Insurer Proactive Against Fraud

CIGNA Obtains $14,371,384.95 Judgment Against Fraudulent Health Care Provider

See the full video at https://rumble.com/v1l3hcr-insurer-proactive-against-fraud.html and at https://youtu.be/n9zoqg_yHr0

Since police, prosecutors and state insurance fraud investigators are seldom willing to arrest or prosecute insurance fraud perpetrators it is necessary for insurers to be proactive and sue those who attempt or succeed in defrauding insurers.

In Connecticut General Life Insurance Company and CIGNA Health And Life Insurance Company v. Mike Ogbebor and Stafford Renal LLC, No. 3:21-cv-00954 (JAM), United States District Court, D. Connecticut (September 6, 2022) CIGNA successfully sued a fake provider and obtained a default judgment for almost $15 million against the corporate defendant and its alter ego individual.

FACTS

Stafford Renal LLC (Stafford) and its owner Mike Ogbebor, received insurance payments from the plaintiffs, Connecticut General Life Insurance Company and Cigna Health and Life Insurance Company (collectively, “Cigna”), for dialysis Stafford claims to have administered to two Cigna plan members. Cigna alleged that Stafford was not licensed to provide, and in fact, did not provide these dialysis treatments.

After Cigna filed its complaint Ogbebor submitted an answer on behalf of both defendants. The trial judge struck this answer with respect to Stafford because Ogbebor as a non-lawyer could not represent in court a limited liability company such as Stafford. Cigna then moved for a default entry against Stafford, which was granted based on Stafford’s failure to appear or respond.

As for Ogbebor, he has failed to object or respond in any way to Cigna’s discovery requests. Ogbebor  also failed to respond to a motion to compel discovery, despite the Court’s discovery order warning him that such failure might result in sanctions including default judgment. Cigna now moves for default judgment against both Stafford and Ogbebor.

Because Stafford has altogether failed to respond and Ogbebor has responded but willfully failed to comply with his discovery obligations, the trial court accepted the allegations in Cigna’s complaint as true with respect to both defendants. On those facts, Stafford and Ogbebor are liable to Cigna for submitting fabricated claims on behalf of an unlicensed provider.

Ogbebor formed Stafford as a limited liability company organized under Texas law, and served as its owner, principal, and manager. Stafford held itself out to be a treatment facility for end stage renal disorder (ESRD). But Stafford did not have an ESRD license. In fact, Ogbebor was associated with another company known as Stafford Dialysis Renal, Inc., which operated a licensed ESRD facility. That license, however, expired in November 2016.

In 2017, Ogbebor submitted bills to Cigna for ESRD treatments purportedly provided by Stafford. Cigna learned that Stafford did not have an ESRD license. Stafford was therefore operating in violation of Texas licensing requirements.

Despite its unlicensed status, Stafford submitted and received claims totaling $4,790,461.65 from Cigna for supposed ESRD services to two Cigna members. When Cigna asked Stafford and Ogbebor to show proof of proper licensing, they failed to do so. Cigna then reduced or denied payment on other claims submitted by Stafford.

The defendants also allegedly fabricated a majority of the treatments for which they sought and obtained reimbursements from Cigna. Further, although Stafford supposedly provided services to one plan member on nearly every day from April 2018 through June 2020, Cigna learned from the member and confirmed with Medicare that she did not begin treatment until January 2019.

DISCUSSION

When a defendant defaults, it thereby admits all well-pleaded factual allegations contained in the complaint. The trial court found that default judgment is the appropriate sanction in this case and that any lesser sanction would be futile in light of Ogbebor’s willful and total refusal to cooperate with this litigation since he was first served in February 2022 with discovery requests concerning information in his possession that is essential for the resolution of Cigna’s claims against him.

DECLARATORY JUDGMENT

Cigna sought a declaratory judgment against Stafford stating that it has no obligation to honor any claims submitted by Stafford for ESRD services. Because Stafford was not licensed to provide any of the claimed ESRD services it submitted to Cigna, it has no legal or contractual right to reimbursement, payment, or other consideration from Cigna.

FRAUDULENT MISREPRESENTATION

The complaint alleged that the defendants falsely represented to Cigna that Stafford was licensed to provide ESRD treatments when it submitted claims seeking reimbursement for those services. When submitting these claims, the defendants knew that Stafford lacked the requisite license and that most of the claims were fabricated. Since Cigna’s claim for fraudulent misrepresentation is adequately alleged to support a default judgment its claim was granted.

NEGLIGENT MISREPRESENTATION

The trial court concluded that Cigna’s allegations are adequate to support a default judgment for negligent misrepresentation.

CUTPA

The Connecticut Unfair Trade Practices Act forbids any person from engaging in “unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.” Conn. Gen. Stat § 42-110b. “Any person who suffers any ascertainable loss of money or property, real or personal, as a result of the use or employment of a method, act or practice prohibited by [CUTPA], may bring an action … to recover actual damages.”  

Ogbebor is deemed to have admitted that he personally directed Stafford’s fraudulent conduct. Therefore, the complaint adequately alleges a CUTPA claim against both defendants to support a motion for default judgment.

CHIFA

The Connecticut Health Insurance Fraud Act punishes intentional fraud or deceit in connection with a claim for benefits under a health insurance policy.An insurer aggrieved as a result of an act of insurance fraud has a private right of action against the perpetrator of such fraud to recover all damages resulting. Cigna’s allegations are enough to support a default judgment.

CIVIL THEFT

A medical provider’s undisclosed failure to comply with licensing requirements constitutes fraud on the insurer. The defendants falsely represented to Cigna that Stafford was licensed to provide ESRD services by submitting claims for such services, they induced Cigna to issue payments on those claims. These claims were fraudulent because the defendants knew that Stafford was not licensed to perform the services for which it claimed reimbursement from Cigna, and in most instances had not performed those services at all. The trial court concluded that Cigna’s claim for civil theft is adequately alleged to support default judgment.

PIERCING THE CORPORATE VEIL

Under Texas law, holding an individual owner or manager of a company liable for acts of the company is appropriate (1) where a corporation is organized and operated as a mere tool or business conduit of another; and (2) there is such unity between corporation and individual that the separateness of the corporation has ceased and holding only the corporation liable would result in injustice. The trial court concluded that Ogbebor formed Stafford to further his scheme to commit insurance fraud. Accordingly, the trial court allowed Cigna to pierce the corporate veil and hold Ogbebor liable for Stafford’s conduct as well as his own.

DAMAGES

Cigna’s calculated damages are based on payments for dialysis supposedly provided to one plan member totaling $763,592.27, plus payments for medication for that same member, totaling $4,017,025.89. Cigna seeks an additional $9,843.49 for payments based on purported ESRD treatments, both dialysis and medication, to a second plan member. These figures are corroborated by a detailed spreadsheet Cigna has submitted along with its complaint, and they total $4,790,461.65. The trial court awarded that amount in actual damages. Further, because Cigna has adequately stated a claim for civil theft under Conn. Gen. Stat. § 52-564, the court applied treble damages for a total of $14,371,384.95.

CONCLUSION

Judgment was entered against Mike Ogbebor and Stafford Renal LLC in the joint and several amount of $14,371,384.95, as well as a declaratory judgment that the plaintiffs are absolved of any liability to pay past or future claims submitted by Stafford Renal LLC.

ZALMA OPINION

Although Cigna will have a difficult time collecting on this judgment its actions, and those of the District Court, should act as a deterrent to others attempting fraud. If Ogbebor has any of the money he obtained by fraud Cigna must aggressively seek to enforce the judgment and obtain any assets the fraudster still has. Other insurers should follow Cigna’s lead and work to take the profit out of insurance fraud.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. The new book is available as a Kindle book, a paperback or as a hard cover.

Write to Mr. Zalma at zalma@zalma.comhttp://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalmaGo to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0ExpgGo to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library

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Claims in a Catastrophe

How to Deal With Your Insurance Company After a Catastrophe

In 2008 I wrote a long article on what to expect after your property is damaged or destroyed in a catastrophe like a wildfire, a tornado, an earthquake or a hurricane. The attack on Florida and much of the East Coast by Hurricane Ian has encouraged me to make the article published by the CPA Journal, available by publishing the link to the Journal where it was published in 2017.

“At the request of the editors of the CPA Journal, insurance expert, Barry Zalma updated his blog for the benefit of our readers. In 2008, he wrote this article to help those faced with catastrophic losses. It is reprint here because of Hurricane Harvey and Irma in hopes it will help those victims of the catastrophes deal with their claims.” It is available at https://www.cpajournal.com/2017/09/26/claims-in-a-catastrophe/

In my opinion, insurers dealing with a catastrophe will usually be in a very generous mood. They will be seeking good publicity by taking care of victims of the catastrophe quickly and fairly. To make the claims process go easily the insured person must understand that both the insured and the adjuster have duties when damage-caused by fire, windstorm, flood or other insured perils are discovered.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.comhttp://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalmaGo to Barry Zalma at Rumble.com.

Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. The new book is available as a Kindle book, a paperback or as a hard cover and a new book on Commercial Property Insurance purchase and claims that is now available as a Kindle book here, paperback here and as a hardcover here.    

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Zalma’s Insurance Fraud Letter – October 1, 2022

Zalma’s Insurance Fraud Letter – October 1, 2022

Read the full article at https://lnkd.in/gb8WvSyH and see the full video at https://lnkd.in/g2iqwfTE and at https://lnkd.in/g7YWxZwC and at https://zalma.com/blog plus more than 4300 posts.

Read full Newsletter at https://lnkd.in/gC_ERGrP

Posted on September 30, 2022 by Barry Zalma

Insurer Proactive Against Fraud

CIGNA Obtains $14,371,384.95 Judgment Against Fraudulent Health Care Provider

CIGNA successfully sued a fake provider and obtained a default judgment for almost $15 million.

Another Florida Insurer Is Insolvent
FedNat Insurance Co. is now insolvent.

Free Insurance Videos

Barry Zalma, Esq., CFE has published five days a week videos on insurance claims, insurance claims law, insurance fraud and insurance coverage matters at https://lnkd.in/g8_7CzQs.
See the more than 500 videos at https://lnkd.in/g6i3cWu

Good News From the Coalition Against Insurance Fraud
Sharon Beighton was stunned to learn Bruce Saunders fell into a woodchipper and was ground up while clearing trees on her property near Brisbane, Australia.

A Resource for the Insurance Professional

To be an insurance professional requires continuous learning. That’s the motivation behind my writing; I have felt a need to share my experiences to help people in the industry learn how to properly handle claims and avoid accusations of the tort of bad faith.”

Health Insurance Fraud Convictions

U.S. Attorney & Feds Increase Efforts to Prosecute Fraud Perpetrators
Durable Medical Equipment Company Health Care Fraud Sentenced to Seven Years in Federal Prison

Read dozens more convictions at https://lnkd.in/gC_ERGrP

Prosecutors Allow Arson-for-Profit to Succeed

Stupid Plea Bargain Destroys Insurer’s Right to Restitution

Read the full story at https://lnkd.in/gC_ERGrP

Other Insurance Fraud Convictions

Salt of the Earth Michigan Farmer Will Pay $1.2 Million Settlement Over Crop Insurance Fraud
Read the full list of convictions at https://lnkd.in/gC_ERGrP

New Books:
“How to Acquire, Understand, and Make a Successful Claim on a Commercial Property Insurance Policy: Information Needed for Individuals and Insurance Pros to Deal With Commercial Property Insurance” – Details available at https://lnkd.in/gKCTg53

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

Subscribe to Zalma on Insurance at locals.com https://lnkd.in/gn5WAi6C.

Subscribe to Excellence in Claims Handling at https://lnkd.in/gNm9EWKJ. Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; I publish daily articles at https://zalma.substack.com, Go to the podcast Zalma On Insurance at https://lnkd.in/gxA7YGe; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://lnkd.in/gV9QJYH

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Vermont Did Not Find Coverage

Vermont’s Ruling in Favor of an Insured Seeking Business interruption Coverage due to Covid is a Pyrrhic Victory

See the full video at https://rumble.com/v1lvhgq-vermont-did-not-find-coverage.html and at https://www.youtube.com/watch?v=Nmn9n07Jkxs

In Huntington Ingalls Industries, Inc. et al. v. Ace American Insurance Company et al, No. 2021-173, 2022 VT 45Supreme Court of Vermont (September 23, 2022) the Supreme Court of Vermont reversed a decision refusing to allow an insured ship builder to recover business interruption losses as a result of government orders dealing with Covid-19 and remanded the case to the trial court to determine if Covid caused direct physical damage to property.

Insured Huntington Ingalls Industries, Inc. and insurer Huntington Ingalls Industries Risk Management LLC survived dismissal of the case seeking coverage under a property insurance policy for certain losses incurred by Huntington Ingalls Industries due to the COVID-19 pandemic.

FACTS

Insured, Huntington Ingalls Industries, Inc., is the largest military shipbuilding company in the United States and provides professional services to government and industry partners. It employs over 42,000 people, the majority of whom work at its shipyards in Virginia and Mississippi.

In March 2020, insured purchased a property insurance policy (Global Policy) from insurer Huntington Ingalls Industries Risk Management LLC, its captive insurance subsidiary and a Vermont corporation. The policy covers the period of March 15, 2020, to March 15, 2021. That same month the insurer purchased policies from multiple reinsurers to reinsure all its obligations to insured under the Global policy. Each reinsurer participated for a specified percentage of the reinsurance program. Reinsurers’ policies incorporate the Global Policy by reference, stating for example that their liability “shall attach simultaneously with that of [insurer] and shall be subject in all respects to the same risks, terms, conditions, rates, interpretations[,] and waivers” of the underlying policy issued to insured.

The policy, titled “Global Property Insurance,” contains relevant provisions that all real and personal property are insured against all risks of direct physical loss or damage to property. In the “business interruption” clause, it covers “[l]oss due to the necessary interruption of business conducted by [insured], whether total or partial . . . caused by physical loss or damage insured herein.” Recovery under the business-interruption provision is limited to the extent that insured is  (a) wholly or partially unable to produce goods or continue normal business operations or services during the [p]eriod of [r]ecovery; (b) unable to make up lost production within a reasonable period of time . . .; or (c) able to demonstrate a loss or reduction of Net Profit for the services or production prevented, impaired or interrupted.”

The period of recovery begins on “the date of . . . loss or damage” and “[s]hall not exceed such length of time as would be required with the exercise of due diligence and dispatch to rebuild, repair, or replace the property that has been destroyed or damaged.” The period of recovery also includes “[s]uch additional length of time to restore [insured’s] business to the condition that would have existed had no loss occurred.” The policy provides that Vermont law governs its construction.

THE VIRUS

SARS-CoV-2 is a virus that causes the disease COVID-19. In March 2020, civil authorities across the United States began to issue orders requiring certain businesses to close and recommending people stay home to reduce the virus’s spread. Civil orders generally required businesses to adhere to social distancing, employ enhanced sanitization practices on surfaces, and follow recommendations from the Centers for Disease Control and Prevention (CDC) and state health departments. However, they allowed businesses to operate at a level needed to provide essential services.

The insured kept its shipyards open but made changes to its operations to comply with CDC guidance and protect employees.

In September 2020, insured and insurer sued reinsurers seeking a declaratory judgment that they are entitled to coverage under the policy for property damage, business interruption, and other losses suffered as a result of SARS-CoV-2, the pandemic, and civil authority orders. The complaint alleges the pandemic caused “direct physical loss or damage to property” when the virus adhered to surfaces for several days and lingered in the air for several hours at the shipbuilding yards.

TRIAL COURT DECISION

The trial court granted reinsurers’ motion for judgment on the pleadings and consequently denied all of insured’s motions. The inquiry below focused on the meaning of “direct physical loss or damage to property” under the policy.

Interpretation of Policy

An insurance policy is construed according to its terms and the evident intent of the parties as expressed in the policy language. Terms in an insurance policy are interpreted according to their plain, ordinary, and popular meaning, and will enforce unambiguous terms as written.

When the Supreme Court of Vermont looks to determine if an insurance policy’s undefined terms have a plain meaning, it frequently refer to dictionary definitions.

First, the phrase “direct physical loss” concludes with “to property” and this is a property insurance policy, thus the analysis is framed with a focus on what is happening to the insured property. The centrality of property to this insurance policy requires that something must occur affecting personal or real property for “direct physical loss or damage to property” to occur.

Although all-risk policies are generally construed in favor of coverage, risk and loss are distinct concepts. The Supreme Court concluded that direct physical damage requires a distinct, demonstrable, physical change to property. When it combined the definitions of “direct,” “physical,” and “damage” provided above, the plain meaning is evident. However, a distinct, demonstrable, physical alteration need not necessarily be visible; alterations at the microscopic level may meet this threshold. The Supreme Court considered Ashland Hosp. Corp. v. Affiliated FM Ins. Co., No. 11-16-DLB-EBA, 2013 WL 4400516, at *4-5 (E.D. Ky. Aug. 14, 2013) the USDC for the Eastern District of Kentucky concluded that disk drives altered on microscopic level due to heat exposure causing decrease in reliability constituted “direct physical loss or damage to insured property.

The definition is consistent with the policy section on the period of recovery, which defines the time for which a business-interruption claim may be made. Insured may make a business-interruption claim under the policy for the period starting with the date of the coverage-triggering event and not exceeding the time needed to “rebuild, repair or replace” the damaged property and such additional time as needed to restore insured’s business to its pre-loss condition.

In order for something intangible to cause a direct physical loss, the cause of the loss must be so persistent as to require intervention, rather than the mere passage of time, to satisfactorily address it.

The insurance policy in this case is unambiguous and must therefore be afforded its plain meaning. The phrase “direct physical loss or damage to property” includes two distinct components, either of which will trigger coverage unless an exclusion applies: “direct physical damage” and “direct physical loss.”

“Direct physical damage” requires a distinct, demonstrable, physical change to property. “Direct physical loss” means persistent destruction or deprivation, in whole or in part, with a causal nexus to a physical event or condition.

Purely economic harm will not meet either of these standards. In applying the plain meaning of the policy language as interpreted in this case, the insured has the burden of proving that the losses it alleges are either “direct physical loss” or “direct physical damage” to property.

THE REMAND

Remanding this case and allowing further factual development in the trial court is consistent with the philosophy underlying notice pleading. Although the science when fully presented may not support the conclusion that presence of a virus on a surface physically alters that surface in a distinct and demonstrable way, it is not the Court’s role at this stage in the proceedings to test the facts or evidence.

To be clear, the opinion does not state that what occurred in insured’s shipyards is “direct physical loss or damage to property” under the policy. The Supreme Court merely concluded that insured has alleged enough to survive a motion to dismiss.

The Insured’s complaint contains sufficient allegations to survive a motion for judgment on the pleadings under Vermont’s extremely liberal pleading standards.

Justice Carroll Dissented

“As a matter of law, human-generated droplets containing SARS-CoV-2 cannot cause “direct physical loss or damage to property” under this insurance policy. No future litigation can change that reality. While I agree with the majority’s conclusion that the insurance contract term in dispute is unambiguous, I cannot agree that insured’s claim survives beyond the pleadings stage.” Accordingly, he dissented.

ZALMA OPINION

News stories about Vermont giving the first victory to an insured seeking business interruption coverage for losses resulting from Covid 19. The opinion was exceedingly long and dealt with definitions and interpretation of insurance policies, the essence of the decision was that the insureds alleged sufficient facts to avoid a motion to dismiss but must now go to the trial court and produce evidence and science that the virus caused direct physical damage to the property of the insured. Something courts across the country have found that there was no direct physical loss or damage.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.comhttp://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalmaGo to Barry Zalma at Rumble.com.

Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. The new book is available as a Kindle book, a paperback or as a hard cover and a new book on Commercial Property Insurance purchase and claims that is now available as a Kindle book here, paperback here and as a hardcover here.

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Excellence in Claims Handling

Insurance News: Barry Zalma Releases More Insurance Education Books on Amazon and Has Created a Locals Community of Insurance Education Videos.

After practicing insurance law for over five decades, Barry Zalma, an internationally recognized and award-winning insurance expert and author, is releasing multiple education books on Amazon.com. The publications are designed to inform claims people, special investigation unit investigators, coverage lawyers, plaintiffs’ bad faith lawyers, insurance management and the insurance buying public on insurance claims procedures and insurance fraud. Each resource leverages key insights and learnings from Zalma’s 55+ years of practical experience as a claims person and insurance coverage attorney.

Barry Zalma, Esq., CFE

To be an insurance professional requires continuous learning. That’s the motivation behind my writing; I have felt a need to share my experiences to help people in the industry learn how to properly handle claims and avoid accusations of the tort of bad faith.”  See his latest interview for new adjusters at https://player.fm/series/daily-claims/episode-11-advice-for-new-and-aspiring-adjusters.

Visit Zalma’s Insurance Claims Library to view all publications that can be purchased through Amazon as Paperback and Kindle e-books. A selection of some of the books written by Barry Zalma that are available include:

  • How to Acquire, Understand, and Make a Successful Claim on a Commercial Property Insurance Policy: Information Needed for Individuals and Insurance Pros to Deal With Commercial Property  Insurance”
  • The Tort of Bad Faith
  • The Equitable Remedy of Rescission of Insurance
  • Insurance Fraud & Weapons to Defeat Insurance Fraud, Volume 1 & Volume 2, including full text insurance fraud decisions from the courts of appeal
  • The Compact Book on Adjusting Liability Claims, a handbook for the liability claims adjuster
  • The Compact Book on Adjusting Property Claims, a basic manual for the first party property claims adjuster
  • Zalma on Insurance Claims – a ten volume treatise.
  • Ethics for the Insurance Professional, the necessity of ethical behavior in the insurance business
  • Rescission of Insurance, what is needed to rescind an insurance policy, including full text appellate decisions regarding rescission
  • The Insurance Examination Under Oath, covering who, when, where, why and how to take an examination under oath.

Would you be interested in sharing this news with your readers, listeners or viewers or insurance claims employees? Please let me know if you would like more information or to arrange an interview with Barry Zalma or presentation of an Excellence in Claims Handling program.

Additional books by Zalma are available from Fastcase.com, Thomson Reuters and the American Bar Association. He has also published numerous articles, blogs, white papers, videos and education courses for insurance practitioners. Visit www.zalma.com and https://zalma.com/blog/insurance-claims-library/ Locals.com https://zalmaoninsurance.locals.com/subscribe and substack.com for more information.

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What is Actual Cash Value?

Insurers, working without legislative or judicial direction, created a working definition of the term “actual cash value.”

See the full video at https://rumble.com/v1lqhqf-what-is-actual-cash-value.html and at https://youtu.be/6oj9bqtaEg4

Insurers recognized that ACV in a fire insurance policy was designed to establish a dollar value for items of destroyed property that were not new at the time of loss. Since the insurers had no easy means to establish the used value of property, they selected the following as their working definition of “actual cash value”: “Actual cash value is the cost to replace with like kind and quality less physical depreciation.” [Jefferson Insurance Company of N.Y. v. Superior Court, 3 Cal. 3d 398 (1970).]

The working definition, although it did not always provide the complete indemnity contemplated by the insureds and by the various legislatures, was eminently practical.

A burned-out shell of a house only leaves clues as to what its actual cash value was before the fire. With minimal investigation the cost of rebuilding can be readily ascertained. If the insurer paid to its insured the full cost of replacement (since the number was easy to compute) it would violate the traditional concept of indemnity.

Payment of replacement cost puts the insured in a better position than he was in before the fire. Deducting from the replacement cost a reasonable percentage representing the physical depreciation, comes as close as possible to providing the insured with true indemnity for the loss.

Over time, courts have developed three primary tests to measure the actual cash value of property. They are:

  1. Fair market value, usually described as the price a willing buyer would pay to buy property from a willing seller in a free market.
  2. Replacement cost less depreciation, generally accepted to mean the cost to replace property at the time of the loss, minus its physical depreciation.
  3. The Broad Evidence Rule. A judicious application of either 1 or 2 to the unique circumstance of the claim, whichever is more favorable to the insured.

Some insurers have taken the hint first expressed in 1970 in Jefferson Insurance Company v. The Superior Court of Alameda County, 3 Cal. 3d 398, and now define the term in most policies issued in California and across the country. Depending on the insurer any one of the three options chosen by the courts across the country has now been incorporated into the policy.

Some insurers elected to calculate ACV by deducting 20% from the full cost of repair or replacement. Since the basic charge had no relation to obtaining true ACV, the practice was widely condemned. For example, the Court of Appeals of Michigan went even further in decrying the practice of withholding 20% for a contractor’s overhead and profit. In Salesin v. State Farm 581 N.W.2d 781, (1998) the court said this about the calculation of actual cash value: “State Farm’s insurance Policy in this case does not contain a definition of “actual cash value,” nor does it set out the basis on which State Farm determines actual cash value. The process by which actual cash value would be determined was contained in State Farm’s Operation Guide. In accordance with the provisions of that document, State Farm routinely deducts contractor’s overhead and profit as well as depreciation when it makes an “actual cash value of the damage” payment under section I.c.(l) of its insurance policy. There was deposition testimony that this procedure is contrary to industry norms and practices.”

In Bradley v. Allstate Ins. Co., USCA, Fifth Circuit, 620 F.3d 509 (2010) the court found Under Louisiana law, actual cash value owed by property insurer is determined by calculating the cost of duplicating the damaged property with new materials of like kind and quality, less allowance for physical deterioration and depreciation. ACV is not, in the Fifth Circuit, necessarily synonymous with market value at the time of the loss.

The touchstone for determining ACV is the basic principle that an adequately insured person should incur neither economic gain nor loss when his property is destroyed.

The term obsolescence appears within the contract definition of “actual cash value,” which is one of several methods insurers use to value a property in the event of a loss. Other methods are market value, reproduction value, and replacement value.

Many courts, including those in Michigan, adopted what is known as the “broad evidence” rule to determine the actual cash value when the term is undefined in a contract. [Davis v. Nat’l Am. Ins. Co., 78 Mich.App. 225, 259 N.W.2d 433, 438 (1977)]. Under the rule, fact finders or appraisers may consider “any evidence logically tending to the formation of a correct estimate” of the value of the property, including “market or reproduction or replacement values.”

The Standard Fire Insurance Policy has provided, in essentially the same language since 1909:”In consideration of the provisions and stipulations herein … this company does insure the above-named insured … to the extent of the actual cash value of the property at the time of the loss.”

The intent of the legislature of the various states that have enacted a statutory fire policy, by enacting a mandatory form of fire insurance policy, was to codify and implement the traditional concept of fire insurance. Insurance exists to indemnify or compensate the insured for the actual loss he has sustained, without necessarily placing him in a better position than he was at the time of the fire. [Breshears v. Indiana Lumbermans Mutual Ins. Co., 256 Cal. App. 2d 245, 63 Cal. Rptr. 879 (1967).]

Appellate courts have rarely been called upon to explain this basic purpose of fire insurance, as codified. When called upon, the courts have limited their decisions to the fact situations presented to them. They have always confirmed that the purpose of insurance is to provide indemnity. It was only the methods by which such indemnity was to be achieved that was subject to interpretation.

Perhaps to ease the burden on the courts, the state legislatures provided a means by which the traditional concept of indemnity could be measured. For example, the California Legislature stated: “The measure of indemnity in fire insurance is the expense to the insured of replacing the thing lost or injured in its condition at the time of the injury, such expense being computed as of the time of the commencement of the fire”. [California Insurance Code § 2051.]

The legislature failed, however, to explain how one was to compute the cost of replacing a 30-year-old building. There is almost no supply of 30-year-old plumbing or lumber for the insured to purchase. A carpenter cannot construct a 30-year-old dwelling, he can only construct a new dwelling. It is physically impossible to put an insured exactly as he was before the fire.

It took 30 years of hard weather to pit the siding; many windstorms to wear and loosen the shingles, an earthquake or two to tilt the foundation, and four growing children to beat it up mercilessly. The problem of creating old with new, the legislature left to the courts, litigants, and the agile minds of adjusters and lawyers.

Analysis

Courts have touched the issue, gingerly. They have paid lip service to the statutory mandate that the insured is only entitled to recover under the policy such loss as he has actually sustained. [Whitney Estate Co. v. Northern Insurance Co. of London, 155 Cal 521, 101 P. 911 (1909).] Sometimes, the courts simply reduced an award to a sum less than full replacement cost with no explanation as to why the deduction was made. [Koyer v. Detroit F & M Ins. Co., 9 Cal. 2d 340 (1937).]

The question of how the actual cash value of Covered Property should be determined when calculating the value of any applicable premium is essential. Three different tests exist to determine the actual cash value of property when the policy is silent on the definition. Those tests are:

1. the fair market value test;

2. the replacement costs minus depreciation test; and

3. the broad evidence rule.

This article came from my newest book, “How to Acquire, Understand, and Make a Successful Claim on a Commercial Property Insurance Policy: Information Needed for Individuals and Insurance Pros to Deal With Commercial Property Insurance” Now Available as a Kindle book here, paperback here and as a hardcover here

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.comhttp://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalmaGo to Barry Zalma at Rumble.com.

Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. The new book is available as a Kindle book, a paperback or as a hard cover and a new book on Commercial Property Insurance purchase and claims that is now available as a Kindle book here, paperback here and as a hardcover here.

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New Book from Barry Zalma

“How to Acquire, Understand, and Make a Successful Claim on a Commercial Property Insurance Policy: Information Needed for Individuals and Insurance Pros to Deal With Commercial Property Insurance”

The New Book is now available as a Kindle book here, paperback here and as a hardcover here

Commerical Property Insurance is a necessity for any person or entity owning a piece of commercial property whether it is small or large, whether it is an office building or a warehouse or a factory.

A property owner – unless exceptionally wealthy – cannot afford the risk of losing that property, what it earns from tenants paying rent or from the product produced at the property.

Commercial property insurance is a specialized form of insurance designed to to protect the owner or lessee of the property from loss due to perils like fire, lightning, windstorm, hail, earthquake, flood, tornado or other risks of loss.
Most commercial property insurance policies are written on a “direct risk of physical loss” or “all risk of physical loss” basis suject to exclusions that are directly related to to the risks faced by the property or some standard exclusions.


This books explains the coverages provided by a commercial property insurance policy, how to acquire a policy of commercial property insurance, what the policy of commercial property insurance insures, how to present a claim, and how to successfully present a claim and collect the funds needed to repair or replace the structure and indemnify the insured against the losses incurred because of the interruption of the business of the insured.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. The new book is available as a Kindle book, a paperback or as a hard cover.

Write to Mr. Zalma at zalma@zalma.comhttp://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalmaGo to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921.

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Prosecutors Allow Arson-for-Profit to Succeed

Stupid Plea Bargain Destroys Insurer’s Right to Restitution

See the full video at https://rumble.com/v1llnhx-prosecutors-allow-arson-for-profit-to-succeed.html and at https://www.youtube.com/watch?v=3eMD-1ZF6cE

Intentionally burning a dwelling and the concomitant presentation of an insurance claims is an arson for profit and a two serious felonies. However, in The People v. Damon Lawrence George, C095325, California Court of Appeals, Third District, Placer (September 12, 2022) Damon Lawrence George was allowed by the prosecution to plead guilty only to the unlawful burning of his house. The People, failing to understand the implications upon an insurer, allowed the insurance fraud to succeed by dismissing several related charges against defendant, including insurance fraud, without obtaining a People v. Harvey (1979) 25 Cal.3d 754 (Harvey). waiver, and allowing the defendant to keep the money paid.

The trial court imposed $122,377.91 in victim restitution to defendant’s insurer and as a condition of probation. Defendant appealed, arguing: (1) his insurer did not incur economic losses as a result of his convicted crime; and (2) the restitution imposed as a condition of probation serves no rehabilitative purpose and must be stricken. Of course, Farmers suffered damages due to the arson-for-profit and the fraudulent insurance claim but the prosecution dismissed those charges.

FACTUAL BACKGROUND

The People charged defendant with arson of an inhabited structure; attempted arson of an inhabited structure; insurance fraud; and misdemeanor unlawful burning of an inhabited structure. Defendant pleaded no contest to count six, and the People dismissed the remaining charges without obtaining a Harvey waiver. The trial court then placed defendant on one year of informal probation and imposed fines and fees. As a condition of probation, defendant was ordered to serve 66 days in county jail with credit for time served.

In a written ruling issued after the hearing, the trial court ordered defendant to pay victim restitution to Farmers and as a condition of probation. It further concluded the payments Farmers made to defendant and the fire investigation expenses Farmers incurred constituted economic losses directly caused by the defendant’s criminal activity within the meaning of California Constitution. The restitution amount totaled $122,377.91, consisting of $81,297.66 for alternate living expenses Farmers paid to defendant, and $41,080.25 for fire investigation services.

DISCUSSION

Defendant contends: (1) Farmers did not suffer economic losses as a result of his crime of conviction and is therefore not entitled to victim restitution; and (2) the restitution as a probation condition serves no rehabilitative purpose and must be stricken.

Although a court has a constitutionally mandated duty to order restitution to a victim who “has suffered economic loss as a result of the defendant’s conduct. A business entity is a” ‘victim'” under section 1202.4 when the entity is “a direct victim of a crime.”

Direct Victim

Generally, “an insurer d[oes] not become a ‘direct victim’ of crime . . . by paying the crime-related losses of its insured under the terms of an insurance policy.” An insurance company does not become a victim of a crime simply because it “made good on its obligation”. An insurer may still have to provide coverage for reckless crimes committed by its policyholders. Insurance companies are entitled to restitution where they are the object of insurance fraud. The elements generally necessary to find a violation of insurance fraud are the defendant’s knowing presentation of a false claim, with the intent to defraud.

Unlike insurance fraud, unlawfully burning a house does not require willful conduct, but only recklessness. A violator of section 452 must not intend to cause the burning of property.

Defendant’s crime of conviction was unlawful burning, not insurance fraud. Defendant admitted only to the elements of section 452, which does not include the intent to cause the burning of his house. Also absent was evidence of defendant’s intent to defraud Farmers because the People dismissed the insurance fraud count.

While the People cited facts established in the preliminary hearing relating to the insurance fraud claim the trial court cannot order defendant to pay restitution for crimes of which he was not convicted.

The Harvey Rule And Section 1192.3

In Harvey, the California Supreme Court held “it would be improper and unfair to permit the sentencing court to consider any of the facts underlying” a count dismissed pursuant to a plea bargain “for purposes of aggravating or enhancing defendant’s sentence.”

Defendant’s admitted unlawful burning count did not result in any damage for which restitution may be ordered. Farmers’ claim for restitution rests entirely upon the dismissed insurance fraud claim, not the reckless burning.

Restitution as a Condition of Probation

A trial court is prohibited from imposing a condition of probation based on facts underlying a dismissed count absent a Harvey waiver unless those facts are “transactionally related to” the admitted offense. Since the defendant admitted only to the elements of the unlawful burning, which does not include any intent to burn his house, much less the intent to defraud Farmers the burning and the filing of the claim were, at most, temporally related. And as anomalous as the result might be in this case, defendant is entitled to coverage from Farmers for his reckless conduct since accidentally setting fire to a house is an insured against peril.

By basing the probation condition on the facts underlying the dismissed insurance fraud claim by concluding Farmers incurred economic losses “directly caused by defendant’s criminal activity,” the trial court violated the Harvey rule.

The restitution order was reversed. The judgment was modified by striking the $122,377.91 in direct victim restitution awarded to Farmers and as a condition of probation. As modified, the judgment was affirmed.

ZALMA OPINION

Much to the surprise of lay people – including the prosecutors in this case – arson is not an excluded peril. Arson is covered. Setting fire to your house without intent and without intent to defraud, are insured against perils. By failing to get a Harvey waiver and accepting the unlawful burning conviction and dismissing the insurance fraud and arson charges the prosecutors allowed the defendant to succeed in his fraud and only serve a few days in jail and pay small fines. Farmers, of course, can sue Mr. George for fraud in civil court and may find it impossible to collect a judgment while making restitution as a condition of probation would incentivize George to pay rather than spend years in jail. The Prosecutors blew their obligation to protect the true victim of the crime, Farmers.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. The new book is available as a Kindle book, a paperback or as a hard cover.

Write to Mr. Zalma at zalma@zalma.comhttp://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalmaGo to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0ExpgGo to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library

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Insurer Sues Fraudsters

Physicians Cheat Insurer for Covid Testing

Health Care Providers Created Fraudulent Billing for Covid Instant Tests

See the full video at https://rumble.com/v1ll4ep-insurer-sues-fraudsters.html and at https://youtu.be/VXSzxoNxEgc

In OPEN MRI AND IMAGING OF RP VESTIBULAR DIAGNOSTICS, P.A. v. HORIZON BLUE CROSS BLUE SHIELD OF NEW JERSEY, Civ. No. 21-10991 (WJM), United States District Court, D. New Jersey (September 19, 2022) an insurer sued for not paying bills cross-claimed for fraud damages and violation of the the New Jersey Insurance Frauds Prevent Act (IFPA).

Open MRI and Imaging of RP Vestibular Diagnostics, P.A. sued Horizon Blue Cross Blue Shield of New Jersey (“Horizon”) for violations of the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq., based on Horizon’s alleged failure to pay insurance claims for COVID-19 rapid testing.

Horizon’s operative pleading, which the Court refers to as the Second Amended Consolidated Counterclaim and Third-Party Complaint, asserts twelve counts for violations of the common law and the New Jersey Insurance Fraud Prevention Act, N.J.S.A. 17:33A-1, et seq., based on an alleged scheme to defraud Horizon. Horizon brings its claims against Plaintiff/Counterclaim Defendant Open MRI et al (collectively, the “Third-Party Defendants”).

BACKGROUND

Horizon is an insurance company with its principal place of business in Newark, New Jersey. It provides healthcare benefits for insured subscribers pursuant to a variety of healthcare plans and policies issued or administered throughout the state.

Open MRI and others are medical practices all located in Rochelle Park, New Jersey.

The Alleged Scheme to Defraud Horizon

In April of 2020, as the novel COVID-19 virus spread throughout the United States, Open began offering rapid COVID-19 tests to members of the public at their joint practice location. Overall, these rapid test “appointments” at Open MRI as reported by Horizon members, were very brief, taking no longer than five minutes and involved little to no interaction with a licensed physician. Open MRI charged patients $35 at the time of service and then submitted claims to Horizon for further payment.

To submit a health insurance claim, healthcare providers must complete standard billing forms. The billing forms require providers to use specific numeric codes that describe the services for which the provider seeks payment. Federal regulations designate the standard code systems that providers use in order to ensure that health insurance claims are processed efficiently and consistently. In turn, insurance companies like Horizon rely on providers to input codes that most appropriately and accurately describe the services provided to patients so that the insurer can adjudicate claims and secure reimbursement pursuant to the patient’s health benefits plan.

According to Horizon, from April of 2020 onward, the cross-defendants submitted insurance claims seeking grossly inflated billed charges for medical services that were performed unlawfully or not performed at all, and that were unnecessary or inappropriate to administering rapid COVID-19 tests.

