Liar, Liar, Pants on Fire

Insurance Fraud Required to Survive

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

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See the full video at https://rumble.com/v4eltd5-liar-liar-pants-on-fire.html  and at https://youtu.be/so7FGYoA87Q

If Louie has been born fifty years earlier, he would be called a gigolo. Louie was a classically handsome man. He stood 6’2” tall, combed his black hair straight back in a style that would do a Madison Avenue advertising executive proud. His eyes were an unblinking, watery blue that seemed to caress any woman at whom he looked. He ran three miles every morning and maintained a 180-pound, lithe physique.

Louie had a pleasant personality. Everyone he met liked him. He could drink beer with the boys and sip wine with distinguished and well-bred women. He wore a tuxedo as if Calvin Klein had his body in mind when it was designed.

Louie was not smart. Louie graduated from Thomas Jefferson High School in San Jose with a solid D- average. After leaving high school Louie worked at various menial jobs from janitor to fry-cook. He seldom held a job for more than six months.

Louie loved to dance. On weekends he would drive up to San Francisco and spend every night dancing in the clubs. It was on one of these dancing adventures in San Francisco that changed Louie’s life. Louie met Toni Di Battaglia. They danced every dance until the club closed at 4:00 a.m. They danced disco, waltzes and even country and western line dances.

Toni told him she worked for the Teamsters Union out of New Jersey and visited San Francisco monthly.

When Toni learned that Louie lived in San Jose, she invited him to her hotel and their relationship blossomed. Toni was a wealthy and powerful woman in her own right. She had a husband twenty years her senior who did not understand her. Louie was her release. They were in love. Toni did not love Louie for his intelligence. She did not love Louie for his ability to communicate. Toni loved Louie because he was beautiful, a good dancer and made her look good whenever they were out together.

She knew he could not afford to live in the manner in which she had grown accustomed. A suite at the Four Seasons Hotel (where she always stayed) cost more for a night than Louie could earn in a month. Only one solution existed. She needed to support him.

At first Louie rebelled. Taking money from a beautiful woman was not proper for a virile, healthy young man. Toni was insistent and Louie succumbed to her charm.

Toni bought Louie a condominium in the Marina district. She helped Louie furnish the Condo with antiques to satisfy her taste. She would come to San Francisco for three or four days every month. Toni gave Louie $5,000 cash each month to cover his expenses while she was gone. Louie could do whatever he wanted except during the three days Toni was in town.

Louie was a happy man. He lived better than he had in his life. He went out dancing every night. All of his clothes were custom tailored. Louie and Toni were a couple.

Every time Toni would visit, she would bring a gift for Louie. He did not understand the gifts but he accepted them with the grace of a well-bred gentleman. The gifts were always personal jewelry or gifts for his condominium. One month she brought a sterling silver tea service that Toni said was a Victorian antique. Next, she brought him a sterling silver cigarette case she said the famous Russian jeweler Faberge made for the Romanov family before the Russian revolution. She would bring him sculptures, oil paintings, silver candelabra, gold and diamond jewelry, or another bauble that peaked her fancy. To impress Louie, she told him the cost of each bauble. She exaggerated since he was unsophisticated and money still impressed him. Often, she would claim a gift cost her as much as $10,000 more than she actually paid for it. Louie thought he was rich. Louie, adding up what Toni told him she paid for each item thought the value of his household goods was more than $3 million.

Since Toni was away most of each month, Louie became bored. His only passion other than dancing was sports.

He had a satellite dish installed on his condominium; Louie would religiously follow each of the various sports channels. He even watched the Spanish language sports channel although he could not understand the commentary. His knowledge of sports was catholic. He usually knew which team would win and by how much. When he explained his skill to Toni (on one of her visits), she introduced him to a bookmaker. Toni suggested that he use his knowledge to make money by betting on sporting events.

On her next visit Louie pleasantly surprised Toni. He made enough betting on sporting events that he refused her cash contribution. She suggested that Louie set up a legitimate business and sell his sporting knowledge to the public. In this way, by just selling his choices, he could avoid any potential problem with the police. Toni had no compunction about violating the law. She wanted to keep Louie safe for her pleasure.

Running the business kept Louie busy and made him more lovable to Toni. Their relationship continued for ten happy years.

