.) (Reversing 412 Wis. 2d 1, 7 N.W.3d 915.) 2026 WI 19, 420 Wis.2d 308 Koble Investments served tenant Elicia Marquardt with an eviction notice for nonpayment of rent during Governor Tony Evers’s COVID-19 eviction moratorium.

Marquardt counterclaimed, alleging Koble violated the Wisconsin Consumer Act by attempting to collect a debt or enforce a right it knew or should have known did not exist. She also claimed the residential lease was void and unenforceable because it permitted termination for crime-related conduct but omitted statutory domestic abuse protections required by Wisconsin landlord-tenant law.

The circuit court dismissed Koble’s eviction claim and rejected Marquardt’s counterclaims. Her former attorney, James Miller, sought to intervene to recover statutory attorney fees. The court denied fee recovery but later allowed Miller to intervene solely to appeal the statutory-fee issues.

The court of appeals reversed, holding that the Wisconsin Consumer Act applied to the lease, that Koble violated the Act, and that Marquardt and Miller could recover damages, costs, and attorney fees.

The Supreme Court disagreed.

LAW

The principal statutes were the Wisconsin Consumer Act, which regulates debt-collection conduct arising from consumer credit transactions or other consumer transactions involving an agreement to defer payment which permits attorney-fee recovery when a customer prevails under the WCA; and Wis., which address prohibited residential lease provisions; which requires notice of domestic abuse protections; and which allows double damages and attorney fees for pecuniary loss caused by violations of certain consumer-protection orders.

DISCUSSION AND ANALYSIS

The Wisconsin Supreme Court held that Wis. Stat. § 427.104 does not apply to a residential lease under which rent is payable monthly because such a lease is not an “agreement to defer payment.” Rent under a typical residential lease accrues month by month; the tenant does not owe all future rent at the moment the lease is signed. Because future rent obligations do not yet exist, they cannot be deferred.

The court rejected the court of appeals’ creative view that a one-year lease payable in monthly installments resembles an installment contract.

The Supreme Court also reasoned that Wisconsin landlord-tenant statutes and regulations confirm this interpretation. Wisconsin law treats rent as maturing when due, limits prepaid rent, restricts acceleration of rent, and requires landlords to mitigate damages after default. These rules are inconsistent with treating a residential lease as a deferred-payment arrangement.

On the damages issue, the court did not decide whether the lease was void for omitting domestic abuse protections. Instead, it assumed for purposes of analysis that the lease might be void and held that Marquardt still failed to prove a recoverable pecuniary loss.

She received occupancy in exchange for rent, and there was no evidence she actually paid the claimed late fees or filing fee. Because she did not show a causal connection between the alleged statutory violation and any financial loss, neither she nor Miller could recover damages, costs, or attorney fees.

CONCLUSION

Because Koble served Marquardt with an eviction notice during the COVID-19 eviction moratorium, the court concluded Koble violated the Wisconsin statutes. The court also declared the lease void and unenforceable under Wisconsin statutes because Koble omitted the notice of domestic abuse protections. Accordingly, the court held that Wis. Stat. § 100.20(5) entitled Marquardt to recover double the damages caused by Koble’s violation of § 704.44(10) and § ATPC 134.08(10), and Attorney Miller could recover reasonable attorney fees and costs under § 100.20(5) and Wis. Stat. § 425.308(1). Id., ¶¶ 32, 50.

In Wisconsin, a landlord is entitled to recover rent as it matures, not before. Logically, an obligation that does not yet exist cannot be deferred.

The Supreme Court recognized that a tenant’s obligation to pay rent under a typical residential lease accrues on a monthly basis. Because a tenant is not obligated to pay — upfront — all rent that will become due during the entire lease term, the obligation to pay rent each month is best understood as “a contemporaneous exchange of consideration” — one month of rent for one more month of occupancy.

A residential lease is not an installment contract. The lease obligated Marquardt to pay rent only on a monthly basis, in exchange for which Marquardt received the exclusive right to occupy the property during the month for which she paid.

No court has applied the WCA to residential leases in the fifty-four years after its enactment despite residential leases being frequently litigated.