Billing for Services Rendered Unlawfully

From April of 2020 through September of 2020, the cross-defendants were not certified as “Authorized Laboratories” under the Comprehensive Laboratory Improvement Act (“CLIA”), and thus were not permitted to administer rapid COVID-19 tests. Nonetheless the cross defendants, administered rapid COVID-19 tests to patients and then submitted claims to Horizon for reimbursement. Horizon ultimately paid more than $140,000, and these claims for services that were rendered unlawfully.

Billing for Services That Were Not Rendered

Each time the cross-defendants submitted a claim for a rapid COVID-19 test rendered on a Horizon member, they also billed for “specimen handling,” which requires the sample collected for testing to be transferred from the provider’s office to a laboratory. Rapid COVID-19 tests, however, do not require transfer of the patients’ specimens to a laboratory for testing because they are “point of care tests” performed in the provider’s office. Yet, the cross-defendants knowingly submitted claims for “specimen handling” services that never occurred and were unnecessary in administering rapid tests. Horizon collectively paid them more than $7,000 on these claims.

Additionally, each time the cross-defendants submitted a claim for a rapid COVID-19 test rendered on a Horizon member, they also billed for moderate- and high-level evaluation and management (“E&M”) services. These moderate- and high-level E&M billing codes are to be used where a healthcare provider spends thirty to sixty minutes face-to-face with a patient, takes a detailed medical history and performs a detailed examination, and utilizes medical decision making of low, moderate, or high complexity. Even though Horizon members’ minutes-long encounters for a rapid COVID-19 test involved only a temperature check, a few “prescreen” questions, and a nasal swab, and cross-defendants nonetheless billed Horizon for more significant E&M services that were not actually rendered. Horizon collectively paid them in excess of $300,000 on these claims.

Horizon’s Claims Against the Third-Party Defendants

Horizon asserts twelve causes of action against the Third-Party Defendants all involving illegal or fraudulent billing.

DISCUSSION

A claim for common law fraud resembles a private action brought by an insurance company under the IFPA, but because the IFPA New Jersey Insurance Frauds Prevent Act (IFPA) sweeps more broadly than common law fraud plaintiffs are required to establish fewer elements when alleging fraud in violation of the statute. Unlike common law fraud, the IFPA does not require proof of reliance on the false statement or resultant damages, nor proof of intent to deceive. A plaintiff need only establish that (1) defendant presented false or misleading information in connection with submitting an insurance claim; (2) defendant knew the information was false or misleading; and (3) information was material to a claim for reimbursement under an insurance policy.

Horizon has pleaded ample details of the who, what, when, where, and how of the underlying fraudulent scheme to state a claim for common law fraud and violations of the IFPA.

ZALMA OPINION

Horizon should be commended for using the IFPA to defeat fraud related to alleged COVID-19 testing and medical treatment that was neither rendered nor necessary. The group of testers and physicians had the unmitigated gall to sue for payment of claims that they new or should have known were not appropriate, were provided by unlicensed professionals and were were inflated billing for 30 minutes face to face with a patient when they never spent more than 5 minutes if any time at all. Fraud will only be defeated or deterred if the profit motive is taken from the act and hopefully the evidence collected in this civil action is also evidence of multiple crimes.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. The new book is available as a Kindle book, a paperback or as a hard cover.

Write to Mr. Zalma at zalma@zalma.comhttp://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalmaGo to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0ExpgGo to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library

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Duty to Defend is Exceptionally Broad

The Eight Corners Rule Strikes Again

See the full video at https://rumble.com/v1ky7jz-duty-to-defend-is-exceptionally-broad.html and at https://youtu.be/_VHsHeG7fBA

M/I Homes of Chicago, LLC (M/I Homes), appealed from the circuit court’s entry of summary judgment in favor of Acuity, a mutual insurance company. The circuit court found that Acuity had no duty to defend M/I Homes in an underlying lawsuit-stemming from damages caused by the allegedly defective construction work of one of M/I Homes’s subcontractors- because the complaint in that case did not allege “property damage caused by an occurrence.

In Acuity, a Mutual Insurance Company v. M/I Homes Of Chicago, LLC, and Church Street Station Townhome Owners Association, No. 1-22-0023, 2022 IL App (1st) 220023, Court of Appeals of Illinois, First District, Sixth Division (September 9, 2022) the Illinois Court of Appeals resolved the dispute.

BACKGROUND

The Townhomes’ owners association sued for breach of contract and the implied warranty of habitability against M/I Homes as the successor developer/seller of the Townhomes, and M/I Homes asked Acuity to defend it in that underlying lawsuit, as the additional insured on a policy Acuity had issued to one of its subcontractors, H&R Exteriors Inc. (H&R). Acuity denied that it had a duty to defend M/I Homes under the policy and filed the declaratory judgment suit that is before the court.

The Policy

Acuity issued to H&R a fairly standard commercial general liability and commercial excess liability policy-policy. M/I Homes was listed as an additional insured on the Policy.

The Underlying Lawsuit

The Church Street Station Townhome Owners Association (the Association), by its board of directors, sued for breach of contract (count I) and breach of the implied warranty of habitability (count II). In the amended complaint, the Association sued M/I Homes as the successor developer/seller for the Townhomes, having succeeded to the entire remaining interests of the initial developer/seller, Neumann Homes Inc. (Neumann).

The Association alleged Neumann and M/I Homes constructed and sold Townhomes with substantial exterior defects, including moisture-damaged or water-damaged fiber board, water-damaged OSB sheathing, deteriorated brick veneer, poor condition of the weather-resistive barrier, improperly installed J-channel and flashing, and prematurely deteriorating support members below the balcony deck boards. The Association further alleged that Neumann and M/I Homes did not perform the construction work themselves, but that all work on the Townhomes was performed on their behalf by subcontractors and the designer.

The Association alleged that the property damage was an accident in that M/I Homes did not intend to cause the design, material and construction defects in the Townhomes, and the resulting property damage. The Association claimed damage to other building materials, such as windows and patio doors, including but not limited to water damage to the interior of units, and that the damages were neither expected nor intended from their standpoint.

The Declaratory Judgment Action

Acuity filed its complaint for declaratory judgment against M/I Homes and the Association. The Association is not a party to this appeal.

Acuity sought a declaration that it did not have a duty to defend or indemnify M/I Homes. In turn, M/I Homes filed a counterclaim against Acuity, asking for a declaration that Acuity did owe it a duty to defend.

The parties filed cross-motions for summary judgment. M/I Homes argued in its cross-motion for partial summary judgment that Acuity owed it a duty to defend because the underlying complaint’s allegation that there was damage to “other property” was an allegation of damage beyond just repair and replacement of the construction work. According to M/I Homes, “property damage” caused by an “occurrence” was therefore sufficiently alleged.

The circuit court granted summary judgment in favor of Acuity and denied summary judgment in favor of M/I Homes.

ANALYSIS

The construction of an insurance policy and a determination of the rights and obligations thereunder are questions of law for the court which are appropriate subjects for disposition by way of summary judgment.

The duty to defend is determined solely from the allegations of the complaint. [ISMIE Mutual Insurance Co. v. Michaelis Jackson & Associates, LLC, 397 Ill.App.3d 964, 968 (2009) (citing Thornton v. Paul, 74 Ill.2d 132, 144 (1978), overruled in part on other grounds by American Family Mutual Insurance Co. v. Savickas, 193 Ill.2d 378, 387 (2000).] The duty to defend exists if the allegations in the underlying complaint fall within or potentially within a policy’s coverage provisions, even if the allegations are legally groundless, false, or fraudulent.

In Illinois, the insurer’s duty to defend does not depend upon a sufficient suggestion of liability raised in the complaint; instead, the insurer has the duty to defend unless the allegations of the underlying complaint demonstrate that the plaintiff in the underlying suit will not be able to prove the insured liable, under any theory supported by the complaint, without also proving facts that show the loss falls outside the coverage of the insurance policy. [American Economy Insurance Co. v. Holabird & Root, 382 Ill.App.3d 1017, 1022 (2008).]

The Policy, which is a fairly standard commercial general liability (CGL) policy raises the question of M/I Home’s potential for coverage, and Acuity’s duty to defend, that hinges on whether the underlying complaint alleges “property damage” caused by an “occurrence.”

M/I Homes contends that, based on the Association’s allegations, the underlying complaint sufficiently alleged property damage caused by an occurrence. M/I Homes also argued that this damage to other property was alleged to have been caused by an “occurrence” because the underlying complaint alleged the damage was an accident-caused by the defective work of the subcontractor-that was neither expected nor intended by M/I Homes.

Acuity argued that the allegations of damage to “other property” are not enough to trigger its duty to defend because the allegations are unconnected to a theory of recovery and the underlying complaint fails to both identify the owner of the “other property” and explain how the Association has standing to sue for the damage to that property.

In Travelers Insurance Co. v. Eljer Manufacturing, Inc., 197 Ill.2d 278, 308 (2001), the supreme court held that, in determining whether there was CGL coverage, the predicate of “property damage” is satisfied only “when property is altered in appearance, shape, color or in other material dimension, and does not take place upon the occurrence of an economic injury, such as diminution in value.”  The supreme court in Eljer also cautioned against expanding CGL coverage such that it functioned as a “performance bond” for the contractual work of the insured.

Some of our cases have noted that the “other property” requirement is not grounded in the policy language itself. As we have acknowledged, this line of cases establishing an “other property” requirement has been criticized by some commentators.

The underlying complaint in this case contains allegations that could support an obligation to defend M/I Homes. It alleges that “the work of subcontractors and the designer caused damage to other portions of the Townhomes that was not the work of those subcontractors.”

The Association-as “a common interest community association’s board of managers or board of directors” by statute shall have standing and capacity to act in a representative capacity in relation to matters involving the common areas or more than one unit, on behalf of the members or unit owners as their interests may appear.

The threshold for finding a duty to defend is low and any doubt regarding such duty is to be resolved in favor of the insured. Since the Association clearly has standing to act in a representative capacity in relation to matters involving the common areas the allegations of damage to “other property” can be a reference to the Association’s own property in the common areas, and there are no allegations that would clearly exclude coverage.

Accordingly, these allegations are enough to potentially fall within the Policy’s coverage requirement of “property damage” caused by an “occurrence” and thus trigger a duty to defend.

The circuit court’s grant of summary judgment in favor of Acuity was reversed and remanded to the circuit court to enter summary judgment in favor of M/I Homes on the issue of the duty to defend.

ZALMA OPINION

It is almost impossible to refuse to defend an insured based on lack of standing or property damage to property not involved in the loss. In this case the court found a duty to defend because there could be damage to the common property owned by the Association. Unless there is clear and convincing evidence that there is no coverage for defense or indemnity, demands for defense should be resolved with a reservation of rights including the right to demand return of monies paid for defense.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

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

Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. 

The new book is available as a Kindle book, a paperback or as a hard cover.

Write to Mr. Zalma at zalma@zalma.comhttp://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalmaGo to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0ExpgGo to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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New York Court Slaps Insurers Who Subrogated Against Their Own Insureds

Not Nice to Subrogate Against Your Own Insured

See the full video at https://rumble.com/v1ktd3f-new-york-court-slaps-insurers-who-subrogated-against-their-own-insureds.html and at https://youtu.be/YEpi5Yi8GBY

Zurich American Insurance Company (“Zurich American”) and American Zurich Insurance Company (“Zurich”) sued Defendants Certain Underwriters at Lloyd’s, London Subscribing to Policy Number B12630308616 (“Lloyd’s”) and Arch Insurance Company (“Arch”) over an insurance coverage dispute arising from a personal injury lawsuit. Zurich moved for summary judgment against Lloyd’s seeking a declaration that the anti-subrogation rule precludes Lloyd’s from commencing a claim for common law indemnification or contribution against Skanska-Walsh Joint Venture (“Skanska”).

In Zurich American Insurance Company and American Zurich Insurance Company v. Certain Underwriters At Lloyd’s Of London Subscribing To Policy Number B12630308616 and Arch Insurance Company, No. 21-CV-6755 (JPO), United States District Court, S.D. New York (September 12, 2022) the USDC applied New York’s anti-subrogation law.

BACKGROUND

The Port Authority of New York and New Jersey (“Port Authority”) operates LaGuardia Airport and hired LaGuardia Gateway Partners LLC (“LGA”) as the developer of a construction project at LaGuardia (“LGA Project”).  In April 2017, LGA entered into a sub-contract with Skanska (the “Contract”) to perform work on the LGA Project. Section 20.1 of the Contract requires LGA to procure a commercial general liability policy, under which Skanska would be the first named insured and LGA would be a named insured. The contract required Skanska to “indemnify, defend and hold harmless [LGA] for any losses suffered or costs incurred by [LGA] . . . to the extent caused by . . . any third-party claims for bodily injury . . . arising out of (1) [Skanska’s] negligent performance . . . or (2) any breach of [the Contract] by any [Skanska] party or any breach thereof by [LGA] directly caused by the acts or omissions of any [Skanska] party.” The Contract contains a similar clause requiring Skanska to indemnify Port Authority for its losses.

Skanska and LGA obtained a Contractors Controlled Insurance Program (“CCIP”) for the LGA Project, which afforded $300 million in commercial general liability insurance coverage to Skanska, LGA, and Port Authority. Zurich American issued the primary commercial general liability policy in the CCIP tower with a $5 million limit (“Zurich American Policy”), Arch issued the first layer excess policy with a $5 million limit (“Arch Policy”), and Lloyd’s issued a second layer excess policy with a $20 million limit (“Lloyd’s Policy”). American Zurich also issued workers’ compensation and employer’s liability to Skanska.

On January 21, 2018, Quentin Mayo, a Skanska employee, was working at the LGA Project when he was injured..) As a result, he filed a lawsuit against Port Authority and LGA. Port Authority and LGA then requested coverage under the Zurich American Policy, which Zurich American agreed to provide.

Fabiani Cohen & Hall (“FCH”) was hired as defense counsel for LGA and Port Authority. In March 2021, Lloyd’s emailed FCH and asked why it had not instituted a third-party action against Skanska for common law indemnity because Mayo was employed by Skanska. Following discussions among Lloyd’s, Zurich, and FCH, Zurich American filed this suit for declaratory judgment.  

DISCUSSION

Zurich sought a declaratory judgment from the USDC that any claim potentially brought by Lloyd’s against Skanska for common law indemnification or contribution was barred by the anti-subrogation doctrine of New York. The sole issue before the USDC was whether the anti-subrogation rule bars Lloyd’s from causing its insureds, LGA and Port Authority, to sue its other named insured, Skanska, for common law indemnification or contribution.

Under New York law, the anti-subrogation rule provides that that “[a]n insurer… has no right of subrogation against its own insured for a claim arising from the very risk for which the insured was covered.” N. Star Reins. Corp. v. Continental Ins. Co, 82 N.Y.2d 281, 294 (1993).

The rule was established both to prevent the insurer from passing along a loss to its own insured and to diminish the possibility of a conflict of interest between the insurer and insured that may otherwise affect the insurer’s incentive to provide a defense for the insured.

The USDC agreed with Zurich that the anti-subrogation rule applies here because the two essential elements are met.

First, Lloyd’s is seeking to subrogate against its named insured, Skanska.

Second, the risk of injury to Skanska employees is covered by the Lloyd’s Policy. The Lloyd’s Policy provides for an Employer’s Liability exclusion and an insured contract carveout, meaning that any contractual indemnity claim asserted by LGA or Port Authority against Skanska is covered.

In sum, while the theoretical possibility exists for a contractual indemnity claim in practice its application is blunted by the paragraphs which immediately follow. Lloyd’s contended that a claim for indemnification or contribution against Skanska is not a covered risk and if there is no viable claim, there is no conflict of interest for which the anti-subrogation rule is meant to guard against.

However, the decision in ACE American Insurance Company v. American Guarantee & Liability Insurance Company, 257 F.Supp.3d 596 (S.D.N.Y. 2017) ACE American Insurance Company and American Guarantee & Liability Insurance Company were in a dispute over which insurance company was responsible for funding a $5 million share of a settlement for a personal injury lawsuit. ACE had issued workers’ compensation and employers’ liability policy to a company called Wager Contracting, while American Guarantee had issued to it a commercial umbrella liability policy. American Guarantee sought to bring an indemnity claim as the subrogee of one of its insureds against another one of its insureds. The court concluded that the antisubrogation rule prohibited American Guarantee from bringing such a claim.

Zurich’s motion for summary judgment was granted because the USDC declared, as a matter of New York law, that the anti-subrogation rule precludes Lloyd’s from commencing a claim for common law indemnification or contribution against Skanska, its insured.

ZALMA OPINION

The covenant of good faith and fair dealing requires that an insurer should do nothing to deprive an insured of the benefits of the policy. Instructing counsel to sue an insured on behalf of another insured is depriving an insured of the benefits promised by the insurer to the insured sued. No prudent insurer will sue its own insured. It makes no sense, is not nice, and is a waste of time and effort.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

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

Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. 

The new book is available as a Kindle book, a paperback or as a hard cover.

Write to Mr. Zalma at zalma@zalma.comhttp://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalmaGo to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0ExpgGo to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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Plaintiff Must be an Insured to Receive Defense

Even the Eight Corners Rule Cannot Stretch a Policy to Provide Coverage

Asbestos Plaintiffs Ran Out of Viable Insurers

See the full video at https://rumble.com/v1kotah-plaintiff-must-be-an-insured-to-receive-defense.html and at https://www.youtube.com/watch?v=MzwDtp89n-4

Brilliant National Services, Inc. (“Brilliant”) appealed a summary judgment rendered in favor of the defendant, Lexington Insurance Company (“Lexington”), which dismissed all of Brilliant’s claims against Lexington with prejudice and declared that Lexington has no duty to defend or indemnify Coastal Chemical Company, LLC (“CCC, LLC”).

In Brilliant National Services, Inc. v. The Travelers Indemnity Company And Lexington Insurance Company, No. 2021 CA 1471, Court of Appeals of Louisiana, First Circuit (September 7, 2022) the Louisiana Court of Appeals resolved the coverage dispute.

FACTS

Brilliant sued Lexington (among other defendants), seeking contribution for the costs of defending CCC, LLC in a number of asbestos exposure personal injury lawsuits filed in various state courts in Louisiana, beginning in 2011. Brilliant alleged that Lexington issued a general liability insurance policy to its insureds for the period of August 20, 1986, through August 20, 1987 (“Lexington policy”).

Brilliant alleged that certain plaintiffs in the asbestos lawsuits claimed that CCC, LLC was the successor to an insured entity under the Lexington policy that was alleged to have manufactured, distributed, marketed, or sold asbestos-containing products. Brilliant claimed that if CCC, LLC was found to be the successor to an insured entity under that Lexington policy, then the insured entity’s rights under the policy transferred to CCC, LLC by operation of law. Brilliant further alleged that regardless of whether CCC, LLC was the successor of an entity insured under the policy, Lexington owed CCC, LLC a duty to defend based on the allegations raised in the asbestos lawsuits and the terms and conditions of the Lexington policy.

Brilliant sought declaratory judgment that Lexington owed a duty to defend CCC, LLC in the asbestos lawsuits. Brilliant also sought judgment in its favor and against Lexington for 1/7 of all attorney’s fees and costs paid by Brilliant in defense of CCC, LLC in the asbestos lawsuits, together with legal interest, costs, and all other relief to which Brilliant may be entitled.

Lexington answered, raising numerous affirmative defenses and moved for summary judgment, seeking a judgment in its favor declaring that CCC, LLC has no rights under the Lexington policy; dismissing the claims asserted by Brilliant; and awarding judgment in favor of Lexington on itsdemand against Brilliant and CCC, LLC. Brilliant and CCC, LLC opposed the motion. The trial court granted Lexington’s motion for summary judgment; dismissed all of Brilliant’s claims against Lexington with prejudice; and declared that Lexington has no duty to defend or indemnify CCC, LLC.

SUMMARY JUDGMENT ON INSURANCE COVERAGE

Summary judgment declaring a lack of coverage under an insurance policy may not be rendered unless there is no reasonable interpretation under which coverage could be afforded when applied to the undisputed material facts shown by the evidence supporting the motion. Where the facts are undisputed and the matter presents a purely legal question, summary judgment is appropriate.

DISCUSSION

An insurer’s duty to defend its insured arises solely under contract. Generally, the insurer’s obligation to defend suits against its insured is broader than its liability for damage claims. An insurer’s duty to defend its insured is determined by the allegations of the plaintiffs petition, with the insurer obligated to furnish a defense unless from the petition, it is clear the policy unambiguously excludes coverage. An insurer’s duty to defend suits on behalf of an insured presents a separate and distinct inquiry from that of the insurer’s duty to indemnify a covered claim after judgment against the insured in the underlying liability case.

Lexington’s Insureds

In moving for summary judgment, Lexington argued that it had no duty to defend or indemnify CCC, LLC, nor its subrogee, Brilliant, because CCC, LLC is not and has never been one of Lexington’s “insureds.”

The Lexington policy defined “named insured” as: “‘named insured’ means the person or organization named in Item 1 of the declarations of this policy[.]” The policy lists the “named insured” as Coastal, Inc. and Coastal Chemical Co.

Coastal, Inc. and Coastal Chemical Co. were the “Persons Insured” under the Lexington Policy. The parties do not dispute that the Lexington policy expired prior to the formation of CCC, LLC’s predecessor, the second Coastal Chemical Co., Inc., which was incorporated on December 8, 1987. Because neither CCC, LLC nor its predecessor was a party to the Lexington policy, CCC, LLC cannot be a “named insured” under the Lexington policy. Furthermore, neither CCC, LLC nor its predecessor falls into the definition of “Persons Insured” under the Lexington Policy.

Successor Liability

Lexington argued that CCC, LLC could only be entitled to defense and indemnity under the Lexington policy if CCC, LLC or its predecessor acquired the named insureds’-Coastal, Inc. or Coastal Chemical Co.-rights and interests in the Lexington policy. Lexington explained that its policy has never been transferred to CCC, LLC or its predecessor. In 1987, Coastal Chemical Co., Inc. acquired the chemical distribution business of Lexington’s insured, Coastal, Inc. Brilliant and CCC, LLC identified the 1987 asset transfer agreement as the only documents through which the Lexington policy could have been conveyed, sold, or otherwise transferred from Lexington’s insured to Coastal Chemical Co., Inc. The 1987 asset transfer agreement documents shows a list of transferred assets and the Lexington policy is not listed nor referenced in the asset transfer agreement.

Lexington avers that because its policy was not transferred from its insureds to Coastal Chemical Co., Inc. in the 1987 asset transfer agreement, CCC, LLC never acquired the policy nor any rights thereunder from its predecessor. Accordingly, Lexington argued it has no obligation to defend or indemnify CCC, LLC or its subrogee, Brilliant.

The key consideration is whether the successor is in fact a “continuation” of the predecessor. The threshold requirement to trigger a determination of whether successor liability is applicable under the “continuation” exception is that one corporation must have purchased all or substantially all the assets of another. In the instant case, CCC, LLC admits that Coastal Chemical Co., Inc. did not purchase all the assets of Coastal, Inc., only all the assets “necessary to operate a chemical distribution business.” There is no dispute that Coastal, Inc. retained assets and remained in business after the 1987 asset transfer.

Since the 1987 asset transfer agreement excluded the Lexington policy from the list of assets acquired by CCC, LLC’s predecessor from Lexington’s insured. To conclude that CCC, LLC acquired the Lexington policy, the appellate court would have to ignore the parties’ contract.

The Eight-Corners Rule

Lexington contended that the appellants could not point to any factual allegations made by the plaintiffs in the underlying asbestos lawsuits which, if assumed true, transforms CCC, LLC into a “Persons Insured” under the Lexington policy.

Cases applying the “eight-comers rule” hold that an insurer owes a duty to defend if, assuming the factual allegations are true, there would be both (1) coverage under the policy, and (2) liability to the plaintiff.

The allegations of the petition are liberally interpreted in determining whether they set forth grounds that bring the claims within the scope of the insurer’s duty to defend. An insurer’s duty to defend arises whenever the pleadings against the insured disclose even a possibility of liability under the policy. Although the allegations of the petition may ultimately turn out to be incorrect or untrue, the insurer would still be obligated to provide a defense.

Even though the asbestos plaintiffs allege that CCC, LLC “negligently and defectively designed, manufactured, marketed, distributed, supplied, sold and used” the “asbestos products,” those allegations do not trigger coverage under the four comers of the Lexington policy. The pertinent Lexington policy provision clearly defines “Persons Insured” and includes only specific individuals. None of the asbestos plaintiffs’ allegations could, even if proven, transform CCC, LLC into an individual defined as a “Persons Insured” under the Lexington Policy-i.e., an executive officer, director, or stockholder of the “named insured” Coastal, Inc. or Coastal Chemical Co.

The Court of Appeal affirmed the trial court’s judgment.

ZALMA OPINION

Asbestos claims have destroyed or bankrupted multiple insurers. As a result those insurers still viable are, like Lexington in this case, the targets of defendants seeking defense and indemnity for claims of injury by exposure to asbestos. In this case the Louisiana Court of Appeal could find no coverage because there was no way that they could stretch the language of the policy to make the plaintiffs fit within the definition of “insured” in the Lexington policy. No stranger to a liability insurance policy can be allowed defense or indemnity.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

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

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Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. 

The new book is available as a Kindle book, a paperback or as a hard cover.

Write to Mr. Zalma at zalma@zalma.comhttp://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalmaGo to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0ExpgGo to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/



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Plaintiff Must Prove General Business Practice to Get Bad Faith Damages

See the full video at https://rumble.com/v1kble9-plaintiff-must-prove-general-business-practice-to-get-bad-faith-damages.html and at http://Video link https://youtu.be/365Lm11FNw

In Paul Harrigan v. Fidelity National Title Insurance Company, No. AC 44424, Court of Appeals of Connecticut (September 6, 2022) the dispute was resolved after a lengthy and detailed examination of the facts and law digested below.

FACTS

Paul Harrigan, appealed from the judgment of the trial court, following a bench trial, rendered in part in favor of the defendant, Fidelity National Title Insurance Company, in connection with a title insurance policy (title policy) issued by the defendant to the plaintiff. Harrigan challenges the judgment in favor of the defendant only with respect to count two of the operative complaint, the third revised complaint, which alleges that the defendant’s conduct in handling an insurance claim filed by the plaintiff pursuant to the title policy violated the Connecticut Unfair Insurance Practices Act (CUIPA); General Statutes § 38a-815 et seq.; and that such unfair and deceptive acts or practices of the defendant thereby violated the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42-110a et seq. Harrigan claims on appeal that:

  • the court applied an incorrect standard in its analysis of whether the defendant violated CUIPA by requiring a finding of common-law bad faith by the defendant for the plaintiff to establish a violation of CUIPA,
  • when the proper standard is applied, the record sufficiently demonstrates that the defendant violated the relevant provisions of CUIPA, and
  • the evidence submitted by Harrigan establishes that the defendant’s unfair practices were part of a general business practice, as required under General Statutes § 38a-816 (6).

The court found that sometime in the late fall of 2011, Harrigan conclusively learned that he did not, in fact, hold title to the disputed area. By letter to the defendant Harrigan made a claim upon his title insurance policy regarding the disputed area. By letter to Harrigan the defendant acknowledged receipt of his claim and the defendant essentially accepted his claim. The issue between the parties always involved the claim’s value.

In a third revised complaint, the plaintiff alleged four counts against the defendant. The second count, which alleges a violation of CUTPA, is the only count at issue in this appeal. In count two, the Harrigan alleged that the defendant was involved in the trade or commerce of providing title insurance coverage to individuals and entities who hold title to real property and that the defendant engaged in unfair and deceptive acts or practices in its administration of the title policy and handling of the plaintiff’s claim in violation of CUIPA.

The matter was tried to the court, which rendered judgment in part in favor of the defendant with respect to counts two, three and four of the third revised complaint.

ANALYSIS

In order to sustain a CUIPA cause of action under CUTPA, a plaintiff must allege conduct that is proscribed by CUIPA. A plaintiff cannot bring a CUTPA claim alleging an unfair insurance practice unless the practice violates CUIPA.

If the factual basis of a trial court’s decision is challenged, the clearly erroneous standard of review applies. A court’s determination is clearly erroneous only in cases in which the record contains no evidence to support it, or in cases in which there is evidence, but the reviewing court is left with the definite and firm conviction that a mistake has been made. The legal conclusions of the trial court will stand, however, only if they are legally and logically correct and are consistent with the facts of the case.

There was no evidence presented that could have supported a finding that the defendant violated the statute. Indeed, the trial court specifically found that the primary issue in the case was the value of the plaintiffs claim, not its legitimacy, that at no time did the defendant indicate any unwillingness to pay the claim, and that the defendant never denied the claim and, in fact, essentially accepted the plaintiffs claim not long after receiving his demand letter.

The evidence presented by Harrigan which shows that the parties disagreed about various matters such as the date of loss, the relocation of the septic system, and the value of the plaintiffs claim, simply does not demonstrate any misrepresentations by the defendant, nor did the court find any. In fact, the court specifically found that at no time during the claims settlement process did the defendant’s personnel act in bad faith or come within close proximity of doing so.

Moreover, the evidence presented shows numerous communications between the plaintiff and representatives of the defendant concerning the status of the plaintiffs claim and why its resolution had been delayed for more than five years, which could support a finding of a violation of subdivisions (B) and (F) of § 38a-816 (6), both of which relate to delays in communications and settling the claim.

During the trial, the plaintiff sought to admit into evidence exhibit 44, which consisted of the consumer complaints

The Court of Appeal next set forth general principles governing its resolution of this issue. The Supreme Court has concluded “that claims of unfair settlement practices under CUIPA require a showing of more than a single act of insurance misconduct.”  [Mead v. Burns, 199 Conn. 651, 659, 509 A.2d 11 (1986)]

In the present case, the court specifically found that the defendant’s actions in this case clearly did not represent shining examples of sterling claims management practices, and that the issues that arose and the delay that resulted in this case were due, in no small part, to Harrigan’s unrealistic expectations colliding with the defendant’s maddening corporate inefficiency. Furthermore, in the present case, a great deal of the delay was attributable to the issue raised by the plaintiff concerning the septic system, which the court found not to be relevant to the diminution in value figure. The delays in the present case, therefore, were caused by both the plaintiff and the defendant and resulted, in part, from corporate inefficiencies and mismanagement of the defendant. The evidence in the present case does not support a finding that the defendant ignored communications from the plaintiff

The plaintiff, having failed to establish a general business practice of the defendant, has failed to set forth a valid CUIPA claim, which is fatal to his CUTPA claim in count two. The court, therefore, properly rendered judgment in favor of the defendant with respect to the CUTPA claim in count two.

ZALMA OPINION

Delay in resolving a claim due to actions of the insured and the insurer – whether less than competent claims handling – is not evidence of bad faith or violation of the state statutes requiring insurers to treat the insured fairly and in good faith. The trial court and the appellate court decided there was no evidence of a general business practice to act in bad faith and the claim of Harrigan that the insurer acted in bad faith failed after a lengthy and detailed opinion.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

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

Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. 

The new book is available as a Kindle book, a paperback or as a hard cover.

Write to Mr. Zalma at zalma@zalma.comhttp://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalmaGo to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0ExpgGo to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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Federal Insurance Company Regrets Agreement to Pay Insured and Resolve Coverage Dispute Later

Attempt to Avoid Reimbursement of Excess Insurer Fails

See the full video at https://rumble.com/v1kazdh-federal-insurance-company-regrets-agreement-to-pay-insured-and-resolve-cove.html and at https://www.youtube.com/watch?v=63A3OgXTmnc

No Good Deed Goes Unpunished

In Western World Insurance Company v. Federal Insurance Company, Defendant, 2d Civ. No. B311994, California Court of Appeals, Second District, Sixth Division (September 8, 2022) two insurers disputed about the priority of coverage arising from a single incident.

FACTS

In May 2014, Elliot Roger murdered his two roommates and their friend at the Capri Apartments (Capri) in Isla Vista, California. The victims’ heirs brought an action for wrongful death (Chen v. Hi-Desert Mobile Home Park (Super. Ct. Santa Barbara County, 2015, No. 15CV04163) (Chen action) against the owner of the apartments, Hi-Desert Mobile Home Park, LP (Hi-Desert) and the manager, Asset Campus Housing, Inc. (ACH). The action alleged that ACH and Hi-Desert had notice of Roger’s violent propensities but assigned him to be the victims’ roommate.

Insurance Coverage

Associated Industries Insurance Company (AIIC) provided general liability coverage for both Hi-Desert and ACH. Federal Insurance Company (Federal) provided coverage in excess of AIIC’s coverage for both Hi-Desert and ACH. Western World Insurance Company (Western) provided excess general liability coverage for ACH, but not Hi-Desert.

The insurers did the right thing by their insureds. They each contributed funds for a settlement of the underlying action, leaving the question of priority of coverage to separate litigation among the insurers.

Instant Action

Western filed a complaint against AIIC and Federal seeking a declaration that Western’s coverage was in excess of both AIIC and Federal’s coverages. Western’s first amended complaint added causes of action for equitable subrogation and equitable indemnity against Federal. Western sought the return of all of its contributed funds on the ground that the settlement of the underlying action was not in excess of Federal’s coverage.

AIIC filed a cross-complaint seeking a declaration that Western’s coverage was co-primary for ACH. Federal cross complained against Western seeking a declaration that Federal’s coverage for ACH is in excess of Western’s coverage and granted Western’s motion for summary judgment.

The trial court found that Western’s coverage of ACH is in excess of both AIIC’s and Federal’s coverage. The court’s grant of summary adjudication in favor of Western resolved all claims against Federal. Federal appeals.

DISCUSSION

Western’s Coverage Is Not Primary

Western’s policy provides two kinds of general liability coverage. One is for 54 locations specifically designated by their names and addresses. It is undisputed that this is primary liability coverage. But Capri is not one of those properties.

Western’s other coverage is by an endorsement to the policy under the heading “Real Estate Property Managed-Contingent.” It provides coverage for property managed but not owned by ACH. The contingency is that the property owner must maintain personal injury insurance with limits equal to or greater than $1 million.

The endorsement provides that Western’s coverage is excess to any other insurance ACH has whether primary or excess. The language in Western’s endorsement could not be clearer.

Here Western is not using its other insurance clause to transform its policy from primary to excess. Instead, it is using the clause to show that its policy is ab initio excess over all other insurance. That is the bargain Western made with its insured.

The only insurer named in the Schedule of Underlying Insurance is AIIC with underlying limits of $1 million.

Thus, the only contingency for Federal’s liability under its policy is the exhaustion of AIIC’s primary $1 million policy limits. Federal’s liability was not contingent on the exhaustion of limits under Western’s policy. Instead, Federal undertook to provide coverage immediately upon exhaustion of AIIC’s policy limits, whereas Western obligated itself to provide coverage only when the limits of all other available coverage, both primary and excess, were exceeded.

Western’s coverage is in excess of Federal’s coverage.

Federal is attempting to stitch together an argument gathered from bits and pieces of its policy. Its needlework has failed to create even a plausible ambiguity. Any such ambiguity would be interpreted against Federal in any event. Had Federal intended that its coverage not attach until the exhaustion of all other insurance, it could have easily said so. It did not. The trial court correctly concluded that Western’s coverage is in excess of Federal’s coverage.

The elements of an insurer’s cause of action for equitable subrogation are:

  • the insured suffered a loss for which the defendant is liable, either as the wrongdoer whose act or omission caused the loss or because the defendant is legally responsible to the insured for the loss caused by the wrongdoer;
  • the claimed loss was one for which the insurer was not primary liable;
  • the insurer has compensated the insured in whole or in part for the same loss for which the defendant is primarily liable;
  • the insurer has paid the claim of its insured to protect its own interest and not as a volunteer;
  • the insured has an existing, assignable cause of action against the defendant which the insured could have asserted for its own benefit had it not been compensated for its loss by the insurer;
  • the insurer has suffered damages caused by the act or omission upon which the liability of the defendant depends;
  • justice requires that the loss be entirely shifted from the insurer to the defendant, whose equitable position is inferior to that of the insurer; and
  • the insurer’s damages are in a liquidated sum, generally the amount paid to the insured.

Primary Liability

Prior to the settlement of the Chen action, ACH had an assignable cause of action against Federal because Federal refused to acknowledge its duty to indemnify that ACH was primary to Western’s coverage. It would be absurd to allow Federal to use Western’s money to settle Federal’s debt to ACH, and hold the settlement deprived Western of the right to recover the money from Federal. Perhaps the most bizarre of Federal’s arguments is that Western did not suffer any damages caused by Federal. Federal is preventing money that rightly belongs to Western from being returned to it.

Equitable Position

Western’s coverage is in excess to Federal’s coverage; the settlement of the Chen action did not exhaust the limits of Federal’s coverage; therefore, Western is entitled to the return of its money.

Prejudgment Interest

The trial court awarded Western prejudgment interest at the rate of 10 percent pursuant to Civil Code section 3287, subdivision (a). The court has no discretion in awarding interest under Civil Code section 3287, subdivision (a).

Federal is wrong for two reasons: Western is subrogated to ACH’s breach of contract against Federal, and Western and Federal entered into a written contract giving each party the right to litigate priority of coverage in the Chen action and reimbursement.

ZALMA OPINION

Western World Insurance Company did the right thing when a dispute arose between the various insurers about which insurer was primary, which excess, and which – of two excess insurers – must exhaust before the other must pay. It turned out Western was the last in line and needed reimbursement from the others of the money it paid subject to this later suit to determine who was on first, second and third. Federal tried to avoid doing the right thing only to have the Court of Appeal slap their cobbled together arguments down. Western World acted fairly and in good faith the insured and the other insurers only to have Federal try to not pay what it owed.

022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

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

Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. 

The new book is available as a Kindle book, a paperback or as a hard cover.

Write to Mr. Zalma at zalma@zalma.comhttp://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalmaGo to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0ExpgGo to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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Zalma’s Insurance Fraud Letter

Zalma’s Insurance Fraud Letter September 15, 2022

See the full video summary at https://youtu.be/4I7d8iR8pNo and at https://rumble.com/v1k2b5h-zalmas-insurance-fraud-letter-september-15-2022.html

Read the full Adobe pdf version at http://zalma.com/blog/wp-content/uploads/2022/09/ZIFL-09-15-2022-1.pdf

Quote of the Issue

Many Of Life’s Failures Are People Who Did Not Realize How Close They Were To Success When They Gave Up.”Thomas Edison

Conviction Affirmed for Multiple Counts and One Reversed

Small Victory but Stay in Jail

The appellate court modified the judgment, as a matter of discretion in the interest of justice, by vacating the conviction of insurance fraud in the third degree under count 57 of the indictment and the sentence imposed thereon and dismissing that count of the indictment; as so modified, the judgment is affirmed.

The defendant waived his claim that one count of insurance fraud in the third degree with respect to a certain insurance policy issued by GMAC Insurance, of which he was convicted, was barred by the statute of limitations by not making a timely, written motion to dismiss on that ground.