CONCLUSION

The decision of the court of appeals was reversed.

ZALMA OPINION

This interesting case is not an insurance case as is my usual but deserves to learn that signing a lease does not require payment of all rent that will become due during the entire lease term, the obligation to pay rent each month is best understood as “a contemporaneous exchange of consideration” — one month of rent for one more month of occupancy. Laws created by the Covid Pandemic did not change contract law.

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STOLI FRAUD 

Post 5430

In Daniel E. Carpenter v. United States Of America, No. 3:21-cv-1485(RNC), United States District Court, D. Connecticut (August 17, 2026) Daniel Carpenter was convicted after a bench trial of mail fraud, wire fraud, and money laundering offenses arising from a stranger-originated life insurance scheme involving stranger-originated life insurance (“STOLI”) and his attempt to avoid the conviction by a  motion pursuant to 28 U.S.C. § 2255 to set aside all the convictions.. Robert N. Chatigny, United States District Judge resolved the issues raised from Carpenter’s leadership role in an insurance fraud scheme.

Carpenter caused life insurers to issue 84 STOLI policies through Charter Oak Trust, an entity he controlled, with an aggregate face value of approximately $450 million. The insurers allegedly issued policies they would not have issued but for false statements in applications and related materials concerning insureds’ finances, premium funding, resale intent, and life expectancy reports. Carpenter-controlled entities funded premiums and received more than $12 million in commissions.

LAW

A § 2255 movant generally may not relitigate claims already raised and rejected on direct appeal or raise claims that could have been raised on direct appeal, unless he shows cause and actual prejudice or actual innocence. The right-to-control theory alone cannot support a fraud conviction because deprivation of information, standing alone, is not deprivation of “property.”

The prosecution relied in part on the right-to-control theory of fraud, which applies to schemes to deprive victims of information they need to make informed decisions regarding the use of their assets. After Carpenter’s convictions were affirmed on appeal, the Supreme Court held that depriving a victim of information in contravention of the right-to-control theory cannot provide the sole basis for a fraud conviction because mere information is not a form of “property” as the term is used in the fraud statutes.

However, a fraudulent-inducement scheme may satisfy the mail and wire fraud statutes when false statements induce a victim to part with money or property, even if the victim receives something of equal value and even absent net pecuniary loss.

DISCUSSION / ANALYSIS

The court denied Carpenter’s § 2255 motion. It held that his claims were procedurally barred because many were not raised on direct appeal and others had already been rejected. The court concluded that Carpenter failed to show cause for not challenging the right-to-control theory on appeal, as that argument was reasonably available.

The court also rejected actual innocence, finding that the indictment and trial proof established a traditional fraudulent-inducement property-fraud theory. Carpenter used material misrepresentations to induce insurers to issue valuable policies, pay commissions, and assume death-benefit obligations.

The Government’s reliance on the right-to-control theory did not create a miscarriage of justice because the convictions rested on sufficient traditional property-fraud grounds.

The actual innocence exception does not apply because the scheme alleged in the superseding indictment and proven beyond a reasonable doubt at trial was a prototypical fraudulent-inducement scheme which plainly satisfies each of the statutory elements of mail and wire fraud.

Under the fraudulent-inducement theory a defendant is guilty if he:

• devises a scheme;
• to induce the victim into a contract to obtain her money or property and
• by means of false or fraudulent pretenses.. (quoting 18 U.S.C. § 1343).

In this case, the superseding indictment alleged and the evidence proved that:

1. Carpenter devised a scheme
2. to induce the insurance companies into contracts to obtain STOLI policies obligating them to pay commissions and death benefits
3. by means of false or fraudulent misrepresentations in applications and related documents.

Two tests of materiality are potentially available. Under the traditional common law standard, a misrepresentation is material if a reasonable person would attach importance to it in deciding how to proceed, of if the defendant knew (or should have known) that the recipient would likely deem it important.

Both tests were satisfied. here. The superseding indictment alleged and the Government proved that Carpenter and his co-conspirators falsified insurance applications to avoid raising red flags related to STOLI policies. To that end, they misrepresented the insured’s financial situation and motivation for procuring the policy and provided false answers to questions about third-party funding of premiums, the possibility of the sale of the policy and the performance of life expectancy reports. As explained in the Verdict and Special Findings, these misrepresentations were the mechanism by which Carpenter and his co-conspirators were able to defeat the insurers’ underwriting safeguards against STOLI business. The misrepresentations went directly to the essence of the bargain because Carpenter knew the companies would refuse to issue policies if they suspected the policies were being procured for sale to investors with no insurable interest in the life of the insured. The insurers testified and Judge Chatigny credited their testimony.

The motion was denied without an evidentiary hearing, no certificate of appealability issued, and the case was ordered closed, and Carpenter must serve his sentence in full.

ZALMA OPINION

STOLI is a means of defrauding life insurance companies that is easy to do and difficult to discover. The conviction for mail fraud, wire fraud, and money laundering offenses stands and the attempt to avoid jail failed.

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Not Proper To Present False Evidence to a District Judge

Post 5427

Lie to a Judge to Avoid a Fine Can Find You in Jail

In United States Of America v. Gary Rains, Criminal No. 1:26po25, United States District Court, W.D. Virginia, Abingdon Division (August 14, 2026) Gary Rains, (“Rains”), appeared before the court for an initial appearance on a petty offense violation on April 1, 2026.

At that time, Rains pleaded guilty to a violation of 36 C.F.R. § 4.2(b), incorporating Kentucky Revised Statute § 304.99-060, for having no vehicle insurance at the time of a traffic stop on December 21, 2025.

The USDC convicted Rains of the offense and imposed a fine of $500.00 and a mandatory special assessment of $10.00. Judgment was, thereafter, entered on April 8, 2026.  Rains moved to Vacate Judgment.  In accordance with the court’s June 12, 2026, Minute Order, , the United States responded to the Motion on June 17, 2026. Thereafter, the court ordered Rains to file any response by July 2, 2026. To date, Rains has filed no such response.

In his Motion, Rains states that he now has found his insurance card showing that he did, in fact, have insurance coverage on the date the violation notice was issued. In support of his Motion, Rains attached a State Farm Mutual Automobile Insurance Company, insurance card, indicating that he had insurance coverage on his 2004 Toyota Prerunner from August 29, 2025, to February 28, 2026.  In its Response, the United States avers that on June 15, 2026, United States Park Ranger Chandler Shepherd contacted a State Farm representative regarding Rains’s insurance coverage. As part of that contact, the State Farm representative, Crystal Brooks, informed Ranger Shepherd that, although Rains had been insured through a different State Farm office, she was able to access his insurance information with State Farm.

Brooks provided Ranger Shepherd information showing that Rains had automobile insurance on a 2004 Toyota Prerunner with an inception date of August 29, 2025.  However, Brooks provided further information that this insurance was subsequently terminated on November 27, 2025.  Additionally, the United States avers that, prior to the April 1, 2026, hearing on the violation, Rains contacted the United States Attorney’s Office and provided information that his vehicle was insured with Direct Insurance Company, (“Direct”), for the period from December 26, 2025, to December 26, 2026.

Given Rains’s action of purchasing insurance on the same vehicle with a different insurance company, which would overlap the State Farm policy by approximately two months, the court was unable to find credible Rains’s claim that he had insurance with State Farm on the date of the violation. If the issue was a lost insurance card, as Rains appears to claim in his Motion, the remedy would be to obtain a replacement card, not to purchase a duplicate policy.

Based on Rains’s knowing and voluntary guilty plea, the information provided by State Farm representative Brooks that Rains’s coverage was terminated on November 27, 2025, and Rains’s production, prior to the hearing, of proof of insurance with a different insurance company beginning on December 26, 2025, there was insufficient evidence to vacate the judgment.

It was ORDERED that Rains’s Motion to Vacate Judgment, was DENIED.