In The People of the State of New York v. Jean M. Davilmar, also known as Jean Myrtho Davilmar, No. 2018-05468, Ind. No. 4334/16, 2022 NY Slip Op 04975, Supreme Court of New York, Second Department (August 17, 2022) the defendant Jean M. Davilmar appealed from a judgment of the trial court convicting him of larceny in the third degree (2 counts), scheme to defraud in the first degree, insurance fraud in the third degree (17 counts), criminal possession of a forged instrument in the second degree (5 counts), and offering a false instrument for filing in the first degree (4 counts), after a nonjury trial, and imposing sentence.

The defendant only partially preserved for appellate review his challenge to the legal sufficiency of the evidence supporting his convictions of grand larceny in the third degree (2 counts), insurance fraud in the third degree (16 counts), and scheme to defraud in the first degree (see CPL 470.05[2]. In any event, viewing the evidence in the light most favorable to the prosecution the appellate court found that it was legally sufficient to establish the defendant’s guilt of grand larceny in the third degree beyond a reasonable doubt (Penal Law §§ 155.05[1], [2][a], [b]; 155.35[1]. Likewise, the evidence was legally sufficient to establish the defendant’s guilt of insurance fraud in the third degree beyond a reasonable doubt (Penal Law § 176.20. Moreover, the evidence was legally sufficient to establish the defendant’s guilt of scheme to defraud in the first degree. Further, in fulfilling the court’s responsibility to conduct an independent review of the weight of the evidence it was satisfied that the verdict of guilt on each of those counts was not against the weight of the evidence.

The sentence imposed was not excessive. The defendant’s remaining contentions were found to be without merit.

Wisdom

“Age is not a particularly interesting subject. Anyone can get old. All you have to do is live long enough.”  — Groucho Marx

“What do automobiles, guns, and home-schooling all have in common that makes the liberals hate them? All these things reduce individual dependence on the government and on the grandiose schemes for other people’s lives created by liberals and imposed by government.” —Thomas Sowell

“Better a good enemy than a bad friend.” — Jewish saying

“The transformation of charity into legal entitlement has produced donors without love and recipients without gratitude.” – Antonin Scalia

“I do not think that we should be over-anxious. We can make sense of the future if we understand the lessons of the past.”- Elizabeth II

“The art of living lies less in eliminating our troubles than in growing with them.” —  Bernard M. Baruch

“The unions might be good for the people who are in the unions, but it doesn’t do a thing for the people who are unemployed. Because the union keeps down the number of jobs, it doesn’t do a thing for them.” — Milton Friedman

“Things turn out best for the people who make the best of the way things turn out.”John Wooden

“Semicolons only prove that the author has been to college.” – E. B. White

“Sometimes in this life, under the stress of an exceptional emotion, people do say what they think.”Marcel Proust

“If our country, when pressed with wrongs at the point of the bayonet, had been governed by its heads instead of its hearts, where should we have been now? Hanging on a gallows as high as Haman’s. —Thomas Jefferson

“Those who know do not speak. Those who speak do not know.” Tao Te Ching

“Ultimately a genuine leader is not a searcher for consensus but a molder of consensus.” Martin Luther King Jr.

“We must always take sides. Neutrality helps the oppressor, never the victim. Silence encourages the tormentor, never the tormented.” Elie Wiesel

“Keep away from people who try to belittle your ambitions. Small people always do that, but the really great make you feel that you, too, can become great.” Mark Twain

“Of those men who have overturned the liberties of republics, the greatest number have begun their career by paying an obsequious court to the people, commencing demagogues and ending tyrants.” —Alexander Hamilton

The Coalition Against Insurance Fraud’s Calculation of Insurance Fraud in the U.S.

The Coalition Against Insurance Fraud’s Report Came up With the Following Conclusions:

Final Estimate Of The Cost Of Insurance Fraud In The United States:

All numbers are in billions and figures are as of 2022:

  • Property & Casualty $45B
  • Workers’ Compensation $34
  • Premium Avoidance $35.1B
  • Healthcare $36.3B
  • Medicare and Medicaid Fraud $68.7B
  • Life $74.7B
  • Disability $7.4B
  • Auto Theft $7.4B

The report, when dealing with property and casualty insurance reveals that in 220 the industry collected $728.69 billion dollar in premium. If only 10% of that premium was paid to fraudsters – a fairly reasonable estimate used by the Insurance Information Institute (III) – they would receive $72.87 billion. The numbers should change enormously if the calculation follows the Insurance Research Council estimate that casualty fraud accounted for between 15% and 17% of total claims payments for auto insurance. A 15% calculation could result in $109.30 Billion and 17% the fraudsters would take $123.88 Billion.  

It’s good to see that the Coalition took into consideration inflation and the obvious growth of fraud since the institution of the tort of bad faith. In my opinion, however, they underestimated the true extent of fraud since the insurance industry has no admissible evidence about the true amount because most insurance fraud attempts succeed. As you read below about convictions for the crimes of insurance fraud, note how long the schemes went on before they were caught and recognize that those caught were amateurs who were so sloppy the seemed to beg the state and federal agencies to arrest them.

The report also includes auto theft in the analysis of the updated estimate of the cost of insurance fraud in the United States. At the current time, auto thefts in the United States are reported to be on the rise. These thefts directly impact insurers through increased claims, investigations of the theft, and policy payments where appropriate. Auto thefts also harm consumers. Obviously, those directly impacted are harmed but so too are all consumers who pay for auto theft crimes through higher premiums. Absent provable involvement of the insured in the theft, however, auto theft is not insurance fraud but an insurance crime for which virtually all automobile insurance policies extend coverage. The Coalition recognizes the extensive and excellent work being done by our partner, the National Insurance Crime Bureau, law enforcement agencies and others to fight back on the crime of automobile thefts. We include the information in this report, and the cost in our estimate of insurance fraud cost in the United States to assist those efforts and shed additional light on the problem of automobile thefts in our nation.

You can read the full report here.

You can also read about the extent of Workers’ Compensation Fraud here.

Free Insurance Videos

Barry Zalma, Esq., CFE has published five days a week videos on insurance claims, insurance claims law, insurance fraud and insurance coverage matters at https://www.rumble.com/zalma.https://rumble.com/c/c-262921.

He now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

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

See the more than 500 videos at https://www.rumble.com/zalma

California Agents & Brokers Must be Trained on Insurance Fraud

California Gov. Gavin Newsom signed bills in September creating an advisory committee to study the effects of extreme heat on workers and requiring agents and brokers to undergo training on how to identify insurance fraud.

S.B. 1242 requires mandatory training agents and brokers must complete to receive or renew a license. This includes at least one hour of study on insurance fraud. It also requires agents and brokers to report suspected fraudulent applications for coverage to the Department of Insurance and to report to the insurer suspected fraud on an active policy.

The effect, if any, of the law will take years to take determine. My guess is that that it will just ad an expense to the licensing process and make money for a few who will create the courses.

STOLI Fraud Victims & Return of Premium

Lack of Insurable Interest Makes Life Policy Void from Inception

Policy Acquired as Part of a STOLI Fraud Never Existed as a Matter of Law

In Geronta Funding, a Delaware Statutory Trust v. Brighthouse Life Insurance Company, No. 380, 2021, Supreme Court of Delaware (August 25, 2022) the Supreme Court was asked to determine whether premiums paid on insurance policies declared void ab initio for lack of an insurable interest should be returned. The trial court agreed with Brighthouse and relied on the Restatement (Second) of Contracts (the “Restatement”) to determine whether Geronta was entitled to restitution. Specifically, the court held that Geronta may obtain restitution under Section 198 of the Restatement (“Section 198”) if it could prove excusable ignorance or that it was not equally at fault.

Applying this test, the court ruled that Geronta was only entitled to the return of the premiums it paid after alerting Brighthouse to the void nature of the policy at issue.

RELEVANT FACTS AND BACKGROUND

On July 11, 2007, the fictitious Mansour Seck Irrevocable Life Insurance Trust (the “Seck Trust”) applied to MetLife Investors USA Insurance Company (Brighthouse’s predecessor) for a $5 million universal life insurance policy insuring the life of a fictitious man identified as Mansour Seck (the “Policy”), with a birthday of January 1, 1933. Seck was identified as a French citizen residing at 170 Academy Street, Jersey City, New Jersey.

After confirming that its procedures and guidelines were met, MetLife issued the Policy on or around July 24, 2007.

Pape Seck’s Arrest and Prosecution

In 2010, Pape Seck was the subject of numerous press releases issued by the State of New Jersey and other insurance industry publications; they stated that Pape Michael Seck, a New York City insurance agent, had been arrested and prosecuted for fraudulent insurance schemes. Pape Seck pleaded guilty to two counts of insurance fraud concerning fraudulent applications for Mansour Seck. T

Litigation and the Superior Court Ruling

On April 4, 2018, Brighthouse filed suit, seeking a judicial declaration that the Policy was void ab initio for lack of an insurable interest and arguing that it is entitled to keep all the premiums paid on the Policy. Geronta filed an answer, agreeing that the Policy was void ab initio, and a counterclaim, alleging that it was entitled to reimbursement of all premiums paid, with the exception of the premiums paid by the original owner of the Policy.

In its opinion, the trial court declared the Policy void ab initio. The court denied Geronta’s request for rescission and disgorgement, holding that rescission is not available where a contract is void because there is no contract to “unmake.” After trial, the Superior Court ruled that Geronta was only entitled to restitution of the premiums it paid after it informed Brighthouse that the Policy was void for lack of an insurable interest.

ANALYSIS

Overview of Potential Remedies for an Insurance Policy That Is Void Ab Initio for Lack of an Insurable Interest

A contract of insurance upon a life in which the insured has no interest is a pure wager that gives the insured a sinister counter interest in having the life come to an end. A court may never enforce agreements void ab initio, no matter what the intentions of the parties. Thus, when an agreement is void ab initio as against public policy, the courts typically will not enforce a remedy to any extent against either party. In other words, the courts typically will leave the parties where they find them.

Was Rescission Available?

Rescission would result in the return of any premiums paid by applying equitable principles and putting both parties back in the position they were in before the contract was made. Stranger-originated life insurance (“STOLI”) policies, like the one for Monsour Seck, when rescinded would require return of the premiums from the insurer to the investor. However, since the policy was void rescission was not available.

Restitution

Restitution is a body of substantive law in which liability is based not on tort or contract but on the defendant’s unjust enrichment. Restitution has been awarded under two separate approaches: (1) a fault-based analysis grounded in considerations specific to insurance policies declared void ab initio for lack of an insurable interest and (2) the Restatement.

Restitution Under A Fault-Based Analysis Grounded In Considerations Specific To Insurance Policies Declared Void Ab Initio For Lack Of An Insurable Interest

Most courts considering this issue have adopted a fault-based analysis in determining whether to return premiums paid on an illegal or void insurance policy.

Generally, when an illegal contract is voided, the parties will be left where they have placed themselves with no recovery of the money paid for illegal services. But there is an exception for the case in which the party that made the payments is not to blame for the illegality. The Insurers were the clear victims of the STOLI scheme as was Geronta who bought the policy.

If the downstream investor was equally at fault with, or more at fault than, the insurer, the trial court should leave the parties where it found them, allowing the insurer to keep the premiums. If the downstream investor was innocent or the insurer was more at fault, the court should return the premiums.

The Restatement (Second) of Contracts

Restatement Section 198 lays out two exceptions to the general rule-when a party is (1) excusably ignorant and (2) not equally in the wrong with the party from whom he seeks restitution.

The Supreme Court adopted a fault-based analysis, framed under the Restatement, that considers questions specific to insurance policies declared void ab initio as against public policy for lack of an insurable interest as the correct test to determine whether premiums should be returned.

The Supreme Court noted that a fault-based analysis incentivizes insurers to speak up when the circumstances suggest that a policy is void for lack of an insurable interest because they will not be able to retain premiums if they stay silent after being put on inquiry notice, and they might also be responsible for interest payments.

Thus, when analyzing a viable legal theory that seeks as a remedy the return of premiums paid on insurance policies declared void ab initio for lack of an insurable interest, Delaware courts are now required to analyze the exceptions outlined in Sections 197, 198, and 199 of the Restatement and determine whether any of those exceptions permit the return of the premiums. A court needs to determine whether:

  • there would be a disproportionate forfeiture if the premiums are not returned;
  • the claimant is excusably ignorant;
  • the parties are not equally at fault;
  • the party seeking restitution did not engage in serious misconduct and withdrew before the invalid nature of the policy becomes effective; or
  • the party seeking restitution did not engage in serious misconduct, and restitution would put an end to the situation that is contrary to the public interest.

The fault of the parties and public policy considerations will determine which party is entitled to the premiums paid on an insurance policy that is void ab initio for lack of an insurable interest.

The Superior Court Failed to Consider Whether Either Party Had Inquiry Notice of the Void Nature of the Policy

Here, prior to purchase

  • Geronta, in consultation with Leadenhall, made the deliberate decision to superficially look at the Seck Policy by solely focusing on whether it was active.
  • Geronta purposefully ignored the possibility that some of the unexamined policies in the bulk purchase might have been unenforceable.• “Geronta’s due diligence as to the Seck Policy was extremely limited.”[226]

The Superior Court also concluded that Brighthouse was not at fault because Geronta failed to show that Brighthouse had actual knowledge of the void nature of the Policy. In other words, the Court found that Brighthouse did not have actual knowledge of the Policy’s illegality.

Section 198 and the in pari delicto cases from Section III.A.b.i focus on whether a party had either actual knowledge or inquiry notice of the invalidity of the policy. Since the trial Court failed to consider whether Bighthouse was on inquiry notice of the void nature of the Policy.

The Supreme Court remanded the case for the Superior Court to reconsider its factual findings in light of this Court’s articulated test and specifically direct the court to consider whether either party had inquiry notice of the void nature of the Policy and reversed the court’s holdings regarding entitlement to premiums and remanded the case for consideration consistent with its opinion.

ZIFL OPINON

By waiting two years after inception of the policy for the fake insured the fraudsters defeated the ability of the insurer to rescind. However, since Mansour Seck did not exist the policy was not real, it was a gamble, that the criminal invested a great deal of money, sold the risk to another and profited from the crime only to have the victim sell again until Geronta found itself paying premium on a void policy. To do justice the Delaware Supreme Court has provided a means to determine who is free of guile and who is not when deciding who gets the premium back, if anyone.

Good News From the Coalition Against Insurance Fraud

Handed nearly 12 years in federal prison for doling out addictive opioids, Dr. Kurt Moran is lucky he didn’t get twice that time. Two of the Scranton, Pa. doc’s patients OD’d and died on drugs he prescribed them. He prescribed the potent opioid Subsys to 13 patients overall. Subsys is a fentanyl-based drug used by cancer patients who have excruciating pain. Yet Moran’s patients didn’t even have cancer. A drug company paid Moran $140K of illegal kickbacks to prescribe Subsys, disguising the bribes as speaker fees. Moran also liberally prescribed oxycodone. Dozens of patients testified they grew addicted to pain meds Moran handed out. He could’ve received double the prison time under federal sentencing guidelines.

The owner of house-cleaning firms tried to clean out his workers comp insurers. Attorney Robert Fitz owned 12 cleaning firms in Ohio. The Westlake man bought state-required coverage for one company, RCF Licensing, in 1996. He stopped paying premiums in 2003. The Ohio Bureau of Workers’ Compensation examined Fitz’s lack of payment. The state agency advised him it was illegal to run a business without proper comp coverage. Fitz was trying to reinstate his coverage, he replied. Yet in 2013, BWC discovered that Fitz had several policies that had lapsed or were canceled. BWC consolidated the comp policies and presented him with a payment plan to catch up on premiums he owed. Fitz still didn’t bring his policies into compliance. Owing more than $950K in restitution, he earlier was handed 30 days in jail for workers’ comp insurance fraud. The state Supreme Court now has suspended Fitz’s law license for two years this week.

Lies flowed easily for Mark Schena’s $77M scam by his fake Silicon Valley allergy-testing firm Arrayit Corporation. Schena tested every patient for 120 different allergies (ranging from hornet stings to codfish) regardless of medical need. He paid illegal kickbacks to marketers and lied to consumers that his allergy test was highly accurate. In fact, it wasn’t even a diagnostic test. Yet Schena billed more per patient to Medicare than any blood allergy lab in the U.S. He billed some insurers over $10K per test. Schema’s firm then went downhill because the COVID-19 pandemic and stay-at-home orders reduced demand for allergy testing. So, he lied he’d developed a COVID-19 test based on Arrayit’s blood testing technology — before bothering to develop the test. He also lied that Dr. Anthony Fauci and other prominent government officials required testing for COVID-19 and allergies at the same time. Schena said his COVID-19 test was more accurate than a PCR test for diagnosing infections — while hiding that the FDA refused to grant him an emergency-use authorization because his test wasn’t accurate enough. Schena also lied to investors. He said he invented revolutionary technology that tests for virtually any disease using only a few drops of blood. He claimed he was the “father” of this testing category and was on the shortlist for the Nobel Prize. Schena was convicted and faces potentially dozens of years in federal prison when sentenced Jan. 30.

Delays and lengthy negotiations took a decade to resolve the theft by independent agent Shawn Chambers of $100K of premiums from 25 clients. Clients of the Wichita Falls, Kans. man began complaining their coverage was canceled or claims weren’t paid despite paying their premiums. Chambers deposited their premium money into his personal bank account instead of with SIG Insurance. When re-submitting some claims, Chambers tried to refile them under new dates. SIG made good on the claims and premiums after the scam was discovered. Clients still incurred losses because of higher premiums when they bought new insurance. The charges date to 2013; it took five years for Chambers and court to reach a plea to 10 years of probation. The case was finalized recently after a decade of motions and delays. Chambers agreed to repay $145K to the insurer and will receive early release from probation. Chambers also lost his agent license and is dealing with serious medical issues placing him on a transplant waiting list.

Hurling yourself onto moving cars for fun and insurance profit gives video gamers fresh thrills with the new release of the next-gen edition of Saints Row. Yes, the popular Saints Row franchise is back and kicking. Saints gamers try to build vast money-grubbing criminal empires. Insurance scamming by launching yourself like a ragdoll onto oncoming vehicles is one of the dollar-stealing empires. “The name of the game here is getting hit as much as possible, hopefully by several cars in succession,” writes one reviewer. “Since you don’t know what vehicles will be driving your way during the match, it’s best if you try to find a strategy that works for you. The best thing you can do is find the busiest intersection near you and jump in front of cars there, as they’ll be coming from multiple directions. This will make it easy to bounce from one car to the other and build a nice combo.” Saints Row is available on PlayStation 5, PlayStation 4, Xbox Series X/S, Xbox One and PC.

Ivan Kriger made a claim for damage to the City of Spokane, Wash. for a paved parking lot he owned. A contractor the city hired to remove another building parked in his parking lot caused nearly $280K of catastrophic damage, he claimed. The city made the claim to Alaska National Insurance. The insurer found the parking lot was in disrepair for years and had no new damage. Kriger also filed three claims with Zurich Insurance for a building he owned in Spokane that suffered fire damage. The fire occurred at 5:50 a.m., yet Kriger bought a policy with Zurich several hours after the fire happened. He later filed several claims worth $324K total, trying to get the fire damage covered. Zurich denied the claims. The insurance department’s Criminal Investigation Unit then built the case, leading Kriger’s conviction in both cases for insurance fraud.

Two Aldermen of St. Louis fell hard after selling their influence to breed insurance schemes, bribery and graft. The insurance plot: A crash on Jan. 21, 2021 damaged three vehicles at an unnamed used-car lot owned by “John Doe.” Alderman Jeffrey L. Boyd’s used-car company The Best Place Auto Sales owned one of the damaged vehicles, and Doe owned the others. Doe learned his insurance wouldn’t cover the damage to his vehicles. So, Boyd suggested lying that his own used-car firm owned them. On Jan. 17, Boyd falsified and backdated vehicle sales records and Missouri Department of Revenue documents claiming he paid $22K for the vehicles on Jan. 2. So, the pair made the claim under Boyd’s policy and split the insurance money. Boyd also falsely tried to claim a $200 daily storage fee for the damaged vehicles. His insurer rejected the claim, despite his trying to have his insurance agent intervene. Boyd also took cash bribes to help Doe illicitly buy commercial property and earn other perks. Boyd also trafficked in illicit perks with another Alderman Lewis Reed. The pled guilty and could face decades in federal prison when sentenced Dec. 6. No word on Doe’s fate.

David Evans was a well-liked Baptist pastor at Harmony Church in Ada, Okla. He also was secretly a swinger —arranging threesomes with his wife Kristie and other men. She started having an affair with one swinger, Kahlil Square. Kristie convinced Square to shoot David in the head while he slept in the couple’s home early one morning. She was driven in part by a $250K life policy; the couple had recently declared bankruptcy. Kristie also wanted to escape what she said was an abusive marriage. So, she gave David’s gun and a box of bullets to Square, then left the back door unlocked. David had just returned from a mission trip in Mexico. Kristie showed no remorse after her arrest — she wrote “pornographic” letters in jail to Square and another inmate. Evans first wrote to Square only 19 days after her arrest to see if he was ok, still her man and had everything he needed. Evans pled guilty and was given life in prison. Now 49, she’ll be eligible for parole in her mid-80s. Square still faces trial.

Laden with NBA star potential he never achieved; Terrence Williams starred in another way: He masterminded an attempted $5M swindle of the NBA’s health plan for retired players. Williams was drafted 11th in 2009 by the New Jersey Nets, retiring in 2015. He’s now a felon, pleading federally guilty. Williams recruited players to submit false invoices for phantom medical and dental work, receiving $300K of kickbacks. Williams even impersonated a health plan manager to frighten a player who hadn’t paid him a kickback. Former Boston Celtics players Tony Allen and Glen Davis allegedly forged invoices for crowns on the same six teeth on the same day. Davis also claimed crowns on eight teeth in Beverly Hills when he was in Nevada. Williams agreed to pay the NBA $2.5M and forfeit $653.6K to the U.S. He could face 12 years in prison when sentenced. Six of the at least 24 suspects have pled guilty. They include a dentist, doc and chiro.

Patients waited for more than three hours in a dirty, crowded waiting room for painkillers doled out by husband-wife docs with no expertise in opioids. About 85% of patients received opioid prescriptions at Care Complete Medical Clinic in Birmingham, Ala. Dr. Patrick Ifediba kept his clinic open until 10 p.m., illegally prescribing up to 90K kilograms of drugs in total. Ifediba also did costly allergy tests on almost all patients with insurance. And he prescribed expensive allergy treatments for many patients, even if they tested negative for allergies. The allergy tests cost more than $500 per patient and shots cost $2.6K. Blue Cross Blue Shield of Alabama flagged the high numbers of allergy treatments. When the insurer audited the clinic, staff members altered documents and test results to support treatment. Ifediba’s sister, nurse Ngozi Justina Ozuligbo, gave the false allergy tests. Nigerian cultural norms dictated she was required to obey her brother, she argued without success at trial. Ifediba was handed 30 years in federal prison, and Ozuligbo three years.

Johnson & Johnson Conviction

Johnson & Johnson Has Agreed To Pay $40.5 Million To Settle New Hampshire’s Claims re Opiods

The September 1, 2022 settlement resolves a lawsuit brought in 2018 accusing Johnson & Johnson and its Janssen Pharmaceuticals unit of aggressively marketing opioids to doctors and patients, misrepresenting that the drugs were rarely addictive when used to treat chronic pain, and targeting vulnerable groups like the elderly.

New Hampshire will apply $31.5 million toward opioid abatement, after paying legal fees, and Johnson & Johnson will be banned from selling or promoting opioids there.

A trial had been scheduled for September 7 in Merrimack County Superior Court.

The New Brunswick, New Jersey-based drugmaker also said it will defend against other pending opioid litigation. New Hampshire was one of a few states that did not join Johnson & Johnson’s portion of February’s $26 billion nationwide opioid settlement with the company and the three largest U.S. drug distributors, hoping to recover more by suing on its own.

Zalma on Insurance at Locals.com

Excellence in Claims Handling

Create a Staff of Professional Claims Handlers

Click Here to Subscribe to the Excellence in Claims Handling Programs for Each of Your Claims Personnel for Only $5 A Month Or $50 A Year by Subscribing to Zalma on Insurance at Locals.

Barry Zalma has created at Locals.com a series of insurance educational materials most of which are free to anyone. The free materials include more than 441 videos and more than 4200 digests of recent appellate court opinions and more than 81 videos dealing with true crime stories of insurance fraud.

In addition to the free materials, for a paid subscription of only $5 a month or $50 a year to Zalma on Insurance at Locals.com you or your staff of claims personnel can receive important, more detailed and informative information needed by everyone interested in insurance, insurance claims, insurance law or insurance fraud.

Each video will run from five to twenty minutes and can be viewed by each claims person with a first cup of coffee or glass of orange juice once or multiple time if desired.

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Zalma on Insurance will provide materials on insurance, insurance claims, insurance law and insurance fraud. Some material, like the daily blog posting, will be presented free while the Excellence in Claims Handling will require a Locals subscription.

Excellence in Claims Handling will be a source for the insurance claims person to become an insurance claims professional who can provide excellence in claims handling to the insurance buying public locals.com https://zalmaoninsurance.locals.com/subscribe.

Become a Professional Claims Handler

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

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

The professional claims person is an important part of the insurer’s defense against litigation by insureds against insurers for breach of contract and the tort of bad faith. Claims professionals resolve more claims for less money without the need for either party to involve counsel. A happy insured or claimant satisfied with the results of his or her claim will never sue the insurer.

Insurers who believe they can professionally, fairly, and in good faith with young, inexpensive, inexperienced and untrained claims handlers should be accosted by angry stockholders whose dividends have plummeted or will plummet as a result. When an insurer compromises on staff, profits, thin as they may have been previously, will move rapidly into negative territory. Tort and punitive damages will deplete reserves. Insurers will quickly question why they are writing insurance. Those who stay in the business of insurance will either adopt a program requiring excellence in claims handling from every member of their claims staff, or they will fail.

Insurance is a business that must change if it is to survive. Insurers must rethink the firing of experienced claims staff and reductions in training to save “expense.” Insurers should, if they wish to succeed, adopt a program to promote excellence in claims handling that can help insurers keep the promises made by the insurance policy and avoid charges of breach of contract and the tort bad faith in both first and third party claims.

Conviction for Insurance Fraud Affirmed in New York

In The People of the State of New York v. Jean M. Davilmar, also known as Jean Myrtho Davilmar, 2022 NY Slip Op 04975, No. 2018-05468, Ind. No. 4334/16, Supreme Court of New York, Second Department (August 17, 2022) Jean M. Davilmar, also known as Jean Myrtho Davilmar, appealed from a judgment of the Supreme Court, Kings County (Danny K. Chun, J.), rendered March 13, 2018, convicting him of larceny in the third degree (2 counts), scheme to defraud in the first degree, insurance fraud in the third degree (17 counts), criminal possession of a forged instrument in the second degree (5 counts), and offering a false instrument for filing in the first degree (4 counts), after a nonjury trial, and imposing sentence.

One Count Dismissed at Request of Prosecution

The judgment was modified, as a matter of discretion in the interest of justice, by vacating the conviction of insurance fraud in the third degree under count 57 of the indictment and the sentence imposed thereon and dismissing that count of the indictment; as so modified, the judgment is affirmed.

The prosecution conceded that the defendant’s conviction of insurance fraud in the third degree under count 57 of the indictment should be vacated and that count of the indictment dismissed in the exercise of our interest of justice jurisdiction.

The defendant only partially preserved for appellate review his challenge to the legal sufficiency of the evidence supporting his convictions of grand larceny in the third degree (2 counts), insurance fraud in the third degree (16 counts), and scheme to defraud in the first degree People v Heron, 180 A.D.2d 750, 751).

In any event, viewing the evidence in the light most favorable to the prosecution the court found that it was legally sufficient to establish the defendant’s guilt of grand larceny in the third degree beyond a reasonable doubt. Likewise, the evidence was legally sufficient to establish the defendant’s guilt of insurance fraud in the third degree beyond a reasonable doubt.

Moreover, the evidence was legally sufficient to establish the defendant’s guilt of scheme to defraud in the first degree (Penal Law § 190.65[1][b]). The appellate court fulfilled its responsibility to conduct an independent review of the weight of the evidence and was satisfied that the verdict of guilt on each of those counts was not against the weight of the evidence and that the sentence imposed was not excessive and found that the defendant’s remaining contentions were without merit.

ZIFL OPINION

People who are convicted of insurance fraud are so surprised that a prosecutor would take the time and effort to try and convict them will invariably appeal their conviction using the funds they took in their successful crimes before they were arrested and convicted.  Mr. Davilmar exercised unmitigated “chutzpah” by filing this appeal and obtained a Pyrrhic victory by having one of 17 counts of insurance fraud dismissed and must still spend time in jail for the 16 others.

Health Insurance Fraud Convictions

Idaho Provider Sentenced to Jail for Defrauding State Medicaid Program

Janna Lyn Miller, 58-year-old of Kuna, Idaho, pleaded guilty on May 12, 2022.  She was sentenced on Thursday, August 25, 2022 for executing a scheme to defraud the Idaho Medicaid program.

Judge Samuel Hoagland sentenced Miller to a suspended sentence of five years with one year fixed. She was placed on probation for five years. The court ordered Miller to serve 180 days in the Ada County Jail and pay $82,607 in restitution, a fine of $2,000 and court costs. The Department of Health and Welfare’s Medicaid Program Integrity Unit recovered nearly $64,000 in restitution prior to sentencing.

In addition to the criminal restitution, Miller is also responsible for repaying another $169,465 in overpayments and $65,256 in related penalties.

Miller was the owner and operator of Inclusion, Inc., a company that provided home health, supervised employment, mental health counseling and social support services to Idaho Medicaid participants with developmental disabilities. In addition to its main office in Meridian, the company maintained satellite offices in Sandpoint, Coeur d’Alene and Twin Falls.

Investigators determined that from January 1, 2018 to March 21, 2021, Miller executed a scheme to wrongfully obtain Idaho Medicaid funds and property. She did so by either making false representations or directing billing personnel to make false representations regarding services provided to Medicaid participants.

Seven-Year Prison Sentence Against San Joaquin County Doctor for Medi-Cal Fraud Scheme California

Gary Wisner used both his patients and state resources to line his own pockets according to California Attorney General Rob Bonta.  Wisner, a San Joaquin County orthopedic surgeon was convicted for repeatedly defrauding the Medi-Cal and Medicare programs.

From 2012 to 2016, Wisner defrauded the Medi-Cal and Medicare programs by administering excessive and medically unjustifiable X-rays to his patients. In June, Wisner was convicted of 10 felony counts of health care insurance fraud. On Friday, Wisner was sentenced by the Sacramento Superior Court to serve a seven-year prison sentence.

In November 2016, representatives from the California Department of Justice, Division of Medi-Cal Fraud and Elder Abuse (DMFEA) were notified by multiple government offices of suspected fraud by Wisner in overbilling the Medi-Cal and Medicare programs. Wisner operated a medical clinic in Lodi, California where he had 26,000 patients under his care.

In DMFEA’s investigation into Wisner’s alleged misconduct, investigators randomly selected the files of five Medi-Cal patients and five Medicare patients — these 10 files became the basis of the 10 felony charges Wisner was convicted of in June. DMFEA’s investigation revealed Wisner would administer X-rays even in routine office visits and would X-ray multiple parts of a patient’s body — regardless of whether it had any relation to a patient’s medical condition.

Over the course of an approximate four-year period, evidence collected showed Wisner subjected ten individual patients to hundreds of unnecessary X-rays at his clinic. On Friday, Wisner was sentenced to a seven-year prison sentence by the Sacramento Superior Court.

This investigation was made possible through collaboration with the United States Department of Health and Human Services (HHS), the San Joaquin County District Attorney’s Office, and the California Department of Insurance.

Gary Wisner is also the subject of an independent criminal complaint filed by the San Joaquin County District Attorney’s Office for workers’ compensation fraud. The case is still pending, and Gary Wisner is presumed innocent until proven guilty of those charges.

Boca Raton Chiropractor Sentenced To Four Years’ Imprisonment For $20 Million Fraud Scheme

Jonathan Michael Rouffe (49, Boca Raton) was sentenced to four years in federal prison for conspiracy to commit health care fraud. The court also ordered Rouffe to forfeit assets from several bank accounts, which are traceable to proceeds of the offense. As part of his sentence, the court also entered an order of forfeiture in the amount of $3,127,290, the proceeds of the charged criminal conduct, and a restitution order in the amount of $10,725,607.15. Rouffe pleaded guilty on June 30, 2020.

According to court documents, in 2018, Rouffe and his conspirators established a conglomerate of durable medical equipment (“DME”) supply companies. During the creation of the companies, they lied to Medicare to secure billing privileges, including placing the companies in the names of straw owners. By concealing their true ownership, the conspirators gained control of more companies, which Medicare generally prohibits, enabling them to submit high volumes of illegal DME claims. Through the conglomerate, during the course of one year, Rouffe and his conspirators submitted more than $20 million in illegal DME claims, resulting in over $10 million in payments from Medicare and the Civilian Health and Medical Program of the Department of Veterans Affairs (“CHAMPVA”).

To attain such high volumes of claims, Rouffe and his conspirators used illegal bribes and kickbacks. Specifically, they illegally purchased thousands of DME claims from so-called “marketers.” On invoices, the parties disguised the illegal kickback transactions as marketing services and the conspirators claimed that the DME prescriptions had been generated through “telemedicine.” No telemedicine had actually occurred. Instead, doctors were bribed in exchange for DME approvals. Rouffe and his conspirators paid millions to secure the illegal DME claims for submission to Medicare and CHAMPVA.

Medical Director Convicted in Health Care Fraud Scheme

Dr. Sekhar Rao, 51, of Austin, was the medical director of the ADAR Group LLC. Rao authorized toxicology and genetic testing, including cancer genetic testing, for TRICARE beneficiaries without seeing, speaking to, or otherwise treating patients, and without incorporating the test results into ongoing treatment. In some cases, the patients did not know what they were being tested for. TRICARE beneficiaries were enticed to provide urine or saliva specimens in exchange for $50 gift cards. Evidence at trial demonstrated that Rao was paid in exchange for signing off on medically unnecessary and repetitive toxicology and genetic tests.

A federal jury convicted Rao, a Texas physician of engaging in a scheme that fraudulently billed TRICARE, the health care program for uniformed service members, retirees, and their families, for toxicology and genetic tests that were not provided as represented and/or were medically unnecessary.

According to court documents and evidence presented at trial, Rao was convicted of two counts of health care fraud. He is scheduled to be sentenced on March 27, 2023 and faces a maximum penalty of 10 years in prison for each health care fraud count. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

13 Novus Healthcare Fraud Defendants Sentenced to Combined 84 Years in Prison

CEO Bradley J. Harris eventually admitted to the fraud and testified against two physicians who elected to proceed to trial.

As a result, thirteen defendants involved in the $27 million Novus healthcare fraud were sentenced to a combined 84 years in federal.

According to plea papers and evidence presented to a jury, Novus Health Services, a Dallas-based hospice agency, defrauded Medicare by submitting materially false claims for hospice services, providing kickbacks for referrals, and violating HIPAA to recruit beneficiaries. Novus employees also dispensed Schedule II controlled substances to patients without the guidance of medical professionals and moved patients to a new hospice company to avoid a Medicare suspension.

He told the jury that instead of relying on the expertise of licensed medical professionals, he and Novus’ nurses determined which medications and dosages patients would receive, dispensing drugs like morphine and hydrocodone using pre-signed prescription pads. Novus medical directors, including Dr. Mark Gibbs and Dr. Laila Hirjee, were supposed to oversee the care of these patients and examine patients face-to-face to certify that they were terminally ill. Often, however, the medical directors signed off on patient care plans without properly reviewing patients files and falsely certified they had completed in-person examinations when they had not.

Director of Operations Melanie Murphey testified at trial, “I was the doctor.”

Mr. Harris and the nurses also determined which patients would be admitted to or discharged from hospice care without any physician involvement. Mr. Harris also admitted to paying Novus physicians kickbacks – disguised as medical director salaries – to induce them to refer patients to Novus facilities.

When Mr. Harris realized, he could avoid exceeding Medicare’s aggregate hospice cap by enrolling an influx of first-time hospice patients, he negotiated an agreement with a company called Express Medical that allowed him to access potential patients confidential medical information in return for using Express Medical for laboratory tests and home health visits. Novus staff attempted to recruit Express Medical patients for Novus services, regardless of their eligibility.

Those convicted in the scheme include:

  • Sam Anderson, Novus VP of Marketing, pleaded guilty to one count of conspiracy to commit healthcare fraud and was sentenced to 33 months in federal prison
  • Patricia Armstrong, Novus triage nurse, pleaded guilty to one count of conspiracy to commit healthcare fraud and was sentenced to 84 months in federal prison
  • Slade Brown, Novus Director of Marketing, pleaded guilty to one count of conspiracy to commit healthcare fraud and was sentenced to 48 months in federal prison
  • Dr. Mark Gibbs, Novus Medical Director, was convicted at trial of one count of conspiracy to commit healthcare fraud, two counts of healthcare fraud, and one count conspiracy to obstruct justice and was sentenced to 156 months in federal prison
  • Amy Harris, Novus VP of Patient Services and wife of Bradley Harris, pleaded guilty to one count of conspiracy to obstruct justice and was sentenced to 38 months in federal prison
  • Bradley Harris, Novus CEO, pleaded guilty to one count of conspiracy to commit healthcare fraud and one count of healthcare fraud and aiding and abetting and was sentenced to 159 months in federal prison
  • Dr. Laila Hirjee, Novus Medical Director, was convicted at trial of one count of conspiracy to commit healthcare fraud, three counts of healthcare fraud and one count of unlawful distribution of a controlled substance and was sentenced to 120 months in federal prison
  • Dr. Charles Leach, Novus Medical Director, pleaded guilty to one count of conspiracy to commit healthcare fraud and was sentenced to 57 months in federal prison
  • Tammie Little, Novus Registered Nurse, was convicted at trial of one count of conspiracy to commit healthcare fraud and three counts of healthcare fraud and aiding and abetting and was sentenced to 33 months in federal prison
  • Jessica Love, Novus Registered Nurse, pleaded guilty to one count of conspiracy to commit healthcare fraud and was sentenced to 102 months in federal prison
  • Melanie Murphey, Novus Director of Operations, pleaded guilty to one count of conspiracy to commit healthcare fraud and was sentenced to 66 months in federal prison
  • Ali Rizvi, Express Medical owner, pleaded guilty to one count of wrongful use of individually identifiable heath information and was sentenced to 18 months in federal prison
  • Taryn Stuart, Novus Licensed Vocational Nurse, pleaded guilty to one count of conspiracy to commit healthcare fraud and was sentenced to 96 months in federal prison

California Man Sentenced to Federal Prison for Role in Health Care Kickback Conspiracy

Vincent Marchetti, Jr., 58, was found guilty by a jury on December 16, 2021, following a month-long trial. He was sentenced to 48 months in federal prison by U.S. District Judge Robert W. Schroeder, III, on August 30, 2022.

Marchetti, a Coronado, California, man was sentenced to federal prison for conspiring to commit health care kickbacks.