ZALMA OPINION

This is not a major case. That it was reported at all was amazing. To avoid a $500.00 fine Mr. Raines created false insurance records to set aside the $500 fine to which he had pleaded guilty. What he did was attempt a fraud on the court. That attempt was a criminal act and should have been referred to the DOJ. States require people to have automobile insurance to operate on the roads. Raines failed to do so, was cited, convicted and fined. He then created false documents to reverse the judgment and with false documents. The judge recognized the fraud and denied his motion.

(c) 2026 Barry Zalma & ClaimSchool, Inc.

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ZIFL Volume 30, Issue 15

Subscribe to ZIFL Here

THE SOURCE FOR THE INSURANCE FRAUD PROFESSIONAL

Zalma’s Insurance Fraud Letter (ZIFL) continues its 30th year of publication dedicated to those involved in educing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/

This issue contains the following articles about insurance fraud:

New Charges and Rewards Announced for the Capture and/or Conviction of Senior Leaders of Notorious Mexican Cartel

More than $100 Million Offered for Information Leading to the Arrests and/or Convictions of Eight CJNG Fugitives

Reward some photos below were taken from wanted posters of the eight CJNG fugitives that can be found here

Read the full article and the full issue of ZIFL  at http://zalma.com/blog/wp-content/uploads/2026/08/ZIFL-08-15-2026.pdf 

Health Insurance Fraud Convictions

New Mexico Woman Pleads Guilty to $4M Medicaid Fraud

Dorothea Irving, 47, of Farmington, New Mexico, woman pleaded guilty to working with a non-emergency medical transport (NEMT) company to submit millions of dollars in false and fraudulent claims to New Mexico Medicaid for ineligible and non-existent trips to medical appointments.

Read the full article and the full issue of ZIFL  at http://zalma.com/blog/wp-content/uploads/2026/08/ZIFL-08-15-2026.pdf 

Bad Faith Suit Fails After Insurer Declares Policy Void

State Farm Must Try Breach of Contract Claim Only

Breach of Condition is Ground to Deny Claim and Void Policy

In Arutyun Darakchyan v. State Fann General Insurance Company et al., No. 2:25-cv-03880-CAS-AJRx, United States District Court, C.D. California (August 11, 2026) Plaintiff Arutyun Darakchyan sued State Farm General Insurance Company after State Farm denied his homeowners burglary claim for losses allegedly sustained at his Tarzana residence.

Plaintiff reported that burglars entered through a kitchen window while he and his family were away, claimed stolen property totaling more than $83,000, and submitted proof-of-loss materials, inventory lists, photos, alarm records, phone records, and later appeared for an examination under oath.

Read the full article and the full issue of ZIFL  at http://zalma.com/blog/wp-content/uploads/2026/08/ZIFL-08-15-2026.pdf 

Guilty of Misprison of a Felony Admitted by Owner of Insurers

Second Trial of Coram Nobis Relief Fails

Coram Nobis is an Extraordinary Remedy

In United States Of America v. David Judd Disiere, Criminal Action No. 99-151-SDD-SDJ, United States District Court, M.D. Louisiana (August 10, 2026 David Judd Disiere was convicted in 2000 after pleading guilty to misprision of a felony under 18 U.S.C. § 4 in connection with allegations involving a scheme to influence the resolution of an investigation into insurance companies he owned.

Read the full article and the full issue of ZIFL  at http://zalma.com/blog/wp-content/uploads/2026/08/ZIFL-08-15-2026.pdf 

Other Than Health Insurance Fraud Cases

Canadian Man Pleads Guilty to Hacking U.S. Cloud Storage Provider and Extorting Its Customers for Millions

Connor Riley Moucka, 26, of Kitchener, Ontario, pleaded guilty to a widespread computer hacking conspiracy that resulted in the compromise of over 165 victim organizations, the theft of billions of sensitive customer records and the extortion of numerous victims.

Read the full article and the full issue of ZIFL  at http://zalma.com/blog/wp-content/uploads/2026/08/ZIFL-08-15-2026.pdf 

It Doesn’t Pay to Lie in an Application for Insurance

Rescission for Material Misrepresentation

An Insurer May Rescind An Insurance Policy Where The Applicant Made A Material Misrepresentation In The Application.

In Union Mutual Fire Insurance Company v. 844 Knickerbocker, LLC, et al. No. 2024-10359, Index No. 602824/22, 2026 NY Slip Op 04789, Supreme Court of New York, Second Department (July 29, 2026) Union Mutual Fire Insurance Company issued commercial insurance policies to 844 Knickerbocker, LLC, and Sanjaya Mallick based on applications stating that the insured property contained two apartment units. After an underlying personal injury action was filed, Union Mutual determined that the property actually contained three apartment units and rescinded the policies on the ground that the defendants had made a material misrepresentation in the applications.

Read the full article and the full issue of ZIFL  at http://zalma.com/blog/wp-content/uploads/2026/08/ZIFL-08-15-2026.pdf 

Barry Zalma

Barry Zalma, Inc., 4441 Sepulveda Boulevard, CULVER CITY CA 90230-4847, 310-390-4455. 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.

zalma@zalma.com, http://www.zalma.com, http://zalma.com/blog Subscribe to “Excellence in Claims Handling” at href=”https://barryzalma.substack.com/subscribe.”> 

Read the full article and the full issue of ZIFL  at http://zalma.com/blog/wp-content/uploads/2026/08/ZIFL-08-15-2026.pdf 

State Farm Must Try Breach of Contract Claim Only

Post 5424

Breach of Condition is Ground to Deny Claim and Void Policy

In Arutyun Darakchyan v. State Fann General Insurance Company et al., No. 2:25-cv-03880-CAS-AJRx, United States District Court, C.D. California (August 11, 2026) Plaintiff Arutyun Darakchyan sued State Farm General Insurance Company after State Farm denied his homeowners burglary claim for losses allegedly sustained at his Tarzana residence.

Plaintiff reported that burglars entered through a kitchen window while he and his family were away, claimed stolen property totaling more than $83,000, and submitted proof-of-loss materials, inventory lists, photos, alarm records, phone records, and later appeared for an examination under oath.

State Farm assigned the claim to its special investigative unit, questioned the timing and duration of the reported burglary, requested additional documents and records, identified discrepancies between the police report, inventory, receipts, and plaintiff’s testimony, and ultimately denied the claim based on alleged breaches of post-loss duties and alleged concealment or misrepresentation.

On February 20, 2024, State Farm took a recorded statement from plaintiff. Plaintiff reported that on the night of the burglary, his oldest son, Gregor, immediately left the party they were at and arrived at the Property a couple of minutes before plaintiff.

THE POLICY

The State Farm policy provided: “This policy is void as to [the insured] … if [the insured] … has intentionally concealed or misrepresented any material fact or circumstance relating to this insurance, whether before or after a loss.”

LAW:

Summary judgment is proper only when there is no genuine dispute of material fact and the moving party is entitled to judgment as a matter of law. Under California law, breach of contract requires a contract, plaintiff’s performance or excuse for nonperformance, defendant’s breach, and damages.  California recognizes substantial compliance where the insured performs enough of the required obligations and does not completely fail to comply.

Breach of the Implied Covenant of Good Faith

State Farm argued that plaintiff s second claim for breach of the implied covenant of good faith and fair dealing fails because State Farm did not wrongfully withhold benefits due under the Policy. State Farm’s denial of benefits was reasonable because State Fann’s reasonably concluded that plaintiff breached the Policy. State Farm denial of the Claim was objectively reasonable.

DISCUSSION:

State Farm argued that plaintiff could not recover because he failed to satisfy policy conditions, including prompt notice, production of supporting records, preservation or exhibition of damaged property, production of his son’s phone records, and production of household members for examinations under oath.

ANALYSIS:

The Court held that factual disputes precluded summary judgment on the breach of contract claim, including disputes over substantial compliance, materiality of requested documents, timing of notice, and whether plaintiff could compel family members to appear for examinations. The same genuine dispute and the claim discrepancies gave State Farm an objectively reasonable basis to deny the claim, defeating the bad faith and negligent misrepresentation claims.