According to information presented in court, Marchetti conspired with others to pay and receive kickbacks in exchange for the referral of, arranging for, and recommending health care business, specifically pharmacogenetic (PGx) tests. Pharmacogenetic testing, also known as pharmacogenomic testing, is a type of genetic testing that identifies genetic variations that affect how an individual patient metabolizes certain drugs. The illegal arrangement concerned the referral of PGx tests to clinical laboratories in Fountain Valley, California; Irvine, California; and San Diego, California. More than $28 million in illegal kickback payments were exchanged by those involved in the conspiracy.

In December 2019, twelve individuals from three states were charged for their roles in the kickback conspiracy. A federal grand jury in the Eastern District of Texas returned an indictment against Philip Lamb, 47, of Scottsdale, Arizona; Nicolas Arroyo, 40, of Tempe, Arizona; Vincent Marchetti, Jr.; William Flowers, 57, of Houston; Steven Donofrio, 48, of Temecula, California; James J. Walker, Jr. a/k/a Jimmy Walker, 48, of Frisco; Timothy Armstrong, 65, of Frisco; Virginia Blake Herrin, 57, of Frisco; Patrick Ridgeway, 53, of Jackson, Mississippi; Chismere Mallard, 42, of McAllen; Dr. Ray W. Ng, 66, of Dallas; and Ashley Kretzschmar, 37, of Aledo; for conspiring to commit illegal remunerations in violation of the Anti-Kickback Statute.

Philip Lamb, Nicolas Arroyo, Jimmy Walker, Timothy Armstrong, Virginia Blake Herrin, Patrick Ridgeway, Chismere Mallard, and Ashley Kretzschmar have pleaded guilty. Kimberly Willette, 61, of Friendswood, and Edwin Chad Isbell, 48, of Atascocita, also pleaded guilty to related charges.

On April 25, 2022, Nicolas Arroyo was sentenced to 21 months in federal prison. On August 23, 2022, Kimberly Willette was sentenced to one year and one day in federal prison, and Patrick Ridgeway was sentenced to a three-year term of probation and ordered to pay a $100,000 fine.

Global Healthcare Company to Pay $6.3 Million to Resolve False Claims Act Allegations

Novo Nordisk Inc., a global healthcare company has agreed to pay $6.3 million to resolve allegations that it violated the False Claims Act by selling items to the United States that were manufactured in non-designated countries in violation of the Trade Agreements Act of 1979.

The settlement resolves allegations that Novo Nordisk Inc. violated the Trade Agreements Act, which restricts the procurement of goods under certain government contracts to purchases from specific designated countries, by submitting false claims for payment for medical devices that were manufactured in non-designated countries.

The settlement resolves claims that from July 2012 through November 2020, Novo Nordisk sold to United States government agencies its NovoFine 30G 8 mm needles, and that from May 2016 through November 2020, Novo Nordisk sold to United States government agencies its NovoFine 32G 6 mm needles, all of which were manufactured in non-designated countries.

Philips Subsidiary to Brought Down by a Qui Tam Suit to Pay Over $24 Million for Alleged False Claims

Philips RS North America LLC, formerly known as Respironics Inc., a manufacturer of durable medical equipment (DME) based in Pittsburgh, Pennsylvania, has agreed to pay over $24 million to resolve False Claims Act allegations that it misled federal health care programs by paying kickbacks to DME suppliers. The affected programs were Medicare, Medicaid and TRICARE, which is the health care program for active military and their families.

The settlement resolves allegations that Respironics caused DME suppliers to submit claims for ventilators, oxygen concentrators, CPAP and BiPAP machines, and other respiratory-related medical equipment that were false because Respironics provided illegal inducements to the DME suppliers. Respironics allegedly gave the DME suppliers physician prescribing data free of charge that could assist their marketing efforts to physicians.

The Anti-Kickback Statute prohibits the knowing and willful payment of any remuneration to induce the referral of services or items that are paid for by a federal health care program, such as Medicare, Medicaid or TRICARE. Claims submitted to these programs in violation of the Anti-Kickback Statute give rise to liability under the False Claims Act.

The settlement provides that Respironics will pay $22.62 million to the United States, and in addition, will pay $2.13 million to the various states as a result of the impact of Respironics’ conduct on their Medicaid programs, pursuant to the terms of separate settlement agreements that Respironics has, or will enter into, with those states.

In addition to the civil settlement, Respironics entered into a five-year Corporate Integrity Agreement (CIA) with HHS-OIG. The CIA requires Respironics to implement and maintain a robust compliance program that includes, among other things, review of arrangements with referral sources and monitoring of Respironics’ sales force. The CIA also requires Respironics to retain an independent monitor, selected by the OIG, to assess the effectiveness of Respironics’ compliance systems.

The settlement resolves a lawsuit originally brought by Jeremy Orling, a Respironics’ employee, under the qui tam or whistleblower provisions of the False Claims Act. Under those provisions, a private party can file an action on behalf of the United States and receive a portion of any recovery. As part of this resolution, Orling will receive approximately $4.3 million of the federal settlement amount.

This settlement was the result of a coordinated effort by the Justice Department’s Civil Division, Commercial Litigation Branch, Fraud Section and the U.S. Attorney’s Office for the District of South Carolina with assistance from the HHS-OIG and HHS Office of Investigations; DCIS; the Defense Health Agency Office of General Counsel; and the National Association of Medicaid Fraud Control Units.

Fraud Lawsuit Against Non-Profit For Inflating Medicaid Reimbursements Settled

Quit Tam Suit Brings Down Maranatha Human Services Who Agreed to Cease Operations and Pay $850,000

Maranatha Human Services, Inc. (“MARANATHA”) entered a settlement with the United States for falsely claiming that millions of dollars expended to benefit for-profit ventures owned and controlled by MARANATHA and its founder Henry Alfonso Coley (“Coley”), as well as payments to cover Coley’s personal expenses and excessive payments to Coley’s family members, were reasonable and necessary costs in connection with MARANATHA’s provision of Medicaid-funded services to individuals with developmental disabilities. MARANATHA is a non-profit organization based in Poughkeepsie, New York; Coley founded MARANATHA in 1988 and served as its chief executive officer until last year.

Specifically, the Government’s complaint, which was filed in November 2021, alleges that MARANATHA, with its board’s approval, funded for-profit companies operated by Coley; paid excessive salaries and consulting fees to Coley’s family members, often in exchange for little to no work; and paid for tens of thousands of dollars of Coley’s personal expenses. The Government further alleges that, from 2010 to 2019, Coley and MARANATHA submitted to the State of New York cost reports that falsely claimed millions of dollars of these expenses as “allowable” costs, which fraudulently inflated MARANATHA’s Medicaid reimbursement rates and resulted in MARANATHA receiving millions of dollars in Medicaid funds to which it was not entitled.

Under the settlement approved September 1, 2022 by U.S. District Judge Kenneth M. Karas, MARANATHA agreed to cease operations after transitioning the operation of its programs to other providers under the supervision of the governing state regulatory agency. MARANATHA will also pay $340,000 to the United States and has admitted and accepted responsibility for conduct alleged by the Government in its complaint as further described below. In addition, MARANATHA agreed to pay $510,000 to the State of New York to resolve the State’s claims, for a total recovery of $850,000. The settlement amount is based on the Office’s assessment of MARANATHA’s ability to pay based on the financial information it provided and its commitment to cease operations. The United States previously resolved the claims against Coley through a settlement approved by Judge Karas on November 17, 2021. In addition to paying damages to the United States and the State of New York, COLEY was barred from working for any entity that bills federal healthcare programs; he also entered into a Voluntary Exclusion Agreement with HHS-OIG, which prohibits him from, among other things, billing Medicaid and other federal healthcare programs for 15 years.

According to the Government’s complaint, from 2010 through 2019:

  • MARANATHA was required to submit cost reports, called Consolidated Financial Reports (“CFRs”), to the State of New York each year, specifying the reasonable and necessary costs MARANATHA incurred in providing services for its Medicaid-funded programs. these costs were to be reported as “allowable” costs.
  • MARANATHA was required separately to report its other, “non-allowable” costs; “non-allowable” costs include costs unrelated to its Medicaid-funded programs, as well as any unreasonable or unnecessary costs.
  • With its board’s approval, MARANATHA funded for-profit companies operated by COLEY and owned by COLEY or MARANATHA, as well as various unincorporated pet projects started by COLEY. One of the chief purposes of these ventures was to serve as vehicles to funnel money to COLEY’s daughter, as well as others associated with COLEY, whom MARANATHA paid for work they purportedly did to support these ventures and projects.
  • Over the course of a decade, not one of these ventures ever launched a product or service or earned a single dollar in revenue. Coley and MARANATHA hired Coley’s family members as employees and consultants, some in connection with these for-profit ventures, and others in connection with MARANATHA’s Medicaid-funded services. Coley and MARANATHA paid excessive salaries and consulting fees to Coley’s family members, often in return for little to no work. MARANATHA also paid for tens of thousands of dollars of coley’s personal expenses, including more than $34,000 for personal training sessions at a gym.
  • Coley and MARANATHA knowingly submitted CFRs annually to the State of New York fraudulently reporting these expenses—totaling millions of dollars—as “allowable” costs.
  • On each CFR, Coley falsely certified to the completeness and accuracy of the report. Coley and MARANATHA knew that the State of New York relied on providers’ CFRs when setting provider-specific reimbursement rates for certain Medicaid-funded programs, including MARANATHA’s largest Medicaid-funded program. As a result of COLEY’s and MARANATHA’s falsely inflated cost reports, the State of New York awarded MARANATHA a higher reimbursement rate and MARANATHA received millions of dollars in Medicaid funds to which it was not entitled.

As part of the settlement, MARANATHA admits, acknowledges, and accepts responsibility for the following conduct:

  • COLEY made a presentation to MARANATHA’s board of directors acknowledging that “[i]t was always the plan for Maranatha to use government funds as a launching pad to create private enterprise that would enable it to not be dependent on [the] government while at the same time fulfilling its function” consistent with its mission.
  • MARANATHA knew of the requirement to distinguish “allowable costs” from “non-allowable costs” in its CFRs.
  • MARANATHA knew that the allowable costs reported in its CFRs are used by the New York State Department of Health, in part, to determine MARANTHA’s reimbursement rates for the provision of Medicaid services.
  • In each CFR that MARANATHA submitted from 2010 to 2019 (the “Covered Period”), MARANATHA’s CEO, COLEY, certified that (i) the “information furnished in this report… is in accordance with the instructions and is true and correct to the best of my knowledge”; and (ii) the statement attached to the CFR “fully and accurately represents all reportable income and expenditures made for services performed in accordance with the provision of the Mental Hygiene Law and approved budgets.”
  • Throughout the Covered Period, MARANATHA submitted CFRs every year that reported as “allowable costs” amounts expended not for MARANTHA’s provision of Medicaid-funded services but instead to pursue certain for-profit business ventures.
  • In particular, MARANATHA submitted CFRs reporting as “allowable costs” costs expended to benefit certain entities owned and/or operated by COLEY or MARANATHA that did not provide Medicaid-funded services (the “Non-Medicaid Ventures”).
  • MARANATHA’s board, which approved MARANATHA funding these Non-Medicaid Ventures, was briefed on them by COLEY.
  • MARANATHA paid COLEY’s family members to perform work related to the Non-Medicaid Ventures. For example, since 2010, MARANATHA paid COLEY’s daughter more than $300,000.  Though much of her time was spent on work related to the Non-Medicaid Ventures, MARANATHA reported her full compensation as an “allowable cost” in the CFRs.
  • Since 2010, MARANATHA paid COLEY more than $2 million in salary and benefits, and MARANTHA claimed the full amount of that compensation as “allowable costs” on its CFRs. However, COLEY devoted much of his time to working on the Non-Medicaid Ventures.
  • MARANATHA also paid for certain of COLEY’s personal expenses, including more than $34,000 spent on personal training sessions, as well as holiday gifts and jewelry. MARANATHA reported these expenses as “allowable costs” in its CFRs.

This lawsuit originated as a whistleblower lawsuit filed under seal pursuant to the False Claims Act.

Medicaid Recipients Agree to Pay $130,000 to Resolve False Claims and Health Care Benefit Fraud

Manpreet Kamboj and Gurdev Kamboj (aka David Singh) agreed to pay $130,000 to resolve allegations that they knowingly falsified income to unlawfully create eligibility for Mississippi Medicaid health care benefits for their dependents.

Despite Medicaid’s low-income requirement, the United States contends that Manpreet and Gurdev Kamboj collectively owned and/or were associated with 48 convenience store/gas stations located in Mississippi and Louisiana. The Kambojs also own a five-bedroom 7,850 square foot home located in Madison, Mississippi, most recently valued at 1.3 million dollars. 

According to the United States, the Kambojs falsely represented on various Mississippi Medicaid health care benefit applications and renewals that one of them was unemployed and that the household derived income from one convenience store/gas station. As such, the United States alleges that from August 29, 2011, to February 28, 2022, the Kambojs caused the MDOM to pay over $70,000 in health care coverage benefits to which they were not entitled.

Medical Technology Company President Convicted in $77 Million COVID-19 and Allergy Testing Scheme

Mark Schena, 59, of Los Altos, California, served as the president of Arrayit Corporation. According to court documents and evidence presented at trial, Schena engaged in a scheme to defraud Arrayit’s investors by claiming that he had invented revolutionary technology to test for virtually any disease using only a few drops of blood. In meetings with investors, Schena and his publicist claimed that Schena was the “father of microarray technology” and falsely stated that he was on the shortlist for the Nobel Prize. The evidence at trial showed that Schena also falsely represented to investors that Arrayit could be valued at $4.5 billion based on purported revenues of $80 million per year.

A federal jury convicted Schena, the president of a Silicon Valley-based medical technology company September 1, 2022 of participating in a scheme to mislead investors, commit health care fraud, and pay illegal kickbacks in connection with the submission of over $77 million in false and fraudulent claims for COVID-19 and allergy testing.

In furtherance of the scheme, the evidence at trial showed that Schena, among other things, failed to release Arrayit’s SEC-required financial disclosures and concealed that Arrayit was on the verge of bankruptcy. Schena lulled investors who were concerned that the company was a “scam” by inviting them to private meetings and issuing false press releases and tweets stating that Arrayit had entered into lucrative partnerships with companies, government agencies, and public institutions, including a children’s hospital and a major California health care provider. The tweets and press releases falsely claimed that such entities had agreed to use the Arrayit technology, when in fact no such agreements existed or were of minimal value. 

Schena also orchestrated an illegal kickback and health care fraud scheme that involved submitting fraudulent claims to Medicare and private insurance for unnecessary allergy testing. Arrayit ran allergy screening tests on every patient for 120 different allergens (ranging from hornet stings to codfish) regardless of medical necessity. To obtain patient blood specimens, Schena paid kickbacks to marketers in violation of the Eliminating Kickbacks in Recovery Act and orchestrated a deceptive marketing plan that falsely claimed that the Arrayit test was highly accurate in diagnosing allergies, when it was not, in fact, a diagnostic test. Arrayit billed more per patient to Medicare for blood-based allergy testing than any other laboratory in the United States, the evidence at trial showed, and billed some commercial insurers over $10,000 per test.

In early 2020, Arrayit’s allergy testing business declined because the COVID-19 pandemic and stay-at-home orders reduced demand for allergy testing. Schena then falsely announced that Arrayit “had a test for COVID-19” based on Arrayit’s blood testing technology, before developing such a test. Seeking to capitalize on the nationwide shortage of COVID-19 testing, Schena orchestrated a deceptive marketing scheme that falsely claimed that Dr. Anthony Fauci and other prominent government officials had mandated testing for COVID-19 and allergies at the same time and required that patients receiving the Arrayit COVID-19 test also be tested for allergies. Schena also falsely claimed that the Arrayit COVID-19 test was more accurate than a PCR test for diagnosing COVID-19 infections, while concealing from investors and patients taking the test that the Food and Drug Administration had informed him that the Arrayit test was not accurate enough to receive an Emergency Use Authorization for use in the United States.

Schena was convicted of one count of conspiracy to commit health care fraud and conspiracy to commit wire fraud, two counts of health care fraud, one count of conspiracy to pay kickbacks, two counts of payment of kickbacks, and three counts of securities fraud. He is scheduled to be sentenced on Jan. 30, 2023 and faces a maximum penalty 20 years imprisonment for the conspiracy to commit health care fraud and conspiracy to commit wire fraud; 10 years of imprisonment for each count of health care fraud; five years imprisonment for conspiracy to pay kickbacks; 10 years imprisonment for each count of payment of kickbacks; and 20 years imprisonment for each count of securities fraud. U.S. District Judge Edward J. Davila will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

$907,074.64 Health Care Fraud Settlement

Dr. Craig M. Morgan and Eye Consultants of Huntington Inc. have paid $907,074.64 to resolve allegations that they submitted false claims to Medicare and Medicaid.

From January 13, 2013 through April 12, 2019, Morgan routinely administered vascular endothelial growth factor inhibitor injections into the eyes of patients to treat purported wet age-related macular degeneration (Wet-AMD) or other ophthalmological conditions for which treatment with such injections is indicated. These injections were not medically necessary because the patients in question did not have treatable Wet-AMD or any other condition that would have warranted the invasive treatment at the time it was administered.

Morgan was identified by HHS-OIG as one of the top outliers for billing the Medicare program across all medical specialists in West Virginia, far exceeding the average of Medicare claims submitted by his peers. The vast majority of payments Morgan received from Medicare were for injections for purported treatment of Wet-AMD.  

Chiropractic Clinic Agrees to Settle Allegations of Improper Billing for Electro-Acupuncture Devices

Lifestyle Resumption Integrative Health (“Lifestyle Resumption”), a chiropractic clinic located in Fort Mitchell, Ky., and its owner, Klaude Kocan, D.C., have agreed to pay $200,000 to resolve allegations that they violated the False Claims Act, by improperly billing Medicare for services involving electro-acupuncture devices.

According to the Settlement Agreement, between July 2016 and March 2018, Lifestyle Resumption billed Medicare for the implantation of neurostimulator devices – a surgical procedure during which devices are implanted into the central nervous system or targeted peripheral nerves. The United States contends that these bills falsely represented the services provided, because Lifestyle Resumption did not actually perform surgical procedures. Instead, Lifestyle Resumption’s nurse practitioner applied electro-acupuncture devices to patients’ ears by inserting a limited number of needles and using an adhesive. Medicare does not pay for electro-acupuncture devices billed as implantable neurostimulators and did not reimburse for acupuncture at all during the relevant period.

Colorado Springs Company and Owner Pay $400,000 to Resolve Allegations That They Submitted False Claims For Aquatic Therapy

Dynamic Physical Therapy, LLC (“Dynamic”), a physical therapy company, and its owner, Emad Yassa, have agreed to pay the United States $400,000 to resolve allegations that they violated the False Claims Act by falsely billing federal health care programs for aquatic therapy services. 

Dynamic is a physical therapy company that operates two clinics in Colorado Springs, Colorado. Dynamic is owned by Mr. Yassa, who also practices as a physical therapist at the Dynamic clinics. Dynamic submitted bills for physical and aquatic therapy services to Medicare and other federal health care programs.

In 2019, a former employee of Dynamic filed a sealed civil “whistleblower” lawsuit under the False Claims Act alleging that Dynamic, at the direction of Mr. Yassa, was billing Medicare for medically unnecessary physical therapy services and for services that had not actually been provided. The lawsuit was filed in federal district court in Colorado under the “qui tam,” or whistleblower, provisions of the False Claims Act. Those provisions permit private parties to sue on behalf of the United States to bring claims based on the submission of false claims to the government and allow the whistleblower to receive a share of any funds recovered through the lawsuit. The whistleblower provisions encourage people with knowledge of fraud against the federal government to come forward when they believe fraud is being committed.

After the whistleblower complaint was filed, Mr. Yassa signed a “Stipulation and Final Board Order” with the State of Colorado’s Physical Therapy Board  In the stipulation, Mr. Yassa admitted that, from mid-2014 to mid-2017, he “routinely and improperly billed insurance companies, Medicare, and Medicaid for individual aquatic therapy sessions for his patients when they had actually participated in group aquatic therapy sessions,” and also “routinely failed to document in his patients’ records that they had participated in group aquatic therapy sessions.” 

In an investigation, the United States uncovered evidence indicating that Dynamic had also submitted false claims to TRICARE, a health care program for uniformed service members, retirees, and their families. The evidence indicated that Dynamic had falsely represented to TRICARE that its physical therapy services had been provided by an authorized physical therapy provider, when, in fact, they had been provided by an unauthorized physical therapy assistant.

The resolution obtained in this matter was the result of a coordinated effort between the U.S. Attorney’s Office for the District of Colorado, the Department of Health and Human Services – Office of the Inspector General, the Defense Criminal Investigative Service, and the Federal Bureau of Investigation.

Iowa Plastic Surgeon Agrees to Pay $800,000 to Resolve Allegations of Inappropriate Billing

Dr. Ronald Bergman and his medical practice, Bergman Cosmetic Surgery, P.C., of Des Moines, Iowa, have agreed to pay $800,000 to the United States and the State of Iowa to resolve allegations that Bergman wrongfully billed Medicare and Medicaid for services rendered by others and billed Medicare for medically unnecessary and unreasonable applications of skin substitute products.

Specifically, the government alleged that from 2013 to 2020, Bergman submitted inappropriate claims for payment to government healthcare programs in three ways. First, the government alleged that Bergman submitted claims to Medicare and Medicaid in his own name when, in fact, the services were rendered by auxiliary personnel, and when there was insufficient physician involvement for the claims to be billed in Bergman’s name. Second, the government alleged that Bergman submitted claims to Medicare and Medicaid in his own name when, in fact, the services were rendered by medical fellows without Bergman, as the teaching physician, being physically present. Third, the government alleged that Bergman submitted claims to Medicare for medically unnecessary and unreasonable applications of skin substitute products.

This civil matter arose from an action brought under the whistleblower provisions of the False Claims Act. Pursuant to that Act and the settlement agreements, the whistleblower will share in the United States’ financial recovery.

Pill Mill Operator Convicted For Oxycodone Diversion

PURIFICACION CRISTOBAL, was found guilty by a federal jury verdict September 7, 2022 for her participation in a conspiracy to distribute oxycodone without a legitimate medical purpose acting outside the usual course of professional practice. CRISTOBAL was also convicted of two counts of oxycodone distribution pertaining to specific prescriptions. She was found not guilty of other counts of oxycodone distribution pertaining to other prescriptions. Cristobal will be sentenced by U.S. District Judge Katherine Polk Failla, who presided over the approximately two-week trial.

As proven at trial, Purificacion Cristobal, a licensed nurse practitioner purporting to specialize in psychiatry, operated a clinic on Westchester Avenue in the Bronx. Between approximately June 2019 and June 2020, Cristobal prescribed tens of thousands of doses of oxycodone without a legitimate medical purpose outside of the usual course of professional practice. Oxycodone is a highly potent and addictive opioid that commands high prices in the black market because of demand by drug abusers. Cristobal often prescribed oxycodone in combination with Xanax (alprazolam) and/or Adderall (amphetamine), controlled substances that are themselves frequently abused and resold illicitly. 

Cristobal never performed physical examinations or medical tests, often asked patients to take their pick among different narcotics and was repeatedly warned by others that her patients were reselling or abusing the drugs she prescribed.  She encouraged existing patients to recruit others, regularly accepted cash, and charged different cash “fees” depending on how many prescriptions she wrote for a particular patient. Cristobal also coordinated with a nearby pharmacist, to whom she referred many of her patients, to shield her unlawful prescribing practices from law enforcement scrutiny.

Cristobal, 75, of Lyndhurst, New Jersey, was convicted of one count of conspiring to distribute oxycodone and two counts of distributing oxycodone without a legitimate medical purpose acting outside the usual course of professional practice. Those counts carry, in the aggregate, a maximum potential sentence of 60 years in prison. 

The maximum potential sentence is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Former NBA Player, Alleged ‘Ringleader’ of $5 Million Insurance Scheme Pleads Guilty

The Defendants Allegedly Engaged In A Widespread Scheme To Defraud The NBA Players’ Health And Welfare Benefit Plan

By submitting fake reimbursement claims for medical and dental services they never had players led by Terrence Williams learned he pleaded guilty to conspiring to commit health care fraud and identity theft in connection with a multimillion-dollar scam against the basketball league’s health plan, authorities said. Williams, selected 11th overall in the 2009 NBA draft by then-New Jersey Nets, pleaded guilty to one count of conspiracy to commit health care and wire fraud and aggravated identity theft. The latter charge carries a mandatory minimum sentence of two years in prison. Sentencing before Judge Caproni is scheduled for January.

Williams was one of 18 former players named in an indictment. The plea agreement announced by prosecutors includes a $2.5 million restitution payment to the NBA health plan and more than $650,000 to the government.

A judge remanded Williams to jail in May after text messages allegedly sent from the 35-year-old to a witness violated his pretrial release. The witness was “talking way to[o] f[—]ing much,” and Williams told them to “shut the f[–]k up,” according to prosecutors. More than a dozen former NBA players were charged in the alleged multi-million dollar health insurance fraud scheme to rip off the league’s benefit plan, with a former Nets player as the ringleader.

According to the grand jury indictment, the defendants allegedly engaged in a widespread scheme from at least 2017 up to around 2020 to defraud the NBA Players’ Health and Welfare Benefit Plan by submitting fake reimbursement claims for medical and dental services that were never actually rendered.

In some cases, the players who submitted the alleged false claims weren’t even in the United States at the times they allegedly received the treatments. They allegedly filed fake invoices saying they had to pay for the phantom procedures out of pocket.

Those allegedly fraudulent claims totaled about $3.9 million, from which the defendants got about $2.5 million in fraudulent proceeds, the indictment alleges.

Williams allegedly orchestrated the years-long scheme and recruited other NBA health plan participants to assist by offering them fake invoices to support their claims. He allegedly received at least $230,000 in kickback payments from 10 other players in return for providing the alleged false documentation.

The 34-year-old Williams also allegedly helped three co-defendants – Davis, Charles Watson Jr. and Antoine Wright – obtain fake letters of medical necessity to justify some of the services on which the false invoices were based.

Among the false reimbursement claims described in the indictment was a $19,000 claim that Williams filed for chiropractic services he allegedly never had and for which he received $7,672.55 in reimbursement. Williams also allegedly obtained a template for a fake invoice designed to appear as if it had been issued by the office.

Fake chiropractic treatment invoices were allegedly also created for Davis, Watson Jr. and Wright and emailed to Williams. The template had the date, invoice number, services and a charge of $15,000 filled in but left the “bill to” box, where the name of the patient would ordinarily be found, blank, according to the indictment.

Williams is accused of emailing those fake invoices to the other defendants named in the indictment. He and defendant Alan Anderson, who briefly played for the Nets from 2013 to 2015, allegedly helped get fake letters of medical necessity for Davis, Watson Jr. and Wright in furtherance of the fraud scheme as well.

According to the court documents, several of the fake invoices and medical necessity forms stood out because, “they are not on letterhead, they contain unusual formatting, they have grammatical errors” and were sent on the same dates from different offices.

Authorities said Terrence Williams received at least $300,000 in kickbacks from the others for his efforts.

In situations where others involved balked, authorities said Williams pretended to be other people and threatened them to gain compliance.

The National Basketball Players Association said in a statement that they were “aware of the indictment of former NBA players announced earlier today” and that they will “continue to monitor the matter.”

New York A.G. Secures $850,000 from Disability Services Not-for-Profit That Defrauded Medicaid

Guilty to Insurance Fraud in Iowa

D’Alan Thurmond, age 41, of Waterloo, pled guilty on April 25, 2022, to one count of Presenting False Information, a class “D” Felony, following an investigation by the Iowa Insurance Division’s Fraud Bureau.

The investigation began in December 2019 after the Iowa Insurance Divison’s Fraud Bureau received information indicating Thurmond had provided false information to an insurer following an automobile accident in Black Hawk County. 

The investigation determined Thurmond had made false representations regarding the nature of the loss in an effort to secure benefits of the policy. He claimed that his vehicle was stolen when, in fact, it was involved in a single-car accident while he was the driver.

“Insurance fraud is not a victimless crime. We all pay for insurance fraud in the form of higher insurance costs,” Iowa Insurance Commissioner Doug Ommen said. “I appreciate the hard work of our Fraud Bureau and the Blackhawk County Attorney’s Office in the prosecution of this case, so Mr. Thurmond was held accountable for his actions.”

Following his guilty plea, Thurmond received a five year prison sentence, which he is serving concurrently to an unrelated crime. Financial penalties were suspended.

Chiropractor Pleads Guilty to Insurance Fraud and Fraudulent Practices

Joshua David Blunt, age 41, of Bettendorf, recently pled guilty to one count of Insurance Fraud – Presenting False Information (Class D Felony) and one count of Fraudulent Practices 4th Degree (Serious Misdemeanor) following an investigation by the Iowa Insurance Division’s Fraud Bureau.

The investigation began in May 2019 after a complaint alleged Blunt, while employed as a chiropractor at New Life Chiropractic Clinic in Bettendorf, submitted multiple fraudulent claims to Wellmark, Inc. 

The investigation revealed Blunt utilized fraudulent billing practices which had been previously identified and addressed by Wellmark on at least two previous occasions. After being provided with education on these practices, and repaying Wellmark for fraudulently obtained claim payments, Blunt continued to submit fictitious billing information for chiropractic care and treatment services which had never been provided. As a result, Blunt illegally obtained $20,778 in claim payments.

Additionally, the investigation revealed that after purchasing a 2008 Flagstaff Travel Trailer in October 2017 for $8,500, Blunt provided false information to the Scott County Treasurer’s Office by reporting the purchase price as $1.00. As a result, Blunt avoided paying $424.90 in new registration fees.

Blunt was arrested on May 20, 2021 by the Scott County Sheriff’s Office and released after posting bond. 

Following his guilty plea, Blunt received a deferred judgment and was sentenced to two years of probation, ordered to pay a civil penalty of $1,455, restitution to Wellmark in the amount of $20,778 and to the State of Iowa in the amount of $425.

Other Insurance Fraud Convictions

Nebraska Farmer Ordered To Pay $1 Million For Crop Insurance Fraud

Ross Nelson, a farmer of Newman Grove, Nebraska was ordered to pay $1 million in restitution for profiting off a fraudulent crop insurance claim.

The U.S. Attorney’s Office for the District of Nebraska said Nelson provided false losses of soybeans and corn when he filed a claim in 2015 to an authorized insurance provider. Court documents revealed that he received more than $700,000 in reimbursement for losses, and the USDA’s Risk Management agency launched an investigation because Nelson’s losses didn’t match neighboring farms in Holt County.

Nelson has also been sentenced to 4 years’ probation and 16 weekends of intermittent confinement and a $30,000 fine.

Guilty Because a Hitting a Tree is not a Deer

Jared Simmons, age 42, of Davenport, pled guilty on September 1, 2022, to one count Presenting False Information, a class “D” Felony, following an investigation by the Iowa Insurance Division’s Fraud Bureau.

The investigation began in January 2021 after the Iowa Insurance Division’s Fraud Bureau received information indicating Simmons had provided false information to an insurer following an automobile accident in Scott County. 

The investigation determined Simmons had made false representations regarding the nature of the loss in an effort to secure benefits of the policy. Simmons claimed that his vehicle sustained damage after hitting a deer when, in fact, the damage was sustained when Simmons was involved in a single-car accident while he was intoxicated. Simmons was arrested on February 3, 2022.

Following his guilty plea, Simmons received a five year suspended prison sentence and placed on supervised probation for a period of two years. Simmons was also ordered to pay a fine of $1,025.

Disbarred After Forgeries, Misconduct When Insurance Defense Attorney Goes Bad

Erika Lynn Muller, until recently a partner with the Cole, Scott & Kissane firm, based in Fort Lauderdale, Florida, a former attorney with one of Florida’s top insurance defense firms has been disbarred after the Bar said she engaged in repeated acts of neglect, deception and forgery.

Muller can no longer practice in the state, the Florida Supreme Court said in an order last week. The court agreed with the Bar’s complaint and a referee’s recommendation that she be disbarred, following months of disciplinary proceedings.

The Bar’s complaint listed several bases for the disbarment:

  • lack of truthfulness,
  • misconduct and
  • lack of communication with regard to one case in particular that unfolded in 2020 and 2021.

In a slip-and-fall claim against Rooms To Go furniture company in Miami, Muller offered to settle the claim for $325,000, even though she was not authorized to do so. She then sent the plaintiff’s attorney a photocopy of a check that she had allegedly fabricated. The plaintiff’s lawyer filed motions to enforce the settlement, which resulted in a court judgment in March 2021 of $425,000.

Muller agreed to send $550,000 to stop the garnishments on the judgment. She allegedly sent a photocopy of another fabricated cashier’s check, then said she would hand-deliver the check. On the day of the planned transfer, she falsely said she was in an automobile accident.

Meanwhile, Muller told the furniture company and an adjuster for the insurance company that the case was still in mediation and on April 7, 2021, Muller informed Cole, Scott & Kissane attorneys that she was resigning. In an affidavit, Muller acknowledged that she made misrepresentations to multiple parties and presented altered documents to plaintiff’s counsel.

In her affidavit, Muller stated that she was suffering from a mental health crisis during the time of the misconduct. Muller failed to respond to any of the Bar’s inquiries into the matter. The Rooms To Go litigation, brought by an independent contractor who was injured at an RTG parking lot, was dismissed in June 2021.

A referee judge who reviewed the case against Muller agreed with the disbarment action.

The state Supreme Court, which in recent years has often disagreed with referees’ recommendations, accepted it in this case and said the disbarment will be effective September 25, 2022. Muller must also pay $1,315 to cover the Bar’s costs in investigating the case.

Muller is a graduate of the University of Miami School of Law and was a member of the Florida bar since 2008. The Cole, Scott & Kissane website notes that she focused on bad-faith litigation, personal injury defense, premises liability and insurance defense litigation.

New Books:

The Equitable Remedy of Rescission of Insurance

An Effective Tool to detect, deter and defeat insurance Fraud Hardcover – June 17, 2022

The Equitable Remedy of Rescission

Rescission is an equitable remedy first created in the ecclesiastical courts of Elizabethan England.
When the United States was conceived in 1776 the founders were concerned with protecting their rights under British common law.

Common Law is a form of law developed by judges through tribunals and decisions of courts rather than executive branch action and legislative statutes.

Following the common law tradition, legal principles were referred to courts of equity to “mitigate the rigor” of the common law.

The new United States of America adopted British common law as the law once the U.S. Constitution was adopted in 1789. British common law was only modified by the limitations placed on the central government by the Constitution.

The viability and ability to enforce contracts was recognized as essential to commerce. Courts of law, following the British Common Law, were charged with enforcing legitimate contracts and rendering money judgments against the party who breached the contract.

 It became clear, however, that some contract disputes cannot be resolved with a money judgment. Rather, it needed the assistance of the courts of equity whose judges, in the Elizabethan era were presided over by priests who were believed to be better able to render fair judgments.

The term “equity” is associated with notions of fairness, morality and justice. It is an ethical jurisdiction. On a more legalistic level, however, “equity” is the branch of law that was administered in the Court of Chancery prior to the Judicature Acts 1873 and 1875.

This was a jurisdiction evolved to achieve justice and to overcome the rigorous and deficiencies of the common-law. Although application of conscience pervades this aspect of the law, equity never bestowed an unfettered jurisdiction on the Court of Chancery to do what was fair in the settlement of a dispute. Embodying aspects of ecclesiastical law and Roman law, equity developed and gradually emerged as a distinct body of law.

 It was not until 1875 that equity was practiced in the common law courts. The existence of a dual system entailed that, for example, when a defendant had an equitable defense to a common law action, he would have to go to the Court of Chancery to obtain an injunction to suspend the proceedings in common-law court. He would then begin a fresh action for relief in the Court of Chancery. Facing duality persisted until the Judicature Acts which created the Supreme Court of Judicature and allowed all courts to exercise both a common law and equitable jurisdiction.

The courts of equity were charged with, among other things, protecting contracting parties from mistake, fraud, misrepresentation and concealment where no damages were involved. It was the obligation of the courts of equity to reach a result that was fair to all of the parties to the contract. The founders of the United States, and the British common law, concluded that equity required that enforcing a contract based on mistake, fraud, misrepresentation or concealment would not be fair.

A court of equity is a court which can apply equitable remedies to disputes. These courts operate within the legal system, but rather than focusing on the application of law, they look at cases and determine outcomes based on fairness. They can be found in many regions of the world. In modern usage in the United States trial courts are empowered to handle both legal and equitable remedies.

A court of equity can hand down a judgment which includes an equitable remedy such as an injunction, as opposed to simple monetary damages.

The judge in a court of equity can weigh many different sides to a case and explore different perspectives to arrive at a judgment.

NEW BOOKS

Available as: A Kindle book A Paperback or a hardcover .

Insurance Fraudsters Deserve No Quarter

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

New Book That Explains How to Defeat or Deter Insurance Fraud

The Examination Under Oath to Resolve Insurance Claims

The Most Effective Tool Available to Insurers to Defeat Attempts at Insurance Fraud & to Resolve Questionable Claims

Available as a Kindle book Available as a paperback. Available as a hardcover.

Barry Zalma, Esq., CFE

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

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

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe. Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome. Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; I publish daily articles at https://zalma.substack.com, Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

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General Contractor Not a Lawyer

General Contractor Has No Standing  to Allege Insurance Fraud

See the full video at https://rumble.com/v1jsbv1-general-contractor-not-a-lawyer.html  and at https://www.youtube.com/watch?v=EpRGyYBB6Yg

Steven Hester Hall appealed from an order granting Defendants’ motion to dismiss Hall’s claims for breach of fiduciary duties, insurance licensing violations, bank fraud, insurance fraud, breach of implied covenant of good faith and fair dealing, harassment, and unfair and deceptive trade practices.

In Steven Hester Hall v. Brunswick Plantation Property Owners Association, Greg Mayol, Cathy Six, And Community Association Management Services, No. COA21-748, 2022-NCCOA-604, Court of Appeals of North Carolina (September 6, 2022) Hall wanted to build a house without the bond required by the Community Associations’ regulations.

FACTUAL BACKGROUND

Hall is a general contractor and the CEO of Eco Lakes Construction, LLC. Eco Lakes owns real property at 649 Covington Drive NW, Calabash, NC (“property”), in the Brunswick Plantation and Golf Course Community (“Community”). Defendants are the Brunswick Plantation Property Owners Association (“Association”); Community Association Management, the property management company for the Association; Greg Mayol, the Community Association Manager for the Community; and Cathy Six, the Administrator for the Architectural Standards Committee for the Association.

The Contract Performance and Master Deportment Agreement (“Master Deportment Agreement”) is a contract between the Architectural Standards Committee and a general contractor on a construction project in the Community. The Master Deportment Agreement requires the general contractor to provide to the Association a $5,000 bond to be held as security for the performance of the construction project in accordance with the community governing documents-the Brunswick Plantation Architectural Plan and Residential Design and Construction Standards, and the Amended and Restated Master Declaration and Development Plan for Brunswick Plantation.