CONCLUSIONS:

State Farm’s motion for summary judgment was denied as to plaintiff’s breach of contract claim but granted as to breach of the implied covenant of good faith and fair dealing, negligent misrepresentation, and punitive damages.

the Court DENIED State Farm’s motion for summary judgment on plaintiff s breach of contract claim, GRANTSED State Farm’s motion for summary judgment on plaintiffs claim for breach of the implied covenant of good faith and fair dealing, GRANTED State Farm’s motion for summary judgment on plaintiffs claim for negligent misrepresentation and GRANTED State Farm’s motion for summary judgment on plaintiff s claim for punitive damages.

ZALMA OPINION

State Farm with a factual basis for concluding that its insured had committed fraud and denied the claim for breach of material conditions and for fraud was relieved of most of the lawsuit except breach of contract because the court applied the doctrine of “substantial compliance” although the reasons for its conclusion of fraud were obvious.

(c) 2026 Barry Zalma & ClaimSchool, Inc.

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Declaratory Relief Was Neither Unnecessary Nor Improper Under The Circumstances

Post 5423

In Fox Paine & Company, LLC, et al. v. Twin City Fire Insurance Company et al., S287404, Supreme Court of California (July 27, 2026) Fox Paine & Company, LLC, Saul Fox, and related entities sued excess insurers after a long-running dispute between the Fox and Paine factions generated substantial litigation costs.

FACTS

The issue arises here after a dispute between former colleagues at an investment firm led to lengthy — and expensive — litigation.

Insurance is sometimes procured in a series of layers, with an insured acquiring a primary insurance policy that provides an initial layer of coverage. The insurance tower included a $10 million primary policy followed by four $10 million excess layers.

Plaintiffs allege that:

1. they suffered a loss;
2. the loss is covered by specific policy provisions described in the complaint;
3. they submitted “virtually all of their invoices” to defendants, seeking reimbursement; but
4. defendants have failed to reimburse them for these losses.

LAW

In the insurance context, the implied covenant of good faith and fair dealing prevents an insurer from impairing the insured’s right to receive policy benefits.

DISCUSSION

Although there is a categorical rule requiring an insured to plead actual exhaustion of all underlying insurance before seeking declaratory relief against excess insurers the Court reasoned that insurance coverage disputes often involve contingencies, and the mere existence of an exhaustion contingency does not make the dispute hypothetical.

Requiring insureds to litigate sequentially through each layer of an excess tower would create hardship, inefficiency, and a risk of inconsistent rulings, particularly where follow-form policies require interpretation of common coverage language.

ANALYSIS

The Court’s decision draws a distinction between attachment for payment and justiciability for adjudication. Actual exhaustion remains relevant to whether an excess insurer must presently pay benefits, but it is not an absolute prerequisite to adjudicating coverage obligations or bad-faith claims.

CONCLUSION

On remand, the Court of Appeal must determine whether plaintiffs adequately pleaded covered losses sufficient to create an actual controversy as to each excess policy and whether the bad-faith allegations satisfy the proper standard.

If the pleadings are deficient but curable, plaintiffs should be given leave to amend.

The Supreme Court reversed the Court of Appeal and remanded. It held that lack of actual exhaustion is not, by itself, fatal to claims for declaratory relief or tortious breach of the implied covenant of good faith and fair dealing against excess insurers.

The Supreme Court concluded that plaintiffs’ inability to allege the exhaustion of all coverage underlying the St. Paul and Liberty Mutual policies is not by itself fatal to their claims for declaratory relief against these insurers.

The Supreme Court remanded the case to the Court of Appeal to reevaluate the adequacy of plaintiffs’ allegations as they bear upon the existence of an actual controversy. Once the appropriate standard has been identified that court shall determine whether it has been met.

BAD FAITH

It has long been recognized in California that ‘[t]here is an implied covenant of good faith and fair dealing in every contract that neither party will do anything which will injure the right of the other to receive the benefits of the agreement. An insurer’s denial of or delay in paying benefits gives rise to tort damages, but only if the insured shows the denial or delay was unreasonable. Because the duty attaches at the inception of the insurance agreement, wrongful conduct by the insurer from that point forward can support a claim for bad faith.

Allegations that an excess insurer paid rival claimants a disproportionate share of the benefits available under its policy prior to the insureds’ exhaustion of the primary policy stated a viable claim for bad faith.

Plaintiffs Need Not Plead Prior Exhaustion Of All Underlying Insurance To State A Claim For Bad Faith

Plaintiffs inability to plead that all underlying insurance has already been exhausted is not by itself fatal to their claims for bad faith.

But an insurer may breach the implied covenant of good faith and fair dealing while remaining in technical compliance with the express terms of its policy; indeed, that is the very reason for the implied covenant’s existence.

ZALMA OPINION

When no insurer is willing to take on the entire risks of loss faced by an insured the insured buys a primary policy and a tower of excess insurance policies from multiple insurers all of whom promise to respond after each layer of insurance is exhausted by payment of claims or claims and defense clauses. When the excess insurers did not respond in accordance with their policies they claimed no coverage because the other insurers had not exhausted their limits. The California Supreme Court disagreed and allowed the declaratory relief action to go forward creating a new way to get to excess insurers without exhausting the primary and other insurers limits to seek declaratory relief.

(c) 2026 Barry Zalma & ClaimSchool, Inc.

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Second Trial of Coram Nobis Relief Fails

Post 5422

Coram Nobis is an Extraordinary Remedy

In United States Of America v. David Judd Disiere, Criminal Action No. 99-151-SDD-SDJ, United States District Court, M.D. Louisiana (August 10, 2026 David Judd Disiere was convicted in 2000 after pleading guilty to misprision of a felony under 18 U.S.C. § 4 in connection with allegations involving a scheme to influence the resolution of an investigation into insurance companies he owned.

He was sentenced to probation and a fine, did not directly appeal, and completed probation in 2003. After an earlier unsuccessful postconviction challenge, Disiere filed a second petition for writ of error coram nobis in 2024, claiming his plea was coerced by prosecutors’ threats relating to an employee allegation, that those threats were concealed from the court, that his counsel was ineffective, and that the factual basis did not establish the elements of misprision.

This is Disiere’s second attempt at obtaining coram nobis relief. His first Writ of Error Coram Nobis was filed on April 9, 2001, and challenged his conviction on the ground that “the factual basis he helped draft was insufficient to support the misprision charge.”  Because he was still serving a term of probation in April 2001, and thus “in custody” for purposes of habeas relief, the Court converted his appeal coram nobis into a challenge under 28 U.S.C. § 2255.

LAW:

Coram nobis is an extraordinary remedy available only to correct fundamental errors resulting in a complete miscarriage of justice when the petitioner is no longer in custody and no other remedy is available. A petitioner must show continuing civil disabilities, an error of sufficient magnitude, and sound reasons for failing to seek relief earlier. The writ is not a substitute for direct appeal or a means to relitigate claims that were or reasonably could have been raised in a prior § 2255 proceeding.

DISCUSSION:

The government argued that the petition was untimely because Disiere knew, or should have known, the facts underlying his claims at the time of his plea or shortly thereafter. The court agreed. It found that the alleged threats, concealment, and ineffective assistance were all based on facts available to Disiere in 2000, yet he did not raise them on direct appeal, in his earlier postconviction petition, or during probation.

Later-discovered evidence concerning counsel’s alleged concealment, the prosecutor’s later professional misconduct, FOIA delays, and affidavits from former FBI agents did not supply a sound reason for the long delay.

ANALYSIS:

The court focused on timeliness rather than reaching the merits of whether the conviction involved fundamental error. It reasoned that Disiere’s present claims depended on information known to him when he entered the plea, including the alleged prosecutorial pressure and the absence of those alleged promises or threats from the plea proceeding. His fear-of-reprisal argument was undermined by the fact that he previously attacked the plea on other grounds. His actual-innocence theory largely repeated arguments rejected in the prior § 2255 proceeding, and the FBI affidavits were not treated as newly discovered because he did not show they could not have been obtained earlier through diligence.