Plaintiff submitted plans to construct a home on the property but did not provide the $5,000 Contractor Compliance Bond required by the Master Deportment Agreement. Defendants declined to act on Plaintiff’s construction proposal until he provided the bond. Plaintiff sought a bond waiver; Defendants declined to issue a waiver. Plaintiff again refused to provide the bond, and Defendants directed Plaintiff to cease construction on the lot.

On 23 April 2021, Plaintiff Hall sued and filed a motion for a temporary restraining order, and motion for a preliminary injunction against Defendants. The trial court denied the motion for a temporary restraining order.

In an amended complaint, Hall alleged breach of fiduciary duties, insurance licensing violations, bank fraud, insurance fraud, breach of the implied covenant of good faith and fair dealing, harassment, and unfair and deceptive trade practices. Defendants moved to dismiss the amended. Hall moved to amend his complaint to add additional causes of action and an additional defendant, and an objection to Defendants’ motion to dismiss. The trial court granted Defendants’ motion to dismiss on 29 July 2021.

DISCUSSION

When dealing with a motion to dismiss the court must liberally construe the allegations and the court should not dismiss the complaint unless it appears beyond a doubt that the plaintiff could not prove any set of facts to support his claim which would entitle him to relief.

The caption of Plaintiff’s complaint indicates that he is bringing actions for breach of fiduciary duties, insurance licensing violations, bank fraud, insurance fraud, breach of implied covenant of good faith and fair dealing, harassment, and unfair and deceptive trade practices. The suit indicates only that Hall is challenging the propriety of the Contractor Compliance Bond as required by the Master Deportment Agreement. Hall failed to state a claim upon which relief may be granted under some legal theory.

Standing

In order for a court to have subject matter jurisdiction to hear a claim, the party bringing the claim must have standing. Standing means that the party has a sufficient stake in an otherwise justiciable controversy to obtain judicial resolution of that controversy. Every claim must be prosecuted in the name of the real party in interest. A real party in interest is a party who is benefited or injured by the judgment in the case. A lack of standing may be challenged by motion to dismiss for failure to state a claim upon which relief may be granted.

The court noted that Hall appeared to argue that the Amended and Restated Master Declaration and Development Plan for Brunswick Plantation was unenforceable because it is ambiguous and is a restrictive covenant on the property. Plaintiff does not own the property, nor does he have a protected legal interest in the property. Accordingly he lacked standing to bring this action.

In the alternative, the trial court dismissed Plaintiff’s claims because Plaintiff did not have the authority to bring suit on behalf of Eco Lakes. In North Carolina a corporation must be represented by a duly admitted and licensed attorney-at-law and cannot proceed pro se.

Here, there is no indication that Plaintiff is a licensed attorney. Rather, Plaintiff is a general contractor and is the president and CEO of Eco Lakes. To the extent Plaintiff purports to bring claims on behalf of Eco Lakes, he may not do so.

The trial court’s order dismissing Plaintiff’s complaint was affirmed.

ZALMA OPINION

This case is an example of the misuse  by a litigant of allegations of insurance fraud and the tort of bad faith which had no relationship to the problem. To avoid buying a miniscule $5,000 bond, Hall fled suit alleging the planned community where he wanted to build a house accusing the defendants of multiple torts and the crime of insurance fraud because they insisted he obtain a bond. He had no standing and was, if anything, attempting to bludgeon the defendants and cause it to retain counsel and defend this spurious claim. The Court of Appeal refused to honor his scheme and should have sanctioned him for bringing the case without standing.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

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Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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STOLI Fraud Victims & Return of Premium

Lack of Insurable Interest Makes Life Policy Void from Inception

See the full video at https://www.youtube.com/watch?v=3nU4wgZ0xbg and at https://rumble.com/v1jf39j-stoli-fraud-victims-and-return-of-premium.html

Policy Acquired as Part of a STOLI Fraud Never Existed as a Matter of Law

In Geronta Funding, a Delaware Statutory Trust v. Brighthouse Life Insurance Company, No. 380, 2021, Supreme Court of Delaware (August 25, 2022) the Supreme Court was asked to determine whether premiums paid on insurance policies declared void ab initio for lack of an insurable interest should be returned.  The trial court agreed with Brighthouse and relied on the Restatement (Second) of Contracts (the “Restatement”) to determine whether Geronta was entitled to restitution. Specifically, the court held that Geronta may obtain restitution under Section 198 of the Restatement (“Section 198”) if it could prove excusable ignorance or that it was not equally at fault.

Applying this test, the court ruled that Geronta was only entitled to the return of the premiums it paid after alerting Brighthouse to the void nature of the policy at issue.

RELEVANT FACTS AND BACKGROUND

On July 11, 2007, the fictitious Mansour Seck Irrevocable Life Insurance Trust (the “Seck Trust”) applied to MetLife Investors USA Insurance Company (Brighthouse’s predecessor) for a $5 million universal life insurance policy insuring the life of a fictitious man identified as Mansour Seck (the “Policy”), with a birthday of January 1, 1933. Seck was identified as a French citizen residing at 170 Academy Street, Jersey City, New Jersey.

After confirming that its procedures and guidelines were met, MetLife issued the Policy on or around July 24, 2007.

Pape Seck’s Arrest and Prosecution

In 2010, Pape Seck was the subject of numerous press releases issued by the State of New Jersey and other insurance industry publications; they stated that Pape Michael Seck, a New York City insurance agent, had been arrested and prosecuted for fraudulent insurance schemes. Pape Seck pleaded guilty to two counts of insurance fraud concerning fraudulent applications for Mansour Seck.

Litigation and the Superior Court Ruling

On April 4, 2018, Brighthouse filed suit, seeking a judicial declaration that the Policy was void ab initio for lack of an insurable interest and arguing that it is entitled to keep all the premiums paid on the Policy. Geronta filed an answer, agreeing that the Policy was void ab initio, and a counterclaim, alleging that it was entitled to reimbursement of all premiums paid, with the exception of the premiums paid by the original owner of the Policy.

In its opinion, the trial court declared the Policy void ab initio. The court denied Geronta’s request for rescission and disgorgement, holding that rescission is not available where a contract is void because there is no contract to “unmake.” After trial, the Superior Court ruled that Geronta was only entitled to restitution of the premiums it paid after it informed Brighthouse that the Policy was void for lack of an insurable interest.

ANALYSIS

Overview of Potential Remedies for an Insurance Policy That Is Void Ab Initio for Lack of an Insurable Interest

A contract of insurance upon a life in which the insured has no interest is a pure wager that gives the insured a sinister counter interest in having the life come to an end. A court may never enforce agreements void ab initio, no matter what the intentions of the parties. Thus, when an agreement is void ab initio as against public policy, the courts typically will not enforce a remedy to any extent against either party. In other words, the courts typically will leave the parties where they find them.

Was Rescission Available?

Rescission would result in the return of any premiums paid by applying equitable principles and putting both parties back in the position they were in before the contract was made. Stranger-originated life insurance (“STOLI”) policies, like the one for Monsour Seck, when rescinded would require return of the premiums from the insurer to the investor. However, since the policy was void rescission was not available.

Restitution

Restitution is a body of substantive law in which liability is based not on tort or contract but on the defendant’s unjust enrichment. Restitution has been awarded under two separate approaches: (1) a fault-based analysis grounded in considerations specific to insurance policies declared void ab initio for lack of an insurable interest and (2) the Restatement.

Restitution Under A Fault-Based Analysis Grounded In Considerations Specific To Insurance Policies Declared Void Ab Initio For Lack Of An Insurable Interest

Most courts considering this issue have adopted a fault-based analysis in determining whether to return premiums paid on an illegal or void insurance policy.

Generally when an illegal contract is voided, the parties will be left where they have placed themselves with no recovery of the money paid for illegal services. But there is an exception for the case in which the party that made the payments is not to blame for the illegality. The Insurers were the clear victims of the STOLI scheme as was Geronta who bought the policy.

If the downstream investor was equally at fault with, or more at fault than, the insurer, the the trial court should leave the parties where it found them, allowing the insurer to keep the premiums. If the downstream investor was innocent or the insurer was more at fault, the court should return the premiums.

The Restatement (Second) of Contracts

Restatement Section 198 lays out two exceptions to the general rule-when a party is (1) excusably ignorant and (2) not equally in the wrong with the party from whom he seeks restitution.

The Supreme Court adopted a fault-based analysis, framed under the Restatement, that considers questions specific to insurance policies declared void ab initio as against public policy for lack of an insurable interest as the correct test to determine whether premiums should be returned.

The Supreme Court noted that a fault-based analysis incentivizes insurers to speak up when the circumstances suggest that a policy is void for lack of an insurable interest because they will not be able to retain premiums if they stay silent after being put on inquiry notice, and they might also be responsible for interest payments.

Thus, when analyzing a viable legal theory that seeks as a remedy the return of premiums paid on insurance policies declared void ab initio for lack of an insurable interest, Delaware courts are now required to analyze the exceptions outlined in Sections 197, 198, and 199 of the Restatement and determine whether any of those exceptions permit the return of the premiums. A court needs to determine whether:

  • there would be a disproportionate forfeiture if the premiums are not returned;
  • the claimant is excusably ignorant;
  • the parties are not equally at fault;
  • the party seeking restitution did not engage in serious misconduct and withdrew before the invalid nature of the policy becomes effective; or
  • the party seeking restitution did not engage in serious misconduct, and restitution would put an end to the situation that is contrary to the public interest.

The fault of the parties and public policy considerations will determine which party is entitled to the premiums paid on an insurance policy that is void ab initio for lack of an insurable interest.

The Superior Court Failed to Consider Whether Either Party Had Inquiry Notice of the Void Nature of the Policy

Here, prior to purchase:

  • Geronta, in consultation with Leadenhall, made the deliberate decision to superficially look at the Seck Policy by solely focusing on whether it was active.
  • Geronta purposefully ignored the possibility that some of the unexamined policies in the bulk purchase might have been unenforceable.
  • Geronta’s due diligence as to the Seck Policy was extremely limited.

The Superior Court also concluded that Brighthouse was not at fault because Geronta failed to show that Brighthouse had actual knowledge of the void nature of the Policy. In other words, the Court found that Brighthouse did not have actual knowledge of the Policy’s illegality.

Section 198 and the in pari delicto cases from Section III.A.b.i focus on whether a party had either actual knowledge or inquiry notice of the invalidity of the policy. Since the trial Court failed to consider whether Bighthouse was on inquiry notice of the void nature of the Policy.

The Supreme Court remanded the case for the Superior Court to reconsider its factual findings in light of this Court’s articulated test and specifically direct the court to consider whether either party had inquiry notice of the void nature of the Policy and reversed the court’s holdings regarding entitlement to premiums and remanded the case for consideration consistent with its opinion.

ZALMA OPINON

By waiting two years after inception of the policy for the fake insured the fraudsters defeated the ability of the insurer to rescind because of a life insurance policy’s noncontestability clause. However, since Mansour Seck did not exist the policy was not real, it was a gamble and a fraud, that the criminal invested a great deal of money, sold the risk to another and profited from the crime only to have the victim sell again until Geronta found itself paying premium on a void policy. To do justice the Delaware Supreme Court has provided a means to determine who is free of guile and who is not when deciding who gets the premium back, if anyone.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

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

Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. 

The new book is available as a Kindle book, a paperback or as a hard cover.

Write to Mr. Zalma at zalma@zalma.comhttp://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalmaGo to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0ExpgGo to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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Untimely Suit Dismissed

Judgment in Favor of Insurer Because of Plaintiff’s Sloth

See the full video at https://rumble.com/v1j7gb7-untimely-suit-dismissed.html  and at https://youtu.be/LilNDkHTnro

Michelle J. Pollard, appealed from the summary judgment rendered by the trial court in favor of the defendant, Geico General Insurance Company, on the plaintiffs complaint seeking to recover underinsured motorist benefits. On appeal, the plaintiff claimed that the court improperly determined that the accidental failure of suit statute, General Statutes § 52-592 (a), did not apply to revive her otherwise time barred action.

In Michelle J. Pollard v. Geico General Insurance Company, No. AC 44560, Court of Appeals of Connecticut (September 6, 2022) the defendant argued that judgment was appropriately rendered and asserted, as an alternative ground contended that the plaintiff’s action was barred because she failed under the terms of the parties’ insurance policy to commence suit timely or to invoke the policy’s tolling provision.

FACTS

The plaintiff alleged that, on or about September 17, 2012, she was rear-ended by a vehicle operated by Norma Rivera while operating her automobile in a drive-through lane of a fast food restaurant in Hartford and, as a result, she suffered injuries and incurred medical expenses. She alleged that Rivera’s insurer paid her the full liability limits under Rivera’s automobile insurance policy such that coverage under Rivera’s policy was exhausted on or about June 9, 2016. She further alleged that she had not been sufficiently compensated by Rivera’s policy and that, pursuant to the insurance policy between her and the defendant, the defendant was required to provide her with underinsured motorist benefits but Geico refused.

In April, 2019, the plaintiff sued Geico pursuant to the accidental failure of suit statute. The defendant filed a motion to strike counts two, three and four of the complaint, which the court granted on February 13, 2020, leaving only count one, in which the plaintiff alleged that the defendant breached the contract between the parties by failing to provide her with underinsured motorist benefits in relation to the September, 2012 collision at the fast food restaurant.

Geico moved for summary judgment and contended that no genuine issue of material fact existed and that:

  1. the plaintiff could not bring the present action for underinsured motorist benefits pursuant to the accidental failure of suit statute because the nonsuit in the 2016 action was for disciplinary reasons and was not a matter of form and
  2. the plaintiff failed to bring an action within three years of the date of the accident and failed to invoke the tolling provision of the insurance policy by providing the defendant with proper written notice of a claim for underinsured motorist benefits and, therefore, the present action is time barred.

The court, Cobb, J., granted the defendant’s motion for summary judgment on the first ground after determining that no genuine issues of material fact existed and that, as a matter of law, the accidental failure of suit statute was not applicable.

ANALYSIS

According to Connecticut General Statutes § 38a-336 (g) (1), “[n]o insurance company doing business in this state may limit the time within which any suit may be brought against it … on the . . . underinsured motorist provisions of an automobile liability insurance policy to a period of less than three years from the date of accident, provided, in the case of an underinsured motorist claim the insured may toll any applicable limitation period (A) by notifying such insurer prior to the expiration of the applicable limitation period, in writing, of any claim which the insured may have for underinsured motorist benefits and (B) by commencing suit or demanding arbitration under the terms of the policy not more than one hundred eighty days from the date of exhaustion of the limits of liability under all automobile bodily injury liability bonds or automobile insurance policies applicable at the time of the accident by settlements or final judgments after any appeals.”

It was undisputed that the plaintiff commenced an action for underinsured motorist benefits outside the three year limitation period.

There was no genuine issue of material fact that the plaintiff failed to provide the defendant with written notice of her intention to pursue an underinsured motorist claim as required by part (a) of the tolling provision of the insurance policy.  The October 1, 2012 letter, which was sent from John A. Sodipo from Jacobs & Sodipo, LLC, to the defendant, which plaintiff claimed allowed her suit to go forward, yet the letter contained no reference to a potential claim for underinsured motorist benefits.

The trial court determined that the notice was insufficient to comply with the requirements of the policy, and that the notice requirement in the policy contemplates specific reference to a potential claim for underinsured motorist benefits. That language plainly and unambiguously requires the insured to inform its insurer not merely that it is pursuing a claim, but rather that it is pursuing a claim for underinsured motorist benefits. The insurance company needs to be notified in writing that there’s the possibility that a claim will be brought for underinsured motorist coverage.

In the present case, the court concluded that no genuine issues of material fact exist regarding the plaintiffs failure to satisfy part (a) of the policy’s tolling provision. The October 1, 2012 letter stated only a potential claim, in general, and did not specifically state that the plaintiff may have a claim for underinsured motorist benefits.

Geico satisfied its burden for summary judgment with respect to both the three year limitation period, which was undisputedly not met, and the statute’s tolling provision, the tolling provision of the insurance policy requires both that the plaintiff (1) provide written notice to the defendant within three years of the date of the accident that she may have a claim for underinsured motorist benefits and (2) commence an action within 180 days from the date of exhaustion.

Because both requirements of the tolling provision must be satisfied, the failure to meet either requirement renders the tolling provision inapplicable.

Accordingly, Geico demonstrating that, as a matter of law, the October 1, 2012 letter failed to satisfy the requirements of a written notice of a claim for underinsured motorist benefits under part (a) of the policy’s tolling provision, was entitled to summary judgment.

The grant of the motion for summary judgment on the ground that no genuine issues of material fact exist that the plaintiff failed to bring suit within three years and failed to toll that limitation period in accordance with the insurance policy was obvious and necessary.

ZALMA OPINION

There is no excuse to sit on your rights for underinsured motorist coverage for more than six years. Simply stated an insured loses the right to the benefits of an insurance policy by sitting on those rights past the private limitation of action provision of the policy and by failing to comply with the statute that allows you to toll the limitation period.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

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

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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Appeal Fails When Ground for Judgment not Disputed

FLOOD EXCLUSION APPLIES TO DEFEAT CLAIM

Insured Admits Loss Caused by Flood Sufficient to Deny Claim

See the full video at https://rumble.com/v1iwpvj-appeal-fails-when-ground-for-judgment-not-disputed.html and at https://youtu.be/buArlQZf41E

Virginia Sosa appealed from the county court’s orders granting summary judgment in favor of appellee Auto Club Indemnity Co. (“Auto Club”) and denying Sosa’s motion for new trial. The court granted summary judgment on several grounds raised by Auto Club, including that Sosa’s claims were barred by limitations and by the exclusion in her homeowner’s insurance policy for damages caused by flood and surface water. In Virginia Sosa v. Auto Club Indemnity Co., No. 01-21-00312-CV, Court of Appeals of Texas, First District (August 30, 2022) the Court of Appeal resolved the dispute because Sosa did not,  challenge the summary judgment ground that her claims were caused by flood or surface water, which is expressly excluded from coverage under her homeowner’s policy.

BACKGROUND

Sosa’s house was damaged during Hurricane Harvey on August 26, 2017.  Shortly thereafter, Sosa filed a claim with Auto Club, which insured her house. Sosa reported that two feet of floodwater had entered her home, her roof was missing shingles and was leaking, and she had sustained interior damage. Auto Club determined that her damage was caused by flood water, which was expressly excluded from coverage under Sosa’s homeowner’s insurance policy that was in effect during Hurricane Harvey.

On September 26, 2017, Auto Club denied her claim. On November 11, 2020, almost three years after the denial and more than three years after the damage, Sosa filed suit against Auto Club for breach of the insurance policy.

Sosa filed a first amended petition, which was her live pleading when the county court entered summary judgment against her. Sosa’s amended petition was identical to her original petition except that it changed the date of loss from August 26, 2017, to June 28, 2019.

AUTO CLUB’S MOTION FOR SUMMARY JUDGMENT

Auto Club filed a traditional motion for summary judgment arguing that it was entitled to judgment as a matter of law on several grounds effective grounds. Auto Club argued that Sosa’s claims are time barred by the two-year-and-one-day limitations period contained in Sosa’s policy because Sosa filed the lawsuit more than three years after her claims accrued, and that Sosa’s policy did not cover loss from flood or surface water, which it contended was the basis of Sosa’s claimed damage.

COUNTY COURT’S RULING AND MOTION FOR NEW TRIAL

The county court granted Auto Club’s summary judgment motion. The court also found that Auto Club had disproved several elements of Sosa’s breach of contract action; flood and surface water damages were not covered under the policy; and all flood and surface water damages were excluded from coverage. The court ordered that Sosa take nothing and dismissed her claims with prejudice.

SUMMARY JUDGMENT

Sosa, as an appellant must challenge each independent ground that could fully support the trial court’s challenged ruling. When an unchallenged ground supports a complained-of ruling or judgment, the Court of Appeal must accept the validity of that unchallenged independent ground, and thus any error in the grounds challenged on appeal is harmless because the unchallenged independent ground fully supports the complained-of ruling or judgment.

Auto Club sought summary judgment on four grounds.

  1. Auto Club argued that Sosa’s claimed damages were excluded from coverage under the homeowner’s policy, and therefore it was not liable for her damages.
  2. Auto Club argued that Sosa’s claims were time barred.
  3. Auto Club argued that its evidence disproved several elements of Sosa’s breach of contract claim.
  4. Auto Club argued that Sosa’s extracontractual claims were not viable in the absence of a breach of contract.

The Failure to Dispute a Ground for Summary Judgment

On appeal, Sosa challenged only three of the four grounds. Sosa did not challenge the summary judgment order on the ground that her claimed damages were covered under the policy. Indeed, her appellate brief does not mention flood or surface water.

A policy provision that excludes claimed damages is an independent ground that supports dismissal of such claims. Because Sosa’s claims are contractual in nature and Auto Club’s liability for her claims flows from the homeowner’s policy, Auto Club is not liable for damages that are expressly excluded under the insurance policy.

The appellate court concluded that it need not decide whether summary judgment is meritorious on all stated grounds in order to affirm. Because Sosa did not challenge the ruling on appeal the flood exclusion ground independently supports summary judgment in Auto Club’s favor.

Any other error about which Sosa complained on appeal is harmless considering the unchallenged ground supporting the summary judgment order. Because summary judgment was proper the county court did not abuse its discretion by denying her motion for new trial.

Summary judgment was proper. The Court of Appeal concluded that the county court did not act arbitrarily, unreasonably, or without reference to guiding rules or principles in denying Sosa’s motion for new trial.

The trial judgment was affirmed.

ZALMA OPINION

The facts established that Auto Club had four viable grounds for summary judgment, one of which Sosa did not dispute nor even mention in her appellate briefing. As a result the Court of Appeal had no choice but to affirm the decision of the County Court because her pleadings admitted that the Auto Club’s position was correct. That she tried to cheat by changing the date of loss was contumacious but, in effect, a wasted effort that should have been sanctioned.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

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

Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. 

The new book is available as a Kindle book, a paperback or as a hard cover.

Write to Mr. Zalma at zalma@zalma.comhttp://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalmaGo to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0ExpgGo to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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Still no Direct Physical Damage by Covid

Apple Annie Suffered no Direct Physical Damage

It’s Time to Quit Trying to Get Business Interruption Payments from Insurers for Covid

See the full video at https://rumble.com/v1j1e6p-still-no-direct-physical-damage-by-covid.html  and at https://youtu.be/EtHNnXOfgnA

The COVID pandemic and ensuing lock down have generated a host of legal issues. One of the most momentous, in terms of the potential monetary liability, is whether businesses ordered by government decree to close or suspend operations could get compensation under the business income coverage of the standard comprehensive commercial liability policy. The issue has generated opinions from different Courts of Appeal, all of which have held that the issue comes down to whether the insured can allege it suffered “direct physical loss of or damage to [the insured] property.” Having lost in the trial court, the insured here told the court that “this appeal can be viewed as a referendum on whether [those] decisions were correctly decided.” They were right but not as they expected.

In Apple Annie, LLC v. Oregon Mutual Insurance Company, A163300, California Court of Appeals, First District, Second Division (September 2, 2022) the California Court of Appeal refused to be swayed by the Marina Pacific decision.

BACKGROUND

At all relevant times, plaintiff Apple Annie, LLC, operated restaurants in Marin, San Francisco, and Santa Barbara counties. Defendant Oregon Mutual Insurance Company issued Apple Annie a comprehensive commercial liability and property insurance policy that, as relevant here, promised in general to “pay for direct physical loss of or damage to Covered Property at the [insured] premises,” and in particular to “pay for the actual loss of Business Income you sustain due to the necessary suspension of your ‘operations’ during the ‘period of restoration. The suspension must be caused by direct physical loss of or damage to property at the described premises. The loss or damage must be caused by or result from a Covered Cause of Loss.”

According to Apple Annie’s complaint, in March 2020, first the Marin and San Francisco Departments of Public Health, and then the Governor, issued “Shelter in Place orders,” which Apple Annie alleged “caused [it] to suspend business operations at all its locations, which resulted in an immediate loss of business income.” Oregon Mutual denied Apple Annie’s claim for its “business income loss.”

DISCUSSION

After a comprehensive survey of the subject, the court concluded that a business that closed pursuant to a government shut-down order had not suffered “direct physical . . . damage to” the business’s property. This was a matter of plain English:

“The words in the phrase ‘direct physical damage’ all have commonly understood meanings. ‘Physical’ is defined as ‘having material existence: perceptible especially through the senses and subject to the laws of nature.’ [Citation.] ‘Direct’ is defined as ‘proceeding from one point to another in time or space without deviation or interruption,’ ‘stemming immediately from a source,’ and ‘characterized by close logical, causal, or consequential relationship.’

The presence of COVID-19 on Plaintiff’s property did not cause damage to the property necessitating rehabilitation or restoration efforts similar to those required to abate asbestos or remove poisonous fumes which permeate property. Instead, all that is required for Plaintiff to return to full working order is for the [government orders and restrictions to be lifted.

This case . . . concerns an invisible virus that is present throughout the world. . . . It is that general presence, and not a specific physical harm to covered properties, that has caused governments at all levels to consider restrictions. The question, therefore, is one of ‘widespread economic loss due to restrictions on human activities, not the consequence of a direct physical loss or damage to the insured premises. (Inns-by-the-Sea)

Apple Annie contends that “because the phrase ‘physical loss of or damage to’ is phrased disjunctively, ‘loss of’ and ‘damage to’ must each be given a separate meaning.” Apple Annie reasoned: “Because of this disjunctive framing, each concept must be accorded a separate, distinct meaning. An interpretation of ‘loss of’ that assigns it the same meaning as ‘damage to’ would do violence to the language of the policy by rendering the former term surplusage.”

By contrast, the losses here arose from closures intended to limit the spread of a virus that can carry great risk to people but no risk at all to a physical structure.

The Court of Appeal decided to follow the reasoning of Inns-by-the-Sea and similar cases in acknowledging ‘the generally recognized principle in the context of first party property insurance that mere loss of use of physical property to generate business income, without any other physical impact on the property, does not give rise to coverage for direct physical loss.  As the United States District Court, Southern  District of California stated, that if, for example, a sick person walked into one of Plaintiffs’ restaurants and left behind COVID-19 particulates on a countertop, it would strain credulity to say that the countertop was damaged or physically altered as a result. The majority of cases in California (and elsewhere) are in accord.

Most recently, on July 13, Division Seven of the Second District filed its opinion in Marina Pacific Hotel & Suites, LLC v. Fireman’s Fund Ins. Co. (2022) 81 Cal.App.5th 96 (Marina Pacific). The Court of Appeal went on to hold for the plaintiff insured, on the basis it had pled the element missing from the three earlier cases: it “adequately alleged direct physical loss or damage.” Thus, the court held, Marina Pacific stated a claim for breach of the insurance policy (Marina Pacific, supra, at p. 108), and concluded: “Because the insureds adequately alleged losses covered by Fireman’s Fund’s policy, they are entitled to an opportunity to present their case, at trial or in opposition to a motion for summary judgment. The judgment of dismissal based on the trial court’s disbelief of those allegations, whether ultimately reasonable or not, must be reversed.”

In sum, and in light of the foregoing, the Court of Appeal could not agree with Apple Annie’s primary contention that the policy language-“direct physical loss or damage to,” including its disjunctive phrasing-is ambiguous and “subject to a reasonable construction that supports coverage.” Doing so, the Court of Appeal rejected what may be the two most consequential aspects of Apple Annie’s position:

  • that “no physical alteration is necessary to show that the policyholder has suffered a ‘physical loss of’ insured property if the governmental authorities issue orders that prohibit the policyholder from using the insured property for its intended purpose,” and
  • that” ‘physical loss of’ includes the loss of use of the insured property, even if that loss is temporary.” (See Santo’s Italian Cafe LLC v. Acuity Ins. Co., supra, 15 F.4th 398, 402 [“A loss of use simply is not the same as a physical loss”].)

Although the COVID virus has a physical presence, and thus Apple Annie may have suffered economic loss from the physical presence of the COVID virus, it has not suffered direct physical loss of or damage to [its] property.

Apple Annie makes a new argument using a definition in the liability portion of the policy.  A similar argument was made, and rejected, in United Talent Agency, which observed that cases involving comprehensive liability coverage are of limited benefit in determining the scope of property insurance coverage.

While Marina Pacific held for the insured, based on its pleading, in its supplemental brief Apple Annie acknowledges that the case does not directly implicate Apple Annie’s theory of coverage.

At oral argument the Court of Appeal asked counsel for Apple Annie – able counsel with significant experience in insurance coverage issues-what Apple Annie would, or could allege. Given that, the fact that this case has been pending for 25 months, and the further fact that Marina Pacific has been extant for over a month, the court concluded that Apple Annie has not met the burden required of it to obtain leave to amend, and thus the Court of Appeal denied the belated request.

ZALMA OPINION

As I said when I digested the Marina Pacific case, the decision was limited to whether the plaintiff had alleged a cause of action and since they alleged that there was direct physical damage they were entitled to try to prove it. Since this case was not brought on a demurrer’s finding the lack of direct physical damage defeated the claim for business interruption like all of the other cases across the country.

However, going against the grain, a Jury Awarded Baylor College of Medicine $48.5 Million in COVID-19 Business Interruption Lawsuit

The jury returned the verdict in the suit, which was filed against XL Insurance America, Ace America Insurance and several Lloyd’s syndicates, on Aug. 31, according to a copy of the judgment provided to BestWire. Ten of the 12 jurors agreed with the decision. I would expect the jury verdict to be appealed since Texas has joined with other states who have refused to allow coverage without direct physical loss.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

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

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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New Book from Barry Zalma – The Tort of Bad Faith

The Tort of Bad Faith

What Every Insurance Professional, Every Insurance Coverage Lawyer, Every Plaintiffs Bad Faith Lawyer, and Every Insurance Claims Person Must know About the Tort of Bad Faith 

The implied covenant of good faith and fair dealing is a concept of insurance law at least three centuries old. It first appeared in British jurisprudence in a case decided by Lord Mansfield sitting in the House of Lords as the highest court in Britain. In Carter v. Boehm. 3Burrow, 1905, Lord Mansfield explained that insurance is a contract upon speculation; the special facts upon which the contingent chance is to be computed, lie, most commonly, in the knowledge of the insured only. The underwriter trusts to his representation, and proceeds upon confidence that he does not keep back any circumstance in his knowledge, to mislead the underwriter into a belief that the circumstance does not exist, and to induce him to estimate the risk as if it did not exist.

The keeping back such circumstance is a fraud, and therefore the policy is void. Although the suppression should happen through mistake, without any fraudulent intention, yet still the underwriter is deceived, and the policy is void; because the risk run is really different from the risk understood and intended to be run, at the time of the agreement. [The Chicago v. Thompson, 19 Ill. 578, 1858 WL 5993, 9 Peck 578 (Ill. 1858)] and the contract of insurance is founded on good faith.

Lord Mansfield stated the rule still followed to this day: “Good faith forbids either party by concealing what he privately knows, to draw the other into a bargain, from his ignorance of that fact, and his believing the contrary.
The implied covenant explains that no party to a contract of insurance should do anything to deprive the other of the benefits of the contract.”

For insurance to work; for each insurer to properly evaluate the risks presented; for each insurer to obtain the insurance desired; and for each insured and insurer resolve all claims fairly and equitably they must treat each other with the utmost good faith and do nothing to deprive the other of the benefits of the contract.
Each party to the contract of insurance is expected to treat the other fairly in the acquisition and performance of the contract. For example, the prospective insured is required to answer all questions about the risk he, she or it are asking the insurer to take and about the person the insurer is asked to insure. Similarly, the insurer must honestly, clearly and in good faith explain to the insured(s) the risks the insurer is willing to take and the terms, conditions and provisions of the contract of insurance.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

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

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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When Insured Withdraws Claim No Need to Sue for Declaratory Relief

When You Win it is Best to Shut Up and Accept It

See the full video at https://rumble.com/v1irfzz-when-insured-withdraws-claim-no-need-to-sue-for-declaratory-relief.html  and at https://youtu.be/EUjLbYi9yJQ

As a young lawyer one of the first things I learned was never argue with a judge whose tentative ruling is to grant your motion. Insurers often seek, when there is a dispute of insurance coverage, declaratory relief from the court about its duty to defend or indemnify the insured. However, when the insured advises there is no claim, it is a waste of the time of counsel, the insured and the courts to bring a declaratory relief action.

The axiom to never argue over a win was explained by the USDC for the Eastern District of Virginia, in Hanover Insurance Company, et al. v. C. David Venture Management, LLC, et al., Civil Action No. 1:21-cv-790 (RDA/JFA), United States District Court, E.D. Virginia, Alexandria Division (August 30, 2022). Hanover sought a ruling it owed neither defense nor indemnity to the defendants. The defendants, David Venture Management, LLC and Venture Street, LLC’s (“Defendants”) moved to dismiss The Hanover American Insurance Company’s (“Plaintiffs” or “Hanover”) suit.

BACKGROUND

The lawsuit for Declaratory Judgment implicates Hanover’s potential duties to defend or indemnify Defendants in a putative class action brought in the U.S. District Court for the District of Colorado.

Beginning on December 9, 2017, Hanover issued the first of several Commercial General Liability (“CGL”) policies to CDVM. Hanover also issued Commercial Follow Form Excess and Umbrella Policies (“Excess/Umbrella Policy”) for the same effective dates. Defendant Venture Street was added as an additional named insured on the CGL and Excess/Umbrella Policy effective May 29, 2019.

Plaintiffs in the putative class action, styled In Re HomeAdvisor, Inc. Litigation, Civil Action No. 16-CV01849 (“the HomeAdvisor lawsuit”), filed suit on July 16, 2019. The plaintiffs in the HomeAdvisor lawsuit have amended their complaint several times and continue to assert claims against Defendants CDVM and Venture Street. After Defendants were named in the HomeAdvisor lawsuit, they provided notice of the litigation to Plaintiff Hanover. On November 12, 2019, Hanover responded to the notice by denying Defendants insurance coverage for the HomeAdvisor Lawsuit. Defendants sought reconsideration from Hanover on January 29, 2020, and again on April 23, 2021, but Hanover reaffirmed its coverage denial.

Plaintiffs filed suit on July 6, 2021, seeking a declaration that they owe no duty to defend or indemnify Defendants in the HomeAdvisor Lawsuit. Plaintiffs maintain that “[t]here is no coverage available for the claims asserted against [Defendants] CDVM and Venture Street in the HomeAdvisor Lawsuit” for multiple reasons. Specifically, Plaintiffs alleged that insurance coverage is unavailable because

  • “[t]he claims do not allege damages because of ‘bodily injury’ or ‘property damage’ caused by an ‘occurrence’ within the meaning of the CGL or Excess/Umbrella Policies”;
  • “[t]he claims do not allege damages because of ‘personal and advertising injury’ within the meaning of the CGL Policies”;
  • “[t]he claims do not allege damages because of ‘advertising injury’ or ‘personal injury’ within the meaning of the Excess/Umbrella Policies”;
  • the alleged acts were not committed, and the alleged injuries did not occur, during the relevant policy periods; and
  • several exclusions bar coverage, including exclusions for “Expected or Intended Injury Knowing Violation of the Rights of Another; Infringement of Copyright, Patent, Trademark or Trade Secret; Insureds In Media And Internet Type Businesses; and Personal and Advertising Injury.”

Defendants, in response, notified Plaintiffs that they were no longer seeking coverage from Plaintiffs for the HomeAdvisor lawsuit on July 19, 2021. On August 16, 2021, Defendants affirmed that they had withdrawn their request for coverage from Hanover. Through counsel, Defendants communicated the details of their withdrawal to Plaintiffs

RIPENESS AND DECLARATORY RELIEF

The Declaratory Judgment Act authorizes federal courts to review claims for declaratory relief. The animating purpose of a declaratory judgment remedy is to guide parties in their future conduct in relation to each other, thereby relieving them from the risk of taking undirected action incident to their rights.

The doctrine of standing is grounded in the Constitution’s limits on the Article III judicial power. Ripeness, another justiciability doctrine, determines when a case or controversy is fit for federal judicial review.

A claim is not ripe for adjudication if it rests upon contingent future events that may not occur as anticipated, or indeed may not occur at all. A declaratory claim is only ripe for judicial resolution when the facts alleged, under all the circumstances, show that there is a substantial controversy between parties having adverse legal interests of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.

PLAINTIFFS’ CLAIM FOR DECLARATORY RELIEF

Plaintiffs’ Complaint seeks a declaration that Hanover owes no duty to defend or indemnify Defendants in the HomeAdvisor lawsuit. However, Defendants notified Plaintiffs that they were withdrawing their claim for insurance coverage related to the HomeAdvisor lawsuit.

The facts of this case do not call for declaratory relief on either the duty to defend or duty to indemnify questions. Critically, Defendants no longer seek coverage under the relevant insurance policies for defending against the HomeAdvisor lawsuit. As a result, there is not a live question regarding Plaintiffs’ duty to defend Defendants in that litigation.

If Plaintiffs do not deny Defendants coverage in defending against a potential future amended complaint in the HomeAdvisor lawsuit Defendants-or if Defendants never again seek such coverage-then a decision from this Court concerning Plaintiffs’ duty to defend will have no effect. Were the Court to interpret the relevant CGL and Excess/Umbrella policies’ language regarding a duty to defend at this juncture, such a ruling would be premature and therefore tantamount to an advisory opinion in contravention of Article III.

Similarly, Plaintiffs’ duty to indemnify Defendants under the relevant CGL policies is not ripe for resolution. Whether Defendants should be indemnified by Plaintiffs against liability for injuries “would depend in the first place upon whether [Defendants] are found to be liable for the” conduct alleged in the HomeAdvisor lawsuit, but “[that question cannot be answered at this time.” Thus, this Court cannot at this time exercise its prerogative under 28 U.S.C. § 2201 to issue a declaratory judgment on the indemnity question.

Defendants’ Motion to Dismiss was granted. Plaintiffs’ Complaint was dismissed without prejudice.

ZALMA OPINION

In this case Hanover denied defense and indemnity to the defendants who, after some discussion, withdrew their claims. With no claim pending – only a potential for a future claim – Hanover refused to accept the fact that it had won the argument about the availability of coverage for defense or indemnity and filed a complaint for declaratory relief seeking the order of the court that the decision of the defendants not to seek defense or indemnity was correct and preventing them from changing their mind.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

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

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

 

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Fake Claim, Fake Experts, Claims Fail

Experts Prove All Claimed Damages are Wear and Tear

See the full video at https://rumble.com/v1g37tz-fake-claim-fake-experts-claims-fail.html  and at https://youtu.be/NhfL02JX2ec

It is not proper to try to shoe-horn a distant explosion into a claim for property damage to an old, worn out house, whose damages had no relationship to the explosion. In fact, making the claim for pre-exisiting damages is fraudulent.

In John Hall v. State Farm Lloyds, Civil Action No. H-21-1769, United States District Court, S.D. Texas, Houston Division (July 28, 2022) the USDC in Texas resolved the dispute after considering all of the evidence presented by the parties.