CONCLUSION:

The court denied Disiere’s petition for writ of error coram nobis. Because he failed to provide sound and justifiable reasons for waiting nearly two decades to seek relief on claims available much earlier, the petition was untimely and the court did not need to decide whether the alleged errors were fundamental.

ZALMA OPINION

Disiere’s failure to present sound and justifiable reason for his nearly twenty year delay in seeking coram nobis relief, or any other form of post conviction remedy, was fatal to the to his second try. Insurance criminals do as much as possible to avoid jail. He plead guilty to a crime where he failed to report a crime, that gave him only probation. Then, even after he completed the probation he tried a second coram nobis attempt only to be properly rejected by the court.

(c) 2026 Barry Zalma & ClaimSchool, Inc.

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Day Care Owner Loses Subsidies Because She Criticized State

Post 5421

First Amendment Right Will be Allowed to Go to Trial

In Betsey J. Grant v. Maine State Department Of Heath And Human Services, No. 1:25-cv-00490-JAW, United States District Court, D. Maine (August 6, 2026), Betsey J. Grant, a licensed childcare provider and operator of Tiny Tikes Daycare in Trenton, Maine, sued Maine DHHS and several employees after she publicly criticized DHHS before Maine’s Government Oversight Committee and alleged that officials retaliated against her.

She claimed DHHS imposed and extended a conditional license, published stigmatizing information, interfered with subsidies and program funding, removed her from a food program, rescinded an expansion grant, and used biased or falsified evidence in licensing proceedings. Following the March 10, 2023, GOC testimony, Ms. Grant alleges that foster children’s subsidies (approximately $30,000) were withheld; she was removed from the federal food program (loss approximating $230,496); and her approved $74,000 expansion grant was rescinded due to the unlawful license sanction.

Ms. Grant claims that Defendants also engaged in arbitrary, capricious, and conscience shocking conduct by intentionally misrepresenting compliance status, manipulating licensing and funding mechanisms to punish protected speech, and weaponizing adjudicative proceedings infected by bias and retaliation.

LAW:

The court applied Rule 12(b)(6) plausibility standards, Eleventh Amendment sovereign immunity, exception for prospective relief against appropriate state officials, First Amendment retaliation doctrine, procedural and substantive due process standards, and the Maine Tort Claims Act notice requirements.

DISCUSSION/ANALYSIS:

The court held that DHHS and the employees sued in their official capacities were not proper defendants for damages or broad injunctive relief, and that Grant had not sued an official with authority to implement the requested prospective relief. The court found the First Amendment retaliation claim plausibly pleaded against the individual employees because Grant’s legislative testimony was protected speech and the alleged retaliatory licensing actions followed closely enough to permit an inference of causation at the pleading stage.

The State Defendants note that nowhere in the Complaint does Ms. Grant allege any continuing violations of federal law by the individual State Defendants, nor does she seek to enjoin any of them from violating federal law. As such, the demand for injunctive relief, which is made against DHHS, must be dismissed as violative of the Eleventh Amendment, and the claims against the individual Defendants must also be dismissed because she does not allege any continuing violations.

The due process claims failed because Grant received notice, a hearing, and available appellate procedures, and her allegations did not show conscience-shocking conduct. The state tort claims failed because Grant did not show compliance with the Maine Tort Claims Act’s notice-of-claim requirements.

CONCLUSION:

The motion to dismiss was granted in part and denied in part.

1. DHHS was dismissed; the official-capacity claims against the individual defendants were dismissed;
2. the procedural and substantive due process claims were dismissed; and
3. the state-law defamation and tortious-interference claims were dismissed for lack of subject matter jurisdiction.
4. The First Amendment retaliation claim survived against the individual defendants in their personal capacities.

ZALMA OPINION

A licensed childcare provider publicly criticized state agencies. She claimed she was retaliated against by the state agencies she criticized which cost her about $300,000 in subsidies that supported her work. The charges were not made appropriately and most of her complaint was not appropriate and not viable and left her with a claim of retaliation for exercising her First Amendment right and will be allowed to go trial.

(c) 2026 Barry Zalma & ClaimSchool, Inc.

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