BACKGROUND

Hall alleges that his home was damaged by an explosion that occurred 1.8 miles away from his house.  State Farm moved for summary judgment, submitting reports from two engineers who separately inspected the property and concluded that the damage they observed was not caused by the explosion, but instead by “normal wear and tear, minor material and installation deficiencies, a lack of maintenance, as well as expansion and contraction of the building materials due to naturally occurring variations in temperature and humidity.”

Hall has a homeowner’s insurance policy with State Farm. The policy “insure[s] for accidental direct physical loss to the property,” but it does not cover losses caused by natural wear and tear, deterioration, or “settling, cracking, shrinking, bulging, or expansion of . . . foundation, walls, floors, roofs, or ceilings.”

On January 24, 2020, a propylene-tank leak caused an explosion at Watson Grinding and Manufacturing at 4525 Gessner Road, in Houston, Texas. Hall’s home-which was built in 1960 and which Hall purchased in 1983-is 1.8 miles from the explosion site. Hall did not hear or feel anything from the explosion, which occurred when he was asleep. He heard about the explosion later that day on the news.

After learning of the explosion, Hall inspected the home “but . . . did not see any damage at that time.” Hall began to suspect that he “did, in fact, sustain damage to [his] home from that explosion” only when the ceiling in his garage fell down six or seven months later, in July or August 2020. After Hall removed fallen sheetrock from the garage floor, he inspected the ceiling and noticed that “the joists . . . were bowed.” Hall saw no other damage on the inside or outside of his home.

Hall retained counsel and submitted a claim in September 2020 under the policy. In April 2021, Hall filed this lawsuit against State Farm, even though it had not yet resolved Hall’s claim. The delay was largely due to difficulties in getting the property inspection done. The complaint included seemingly irrelevant and false allegations, including that State Farm acted in bad faith “in an action for property damage due to plumbing leaks” and that “the insurer was found to have hired an investigating firm biased against finding liability.” Hall’s claim was not for “plumbing leaks,” and State Farm had not denied Hall’s claim at that point.

State Farm had inspected Hall’s property only a few days before Hall filed his lawsuit. One reason for the delay was that the engineer State Farm hired to inspect Hall’s property “asked to be removed” from the assignment because of “concerns in regards to communication between [Hall’s] attorney rep and the engineer . . . and directives [from Hall’s attorney] on how the inspection was going to be completed.” That engineer later “submit an invoice for the amount of time” he spent unsuccessfully “attempt[ing] to coordinate the visits” to Hall’s property. In short, Hall’s counsel appears to have been a significant reason for State Farm’s delay in adjusting the claim.

State Farm did retain a second engineer-Dan Rich from Rich Engineering-who was able to inspect the property in March 2021, but not without difficulty. Hall’s counsel refused to allow Rich to speak with Hall “regarding the history of the residence or the damage that was being attributed to the WGM explosion.” At the time of the inspection, “Rich Engineering was not informed of what damage Mr. Hall was specifically attributing to the explosion.” After the inspection, Rich Engineering emailed Hall’s counsel a list of questions about the property. Neither Hall nor his counsel responded.

Based on the inspection, Rich Engineering concluded that “[t]he residence was not damaged by the explosion.” The report states that: the “foundation was not damaged by the explosion”; cracks in the drywall “were consistent with normal wear and tear, minor material and installation deficiencies, a lack of maintenance, as well as expansion and contraction of the building materials due to naturally occurring variation in temperature and humidity”; the roof was not damaged; cracks in the attic framing “were aged . . . indicat[ing] that the damage predated the explosion”; the “brick veneer cracks had an aged appearance which indicated that they predated the explosion”; and “Rich Engineering did not observe any broken window panes during its site visit.”

As a result of Rich Engineering’s report, State Farm informed Hall’s counsel in May 2021 that it was denying Hall’s claim. The denial letter stated that State Farm’s “investigation revealed the residence was not damaged by the explosion.”

State Farm also hired a structural forensic investigator to inspect the property, BSC Forensic Services, LLC, “to document conditions consistent with the effects of an explosion that occurred on January 24, 2020, at the Watson Grinding Facility, if any.” The BSC report noted that “BSC’s inspection revealed no conditions at the subject property that could be attributed to energy waves associated with the reported explosion,” and noted that “the surrounding properties of similar construction also exhibited no such evidence.” The report concluded that the “collapsed ceiling in the garage . . . was attributable to long-term sagged condition of the ceiling joists associated with improper lumber (large knots) and excessive loading from roof beam supports in the attic space above,” and that this condition was not “caused or exacerbated by the reported explosion event.”

“Experts” Must See the Damage and Have Qualifications to Testify

Hall responded with a report from an engineer who did not visit the property, did not review State Farm’s experts’ reports, and did not state any basis for opining that the home “seemed” to be damaged by the explosion. Hall also submitted a report from a meteorologist whose speculations as to the root cause of the alleged damage are both beyond his expertise and unhelpful.

The Motion to Exclude Expert Testimony

Rule 702 charges trial courts to act as “gate-keepers,” making a preliminary assessment of whether the reasoning or methodology underlying the testimony is scientifically valid and of whether that reasoning or methodology properly can be applied to the facts in issue. Expert testimony must be both “relevant and reliable” to be admissible.

Greg Degeyter’s Report

Greg Degeyter is a lawyer who has also worked as a volunteer meteorologist and an adjunct professor in Lamar University’s Department of Earth and Space Science. Degeyter, as a meteorologist, is qualified to testify as to weather events at Hall’s property. Degeyter is perhaps qualified to testify as to whether certain weather events are likely to cause property damage. Degeyter is unqualified to testify as to the extent of the effects of a distant explosion and whether the damage found in Hall’s home was at all related to that explosion.

Shiran Perera’s Report

Shiran Perera is a structural engineer who was designated to opine on whether the blast “caused damage[] to the insured property.” Perera speculated that there was some damage that “seemed” to be related to or could “possibly” be consistent with vibration-related damages.  It was excluded because his testimony was unreliable.

The Motion for Summary Judgment

The dispute is whether the damage to Hall’s home was caused by an explosion months earlier and 1.8 miles away. State Farm presented ample evidence that “[t]he residence was not damaged by the explosion.”  Hall’s evidence-construed generously- supports only the conclusions that Hall’s home had several structural issues (as demonstrated by the photographs), that an explosion 1.8 miles away occurred in January 2020, and six months after the explosion, parts of the garage ceiling fell, and some cracks were found.

Hall presented no evidence that the explosion did, in fact, damage his home.

As a matter of law, State Farm did not breach the policy by denying Hall’s claim for coverage. The breach of contract claim was, therefore, dismissed. Hall did not point to or present admissible evidence showing that State Farm violated the Texas Insurance Code, engaged in deceptive trade practices, breached a duty of good faith and fair dealing, conspired to commit illegal acts, or committed fraud. These claims were also dismissed.

ZALMA OPINION

The decision was obvious. State Farm presented evidence and Hall presented speculation while working hard to set up a bad faith case against State Farm. By dismissing the suit the court did what it was required to do. It should, however, in my opinion have also reported Hall to the US Attorney for attempting to defraud State Farm.

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(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

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

Write to Mr. Zalma at zalma@zalma.comhttp://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalmaGo to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0ExpgGo to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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Insurer not a Horse Thief, But a Life Saver

Making Sick Horse Well is not a Breach of Horse Mortality Policy

Is it a Breach of the Covenant of Good Faith to Save the Life of a Sick Horse?

See the full video at https://rumble.com/v1i9mhd-insurer-not-a-horse-thief-but-a-life-saver.html and at https://youtu.be/4gW-Q307b0A

The parties sued over an insurance dispute concerning a champion show horse named Thomas. Thomas is alive and well, but Thomas’s owner, Julie Greenbank, sued her insurer, Great American Assurance Company, for failing to provide mortality coverage for Thomas.

In Julie Greenbank v. Great American Assurance Company, No. 21-2622, United States Court of Appeals, Seventh Circuit (August 30, 2022) Greenbank alleged that Great American breached the insurance policy and acted in bad faith by unreasonably withholding consent for Thomas’s authorized humane destruction, opting instead to perform a tenotomy that destroyed Thomas’s use as an athletic show horse.

She also alleged that Great American’s continued care and control over Thomas, long after the policy terminated, constitutes conversion and theft. The district court dismissed her claims at summary judgment, and Greenbank appealed.

THE INSURANCE POLICY

In September 2017, Greenbank purchased an American Saddle bred gelding horse named Awesome whose barn name was “Thomas” for $500,000. Greenbank intended to use Thomas as an athletic show horse for competitive purposes.

Shortly after this purchase, Greenbank obtained a mortality insurance policy with Great American for Thomas’s full purchase price. The policy provided coverage in the event of Thomas’s “death” or “authorized humane destruction.”

Under the policy, a horse’s death or authorized humane destruction must result, in part, from an illness, injury, or specific surgery.

To obtain coverage in the event of Thomas’s death or authorized humane destruction, the policy required Greenbank to meet certain conditions precedent. One condition precedent required Greenbank to immediately notify Great American if Thomas becomes ill. The policy notes that failure to provide immediate notice of Thomas’s illness “will invalidate any claim under the policy.” If Thomas became ill, the policy allowed Great American to, with Greenbank’s permission, assume control over Thomas’s treatment.

In addition to mortality coverage, the policy also includes a “Major Medical Endorsement” (MME) and a “Guaranteed Renewal Endorsement” (GRE).

THOMAS’ HEALTH

In December 2017, Greenbank boarded Thomas at Cedarwood Farms in Evansville, Indiana, to begin training with Chuck Herbert. In February 2018, however, Thomas became sick with colic and pneumonia. Thomas lost 50 pounds, and developed cellulites in all four legs and uveitis in his eye. Based on this, Dr. Stone determined that Thomas was “very sick.” On top of this, Thomas later pulled his right stifle, rendering him lame in his right hind; Thomas’s ability to get up and down was compromised.

Greenbank reported Thomas’ pneumonia to Great American. After hearing from a vet that Thomas might need to be euthanized, Great American, pursuant to the policy, retained its own veterinarians to provide treatment for Thomas. Eventually, Thomas was transported to Hagyard Equine Medical Institute, a facility in Lexington, Kentucky, where Dr. Kathy MacGillivray became Thomas’s primary veterinarian.

Dr. MacGillivray evaluated Thomas and determined that Thomas suffered from a deep lung abscess and severe laminitis. Dr. MacGillivray advised that based on Thomas’s declining health, it would not be unreasonable to make a euthanasia recommendation. She wanted to try treatment first, before recommending euthanasia.

Thomas received treatment for his deep lung abscess first, followed by his severe laminitis. For the latter condition, veterinary podiatry specialist Dr. Brian Fraley recommended that Thomas undergo a tenotomy, which involves a one-inch incision and cutting the deep flexor tendon to restore blood flow and relieve pressure on the coffin bone. Greenbank objected to Thomas’s tenotomy on the basis that it would destroy Thomas’s future athleticism as a show horse; she requested more conservative treatments. But Dr. Fraley advised that the tenotomy was Thomas’s only chance of regaining any athletic ability, because, after a tenotomy, the tendon would eventually heal and become functional. Dr. Fraley performed Thomas’s tenotomy, and as he would later testify, Thomas’s tenotomy went well and Thomas had a “remarkable” recovery.

Within a year after his surgery, Thomas gained back his weight and returned to trotting, bucking, running, and galloping around the Pine Ridge Farm, where he now resides.

GREAT AMERICAN’S POLICY ACTIONS

Greenbank’s policy expired on September 28, 2018. To renew the policy under the GRE, she submitted a payment of $14,725.000. Great American however, denied the policy renewal based on Greenbank’s failure to meet several conditions precedent, including providing Great American with immediate notice of Thomas’s illness in February 2018.

Though the policy has terminated, Great American continues to care for and maintain control of Thomas.

Greenbank’s Lawsuit Dismissed at Summary Judgment

The district court determined that Great American did not breach the policy because there was no covered cause of loss: Thomas did not die by natural causes nor authorized humane destruction.

Breach of Contract

Greenbank argued that Great American breached the insurance policy but failed to provide evidence to show that Great American breached the insurance.

Mortality Coverage

The mortality insurance policy at issue only provides coverage in the event of Thomas’s “death” or “authorized humane destruction.” There is no dispute that Thomas did not die naturally or by authorized humane destruction. That alone should end the inquiry into whether Great American breached a mortality insurance contract. Thomas saw three veterinarians over a period of five months, and during that time, no veterinarian suggested that Thomas needed to be euthanized, let alone certified that fact to Great American. The possibility of euthanasia is neither certification nor a determination that immediate euthanasia was imperative for humane reasons.

There was no evidence that Great American expressly agreed to euthanize Thomas and nothing in the policy required it to do so. Nothing in the contract said that Great American was expected to protect Thomas’s use as a show horse. To protect against Thomas’s use as a show horse, Greenbank could have sought a loss of use policy. She cannot now attempt to turn a mortality insurance policy into a loss of use policy by claiming that Great American unreasonably withheld authorized humane destruction.

BAD FAITH

In addition to her breach of contract claims, Greenbank argues that Great American acted in bad faith based on several policy actions relating to (1) the mortality coverage and (2) the GRE.

Mortality Coverage

Great American did not wrongly deny mortality coverage, therefore, Greenbank is unable to show bad faith as to this claim. Just because Great American did not choose the medical route Greenbank desired, or otherwise resolve the claim to her liking, does not mean Great American acted in bad faith.

GRE Renewal

Because Greenbank failed to show that Great American breached the contract under the GRE, her bad faith claim fails for this reason as well.

Conversion and Theft

Tortious conversion, or common law conversion, is either “the appropriation of the personal property of another to the party’s own use and benefit.” A plaintiff claiming tortious conversion must establish that he or she owned the property, and that the defendant’s possession was unauthorized or without consent. Where the defendant’s initial possession of plaintiff’s property is lawful, conversion occurs only after an unqualified demand for return, unless such demand would be futile. There is no dispute that Great American’s initial possession and control of Thomas was lawful based on the policy. The district court properly denied the motion.

It is unusual that Great American maintained control of Thomas long after the policy terminated. Greenbank, however, has failed to demonstrate that Great American’s control of Thomas falls within the bounds of common law conversion, because of a very important fact-she never demanded Thomas, and she has failed to show that any demand for Thomas would have been futile.

Statutory Conversion and Theft

Unlike tortious conversion, statutory conversion does not require a plaintiff to demand a return. Although a demand for return is not required, a plaintiff must present evidence to raise a reasonable inference that the defendant was aware that their possession was unauthorized.

Contrary to the allegations no evidence exists for a jury to determine that Great American knowingly or intentionally exercised unauthorized control over Thomas.

This is especially true when Greenbank’s counsel specifically stated during a telephonic court conference that Great American could keep Thomas: When the magistrate judge asked, “Do you want the horse or not?,” Greenbank’s counsel replied, “No, as far as we are concerned, they can keep it.”  With no evidence that Great American knew that their continued control of Thomas was purportedly unauthorized, Greenbank’s statutory conversion and theft claims fail.

The judgment of the District Court was affirmed.

ZALMA OPINION

A horse owner upset because the insurer saved the life of the horse, at its expense, and the horse is now alive and well, is counter-intuitive. Most horse owners want their horse to live and be well. In this case the insured wanted the horse dead because she could recover $500,000. She would recover nothing if veterinarians paid for by the insurer brought the horse back to health. The Seventh Circuit dealt with all of the Plaintiff’s specious arguments especially when she refused possession of her half-million dollar horse who is now well and acting like a healthy horse.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

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

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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Zalma’s Insurance Fraud Letter – September 1, 2022

Volume 26, Issue 17 – September 1, 2022

The issue, available as a 25 page .pdf document here ZIFL-09-01-2022

See the full video at https://rumble.com/v1i44c7-zalmas-insurance-fraud-letter-september-1-2022.html  and at https://youtu.be/75WWxAt2UU0

The issue includes articles including:

Public Adjuster Firm Accused of Pocketing $600,000 in Insurer Payouts in 2 States

Andrew Joseph Mitchell, according to the Texas Department of Insurance, who reported that a public adjusting firm that was sanctioned last month by Louisiana regulators has pocketed more than $300,000 in insurer payouts intended for Texas property owners.

Michigan Allows Fraudster to Receive PIP Benefits but no UM/UIM Benefits

Plaintiff appealed the trial court’s order granting summary disposition in favor of defendants Home-Owners Insurance Company (“Home-Owners”), American Country Insurance Company (ACIC), and Hartford Accident and Indemnity Company (“Hartford”), with respect to plaintiff’s claims for uninsured or underinsured motorist benefits and first-party personal protection insurance (PIP) benefits under the no-fault act, MCL 500.3101 et seq. Although defendants disputed their priority to pay PIP benefits, the trial court did not decide the priority issue, but instead dismissed all claims on the basis of antifraud provisions in defendants’ respective policies.

In Jonathan Jones v. Home-Owners Insurance Company, American Country Insurance Company, And Hartford Accident & Indemnity Company, and Sharneta Henderson, No. 355118, Court of Appeals of Michigan (August 18, 2022) the Court of Appeal produced a Solomon-like decision.

The Law Applies to Thee but not to Me – Insurance Fraud Pays in New York

Oneatha Swinton, the former acting principal of Port Richmond High school in Staten Island, New York, convicted of car insurance fraud kept her employment with the New York Department of Education – and even got a raise – despite what school investigators called her “pattern of dishonesty.”

The DOE gave Swinton, a deal to stay on despite the criminal conviction plus findings that she improperly funneled $100,000 in school funds to a vendor, and “failed to safeguard” 600 DOE computers, printers and laptops which vanished under her watch.

California Claims Regulations

Fair Claims Settlement Practices Regulations 2022

If You Haven’t Complied by Today You are in Violation

Insurers licensed or operating in California must ascertain that their entire claims staff has read, understood or be trained about the California Fair Claims Settlement Practices Regulations by September 1 of Each Year and be ready to swear under oath that the Regulation has been complied with by the insurer.

Before Electing to Rescind

Bases for Rescission

The primary bases for rescission are:

  1. misrepresentation or material fact(s),
  2. concealment of material fact(s),
  3. mistake of material fact(s),
  4. mistake of law, or
  5. fraud.

New York StateWide Senior Action Council Announces It’s Medicare Fraud of the Month

Telemedicine Fraud.

“Telemedicine Fraud, often called Telehealth Fraud is a growing trend in Medicare. The COVID-19 pandemic created unprecedented challenges for how patients accessed health care with the need for social isolation leading to an explosion in remote Telemedicine care,” stated Maria Alvarez, Executive Director of StateWide in announcing this month’s Medicare Fraud of the Month.

The StateWide Fraud of the Month is a component of the Senior Medical Patrol, the definitive resource for New York State’s senior citizens and caregivers to help detect, prevent, and report Medicare fraud and waste. StateWide is New York’s grantee/administrator for this Federal Program.

Good News From the Coalition Against Insurance Fraud

Ricky Gonzales ran Ricky’s Construction Company, which supplied construction labor for contractors. The Tampa, Fla.-area man lied he paid workers’ compensation for the laborers he provided — who were undocumented immigrants. The contractors then sent Gonzales what they thought were payroll checks. Gonzales cashed the checks at banks to pay the workers. Gonzales lied that employees had full worker’s comp. In truth, he received and cashed more than $7M of checks from construction contractors for his employees. That far exceeded the limited payroll that Gonzales reported to his comp insurer. His employees thus worked at job sites without adequate insurance coverage. The insurers lost premiums they would’ve charged had they known the true number of workers their policies were being manipulated to cover. Gonzalez also illegally avoided state and federal payroll taxes. He pled federally guilty and faces up to 25 years in prison when sentenced.

And many more convictions.

Health Insurance Fraud Convictions

South Bay Chiropractor Sentenced to Prison for Receiving Kickbacks

A Redondo Beach chiropractor was sentenced to 14 months in prison for soliciting kickbacks from other hospitals. (Shutterstock)

Brian Carrico, 68, of Redondo Beach, was sentenced August 26, 2022 to 14 months in federal prison by U.S. District Judge Josephine L. Staton, who also ordered him to pay a fine of $25,000.

The South Bay chiropractor was sentenced for taking kickbacks from Pacific Hospital — a medical center in Long Beach whose then-owner was later imprisoned — and for soliciting kickbacks from another Southern California hospital. Carrico pleaded guilty in February to one count of soliciting kickbacks — the same day his two Redondo Beach-based companies, Performance Medical & Rehab Center Inc. and One Accord Management Inc. — each pleaded guilty to one count of conspiracy to solicit kickbacks.

And dozens more convictions.

Zalma on Insurance at Locals.com

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Florida Sting Operation Busted 13 Contractors Without Workers’ Comp

In an attempt to save the few remaining insurers doing business in Florida, the state has taken aim at unlicensed contractors who some claim have increased the cost of repair to property in Florida.

Other Insurance Fraud Convictions

Florida Staffing Firm Head Sentenced to 24 Years for Off-Book Labor Scheme

Mykhaylo Chugay from 2007 to 2021 according to federal prosecutors said, operated a number of shady staffing companies in south Florida that avoided paying more than $25 million in federal taxes. Last week, a federal judge sentenced Chugay to 24 years in prison for his June conviction on crimes that included fraud, harboring illegal aliens and money laundering, according to prosecutors and news reports.  Plus many more convictions.

Insurance Fraud in the U.K.

On August 25, 20200 the Association of British Insurers and the Insurance Fraud Bureau Announced:

  • The number and cost of fraudulent claims fell in 2021, but the average scam uncovered at a record level of over £12,000.
  • Motor insurance claim fraud still the most common insurance con.

Barry Zalma, Esq., CFE

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

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

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe. Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome. Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; I publish daily articles at https://zalma.substack.com, Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

 

 

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Health Insurance Fraud Damages Patients

360 Months in Federal Prison Not Enough

See the full video at https://rumble.com/v1hz00x-360-months-in-federal-prison-not-enough.html and at https://youtu.be/iDLtRvB7P2o

In UNITED STATES OF AMERICA v. PATRICK EMEKA IFEDIBA, NGOZI JUSTINA OZULIGBO, Nos. 20-13218, 20-13303, United States Court of Appeals, Eleventh Circuit (August 25, 2022)  Patrick Ifediba and Ngozi Justina Ozuligbo appealed their convictions for health care fraud and related crimes. Ifediba, a physician, operated a clinic called CCMC and employed Ozu-ligbo, a licensed practical nurse, there.

Convicted of Acting as a Pill Mill & Doubling as an Insurance Fraud Scheme

The evidence at trial showed that CCMC prescribed large quantities of opioids to patients who had no medical need for them and ran an allergy-testing and treatment scheme in which it required insured patients to undergo allergy testing and prescribed them medication despite their negative allergy tests. The clinic billed Medicare and private insurers for the tests and treatments.

Ifediba and Ozuligbo were indicted on substantive counts of health care fraud, conspiracy to commit health care fraud, money laundering of the clinic’s unlawful proceeds and conspiracy to commit that crime. Ifediba was indicted for unlawfully distributing controlled substances for no legitimate medical purpose and for operating CCMC as a “pill mill” to distribute the controlled substances to patients who had no medical need for them.

After a three-week trial featuring testimony by CCMC patients, medical experts, and law enforcement officials, the jury convicted Ifediba and Ozuligbo on all counts. The court sentenced Ifediba to 360 months of imprisonment and Ozuligbo to 36 months.

BACKGROUND

CCMC Operated as a Pill Mill and Required Insured Patients to Undergo Allergy Testing and Treatment.

Ifediba and his wife, Uchenna Ifediba (“Uchenna”), also a physician, were the only physicians at CCMC. Neither Ifediba nor his wife specialized in pain-management medicine, but they wrote many prescriptions for controlled substances-opioids. CCMC attracted patients who were willing to wait over three hours in a dirty, crowded waiting room to receive prescriptions for controlled substances.

Besides its opioid distribution, CCMC roped patients who had insurance into an allergy fraud scheme. The scheme was a simple one. Every insured patient who came to CCMC had to fill out a questionnaire on allergy symptoms before seeing the doctor. No matter the patient’s answers, an allergy technician performed a skin-prick allergy test on the patient. Regardless of whether the test results were positive or negative, Ifediba prescribed immunotherapy to treat allergies and directed the technicians to order the medication.

Other patients also failed to receive the immunotherapy treatment their insurers paid for.

Insurer Blue Cross Blue Shield of Alabama (“BCBS”) noticed the unusually high volume of allergy-related claims coming from CCMC and announced that it would audit the clinic. In preparation for the audit, Ifediba told clinic staff, including Ozuligbo, to change patient records, turning negative allergy test results to positive and marking allergy symptoms on the patient questionnaires.

A grand jury indicted Ifediba and Uchenna, charging them with multiple counts of unlawfully distributing controlled substances outside the course of professional practice and for no legitimate medical purpose. They were also indicted for conspiracy to distribute the controlled substances and for using and maintaining CCMC for the purpose of distributing controlled substances. All these charges concerned the prescribing of pain-management substances. The indictment also charged Ifediba, Uchenna, Ozuligbo, and Ebio with conspiracy to commit health care fraud through the allergy fraud scheme and substantive counts of health care fraud based on the records of specific patients. It further charged that Ifediba, Uchenna, and Ozuligbo laundered the proceeds of the illegal scheme. Uchenna, who had suffered a severe stroke, was dismissed from the case as incompetent. Ebio pled guilty to one count of conspiracy to commit health care fraud and agreed to testify against Ifediba and Ozuligbo.

The Jury Heard Evidence of Health Care Fraud

The government’s medical expert, Dr. Jim Christensen, told the jury that it was “[a]bsolutely not” appropriate to test patients for allergies just because their health insurance would pay for the test. The Court Convicted and Sentenced the Defendants.

The jury returned guilty verdicts for Ifediba and Ozuligbo. The jury convicted Ozuligbo of conspiracy to commit health care fraud and substantive health care fraud. Ifediba and Ozuligbo were also found guilty of money laundering the proceeds of the illegal allergy scheme and conspiring to commit that crime.

The court sentenced Ifediba to 360 months of imprisonment and Ozuligbo to 36 months.

ANALYSIS

Sufficient Evidence Supported Ifediba and Ozuligbo’s Convictions.

An appellate court must affirm a conviction unless there is “no reasonable construction of the evidence” from which the jury could have found the defendant guilty beyond a reasonable doubt. United States v. Garcia, 405 F.3d 1260, 1269 (11th Cir. 2005).

Patient Records Were Sufficient to Support Ifediba’s Convictions for Substantive Health Care Fraud.

The jury convicted Ifediba of 10 counts of substantive health care fraud, in violation of 18 U.S.C. § 1347(a). To be convicted in a health care fraud case, the defendant must be shown to have known that the claims submitted were, in fact, false.

For each of the counts Ifediba challenges, patient files and billing records demonstrated that he or his co-conspirator, Uchenna, ordered treatment knowing that it was medically unnecessary. Although the patients did not need what he prescribed, he nevertheless made fraudulent representations to the insurers that the patients needed allergy treatment. Testimonial evidence confirmed that Ifediba likely knew the treatment was unnecessary but billed insurers for it anyway.

Thegovernment’s medical expert, Dr. Jim Christensen, testified that it was “inappropriate” to prescribe immunotherapy to someone who tested negative for allergies.  The testimony of fraud investigators for the insurers confirmed that CCMC submitted allergy-related claims for these patients. Further testimony showed that Ifediba personally signed all the bills charging Medicare and private insurers for the medically unnecessary treatment, thereby defrauding them through false claims.

The paper trail and testimony illustrating Ifediba’s fraudulent representations are enough for a jury; live testimony from patients, while helpful, is not required. As a result the court affirmed the jury’s verdict on the four counts of health care fraud.

Sufficient Evidence Supported Ozuligbo’s Conviction for Conspiracy to Commit Health Care Fraud.

To sustain a conviction for conspiracy to commit health care fraud in violation of 18 U.S.C. §§ 1347 and 1349, the government must establish beyond a reasonable doubt that:

  1. a conspiracy existed to commit health care fraud under 18 U.S.C. § 1347;
  2. the defendant knew of the conspiracy; and
  3. the defendant knowingly and voluntarily joined it.

Because the crime of conspiracy is “predominantly mental in composition,” the government may prove these elements by circumstantial evidence and inferences therefrom.  The government need not prove that the defendant knew all the details of the conspiracy; it need only prove “that the defendant knew of the essential nature of the conspiracy.”

There was more than sufficient evidence to demonstrate that CCMC defrauded insurers through an allergy fraud scheme. Patient medical records illustrated that Ozu-ligbo knew of the conspiracy to provide immunotherapy treatment to patients who had tested negative for allergies.

Ozuligbo’s conversation with Special Agent Bullock supports an inference that she knew about the nature of the conspiracy and participated in it. Bullock arranged to meet Ozuligbo at her house for an interview. Standing in her driveway, Ozuligbo told Bullock that she performed allergy tests and provided immunotherapy at CCMC when she used to work there. She told him that CCMC “only did allergy testing and immunotherapy for patients with insurance” because “it was expensive and cash-paying patients wouldn’t pay for it.” On the verge of tears, she told him, “I left there to get away from that craziness and all the crazy patients, and now I work for peanuts.” Id. at 58.

From this evidence, the jury readily could have found that Ozuligbo knowingly participated in a conspiracy to bill for medical services that were not actually medically necessary or delivered to the patients.

Ifediba’s Sentence Was Procedurally Reasonable.

The court noted the trial evidence illustrating that CCMC supplied controlled substances to people who had no medical need for them. Evidence also demonstrated that Uchenna wrote her share of “bad prescriptions,” CCMC provided an “exponentially higher amount of prescriptions” than other clinics of its size, and the clinic likely engaged in unlawful drug distribution before and after the conspiracy period.

The government did not have to prove that each prescription was unlawful because the trial evidence showed that the clinic was a pill mill that did not serve a legitimate medical purpose. Abundant evidence showed that the defendant was aware of its illegitimacy. The  district court  was affirmed on all grounds.

ZALMA OPINION

Health insurance fraud, like that perpetrated by the defendants, has caused the cost of health care for honest, ill or injured people and needs to be stopped. When the fraud is coupled with distribution of controlled substance to drug addicts and others who had no medical reason for the drugs, the physicians are violating their oath to “first do no harm.” The sentences were, considering the harm done to the public, insurers and the government health care plans, were kind and when they get out of jail the defendants will probably live well off the fruits of their crime.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

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

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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A Five-Year Lease is not Temporary

A Lawyer Should Never Sue an Insurer When There is Obviously no Coverage

See the full video at https://rumble.com/v1htsm3-a-five-year-lease-is-not-temporary.html   and at https://www.youtube.com/watch?v=drIvKmEIUK4

This case involves an insurance dispute in which Appellant, Benjamin G. Dusing (Dusing), alleges that a 2016 leased Mercedes was properly insured by Appellee, Metropolitan Property & Casualty Insurance Company (Metropolitan). Metropolitan disclaims coverage for the vehicle, which was destroyed by fire on June 25, 2016.

In Benjamin G. Dusing v. Metropolitan Property & Casualty Insurance Company, No. 2021-CA-0200-MR, Court of Appeals of Kentucky (August 26, 2022) Dusing claimed he was driving the vehicle at the time it caught fire. As a of Metropolitan’s refusal to pay Dusing sued for declaratory judgment in Kenton Circuit Court on June 21, 2017. The court subsequently granted what is styled as Metropolitan’s “Motion for Judgment,” on the basis that there was no coverage pursuant to the terms of insurance policy with Metropolitan (hereafter, the Policy).

A motion for summary judgment should be granted if the pleadings, depositions, answers to interrogatories, stipulations, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.

THE POLICY

The Policy at issue here provides the following relevant terms:

We will pay for loss to your covered automobile or to a non-owned automobile, including its equipment, not caused by collision, minus any applicable deductible shown in the Declarations. Coverage is included for a loss caused by but not limited to the following:

* * *

  1. Fire, explosion or earthquake . . . .

The Policy defines “non-owned automobile” as:

  1. an automobile or trailer while being used by you or a relative, with the owner’s permission, which is not owned by, furnished to, or made available for regular use to you or any resident in your household.

2.a commercially rented automobile or trailer used by you or a relative on a temporary basis.

In granting a judgment in favor of Metropolitan, the circuit court reasoned as follows:

On March 31, 2016, BGD Law, a law firm owned by [Dusing] leased the 2016 Mercedes for a period of five years or 60,000 miles. That lease also provided a 24-month service agreement. The lease also charged BGD Law fees for license and registration of the vehicle.

Dusing asserted  that he is entitled to coverage for the loss of the 2016 Mercedes, claiming that that vehicle was a “non-owned” vehicle under the policy. In response Metropolitan takes the position that the 2016 Mercedes could not qualify as a “non-owned” vehicle for several reasons.

  1. The 2016 Mercedes was not provided on a temporary basis, but rather was the subject of a 5-year, 60,000 mile lease, with a 24-month service agreement.
  2. Metropolitan states that the vehicle was not “commercially rented.” Unlike a rental agreement, the 2016 Mercedes was provided to BGD Law and charged license and registration fees which are not standard for “commercially rented” vehicles. Having reviewed the evidence in this case and having considered the Briefs of the parties, this Court agrees with the position taken by Metropolitan that the 2016 Mercedes was not a “non-owned” vehicle which would allow it to be covered by the policy issued in 2015. In sum, there is no coverage for the loss to this vehicle under the Metropolitan policy.

It is undisputed that Dusing failed to purchase insurance coverage for the 2016 Mercedes. Therefore, it is not a “covered vehicle” pursuant to the Policy which, to be clear, is Dusing’s personal Policy.

The Court of Appeal was logically inclined to agree with the circuit court that a vehicle subject to a five-year lease cannot reasonably be considered as “non-owned” for purposes of the Policy. Indeed, it strains credulity to consider the 2016 Mercedes at issue here to be a “commercially rented” vehicle being used on a “temporary basis,” merely because it was being leased by Dusing’s law firm. Therefore, it was unreasonable to conclude that Dusing had a “reasonable expectation” of coverage.

ZALMA OPINION

This case is an example of a lawyer attempting to force an insurer to pay for a loss he knew, or reasonably should have known, was not covered by his personal auto insurance. A car leased by his law firm and provided for his use is not a personal auto, leased for five years could not be considered “temporary” under any concept of reason, and should have been insured by the law firm that leased it. Although he had an insurable interest in the Mercedes he failed to advise the insurer that it was leased for his use nor did he pay a premium for the policy. Taking the case up to the Court of Appeal was a waste of his time, the trial court’s time and the time of the Court of Appeal.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

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

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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Insurer Must Defend Entities Chosen by Insured

When Insurer Let’s Insured Unilaterally Choose Additional Insureds it has no Standing to Complain

See the full video at https://rumble.com/v1hfbxj-insurer-must-defend-entities-chosen-by-insured.html and at https://youtu.be/A9cI4isj01Y

An insurer, by drafting an open-ended additional insured endorsement that allowed its insured, by entering into contracts under which the insurer would be obligated to provide a defense to people unknown to the insurer and which did not require that its insured to obtain the insurer’s approval of the contracts or require its insured to disclose the identities of the third parties or require that named insured name those parties as additional insureds. The insurer assumed the responsibility of providing defenses for certain unknown and unnamed third-party beneficiaries.

In Westfield Insurance Company v. Walsh/K-Five Jv (I-14-4208); Walsh/K-Five Jv (I-14-4209); Walsh Construction Company Ii, Llc/K-Five Construction Company Jv, a Joint Venture; Walsh Construction Company Ii, Llc; K-Five Construction Corporation; Arch Insurance Company; and Royce Brown, Defendants, Walsh/K-Five JV (I-14-4208), Walsh/K-Five JV (I-14-4209), Walsh Construction Company II, LLC/K-Five Construction Company JV, a Joint Venture, Walsh Construction Company II, LLC, and K-Five Construction Corporation, 2022 IL App (1st) 210802-U, No. 1-21-0802, Court of Appeals of Illinois, First District, Third Division (August 17, 2022) compelled the insurer to live up to its agreements.

FACTS

Westfield Insurance Company (Westfield) filed a declaratory judgment action seeking a determination that it owed no duty to defend or indemnify defendants in an underlying personal injury lawsuit that occurred at a construction site at which Walsh and K-Five were operating a joint venture. In the underlying lawsuit, Royce Brown (Brown), an employee of VMR Contractors, Inc. (VMR), a subcontractor at the construction site, injured himself carrying rebar.

The trial court found Westfield owed a duty to defend each and denied Westfield’s motion to avoid its defense duty.

Walsh entered into two line-item joint venture agreements with K-Five to bid on two separate contracts from the Illinois State Toll Highway Authority, which involved pavement widening and bridge reconstruction work on the Jane Addams Memorial Tollway. Further, the Joint Venture, Walsh (if K-Five was the named insured on the policy) and K-Five (if Walsh was the named insured on the policy) were required to be named as additional insureds in the commercial general liability insurance policy “for claims arising out of the performance of the named insured Party’s Work.

The Westfield Policy

In light of the VMR’s obligations under the subcontracts, it obtained a policy from Westfield that contained commercial general liability insurance with a one-year term. In the general liability declarations, VMR was listed as the named insured.  Section II of the Commercial General Liability Coverage Form was titled “Who Is An Insured” provided   that: “Any organization you newly acquire or form, other than a partnership, joint venture or limited liability company, and over which you maintain ownership or majority interest, will qualify as a Named Insured if there is no other similar insurance available to that organization” subject to three listed conditions.

The Underlying Personal Injury Lawsuit

After VMR obtained its commercial general liability insurance policy, it began work on the Jane Addams Memorial Tollway construction project. In September 2015, Brown was working as an ironworker on the construction project for VMR. While Brown was manually carrying rebar from a designated shakeout area, he injured himself. In August 2017, Brown filed a three-count complaint sounding in negligence against Walsh, K-Five and the Joint Venture for the injuries he sustained while carrying the rebar.

ANALYSIS

Westfield contended that K-Five and the Joint Venture could not be considered additional insureds under VMR’s policy with Westfield because there was no contract in writing that required VMR to add either K-Five or the Joint Venture to the policy as additional insureds. Additionally, Westfield contended that, even if K-Five or the Joint Venture could be considered additional insureds, the joint venture exclusion in the policy negated that coverage. Finally, Westfield argued that the joint venture exclusion also applied to Walsh and negated its potential coverage. As such, Westfield posited that it had no duty to defend Walsh, K-Five or the Joint Venture, and the circuit court’s various rulings must be reversed.

Coverage under the Policy

The prescient words the Illinois Court of Appeal pronounced in LaGrange Memorial Hospital v. St. Paul Insurance Co., 317 Ill.App.3d 863, 870 (2000), when discussing the position insurers place themselves in when obligating themselves to defend unknown third parties with which named insureds have written agreements to add as additional insureds:

By drafting this language, [the insurer] acknowledged and accepted that its insured would be entering into contracts under which [the insurer] would be obligated to provide a defense ***. [The insurer] did not require that its insured get [the insurer’s] approval of the contracts or require its insured to disclose the identities of the third parties or require that [named insured] name those parties as additional insureds. [The insurer] thus assumed the responsibility of providing defenses for certain unknown and unnamed third-party beneficiaries.

That’s what occurred in this case. Because the plain language of the Contractors Endorsement mandates that the endorsement does not apply to “any person or organization covered as an additional insured on any other endorsement now or hereafter attached,” the joint venture exclusion therein did not negate coverage for Walsh, K-Five or the Joint Venture, as additional insureds under the Additional Insured Endorsement.

The Court of Appeal affirmed the circuit court’s rulings that granted defendant Walsh Construction Company II, LLC’s motion for a partial judgment on the pleadings, granted defendants Walsh/K-Five JV (I-14-4208), Walsh/K-Five JV (I-14-4209), Walsh Construction Company II, LLC/K-Five Construction Company JV and K-Five Construction Corporation’s motions for partial summary judgment and denied plaintiff Westfield Insurance Company’s motions for summary judgment where plaintiff had a duty to defend defendants.

ZALMA OPINION

Insurers who give away their underwriting pen to others have learned its decision was expensive. In this case the insurer gave the insured the right to make anyone with whom it contracted additional insureds. By so doing Westfield gave away its right to underwrite its obligation to insure and found it was insuring multiple people it had no idea, when it issued the policy, it insured. Cases like this one should cause insurers to reconsider whether it has sufficient premium to cover the risk it is letting its named insured to impose on it by entering into a contract with others.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

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

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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Surveillance Establishes Fraud Defense

Michigan Allows Fraudster to Receive PIP Benefits but no UM/UIM Benefits

See the full video at https://rumble.com/v1haypj-surveillance-establishes-fraud-defense.html  and at https://www.youtube.com/watch?v=CTB9sk2BslY

Plaintiff appealed the trial court’s order granting summary disposition in favor of defendants Home-Owners Insurance Company (“Home-Owners”), American Country Insurance Company (ACIC), and Hartford Accident and Indemnity Company (“Hartford”), with respect to plaintiff’s claims for uninsured or underinsured motorist benefits and first-party personal protection insurance (PIP) benefits under the no-fault act, MCL 500.3101 et seq. Although defendants disputed their priority to pay PIP benefits, the trial court did not decide the priority issue, but instead dismissed all claims on the basis of antifraud provisions in defendants’ respective policies.

In Jonathan Jones v. Home-Owners Insurance Company, American Country Insurance Company, And Hartford Accident & Indemnity Company, and Sharneta Henderson, No. 355118, Court of Appeals of Michigan (August 18, 2022) the Court of Appeal produced a Solomon-like decision.

BASIC FACTS

This case arises from a motor vehicle accident on October 28, 2017, in which plaintiff’s vehicle was struck by a vehicle driven by defendant Sharneta Henderson in Detroit. Plaintiff alleges that he was operating a 2009 Ford Crown Victoria and was stopped at a red light when Henderson’s vehicle, traveling at a high rate of speed, drove through a red light and struck his vehicle.

Plaintiff sued all three insurers for recovery of no-fault PIP benefits and also uninsured or underinsured motorist benefits. All three insurers filed motions for summary disposition, asserting that plaintiff’s claims were barred by antifraud provisions in the respective policies.

In support of their allegations of fraud, defendants relied on surveillance evidence from February, June, and July of 2018, which contradicted plaintiff’s statements regarding the scope of his injuries and pain, his physical limitations, and his inability to work.  The trial court found that there was no genuine issue of material fact that plaintiff committed fraud by making material misrepresentations in his deposition and held that all three insurers were entitled to summary disposition on the basis of the antifraud provisions in the policies, and accordingly, dismissed all claims against the insurers.

SUMMARY DISPOSITION

PRIORITY UNDER MCL 500.3114

Initially, the Court of Appeal concluded that the trial court erred by failing to address which insurer had priority to pay PIP benefits under MCL 500.3114.

The general rule is that one looks to a person’s own insurer for no-fault benefits unless one of the statutory exceptions applies. An individual may be entitled to PIP benefits mandated by the no-fault act even if the person is not a named insured “under a no-fault policy, and such a person is not subject to the policy’s antifraud provision.” Because the plaintiff’s entitlement to no-fault benefits was governed by statute, the exclusionary provision in the defendant’s no-fault policy did not apply and could not operate to bar the plaintiff’s claims.

Accordingly, the Court of Appeal reversed the trial court’s order granting summary disposition and remanded the case for a determination of the priority of the potential insurers, whether plaintiff is entitled to benefits under a policy, and whether the benefits arise by statute or contract.

POST-PROCUREMENT FRAUD

Although the trial court concluded that summary disposition was appropriate because of the antifraud provisions of the insurance policies at issue, it failed to determine whether plaintiff was considered an insured for purposes of the policies and whether any alleged fraud occurred to induce the policies as opposed to post-procurement fraud and whether statutory or common-law defenses were available in light of the fraud at issue. See Meemic Ins Co v Fortson, 506 Mich. 287, 305; 954 N.W.2d 115 (2020); Williams v Farm Bureau Mut Ins Co of Mich, 335 Mich.App. 574, 578, 580; 967 N.W.2d 869 (2021) (holding that if the alleged fraud did not influence or induce the policy’s procurement, and antifraud provisions are invalid when they purport to apply to misrepresentations or fraud that occurs after the policy has been issued.

UNINSURED AND UNDERINSURED MOTORIST BENEFITS

Plaintiff’s complaint also included claims for uninsured and underinsured motorist coverage. The insurance policy itself will govern the interpretation of its provisions regarding uninsured motorist coverage benefits, which are not required by statute. In cases in which uninsured motorist benefits are at issue, the policy definitions are controlling. Accordingly, because uninsured and underinsured motorist coverage is not mandated by the no-fault act, there is no prohibition against enforcement of the antifraud provisions in the defendant insurers’ policies as applied to this coverage.

The evidence reflects that plaintiff made repeated statements at his December 2018 deposition regarding his pain and physical limitations following the accident, which he claimed affected his mobility and ability to lift items, and his ability to work. These statements were directly contradicted and established to be factually inaccurate by the surveillance evidence, which showed plaintiff moving freely without apparent pain and discomfort, and repeatedly lifting heavy items into a vehicle. Accordingly, the trial court properly concluded that the evidence, specifically plaintiff’s deposition testimony and the surveillance evidence, establishes that there is no genuine issue of material fact regarding whether plaintiff made false and material misrepresentations, knowing the representations to be false.

False statements made during discovery do not provide grounds to void the policy. To be clear, once an insurer fails to timely pay a claim and suit is filed, the parties’ duties of disclosure are governed by the rules of civil procedure, not the insurance policy. A plaintiff-insured only commences suit after the defendant-insurer denies the plaintiff’s claim and that the denial cannot possibly be based on an event that has not yet taken place. This does not mean that a defendant cannot rely on evidence of fraud obtained after litigation commences. It simply means that the evidence must relate to fraud that took place before the proceedings began.

Plaintiff’s statements during his deposition, which took place after litigation commenced, cannot be used to implicate an antifraud provision in an insurance policys. However, fraudulent statements made before litigation is commenced properly can be considered and can implicate an antifraud provision in an insurance policy.

In this case, plaintiff participated in a recorded interview with a Home-Owners representative on February 16, 2018, before this litigation was commenced. Plaintiff made all of the same false statements he made in his later deposition.

At the time of his recorded statement, plaintiff lied about the extent of his injuries and his condition that was proved false by the surveillance evidence.

Viewing the evidence in a light most favorable to plaintiff, there is no genuine issue of material fact that plaintiff made material misrepresentations regarding his physical limitations, including his ability to conduct his daily activities of living, that were established by the surveillance evidence to be factually incorrect and untruthful. The surveillance evidence was clear, uncontroverted, and undermined plaintiff’s claim that his injuries hindered his ability to care for himself.

The evidence was also such that reasonable minds could not disagree that plaintiff made the statements during his recorded interview knowing that they were false, and with the intent that a no-fault insurer would act on them to determine that he was entitled to coverage. Accordingly, the Court of Appeal concluded that trial court did not err by dismissing plaintiff’s claims for uninsured and underinsured motorist benefits on the basis of plaintiff’s fraudulent misrepresentations.

In sum, the Court of Appeal affirmed the trial court’s order granting defendants summary disposition with respect to plaintiff’s claim for uninsured or underinsured motorist benefits but reversed the order to the extent that it dismissed plaintiff’s claim for PIP benefits and remand for further proceedings.

ZALMA OPINION

The Michigan no-fault statute needs amendment to deprive a person of benefits if he or she commits fraud in the presentation of the claim. This case allows the plaintiff to collect no-fault benefits even though his presentation of claim is clearly false and fraudulent. Trial to determine the extent of those benefits – because of the fraud – will be interesting and limited. Of course, since the fraud is so obvious, plaintiff Jones should be arrested, tried and convicted for insurance fraud under the state’s criminal statutes. Michigan Insurance Code Section 500.4503, and Section 500.4511 make it a felony to knowingly lying about, or concealing an important fact in connection with a insurance claim or payment made under an insurance policy. Applies to issuing fake insurance policies and rate-fixing. Also includes conspiring to do any of the above. The court should have referred Jones to the district attorney.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

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

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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Search for Deep Pocket Fails

Substantial Compliance with Statute Transfers Title to Vehicle

See the full video at https://rumble.com/v1h6b2t-search-for-deep-pocket-fails.html  and at https://youtu.be/awbte842eRA

SERIOUS INJURY ALWAYS BRINGS LITIGATION

When an accident results in serious injuries the lawyers for the injured parties seek other defendants, no matter how weak the argument may be to bring in additional defendants.

In Delores Zepeda v. Central Motors, Inc., No. 2021-SC-0204-DG, Supreme Court of Kentucky (August 18, 2022) the Kentucky Supreme Court was faced with an argument that a car dealer who sold a vehicle to another and was a few days short on filing all of the transfer of title paperwork, should be held to be the owner of the vehicle and, therefore, responsible for the injuries.

This appeal was solely concerned with determining the statutory ownership of the BMW between Garcia and Central Motors which controlled whether Zepeda could dip into Central Motors’ insurance.

FACTS

Dolores Zepeda (Zepeda) was grievously wounded in an automobile accident. She filed a claim against Central Motors, Inc. (Central Motors) alleging it was the statutory owner of the 2002 BMW in which she was a passenger at the time of the accident. The trial court granted summary judgment in favor of Central Motors, holding it had substantially complied with KRS 186A.220 when it sold the vehicle to Juan Garcia (Garcia) and was no longer the statutory owner of the vehicle. Zepeda appealed and the Court of Appeals affirmed the lower court’s ruling.

Central Motors purchased the vehicle from Loan Portfolio Services in Tennessee on March 19, 2014 and brought the vehicle into Kentucky the same day. Central Motors did not file a notice of vehicle acquisition with the Fayette County Clerk within fifteen (15) days per KRS 186A.220(1). Garcia purchased the vehicle from Central Motors on July 24, 2014 and executed a bill of sale, retail installment contract and security agreement for the purchase. As part of the transaction, Garcia also executed a power of attorney, designating Central Motors as his attorney-in-fact so it could deliver the assigned certificate of title and other documents to make the application for registration and certificate of title on Garcia’s behalf. Central Motors obtained proof of insurance from Garcia and then transferred physical possession of the vehicle to him on July 24, 2014.

On August 11, 2014, Central Motors paid the required fees and submitted an application for a Kentucky certificate of title and registration and delivered the assigned certificate of title from Tennessee to the Fayette County Clerk. Central Motors then filed a title lien statement with the Woodford County Clerk on August 13, 2014. Woodford was the county in which Garcia resided.

Juan Garcia was the father of Darley Morales (Morales). Though Morales did not possess a valid driver’s license, Garcia let Morales drive the vehicle. On August 14, 2014, Morales was driving the 2002 BMW when he caused it to crash in a single vehicle accident. Morales had a blood alcohol level (BAC) of 0.145. The accident killed Morales and left his passenger, Zepeda, paralyzed. The title was issued in Garcia’s name the next day on August 15th and the registration was completed on the 18th, three days later.

Zepeda sued the Estate of Morales seeking compensatory and punitive damages; against Garcia for negligent entrustment; against Allstate Property & Casualty Insurance Company (Allstate) for underinsured motorist coverage; and against Central Motors as the purported statutory owner of the vehicle.

Central Motors filed a motion for summary judgment. The trial court ruled Central Motors had substantially complied with the statute when it submitted an application for certificate of title along with the previous title. The trial court reasoned Central Motors provided notice under KRS 186A.220(1) to the Fayette County Clerk when it submitted the aforementioned documents. Therefore, the trial court reasoned, under the Kentucky Supreme Court’s decision in Travelers Indem. Co. v. Armstrong, 565 S.W.3d 550 (Ky. 2018), that there was substantial compliance with KRS 186A.220.

ANALYSIS

In this case Central Motors was the title holder but Garcia had received physical possession of the BMW pursuant to a bona fide sale on July 24, 2014.

Despite Kentucky being a certificate of title state for the purpose of determining ownership and for requiring liability insurance coverage, KRS 186.010(7)(c) provides an exception to the general rule. If a licensed motor vehicle dealer delivers physical possession to the buyer and complies with KRS 186A.220 then ownership transfers upon physical delivery of the vehicle.

By violating the strict requirements of the provisions (namely, the 15 day requirement) but still accomplishing the goal (notifying the clerk of the acquisition of the vehicle), the intention of the statute is still upheld. Substantial compliance, i.e., late compliance, may still allow the dealer to take advantage of the exception in KRS 186.010(7)(c).

The purpose of the KRS 186A.220(1) is to effectuate an efficient registration and titling process. If a dealer complies with these requirements late, it does not vitiate the overarching goal. The statute is directory and substantial compliance is sufficient for those sections.

A licensed dealer can cure an untimely compliance with KRS 186A.220, sections 1 through if the dealer has complied before the accident, it can still avail itself of the exception in KRS 186.010(7)(c).

KRS 186.010(7) provides: “’Owner’ means a person who holds the legal title of a vehicle or a person who pursuant to a bona fide sale has received physical possession of the vehicle subject to any applicable security interest.” and  “A licensed motor vehicle dealer who transfers physical possession of a motor vehicle to a purchaser pursuant to a bona fide sale, and complies with the requirements of KRS 186A.220, shall not be deemed the owner of that motor vehicle solely due to an assignment to his dealership or a certificate of title in the dealership’s name. Rather, under these circumstances, ownership shall transfer upon delivery of the vehicle to the purchaser. . . .  (emphasis added)

Central Motors substantially complied with KRS 186A.220 and transferred physical possession of the vehicle pursuant to a bona fide sale. As such, Central Motors was not the statutory owner of the vehicle on the date of the accident.

ZALMA OPINION

It is understandable that Zepeda, now a paraplegic, would seek the deep pockets of Central Motors and its insurers. Regardless, the technical argument failed because of the exceptions within the statute and the fact that Central Motors substantially complied with the requirements of the statute, Zepeda’s attempt to reach deep pockets failed and she is left with her suit against the driver, his father and the available insurers. She is also faced with a problem of comparative negligence by riding with an intoxicated, unlicensed driver who eventually drove into a tree and died in the effort.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

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

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

 

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Duty to Defend is not Unlimited

Judgment Eliminating Defamation Coverage Defeats Coverage

See the full video at https://rumble.com/v1h2cyp-duty-to-defend-is-not-unlimited.html  and at https://youtu.be/A1uKgn6yABs

Although the duty to defend is exceedingly broad the obligation of an insurer to defend and insured is not unlimited. In University Of Louisville v. Kentucky School Boards Insurance Trust And Cyril William Helm, No. 2021-CA-1066-MR, Court of Appeals of Kentucky (August 19, 2022) the University of Louisville (the “University”) appealed from the summary judgment in favor of Kentucky School Boards Insurance Trust (KSBIT) regarding KSBIT’s duty to provide a defense and indemnification in a separate circuit court case pursuant to a policy of insurance.

KSBIT is a domestic insurer that was created in 1978 to provide liability coverage to educational entities via a non-profit self-insurance pool of funds. KSBIT issued a general liability insurance policy to the University, which was renewed for several years. The Coverage B section of the policy addresses coverage for personal and advertising liability, and Section I(B)(1)(a) provides in relevant part that “[w]e [KSBIT] will pay those sums that the Member [the University] becomes legally obligated to pay as damages because of ‘personal injury’ or ‘advertising injury’ to which this coverage part applies.” In the definitional section of the policy, Section V(10) defines “personal injury” as: False arrest, detention or imprisonment; Malicious prosecution; the wrongful eviction from, wrongful entry into, or invasion of the right of a private occupancy of a room, dwelling or premises that a person occupies by or on behalf of its owner, landlord or lessor; oral or written publication of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services; oral or written publication of material that violates a person’s right of privacy; or mental injury, mental anguish, shock, humiliation, defamation, and damage to professional reputation.

The underlying matter began with a suit for a declaratory judgment by KSBIT , in January 2021 related to the policy. In this action, KSBIT sought a declaration that it did not have any obligation under the insurance policy to defend or indemnify the University as a result of a Kentucky Whistleblower Act claim filed by Dr. Cyril Helm (Helm v. University of Louisville, Jefferson Circuit Court Case No. 15-CI-01410).

FACTS

Dr. Helm’s dispute with the University began in 2009, after his colleagues had alleged he had committed plagiarism or other misconduct in his research. Dr. Helm went on to file several lawsuits against the University and his colleagues arising from the misconduct allegations and the University’s investigation into whether he had engaged in misconduct, including the one noted above.

In the lawsuit before the court Dr. Helm alleged that he had suffered a personal injury, and KSBIT provided a defense to the University subject to a reservation of rights. Dr. Helm pled a claim for damages, including substantial losses in earnings, job experience, and benefits; damage to his academic reputation; and emotional and physical stress. He sought compensatory and punitive damages as well as costs and attorney fees.

The Jefferson Circuit Court ruled that Dr. Helm could not recover damages for mental anguish/pain and suffering, front pay, or from having to sell his house in a certain market. It also dismissed Dr. Helm’s claim for punitive damages. The only remaining claims were for back pay and attorney fees.

Because Dr. Helm’s claims for back pay and attorney fees did not arise from a personal injury as defined in the policy, KSBIT alleged that there was no longer any factual or legal basis under the policy requiring it to defend or indemnify the University in Dr. Helm’s underlying suit. Therefore, KSBIT sought a declaration that it did not have an obligation to further defend or indemnify the University for the claims Dr. Helm asserted in his underlying action.

The circuit court entered an order granting summary judgment to KSBIT, rejecting the University’s arguments and holding that KSBIT was not required to provide a continuing defense to the University.

ANALYSIS

In its summary judgment the circuit court rejected the University’s argument that the back pay and attorney fees grew out of, flowed from, or had an incidental relationship with Dr. Helm’s claimed damages. It agreed with KSBIT that Dr. Helm’s remaining alleged damages did not arise from the policy’s definition of personal injury. The court therefore held that under the policy’s definition of personal injury, KSBIT was not required to continue to provide a defense to the University against Dr. Helm’s claims.

The proper standard for the analysis of insurance contracts in Kentucky is a subjective one. Terms of insurance contracts that have no technical meaning in law and are to be interpreted according to the usage of the average man and as they would be read and understood by him in the light of the prevailing rule that uncertainties and ambiguities must be resolved in favor of the insured.

In Kentucky, as in all jurisdictions, that an insurer has a duty to defend if there is an allegation which might come within the coverage terms of the insurance policy, but this duty ends once the insurer establishes that the liability is in fact not covered by the policy. Once the Jefferson Circuit Court ruled that Dr. Helm was not able to recover damages for mental anguish, pain and suffering, front pay, or having to sell his house in a certain market, he was only able to recover damages for six months of back pay and attorney fees.

The court agreed with KSBIT that its duty to provide coverage ended once the Jefferson Circuit Court ruled that Dr. Helm’s damages were limited to back pay and attorney fees.

Attorney fees are not compensatory damages because any award does not compensate the plaintiff for any wrong done by the defendant. Therefore, the circuit court did not err as a matter of law in concluding that KSBIT was not required to continue to provide coverage based upon the policy’s definition of personal injury.

Contrary to the allegations of the university the circuit court properly concluded that an insurer has a duty to defend if there is an allegation which might come within the coverage terms of the insurance policy, but this duty ends once the insurer establishes that the liability is in fact not covered by the policy.

The circuit court noted that KSBIT had provided a defense in Dr. Helm’s action and won, meaning that there was no need to prosecute an appeal on the University’s behalf. There was no continuing duty for KSBIT to provide coverage to the University in Dr. Helm’s action.

ZALMA OPINION

This case clearly established that the broad duty to defend is not an unlimited duty. Before an insurer is obligated to defend an insured there must be an action for a tort that the insurer agreed to defend and/or indemnify the insured. KSBIT defended the University successfully and obtained a favorable judgment eliminating all charges of “Personal Injury” leaving only contract damages for back pay. The win, on behalf of the University, eliminated any further obligation KSBIT had to indemnify and therefore any obligation to defend the University. The University did not appreciate the win and tried to get defense for the remaining allegations, for injuries and claims not covered by a liability insurance policy.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

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

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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He Who Represents Himself Has a Fool for a Client

It’s Not Nice to Lie in a Pleading

See the full video at lhttps://rumble.com/v1gxk5b-he-who-represents-himself-has-a-fool-for-a-client.htm   and at https://youtu.be/un2BNjAkvgE

Earnest A. Davis sued a car repair shop, its manager, and his car insurance company alleging they engaged in a ploy to damage his convertible Porsche so that he couldn’t afford to repair it and another customer of the repair shop could purchase it. On appeal, he challenges the trial judge’s rulings sustaining the defendants’ demurrers and dismissing his lawsuit in its entirety.

In Earnest A. Davis v. Government Employees Insurance Company et al., E074317, California Court of Appeals, Fourth District, Second Division (August 15, 2022) the trial court gave the plaintiff four chances to plead a cause of action against the defendants although he admitted to accrual and a suit filed after running of the statute of limitations.

FACTS

Before his claims were dismissed on demurrer, Davis filed four complaints over the course of his litigation. For a short time-to defend against the first round of demurrers-Davis was represented by counsel. For the remainder of the litigation, he represented himself, as he does on appeal.

The gravamen of Davis’s lawsuit is his claim that defendants and respondents Walter’s Auto Sales and Service, Inc. and their service manager Conrad Castillon (collectively, Walter’s) intentionally vandalized his 1998 Porsche 993 Series 911 Carrera Cabriolet so they could pressure him into selling it to another customer. Later in the litigation, Davis added as a defendant his car insurance company, Government Employees Insurance Company (GEICO), alleging they conspired with Walter’s to deem his car a total loss.

Davis claimed that after Walter’s installed a new passenger compartment main wiring harness (essentially fixing the issue), they engaged in the following ploy to get him to sell his car to another customer for a salvage price. Walter’s then told GEICO the car could not be repaired and GEICO issued a total loss declaration, which resulted in the Department of Motor Vehicles (DMV) giving the car a salvage designation.

The First Amended Complaint (FAC)

The FAC, filed on July 2, 2018, makes the same basic allegations of misconduct against Walter’s but asserts a total of 12 causes of action. Like the original complaint, the FAC did not name GEICO as a defendant or make any allegations of wrongdoing against the insurance company. Rather, Davis alleged only that GEICO had authorized and paid for the repairs, and later, had declared the car a total loss with the DMV in reliance on misinformation from Walter’s.

The Second Amended Complaint (SAC)

The SAC, filed on November 30, 2018, asserted 16 causes of action against Walter’s, and is 90 pages long with over 170 pages of attachments. This time, Davis named GEICO as a defendant because, as he explained in his motion for leave to amend, GEICO was the only entity who could restore his car’s status with the DMV.

Davis repeated the allegation that he knew, based on his experience as a mechanical engineer, Walter’s was lying when they told him on November 6, 2014 that parts of the top harness had melted. As for Davis’s allegations against GEICO, in one place in the SAC he alleged “GEICO conspired with Walter’s to use misinformation to wrongly deem [his car] a total loss,” but in multiple other places he simply alleges that GEICO deemed his car a total loss based on the misinformation provided by Walter’s.

Walter’s Cross-Complaint

Walter’s filed a cross-complaint against Davis seeking $4,320 for unpaid work on the car plus daily storage fees.

Walter’s demurrer argued, among other things, that Davis’s claims were barred by the applicable three-year statute of limitations because his allegations demonstrated he knew of the alleged wrongdoing by at least January 27, 2015 yet didn’t file his lawsuit until April 2018-nearly three months past the deadline to sue.

GEICO’s demurrer argued Davis’s claims against them failed as a matter of law and were time-barred. Walter’s and GEICO requested oral argument on the tentative ruling, but Davis did not. At the hearing, his then counsel was silent during the discussion of GEICO’s motions and, when asked by the judge, said he had nothing to add. The judge adopted his tentative ruling, explaining he was giving Davis “one more opportunity” on the claims against Walter’s “to see if [he] can plead around delayed discovery issues.”

The Third Amended Complaint (TAC)

The TAC was eight pages long, asserted just two causes of action against Walter’s-trespass to chattels and negligence-and alleged a different theory of wrongdoing than the three previous complaints. Instead, under the heading, “Delayed Discovery,” the TAC alleged Davis didn’t learn that removing the damaged harness was negligent until over a year and a half later, in July 2016 contradicting his earlier pleadings to avoid the statute of limitations.

The judge concluded the pleadings demonstrated the claims against Walter’s accrued on January 27, 2015 at the latest, and he sustained the demurrer with prejudice.

ANALYSIS

Davis Forfeited Any Opposition to GEICO’S Demurrer

Davis did not file an opposition to GEICO’s demurrer (even after GEICO asked if he planned to do so) nor did he request oral argument after receiving the judge’s tentative ruling. And, when directly asked if he had anything to add at the hearing on GEICO’s demurrer, Davis’s attorney said no, thereby acquiescing in the judge’s decision to sustain the demurrer.

The forfeiture rule applies with special force when the appealing party received the judge’s tentative ruling and raised no objection to it. Because courts must hold self-represented litigants to the same standards as attorneys, it doesn’t matter that he is no longer represented by counsel and represents himself on appeal. A doctrine generally requiring or permitting exceptional treatment of parties who represent themselves would lead to a quagmire in the trial courts, and would be unfair to the other parties to litigation.

Davis’s challenge to GEICO’s demurrer would fail even if the court was to consider its merits. This is because all of his claims against GEICO are based on fraud, which requires an intentional misrepresentation by GEICO. To be liable for fraud the defendant must have made a misrepresentation with knowledge of its falsity and the intent to induce another’s reliance on the misrepresentation. Davis failed to allege GEICO intentionally misrepresented the condition of his car to the DMV. Instead, he alleged GEICO relied on misrepresentations Walter’s made. Thus, because the only intentional misrepresentations alleged were those made by Walter’s to GEICO, Davis’s claims against the insurance company fail as a matter of law.

The Claims Against Walter’s Are Time-Barred

Unless the discovery rule applies, a claim accrues on the date of injury. The triggering event is not when Davis knew or reasonably should have suspected that he could succeed against Walter’s in court-that is, when he suspected Walter’s ultimate liability. Rather, his claims accrued when he suspected or reasonably should have suspected that Walter’s had done something wrong to him and caused him injury.

The statute of limitations for both trespass to chattels and negligence resulting in damage to personal property is three years. And without dispute, the allegations in Davis’s first three complaints-which, at the demurrer stage, we assume are true-reveal that he suspected wrongdoing from Walter’s as early as November 2014, when they told him the top harness had melted in spots. The allegations in the first three complaints show that Davis knew Walter’s had wronged him by January 27, 2015 at the latest. That is the day he alleged he inspected his car and discovered they had “vandalized” it by removing the new wiring harness they had just installed. According to Davis’s own allegations, that “act of sabotage” made future repairs much more costly.

Davis tried to avoid the import of these allegations when he drafted the TAC by simply deleting them, but a party may not avoid the defects of a prior complaint either by omitting the facts that rendered the complaint defective or by pleading facts inconsistent with the allegations of prior pleadings. In such cases, a trial judge is permitted to treat the prior pleadings as true and disregard the subsequent, contrary allegations.

Davis had multiple opportunities to amend his pleadings to explain why his claims were not time-barred. Therefore the judgment was affirmed

ZALMA OPINION

It is strange to see a plaintiff alleging he was the victim of a fraud to attempt to save a time-barred lawsuit, in his fourth attempt to plead a lawsuit, he fraudulently changed the date of accrual of his claim. The California Court of Appeal refused to fall for his scheme.

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(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

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

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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Evil Employee Still Allows Employer to be Defended

When Insurer Refuses Defense Fees Incurred by Insured Are Presumed to be Reasonable & Necessary

See the full video at https://rumble.com/v1glt1x-evil-employee-still-allows-employer-to-be-defended.html  and at https://www.youtube.com/watch?v=miU9u-EnzMc

Insurer Should Consider Defense Under a Reservation Rather than Refuse Defense

Larry Nassar, who was affiliated with nonprofit USA Gymnastics, Inc. (“USAG”), sexually assaulted hundreds of female athletes. After Nassar’s conduct came to light, USAG faced many lawsuits and multiple investigations. USAG and its insurers, including Liberty Insurance Underwriters, Inc., litigated questions about insurance coverage in an adversary proceeding before a bankruptcy court. In a previous appeal, among other rulings, the Seventh Circuit affirmed the decision that Liberty had a duty to defend USAG.

In USA Gymnastics v. Liberty Insurance Underwriters, Inc., No. 21-2914, United States Court of Appeals, Seventh Circuit (August 16, 2022) USAG and Liberty disputed the amount of fees to which USAG was entitled after liability of Liberty to defend was established by the Seventh Circuit.

Right to Reimbursement of Attorneys Fees

There were also ancillary disputes over the amount of attorneys’ fees that Liberty owed USAG.

The underlying facts are described in detail in USA Gymnastics v. Liberty Ins. Underwriters, Inc., 27 F.4th 499, 508 (7th Cir. 2022). In short, Nassar used his position with USAG to sexually assault hundreds of women and girls over several decades. Because of that abuse, USAG has faced hundreds of lawsuits by former athletes, as well as several investigations by federal and state entities, including Congress, the Indiana Attorney General, and the United States Olympic &Paralympic Committee (“USOPC”).

Faced with cross-motions for summary judgment, the bankruptcy court concluded that Liberty’s policy covered the “athlete lawsuits” and various investigations. Liberty filed objections to the bankruptcy court’s findings and conclusions, but the district court overruled those objections. In January 2020, the district court ordered Liberty to “provide a complete defense” to USAG with respect to several matters, including the athlete lawsuits and several investigations. The district court also ordered Liberty to reimburse USAG for its defense costs, but the court did not award damages in any specific amount. Liberty appealed the district court’s order.

While the first appeal was pending, the parties continued to dispute and litigate issues concerning payment.  Liberty did not agree to USAG’s demand and sought to stay the district court’s defense order. In turn, USAG moved to enforce the order.

In addition, USAG offered the expert testimony of attorney Gene Schoon, who had prior experience serving as a national coordinating counsel during his days as a practicing lawyer. He testified that in his opinion, all the fees USAG sought were reasonable and necessary.  On the other hand, Liberty presented the expert testimony of attorney Brand Cooper. At that point, Cooper testified that he determined certain fee amounts incurred by USAG-which totaled about $1.43 million-were reasonable and necessary. Yet almost immediately, Cooper contradicted his prior testimony. In answer to the court’s questions, Cooper expanded on the nature of his objections but refused to give concrete figures that were not disputed.

In September 2020, the bankruptcy court entered proposed findings and conclusions. The court rejected Liberty’s arguments and concluded that under applicable case law, USAG was entitled to a presumption that the fees incurred were reasonable and necessary. The court also found Schoon “to be the more credible and reliable expert witness.” According to the bankruptcy court, USAG had proved by a preponderance of the evidence that $1,944,354.26 of the fees it incurred were reasonable and necessary. So, the court recommended that the district court enter judgment in that amount, plus prejudgment interest. Liberty filed objections to the bankruptcy court’s proposed findings and conclusions.

The live controversy, because of payments made by Liberty, before the Seventh Circuit concerns the remaining $458,472.26 of the judgment.

Presumption that Attorneys’ Fees are Reasonable & Necessary

Liberty contends the bankruptcy and district courts improperly applied the law when they concluded that the fees USAG incurred were reasonable and necessary.

In Taco Bell Corp. v. Continental Casualty Co., the Seventh Circuit considered a scenario in which an insurer had breached its duty to defend but later argued the policyholder had incurred excessive fees. Under those circumstances, the court held, the policyholder “had an incentive to minimize its legal expenses” such that there was “no occasion for a painstaking judicial review.”

The presumption is akin to a burden of proof because it determines the outcome in cases where the evidence is in equipoise and therefore advances the substantive policies of a state. This points to the presumption as more substantive than procedural.

In Liberty’s view, USAG is not entitled to the presumption because it failed to adequately supervise the outside counsel it engaged, and it did not pay in full the fees it incurred. According to Liberty, USAG did not meaningfully supervise outside counsel because Schneider never requested write-offs from outside counsel and rarely followed up with them to ask questions about invoices they submitted.

A litigant may supervise its outside counsel without refusing to pay portions of legal bills or engaging in hairsplitting about those bills. Nothing in the case law provides otherwise.  Liberty argues that the Thomson presumption does not apply because USAG failed to pay about 30 percent of the fees it incurred.

The market-tested presumption applies when, following an insurer’s breach of the duty to defend, a policyholder has supervised and incurred legal fees without any expectation of payment by the insurer. Payment by the policyholder is not necessarily required. This is because, as here, the policyholder may lack sufficient funds to pay fees that are reasonable and necessary to its defense. But if the policyholder does pay a significant percentage of its fees-particularly when it has difficulty covering its day-to-day operating expenses-that is strong evidence of market incentives to economize, rendering the presumption applicable.

It is undisputed that USAG paid nearly 70 percent of the attorneys’ fees for which it now seeks reimbursement. That is compelling evidence of a market test. This element of the Thomson presumption supports, rather than contradicts, the bankruptcy and district courts’ conclusions that the fees USAG claimed are presumed to be reasonable and necessary.

Incorrectly Refusing to Defend Eliminates the Insurer’s Right to Control Defense Costs

An insurer’s objections to a policyholder’s selection of defense counsel lose force when the insurer disclaims its duty to defend and turns out to be wrong on the law. Had Liberty mistrusted USAG’s incentive to economize on its legal costs, Liberty could have reserved its defense that it had no duty to defend and assumed USAG’s defense. In that scenario, Liberty could have selected and supervised and paid for the lawyers defending USAG, and Liberty could later have sought reimbursement if it proved that it had indeed had no duty to defend. Liberty chose not to do so, instead electing to gamble by not defending USAG.

The court concluded USAG’s practices were nevertheless sufficient to support the Thomson presumption’s application, as “[i]nvoices were reviewed at three different levels which included review by the Chief Financial Officer responsible for overseeing and authorizing payment of USAG’s expenses.” As a fact-specific ruling concerning attorneys’ fees, that determination is due significant deference that the Seventh Circuit provided and concluded that there is not an adequate basis to disturb it.

There is no dispute that USAG was bankrupt and lacked money to spare. Liberty has not identified evidence to challenge the factual finding that USAG used the grant money to stay afloat by paying some bills it had incurred. The record does not support, much less require, any finding that USAG stockpiled vast sums of money for legal expenses, which would have removed any need to economize.

Because the total-value approach for which Schoon advocated applies here, it is unnecessary to scrutinize individual line items in the manner Liberty requests.

Therefore, the judgment was affirmed.

ZALMA OPINION

Insurers take the risk of paying more for the defense of an insured when it refuses to defend and is later found to have erred and a court orders the insurer to defend or indemnify the insured. In such situation a presumption exists that an insured, using its own money to pay counsel paid only reasonable and necessary fees. As the Seventh Circuit concluded the insured – in bankruptcy – did not have money available to pay excessive fees and presumed what they paid and what they were unable to pay were reasonable and necessary and Liberty must reimburse USAG for those fees. If Liberty defended under a reservation of rights it could control the fees and if it was found to have no coverage it could get reimbursement from the insured from whatever assets available from the bankruptcy court. Liberty gambled it was right and lost and must pay the fees charged to USAG.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

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

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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The Problem With ERISA

ERISA Gives the Insurer Discretion to Make Benefits Decision

Carol Stewart sued Hartford Insurance Company to obtain two insurance benefits that she believes it owes her:

  1. longterm disability payments and
  2. a waiver of life-insurance premiums.

In Carol H. Stewart v. Hartford Life And Accident Insurance Company, No. 21-11919, United States Court of Appeals, Eleventh Circuit (August 10, 2022) the Eleventh Circuit found itself compelled to follow the statute rather than its own conclusions regarding the availability of coverage to Ms. Stewart.

Hartford contended that although she was insured it concluded that she was ineligible for the benefits she sought.

Hartford’s policy, in accordance with the statutory ERISA statute indisputably granted it discretion to make benefits determinations.

In 2007, prominent Birmingham attorney Carol Stewart’s physician diagnosed her with Parkinson’s disease. At the time, Burr Forman LLP, Stewart’s employer, provided her with disability insurance through its ERISA health plan. Sun Life Assurance Company of Canada, which serviced that plan, began paying Stewart partial, and later total, disability benefits. In 2010, Burr Forman cancelled its policy with Sun Life and switched the administration of its ERISA health plan over to Hartford Insurance.

The new Hartford policy contained an exclusion clause specifying that a member of the firm was ineligible for disability-insurance payments if she was receiving:

benefits for a Disability under a prior disability plan that: 1) was sponsored by [her] Employer; and 2) was terminated before the Effective Date of The Policy.

Because Sun Life was still paying Stewart disability benefits, Hartford found that Stewart was “receiving benefits for [a] Disability under a prior disability plan” that had been “terminated” before its own policy went into effect and, consequently, that she wasn’t eligible for Hartford disability benefits.

Hartford also provided life insurance. Its life-insurance policy specified that one who was “Disabled” needn’t pay premiums for coverage, and it defined “Disabled,” in relevant part, as being unable to perform “any work for which [one is] qualified by: 1) education; 2) training; or 3) experience.”

Hartford determined that Stewart wasn’t “Disabled” within the meaning of its policy and that she therefore had to pay life-insurance premiums.

Stewart sued only to have the district court grant Hartford’s summary judgment.

ANALYSIS

When reviewing a plan administrator’s benefits decision” this Court conducts the following six-step analysis:

  • Apply the de novo standard to determine whether the claim administrator’s benefits-denial decision is “wrong” (i.e., the court disagrees with the administrator’s decision); if it is not, then end the inquiry and affirm the decision.
  • If the administrator’s decision in fact is “de novo wrong,” then determine whether he was vested with discretion in reviewing claims; if not, end judicial inquiry and reverse the decision.
  • If the administrator’s decision is “de novo wrong” and he was vested with discretion in reviewing claims, then determine whether “reasonable” grounds supported it (hence, review his decision under the more deferential arbitrary and capricious standard)
  • If no reasonable grounds exist, then end the inquiry and reverse the administrator’s decision; if reasonable grounds do exist, then determine if he operated under a conflict of interest
  • If there is no conflict, then end the inquiry and affirm the decision.
  • If there is a conflict, the conflict should merely be a factor for the court to take into account when determining whether an administrator’s decision was arbitrary and capricious.

Disability

Since the Burr Forman’s plan vested Hartford with discretion in reviewing claims (Step 2), that Hartford’s interpretation of the provision and its decision in Stewart’s case were “reasonable” (Step 3), and that any conflict of interest that Hartford had (Steps 4 and 5) didn’t lead it to make an arbitrary and capricious determination (Step 6) ERISA required the Eleventh Circuit to agree with the district court that Hartford is entitled to summary judgment.

The relevant policy language states as follows, with emphasis added by the Eleventh Circuit:

If You are receiving or are eligible for benefits for a Disability under a prior disability plan that:

1) was sponsored by Your Employer; and

2) was terminated before the Effective Date of The Policy; no benefits will be payable for the Disability under The Policy.

The Eleventh Circuit noted that if it was acting as a trial judge it tended to disagree with Hartford’s decision.

ERISA itself seems to recognize that a “plan” is distinct from the insurance policy that services it. However, because this is an ERISA-benefits case, the analysis requires the Eleventh Circuit to consider five more steps.

  • Step 2: Did Hartford’s policy vest it with discretion when reviewing benefits claims.
    • It did-the policy expressly states that Hartford has “full discretion and authority to determine eligibility for benefits and to construe and interpret all terms and provisions of The Policy.”
  • Step 3: Did “reasonable” grounds exist to support Hartford’s interpretation and decision.
    • They did. Although it might not be the best reading of the policy exclusion, it was reasonable for Hartford to interpret the phrase “prior disability plan” as referring to the Sun Life policy. Accounting for some unfortunate imprecision, the words “plan” and “policy” can be interchangeable.
  • Step 4. Did Hartford have a conflict of interest and, if so, the court must skip to Step 6 and ask whether that conflict led to an arbitrary and capricious decision.
  • Step 6: Requires that the Eleventh Circuit must determine whether the conflict led to an arbitrary and capricious decision. As a matter of common sense, it was reasonable for Hartford to interpret its policy to prevent an insured from receiving payments from two different sources for the same disability.

Therefore, Hartford had discretion to determine whether Stewart was eligible for benefits under its policy, and it exercised that discretion reasonably.

Accordingly, the Eleventh Circuit affirmed the district court’s decision rejecting Stewart’s claim to disability benefits.

Did Hartford Correctly Denied Stewart A Waiver Of Life-Insurance Premiums.

It did. Applying the plain meaning of the words in the contractual definition, Stewart was not “Disabled” and thus was not entitled to a waiver of premiums.

First, “work.” In this context, it seems clear to us that the term “work” denotes an effort made to attain one’s income or livelihood. Putting it all together, then, to be entitled to a waiver of premiums, Stewart must have been unable (1) to engage in any means of earning income (2) for which she was competent based on her knowledge or skill acquired over time. Since Stewart was able to perform work for which she was qualified by her education, training, and experience since she was educated, trained, and experienced as a lawyer. But she also graduated from high school and college and was thus qualified to perform work requiring less specialized skills, as well.

And here, the record shows that Stewart could sit for a couple of hours, stand for half an hour, and walk for half an hour. It also shows that while Stewart suffered from mild cognitive impairment, she retained the ability to perform less demanding tasks that didn’t require high-level analytical or organizational ability.

While Stewart might not have been able to ply her trade as a lawyer, the record supports Hartford’s determination that she could perform less demanding sedentary work was not unreasonable.

Even assuming that Stewart could work only part-time, that counts as “any work.” The word “any,” that is, expresses a lack of restriction when choosing something from a specified class. Because Hartford’s interpretation was not on a new review wrong, the Eleventh Circuit ended the inquiry at Step 1 and affirm the decision.

In any event, as already explained, Stewart’s insurance policy gave Hartford discretion in deciding benefits claims, and Hartford didn’t abuse that discretion when it determined that Stewart could perform “any work” consistent with her training or experience. Interpreting “any work” broadly to mean any work whatsoever was at the very least reasonable.

To summarize, Stewart was not entitled to disability payments because Hartford’s interpretation of the disability exclusion was reasonable, and its conflict of interest didn’t lead it to make an arbitrary or capricious decision. Likewise, Stewart was not entitled to a waiver of life-insurance premiums because she wasn’t disabled within the meaning of Hartford’s life-insurance policy.

ZALMA OPINION

ERISA is a special statute that allows employers to create a thorough and relatively inexpensive series of benefits for its employees. The result may seem unfair but the decision fits the requirements of the statute.

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(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

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

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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COVID Claims Continue to Fail

No BI Insurance No Inverse Condemnation

Golden Corral Corporation and Golden Corral Franchising Systems, Inc. (hereinafter referred to collectively as “Golden Corral”), appealed the district court’s order granting Illinois Union Insurance Company’s motion for judgment on the pleadings in Golden Corral’s action seeking insurance benefits for business losses Golden Corral incurred during the COVID-19 pandemic.

In Golden Corral Corp.; Golden Corral Franchising Systems Inc. v. Illinois Union Insurance Company, No. 21-2119, United States Court of Appeals, Fourth Circuit (August 11, 2022) the Fourth Circuit affirmed the district court’s order applying Uncork &Create LLC v. Cincinnati Ins. Co., 27 F.4th 926, 933-34 (4th Cir. 2022) that held that an insurance “policy’s coverage for business income loss and other expenses did not apply to plaintiff’s claim for financial losses caused by the COVID-19 pandemic in the absence of any material destruction or material harm to its covered premises and further observing that our holding is consistent with the unanimous decisions by our sister circuits, which have applied various states’ laws to similar insurance claims and policy provisions.

The Fourth Circuit dispensed with oral argument because the facts and legal contentions are adequately presented in the materials before this court and argument would not aid the decisional process.

ZALMA OPINION

It seems plaintiffs and their lawyers refuse to read the opinions of every federal circuit and almost every state trial and appellate court that Covid-19 does not cause direct physical damage to the property of the insured which eliminates the possibility of collecting for business interruption. Some creative lawyers have tried inverse condemnation by the state for closing down businesses as a Fifth Amendment taking. One court said: “

The Supreme Court of Pennsylvania, however, has found the Governor’s executive orders to be valid uses of police power and not a taking under the exercise of eminent domain power. Friends of Danny DeVito v. Wolf, 227 A.3d 872, 896 (Pa.), cert. denied, ––– U.S. ––––, 141 S. Ct. 239, 208 L. Ed. 2d 17 (2020).” [1600 Walnut Corp. v. Cole Haan Co., 530 F.Supp.3d 555 (E.D. Pa. 2021)]

 

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Zalma’s Insurance Fraud Letter – August 15, 2022

ZIFL Volume 26, Issue 16

See the full video at https://rumble.com/v1fv6q7-zalmas-insurance-fraud-letter-august-15-2022.html and at https://youtu.be/lnmoKpDhBp8

The Danger Of Litigation Financing

How the UK Deals with the Scheme

Timothy Schools, 61, a corrupt non-litigating lawyer called a “solicitor” in the U.K. who lived a life of luxury on an estate in Cumbria as he fleeced investors out of more than £25m is facing jail.

Southwark Crown Court heard how Schools, ran a scheme financing loans to law firms in “no win no fee” cases between December 2008 and October 2012. The jury reached a verdict on the case only after 28 hours’ deliberation.

Schools will be sentenced at Southwark Crown Court on Thursday 18th August and remains in custody until that date. Judge Beddoe was quoted as saying to Schools: “I simply don’t trust you to turn up. I refuse bail and you will remain in custody until Thursday.”

California Claims Regulations

Insurers licensed or operating in California must file their SIU annual reports by Wednesday, Sept. 28, Insurance Commissioner Ricardo Lara reminded insurers recently.  Failing to file by the 11:59 pm deadline may lead to fines or other regulatory actions. Information about the annual report requirement is available on the CDI website. Insurers may access an electronic portal to file reports.

Insurers licensed or operating in California must ascertain that their entire claims staff has read, understood or be trained about the California Fair Claims Settlement Practices Regulations by September 1 of Each Year and be ready to swear under oath that the Regulation has been complied with by the insurer.

California Fair Claims Settlement Practices Regulations 2022” which is now available as a Kindle Book and available as a Paper Back.

Insurance Fraud is Growing Logarmithically

“Soft Fraud”

Insurance Soft fraud, of course, is a misnomer. Fraud is fraud – a misrepresentation or concealment of material fact, made to deceive an insurer, that actually deceives the insurer to its detriment. Those who use the term “soft fraud” attribute it to fraud of opportunity – like adding to a legitimate claim to recover deductibles or premiums paid over the years – while “hard fraud” is fraud that is pre-meditated.

In the U.S., fraud attempts have risen about 22%, an amount much lower than the global average but still on plus side.

Another Florida Insurer Goes Bust

Weston Property & Casualty Insurance Co. is insolvent and should be placed into receivership, making it the fifth Florida property insurer this year to be dissolved, according to state regulators.

The Florida Office of Insurance Regulation  (OIR) on August 2, 2022 filed notice with the Department of Financial Services that the 10-year-old Weston, with about 22,000 policies in the state, “is insolvent or about to become insolvent,” and DFS should initiate delinquency proceedings.

Health Insurance Fraud Convictions

For example: Inform Diagnostics Agrees to Pay $16 Million to Resolve False Claims Act Allegations of Medically Unnecessary Tests

Inform Diagnostics, Inc., (Inform) formerly known as Miraca Life Sciences, Inc. (Inform), has agreed to pay $16 million to resolve allegations that it submitted false claims for payment to Medicare and other federal health care programs. 

Inform is a clinical laboratory headquartered in Irving, Texas, that provides anatomic pathology services to physician practices throughout the United States. On April 27, 2022, Fulgent Genetics purchased Inform, and the company is now a wholly owned subsidiary of Fulgent Genetics.

Other Insurance Fraud Convictions

For example: Wellman Dynamics, a Creston company that manufactures large metal castings used by military contractors including Bell Helicopter, Sikorsky Aircraft and Boeing Co. will pay $500,000 in restitution to the U.S. government to settle  allegations that the southwest Iowa company that makes metal castings used by military contractors in helicopters and other equipment has reached a settlement in a lawsuit alleging the company failed to test the castings and falsely certified test results over seven years.

The Fifth Amendment & The Examination Under Oath

In Fremont Indemnity Co. v. Superior Court (1982) 137 Cal.App.3d 554, 559, 187 Cal.Rptr. 137 the Court of Appeal concluded that the privilege against self-incrimination as to factual issues, especially application of arson exclusion, waived by filing suit over rights under fire insurance policy.  The reasoning of cases such as these is that “‘[t]he gravamen of [the] lawsuit is so inconsistent with the continued assertion of [a] privilege as to compel the conclusion that the privilege has in fact been waived.’”

While the Fifth Amendment privilege of a criminal defendant is absolute, a party or witness in a civil proceeding “may be required either to waive the privilege or accept the civil consequences of silence if he or she does exercise it. [Citations.]” There is a broad range of civil sanctions that may be imposed on a litigant who asserts his or her Fifth Amendment right, but the severity of such sanctions generally depends on whether the party invoking the privilege is the plaintiff or the defendant. Where the plaintiff in a civil action claims the privilege and refuses to testify, the court may dismiss the action on the basis that “`[o]ne may not invoke the judicial process seeking affirmative relief and at the same time use the privileges granted by that process to avoid development of proof having a bearing upon his rights to such relief.’ [Citation.]” [Gunderson v. Wall, B204268 (Cal. App. 11/17/2009) (Cal. App. 2009)]

Health Care Fraud

Some Common Types of Health Care Fraud

  • Fraud Committed by Medical Providers
  • Double billing: Submitting multiple claims for the same service
  • Phantom billing: Billing for a service visit or supplies the patient never received
  • Unbundling: Submitting multiple bills for the same service
  • Upcoding: Billing for a more expensive service than the patient actually received

Reports of Convictions from the Coalition Against Insurance Fraud

Fraud Convictions In Detail

Barry Zalma, Esq., CFE

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

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

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe. Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome. Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; I publish daily articles at https://zalma.substack.com, Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

 

 

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Fortuity is an Affirmative Defense

Magistrate Contends Fortuity Defense can be Waived

See the full video at https://rumble.com/v1fms4b-fortuity-is-an-affirmative-defense.html and at https://youtu.be/c2MHgQOwlh8

Homeland Insurance Company of New York (“Homeland”)  sued Clinical Pathology Laboratories, Inc. (“CPL”) and CPL’s parent company, Sonic Healthcare USA, Inc. (“Sonic USA”) (collectively, “Defendants”) for a declaration that it has no duty to reimburse Defendants for defending a number of medical negligence lawsuits filed against them in Ireland in Homeland Insurance Company Of New York v. Clinical Pathology Laboratories, Inc. And Sonic Healthcare USA, CIVIL No. 1-20-CV-783-RP, United States District Court, W.D. Texas, Austin Division (July 19, 2022)

BACKGROUND

CPL is an Austin, Texas-based provider of medical laboratory services. CPL and Sonic USA are subsidiaries of Sonic Healthcare Limited (“Sonic”), a global healthcare company headquartered in Sydney, Australia. Sonic also owns Sonic Healthcare (Ireland) Limited (“Sonic Ireland”) and MedLab Pathology (“MedLab”), both of which are Irish providers of medical laboratory services.

Coverage Dispute

On June 30, 2013, Homeland issued a Medical Facilities and Providers Professional Liability, General Liability and Employee Benefit Liability Policy to Sonic USA and CPL for the policy period June 30, 2013 through June 30, 2014. (the “2014 Policy”). The 2014 Policy covered certain claims for wrongful acts and personal injury. The parties renewed the 2014 Policy for the 2015-2016 period. Notably, the 2014 and 2015 Policies covered only claims made in the United States, its territories, or Canada.

In August 2015, the family of a woman (“Ms. O I”) who died after developing cervical cancer filed a negligence lawsuit in Ireland against CPL, Sonic USA, and other entities, based on alleged misread pap smear slides. After CPL was served with the lawsuit, it filed an insurance claim with Homeland. On July 7, 2016, Homeland denied the claim because the 2014 Policy did not cover lawsuits filed in Ireland.

Closing the Gap in Coverage

Once Defendants became aware of their gap in coverage, they “sought to secure worldwide coverage from Homeland starting with the 2016-17 policy period so that if similar claims arose in the future, they would be covered.” Homeland agreed to provide such coverage. On August 30, 2016, the parties executed a Worldwide Territory Endorsement (“WTE”) (Endorsement No. 12, Policy No. MFL-004062-0616) to the 2016 Policy, which extended coverage to claims filed against Defendants “outside the United States of America,” effective June 30, 2016.

Homeland alleges that it agreed to the expanded coverage only after requiring Defendants to agree to certain “warranties” in a letter dated July 27, 2016, written by Stephen Shumpert, then CPL’s President and Director and Sonic USA’s Chief Executive Director and Director who promised there were no pending claims.

Homeland issued the same WTE to Defendants’ 2017 Policy, which was effective June 30, 2017 through June 30, 2018.

In August 2018, the family of “Ms. S” filed a negligence lawsuit in Ireland against MedLab based on an alleged misread pap smear slide. Sonic Ireland and CPL were added as defendants in May 2019. CPL settled the case in October 2019. MedLab and Sonic Ireland did not contribute to the settlement. On July 10, 2020, Homeland denied CPL’s claim on the grounds that: (1) the 2016 and 2017 Policies’ prior knowledge and prior notice exclusions preclude coverage because MedLab had provided notice of the Ms. S claim to MedLab’s insurer, Vero Insurance Company, in 2016; and (2) the 2016 Letter was inaccurate and contained misrepresentations.

Litigation

On July 24, 2020, Homeland sued CPL, Sonic USA, Sonic Ireland, Sonic Limited, and MedLab, seeking a declaratory judgment that “there is no coverage for the Ms. S Claim under the Primary Policy or the Excess Policy” based on the prior knowledge and prior notice exclusions, and because the 2016 Letter was inaccurate.

ANALYSIS

Because the purpose of insurance is to protect insureds against unknown, or fortuitous, risks, fortuity is an inherent requirement of all risk insurance policies. The fortuity doctrine relieves insurers from covering certain behaviors that the insured undertook prior to purchasing the policy. Under the doctrine, an insured cannot obtain coverage for something that has already begun and which is known (or should have been known) to have begun. The fortuity doctrine precludes coverage for known losses or losses in progress. A “known loss” is one that the insured knew had occurred before the insured entered into the contract for insurance. A loss in progress is an ongoing progressive loss that the insured is, or should be, aware of  at the time the policy is purchased.

The fortuity doctrine does not require an insured to have specific, actual knowledge of the loss. Instead, the doctrine precludes coverage when the insured is or should be aware of an ongoing progressive or known loss at the time the policy is purchased. In addition, it has been recognized that the known loss doctrine does not apply if the insurer also knew of the circumstances on which it bases the defense. The insurer bears the burden of establishing that the fortuity doctrine bars coverage.

The Fortuity Doctrine Is an Affirmative Defense

In recent years, the fortuity doctrine’s known loss and loss-in-progress rules have become potent affirmative defenses in coverage litigation that carriers have turned to with increasing frequency.

The doctrine has its roots in the prevention of fraud; because insurance policies are designed to insure against fortuities, fraud occurs when a policy is misused to insure a certainty. Fraud is an affirmative defense under Texas law. For these reasons, the Court concluded that the fortuity doctrine is an affirmative defense under Texas law.

Homeland Waived the Defense

Based on the specific facts of this case, the Court finds that Homeland’s delay in raising the fortuity defense constitutes unfair surprise. Homeland did not request and was not granted leave to assert the fortuity doctrine defense.

Homeland nevertheless waived it because it did not assert the fortuity doctrine until its Response to Defendants’ Motion for Summary Judgment.

ZALMA OPINION

The fortuity issue is only one of many issues brought to the court and resolved by the recommendations of the Magistrate Judge. The District Judge may accept or reject the recommendations of the Magistrate Judge’s lengthy opinion. Since there is a need for fortuity as the essence of insurance and as a recognized unwritten exclusion in every policy it appears the Magistrate Judge erred when he concluded that asserting the defense late is an “unfair surprise” on the defendant insureds since the insureds should have known that fortuity is always an unwritten exclusion and could not, therefore, be surprised, fairly or unfairly. Since almost every answer to a suit contains an affirmative defense of a failure to state a cause of action the fortuity defense was asserted. It is always there and can’t be hidden.

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(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

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

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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No Bad Faith

Effective, Professional Arson Investigation Defeats Claims of Bad Faith

See the full video at https://rumble.com/v1fimrn-no-bad-faith.html?mref=16emn&mrefc=2 and at https://youtu.be/5OInpwFNaro

Plaintiffs Donald Lemon and Candice Lemon (the Lemons) sued State Farm Fire & Casualty Company (State Farm) because it alleged it breached an insurance contract, that State Farm acted in bad faith and that the Lemons are entitled to an award of punitive damages.

In Donald Lemon and Candice Lemon v. State Farm Fire & Casualty Company, No. C20-3018-LTS, United States District Court, N.D. Iowa, Central Division (June 28, 2022) the court was asked to rule on motions for partial summary judgment.

RELEVANT FACTS

This case arose out of an insurance dispute between the Lemons and State Farm regarding a claim the Lemons submitted after a fire destroyed their residence.

The Lemons had been married for roughly two years at the time of the fire and their relationship was at times turbulent. For example, law enforcement officers had responded to domestic disturbances at their home. On April 26, 2019 – less than one week before the fire – Candice called the Franklin County Sheriff’s Office to advise that Donald had moved out of the residence and she was afraid he would “ransack” the place.

At the time of the fire, the couple was separated and proceeding to a divorce. While the Lemons deny their finances were dire, they admit they were seasonally behind on bills. Candice had inherited more than $100,000 in 2015, but the Lemons had spent all of that money by May 2019.

Candice provided inconsistent statements regarding whether Donald was at the house in the hours leading up to the fire. The day after the fire, she told a State Farm representative that Donald had been home roughly one hour before the fire to retrieve some of his fishing equipment. She later denied saying this. Donald denies being at the residence in the hours before the fire.

After the fire, the Lemons submitted a timely claim to State Farm. At the time of the fire, the home had a value of $76,900. The Lemons submitted a personal property inventory that totaled $173,137.57, although it is not clear that their home could accommodate the number of items claimed.

State Farm hired Independent Forensic Investigations Corporation (IFIC) to investigate the fire. Lonn Abeltins, an investigator with IFIC, traveled to the home on May 7, 2019, and June 12, 2019, to conduct his investigation. . As part of his investigation, Abeltins collected four pieces of debris from the rubble and subsequently sent them to the Armstrong Forensic Laboratory to be tested for accelerants. One of the samples tested positive for gasoline. Stacy Niemann, an investigator with IFIC, conducted multiple interviews with the Lemons, McKinney, Craighton, Einspahr, a neighbor and various firefighters who were at the scene.

In his final report to State Farm, dated May 17, 2019, Abeltins wrote: “This fire originated in the southeast corner area of the house. There is a door at that location with steps going down into the basement. Heavy fire damage and charring, consistent with the use of an ignitable liquid, was noted in the southeast corner of the house. Gasoline was found in the sample from the doorway area at that location. In my opinion, this fire loss was incendiary in nature.”

On March 31, 2020, State Farm denied the Lemons’ claim, because:

  1. the fire was intentionally set and does not meet the insurance agreement of an accidental, direct physical loss;
  2. the fire was intentionally caused or procured by an insured;
  3. you violated the Concealment or Fraud condition of the insurance policy by intentionally concealing or misrepresenting material facts and circumstances relating to the claim.

ANALYSIS

State Farm’s investigation of the facts and circumstances surrounding the fire revealed both Named Insureds had an opportunity to set the fire and both Named Insureds had motive to set the fire, including but not limited to financial motive. The home was overinsured. It was purchased for $40,000, had an assessed value of $86,900 and was insured for $276,100 with an additional $207,075 of coverage on the contents.

The investigation revealed the Named Insureds misrepresented or concealed material facts and circumstances surrounding the fire including, but not limited to both providing new information during their examination under oath that was more likely than not, fabricated to explain the presence of an ignitable liquid being present in the area of origin. Additionally Candice misrepresented and concealed information regarding their financial condition at the time of the fire by representing they had so much money in savings that the bank assigned them a personal banker. However, bank records show little money in the bank accounts at the time of the fire.

After filing this action, the Lemons retained an expert, David Gossman, to conduct an investigation into the cause and origin of the fire who concluded that the fire was “accidental” that it “started on the west or northwest side of the property.”

Count II – Bad Faith

Under Iowa law, Count II is a first-party bad faith claim, as it involves an insured’s attempt to recover for his or her own losses allegedly covered under the insurance policy. To prevail on such a claim, the plaintiff must show

  • that the insurer had no reasonable basis for denying benefits under the policy and,
  • the insurer knew, or had reason to know, that its denial was without basis.

The first element is objective and the second element is subjective.

With regard to the first element, a reasonable basis exists for denial of policy benefits if the insured’s claim is fairly debatable either on a matter of fact or law. State Farm argued it had a reasonable basis to deny the Lemons’ claims.

They admitted the amount of personal property found in the fire debris does not come close to approaching the quantity of personal property the Lemons claim was in the home on the day of the fire, even accounting for the fact that some personal property may have been completely reduced to ash.

A defendant can defeat a bad-faith claim by showing that it had only one reasonable basis for denying coverage – not by proving that all of its coverage positions were reasonable. In short, when it decided to deny the Lemons’ claim, State Farm had before it a great deal of evidence suggesting that the fire was incendiary in nature and that either or both of the Lemons had motive to start an intentional fire.

Courts and juries do not weigh the conflicting evidence that was before the insurer; they decide whether evidence existed to justify denial of the claim. State Farm met its burden of showing, as a matter of law, that reasonable minds could conclude that the Lemons were not entitled to coverage.

As such, the Lemons’ bad faith claim failed with regard to the first element – whether their insurance claim was “fairly debatable.” State Farm was entitled to summary judgment as to Count II of the Lemons’ state court petition.

Under Iowa law, a mere breach of contract, without an accompanying tort, cannot sustain a claim for punitive damages. State Farm is therefore entitled to summary judgment on Count III, which asserts a claim for punitive damages.

Because States Farm is entitled to summary judgment on the bad faith s claims the only substantive claim remaining for trial is Count I, the Lemons’ claim for breach of contract.

CONCLUSION

For the following reasons:

Plaintiffs’ motion for partial summary judgment is denied.

Defendant’s motion for partial summary judgment is granted. As a result, Counts II and III were dismissed.

The case will proceed to trial on Count I.

ZALMA OPINION

The evidence available to State Farm established beyond doubt that the Lemon’s attempted to defraud State Farm by causing a fire at their house, made claims for personal property in excess of the potential for the property to be in the house at the time of the fire, that they had overinsured their property, and that they had a financial motive to set the fire. No reasonable jury would – when presented with such facts – believe that the fire was accidental and that the claim presented was fair and reasonable.

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(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

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

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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Rescission Does Not Defeat Negligence Claim

Agent Can be Sued for Creating a False Application that Results in Rescission

See the full video at https://rumble.com/v1fdvhj-rescission-does-not-defeat-negligence-claim.html?mref=22lbp&mrefc=4  and at https://youtu.be/fjwLs77EurQ

In a prior action, the Michigan Court of Appeals held that defendant Farm Bureau General Insurance Company of Michigan was entitled to rescind plaintiff’s insurance policy for material misrepresentations made in the application. The Court reasoned that, regardless whether plaintiff or his insurance agent contributed the false information, plaintiff affirmed any misrepresentation by signing the application.

Lawrence S. Holman v. Farm Bureau General Insurance Company Of Michigan, Jonathan Heinzman Agency, Inc., and Jonathan Heinzman, No. 357473, Court of Appeals of Michigan (August 4, 2022)

After losing his case because of the rescission the Plaintiff then sued his insurance agent claiming he was negligent in filling out the application.

BACKGROUND

Plaintiff purchased a 2007 Mercury Mountaineer from a car dealership and called Farm Bureau sales agent Jonathan Heinzman to obtain insurance on the Mercury. Heinzman testified that he filled out the insurance application on the basis of answers he received from plaintiff over the phone. The completed application misrepresented material facts about the fact that he had not driven or moved any vehicle owned by the Applicant which has NOT had the required insurance in force for the preceding six months? An AAA policy number is then listed as plaintiff’s current insurance, with an expiration date of before the effective date of the new policy. Heinzman faxed plaintiff a temporary certificate of insurance and asked plaintiff to send proof of his prior insurance. That evening, plaintiff faxed Heinzman a AAA certificate of insurance that expired that expired two years before.

Plaintiff’s application was sent to Farm Bureau without proof of prior insurance. On January 30, 2015, Farm Bureau sent plaintiff a letter explaining that his application could not be accepted because it was incomplete.

Plaintiff brought suit against Farm Bureau to recover PIP benefits arising from the accident, and the trial court granted summary disposition to Farm Bureau. In Holman v Mossa-Basha (Holman I), issued November 29, 2018, a panel of this Court affirmed the trial court’s ruling that a notice of cancellation was not required for the temporary certificate of insurance because it expired by its own terms on January 29, 2015, and therefore plaintiff did not have coverage on the date of the crash. The Court of Appeal also held, however, that Farm Bureau was entitled to rescind the policy for misrepresentations made in the insurance application.  The record evidence demonstrated that these representations were false and material.

Plaintiff signed the application after having had the opportunity to read and review it. Because plaintiff signed the application after he “skimmed over it,” he affirmed any representations or misrepresentations in the document.

Heinzman testified that he knew that Farm Bureau would cancel plaintiff’s policy. According to his notes of his communications with plaintiff, however, Heinzman told plaintiff on January 6, 2015, that Farm Bureau would “probably” cancel the policy. Similarly, after receiving an e-mail from Farm Bureau regarding the missing proof of prior insurance, Heinzman called plaintiff on January 7, 2015, and told him that Farm Bureau “may terminate coverage.” Heinzman also testified that he offered to look for coverage for plaintiff through a different insurance company. In contrast, plaintiff denied that Heinzman told him that Farm Bureau would not be insuring him or that he needed to look for other coverage.

Heinzman moved for summary disposition of the suit arguing that plaintiff’s claims were barred by the doctrines of res judicata and collateral estoppel.

The trial court granted Heinzman’s motion for summary disposition. The court determined on the basis of collateral estoppel that Holman I was dispositive of the causation element of plaintiff’s negligence action.

ANALYSIS

Plaintiff argued that the trial court erred by concluding that his negligence action against Heinzman was barred by the doctrine of collateral estoppel.

The doctrine of collateral estoppel precludes relitigation of an issue in a subsequent, different cause of action between the same parties when the prior proceeding culminated in a valid final judgment and the issue was actually and necessarily determined in that prior proceeding.

Generally, for collateral estoppel to apply three elements must be satisfied:

  • a question of fact essential to the judgment must have been actually litigated and determined by a valid and final judgment;
  • the same parties must have had a full and fair opportunity to litigate the issue; and
  • there must be mutuality of estoppel.

To establish a prima facie case of negligence, a plaintiff must prove the defendant owed the plaintiff a legal duty, the defendant breached the legal duty, the plaintiff suffered damages, and the defendant’s breach was a proximate cause of the plaintiff’s damages. The trial court concluded that Holman I held that plaintiff made the misrepresentations in the application and that, as a result, plaintiff could not establish that any negligent conduct by Heinzman caused plaintiff’s damages.

As noted, the Holman I panel determined that it was “meaningless” whether Heinzman provided the “bogus” AAA policy number in the application because plaintiff, as the contracting party, had a duty to read the contract and know what he signed. In other words, the panel did not need to decide whether any misrepresentation was attributable to plaintiff or Heinzman for purposes of determining whether Farm Bureau was entitled to rescission because plaintiff affirmed the contents of the application as the signing party.

The Court found in favor of the insurer, relying on the principles of contract law that “failure to read an agreement is not a valid defense to enforcement of a contract” and “[a] contracting party has a duty to examine a contract and know what the party has signed, and the other contracting party cannot be made to suffer for neglect of that duty.”

Stated differently, under contract law, a signing party is bound by the contract’s terms, regardless of whether they have read them. Accordingly, it was immaterial who contributed false information to an insurance application for purposes of determining whether an insurer may rescind a policy. The contract principles relied on in Holman I have no application in a negligence action concerning whether the insurance agent breached a duty to the insured.

Because plaintiff’s negligence claims in the instant case are tort-based, the court of appeal concluded that the plain language of the comparative fault statutes, required the trial court to give defendants’ requested instruction regarding comparative negligence.

The court of appeal additionally concluded that plaintiff’s admitted failure to read the policy could qualify as comparative negligence and that the trial court should have permitted the jury to consider whether plaintiff unreasonably failed to read the insurance policy and related documents.

The insured’s failure to read the insurance application and related documents was relevant to comparative negligence, and that the jury could reasonably determine that it was the proximate cause of the insured’s damages. Applied here, an insured’s failure to identify a misrepresentation in the application allegedly made by the insurance agent should not preclude a negligence action, but it may be considered by a jury when determining comparative fault and proximate cause.

Given that captive insurance agents are “order takers,” it follows that there is a duty to do so accurately and not contribute false information to the application, whether purposefully or mistakenly.

It was not necessary for the Court of Appeal to determine whether there was a special relationship between plaintiff and Heinzman because this case falls within the more general, limited duty to take orders.

The Court’s prior decision granting rescission to the insurer does not preclude a negligence action against the insurance agent. The trial court’s decision was reversed and remanded for further proceedings.

ZALMA OPINION

There is no reasonable basis for an insured or an insurance agent seeking to obtain insurance for the prospective insured to lie to the insurer to obtain the insurance. There is no question that the policy was acquired as a result of a material misrepresentation sufficient to require the rescission of the policy. Since the plaintiff claims he told the truth to the agent then there may be a case for the agent’s wrongdoing. If he lied to the agent he will lose the negligence case. If both lied the jury will determine what percentage of responsibility each obtains. A trial will go forward and a decision will be made.

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(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

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

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

 

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Waiver of UIM Coverage is Effective

Insured Must Know What Coverage He Needs Before Acquiring Insurance

See the full video at https://rumble.com/v1f8tx5-waiver-of-uim-coverage-is-effective.html at https://youtu.be/vrj1NEPM1Bo

Progressive Direct Insurance Company (“Progressive Direct”) appealed the order entered by the trial court denying its motion for summary judgment and granting the cross motion for summary judgment filed by the Appellee. In Bryan D. Koch, Executor Of The Estate Of Rhea Lynn Koch, Deceased, And Bryan D. Koch, In His Own Right v. Progressive Direct Insurance Company, 2022 PA Super 131, No. 1302 MDA 2021, No. J-A14036-22 Superior Court of Pennsylvania (August 4, 2022)

FACTS

On June 7, 2015, Bryan Koch (“Koch”) was driving his 2013 Harley Davidson motorcycle while his wife, Rhea Lynn Koch (“Mrs. Koch”) was riding with him as a passenger. Their motorcycle was struck by a 1997 Ford Explorer driven by Sean Eyrick, who was later determined to be driving under the influence of alcohol when the accident occurred. Mrs. Koch was killed in the accident and Koch suffered injuries that required the amputation of his left leg above his knee.

The parties do not dispute that Eyrick was solely at fault for causing the accident. Ultimately, Koch decided to settle the claims against Eyrich for his available policy limits of $15,000.00 for each plaintiff. The damages that Koch sustained from the accident in relation to the fatal injuries of his wife, Rhea Koch, and the injuries he sustained in his own right exceeded the liability coverage of Eyrich, who was an underinsured motorist (UIM).

At the time of the accident, Koch’s motorcycle had been insured by Progressive Direct under a policy which provided bodily injury coverage of $100,000 each person and $300,000 each accident. Koch presented a demand to Progressive Direct for bodily injury and UIM benefits. Progressive Direct refused to pay the requested UIM benefits based on its allegation that Koch had signed a waiver form rejecting UIM coverage.

On September 9, 2019, Koch sued alleging breach of contract by  Progressive Direct by failing to properly and timely evaluate the claim and pay the insured’s UIM policy limits. Koch claimed that he as an individual and the Estate were each entitled to available UIM benefits in the amount of $100,000.00.

On February 25, 2021, Progressive Direct filed a motion for summary judgment, alleging Koch had originally rejected UIM coverage in the inception of a policy held by Progressive Halcyon Insurance Co. that was issued in February 2004 for Koch’s 2002 Honda motorcycle. Progressive Direct argued that Koch’s rejection of UIM coverage in 2004 was still effective and carried forward through the addition and deletion of different motorcycles to the policy as Koch never affirmatively changed this designation rejecting UIM coverage.

Koch filed a cross motion for summary judgment and, in support of this motion, Koch presented evidence of a telephonic conversation he had with a representative of Progressive Direct, on or about August 20, 2014, nine months before the accident, during which he sought to purchase additional coverage for his 2013 Harley Davidson motorcycle. After the  conversation Koch added uninsured motorist (UM) coverage to his policy. The Progressive Direct representative never discussed the availability of underinsured motorist (UIM) coverage and it was not acquired..

The trial court entered an order granting summary judgment in favor of Koch. As a result, the trial court concluded that Appellant had not made a “knowing waiver” of UIM coverage and found the Rejection of UIM form that Koch signed in 2004 during the inception of the policy was void pursuant to the Motor Vehicle Financial Responsibility Law (MVFRL). Further, the trial court determined that there is a total of $200,000.00 of available UIM coverage under Koch’s policy in place at the time of the accident.

ISSUES

  1. Whether a rejection of underinsured motorist coverage made at the delivery of the policy remains valid until affirmatively changed by the insured.
  2. Whether the telephone conversation between the Progressive representative and [Koch], discussing different coverages, created a duty on behalf of Progressive to advise [Koch] about underinsured motorist coverage.
  3. Whether the trial court erred in finding that the Progressive representative’s failure to offer underinsured motorist coverage to [Koch] required reformation of the policy to allow for underinsured motorist coverage?

ANALYSIS

As an initial matter to the extent that the trial court found the Progressive Direct representative “misled” Koch when she advised him about the availability of uninsured motorist coverage but did not discuss the option of underinsured motorist protection, Koch’s complaint does not seek to find Progressive Direct liable on a tort theory of misrepresentation, but rather is based on a claim of breach of contract.

Although the purchase of uninsured motorist and underinsured motorist coverages are optional, a Pennsylvania statute provides that the insured must be provided with specific information to explain the separate purposes of UI/UIM coverage and must sign written rejection forms with certain stated language in prominent type and location in order to knowingly and voluntarily reject each type of coverage.

The insured must sign and date separate forms to reject UI and UIM coverage.

The record supports the trial court’s finding that Koch signed a valid rejection of UI/UIM coverage form on February 14, 2004, upon the initial delivery of the Progressive Halcyon policy for his 2002 Honda motorcycle.

Progressive Direct presented evidence that it had consistently sent Koch policy renewals which stated that Koch had rejected UIM coverage. After Koch had contacted Progressive Direct on August 20, 2014, increased his coverage, and purchased UI insurance, Progressive Direct sent Koch a policy renewal on January 3, 2015, which stated that the policy now included uninsured motorist coverage in the amount of $100,000 each person and $300,000 each accident and listed the corresponding premium for this coverage. This policy renewal listed the “underinsured motorist bodily injury” coverage as “rejected.”

These coverage selections were in place at the time of the accident at issue that subsequently occurred on June 7, 2015.

The language of Section 1731 specifically provides that any individual who completes valid waiver forms rejecting UI and/or UIM protection under Sections 1731(b)-(c) is precluded from claiming liability of any person based upon inadequate information. Further, Section 1791 of the MVFRL provides that  “[i]t shall be presumed that the insured has been advised of the benefits and limits available under this chapter provided the following notice in bold print of at least ten-point type is given to the applicant at the time of application for original coverage, and no other notice or rejection shall be required.”

Koch executed a valid waiver of UI and UIM benefits upon the delivery of the original policy in February 2004. When Koch contacted Progressive Direct on August 20, 2014 and indicated that he wished to obtain more coverage on the existing policy, the Progressive Direct representative was not required to give Koch additional notice of a particular benefit or to obtain another UIM rejection form.

The relevant statutory provision applies to circumstances in which UIM coverage has been wholly waived, does not contain the same “purchase” requirement as set forth in Section 1738 or contain any language entitling the insured to another opportunity to waive UI or UIM coverage.

The UIM rejection form signed by Koch at the delivery of the policy in 2004 remained was valid such that Koch was not entitled to UIM coverage at the time of the accident. Accordingly the Pennsylvania appellate court reversed the trial court’s decision to grant Koch’s motion for summary judgment and deny Progressive Direct’s motion for summary judgment.

The case remanded for judgment to be entered in favor of Progressive Direct on all issues.

ZALMA OPINION

Some insurers believe those they insure know what insurance they need and can select or not select important coverages. Mr. Koch knew he needed protection from uninsured motorists but did not know he needed underinsured motorist coverages. The court had no choice but to follow the statutory law of Pennsylvania and refuse to allow him a coverage for which he did not order, did not pay for the coverage, and had waived the right to the coverage. As much as we would like 20/20 hindsight does not make a coverage that is not there.

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(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

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

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

 

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