On a fateful November Sunday, while watching a San Francisco 49’ers football game, a news flash interrupted the game to announce a Mafia massacre in New Jersey. Four Teamsters Union officials, allegedly members of the Tortelini crime family, had been found dead in a parked Lincoln Town Car under an overpass of the Jersey Turnpike. All had been shot three times in the head with large caliber weapons. One of the dead was Toni Di Battaglia.

Louie mourned. He no longer had a source of income and gifts. His sports business was failing. The partner he chose had taken all of the company assets and gone to Arruba. He was broke. The love of his life, who supported him for many years, was dead. He had no skills, no profession. Louie owned his condo and could mortgage it. The proceeds would keep him for a short time.

Louie needed a plan to make a large amount of money. He wanted to continue to live comfortably until he could meet someone else, like Toni, who would support him in the manner he had grown accustomed to living. The solution was his condo owners’insurance policy.

Toni had insisted that he always keep a condo owners’ policy on his condominium. His condo owners’ policy had a $400,000 limit, although Toni had led him to believe that the antiques she had given him were worth more than a few million dollars. He would just make a list describing the various items in the condominium and place beside each description the amounts that Toni told him she had paid. He would then report to the police and his insurance company that he had been robbed of items very much like the items in the house.

Neither the police nor the insurance company could prove, since Toni was dead, that he was lying. The amount claimed would be more than the policy limit. Louie was sure the Insurance Company would immediately pay $400,000.00.

Just before Christmas Louie called the police to report that two armed robbers had come to his door and, pretending to be UPS delivery men, gained entrance. Holding him captive with pistols he would say they removed from his condo more than $1,000,000 in silver, fine arts and jewelry.

Included on his list were twenty-five bronze statutes by Erte; a Georgian silver epergne; three Faberge silver and gold cigarette cases; two Faberge picture frames made of semiprecious stones, gold and silver; a Victorian sterling silver tea set; two Georgian sterling silver tea sets; a Victorian sterling flatware service for twelve; two diamond rings; and a solid gold and diamond Rolex watch. The total value of all items Louie claimed stolen equaled $1,300,000.

The insurance company assigned its staff adjuster to investigate the loss. The adjuster was a twenty-five-year-old young woman who had started the profession two years before the day Louie reported the robbery. The opulence of Louie’s condominium and his good looks blinded her. It was clear to her inexperienced eye that the house was full of lovely antiques. She had no reason to disbelieve Louie when he told her that what was still in the house was worth more than $2 million. She presented the claim to her home office and recommended, since the loss exceeded the policy limit by a factor of three, that they pay the full policy limit.

Older and wiser people resided at the insurance company home office. Before they would authorize payment of $400,000 on a claim, they wanted evidence that the values Louie asked them to pay was reasonable and substantiated. They accepted the adjusters report, as fact, that Louie got all of the items by gift. The insurance company accepted that he could not, therefore, prove ownership or value. They expected, however, that he could, by comparison to the items still present, provide enough description to allow them to establish the true value of the items stolen.

The insurance company hired a fine arts appraiser who visited with Louie. The appraiser, looking at the initial written list, knew that Louie was unsophisticated about antiques and items of art. He could not spell “Faberge” or “epergne” and seemed to have difficulty with describing his items of silver. He would describe, for instance, silver as “Victorian” and yet insist it was manufactured before Victoria took the throne; Louie claimed Sheffield silver as “sterling,” not knowing that Sheffield was famous as a center for a specific type of silver plate.

The appraiser studied the silver and other items of art Louie still had in his home. She was convinced that his claim of values was fraudulent or, at the very least, highly inflated. The values stated on Louie’s claim did not agree with any reasonable market. The items he claimed to be Faberge were undervalued by thousands of dollars. Silver items claimed to be Georgian and Victorian were overvalued by a factor of three or more in the opinion of the appraiser.

The appraiser reported his conclusions to the insurer. The insurance company home office personnel, to aid Louie in describing his property, hired an attorney experienced in fine arts. The lawyer was instructed to examine Louie under oath. The insurance company hoped the lawyer would gain more detailed descriptions of the items stolen. They expected, with professional questioning, Louie would establish the true amount of his loss. They could not pay because their appraiser told them the loss could be in a range from $40,000 to $1 million.

Louie testified for two days. He was frightened. The lawyer, although always friendly caused Louie to break out in cold sweats he hoped was not visible. He did not tell the truth about anything to the lawyer. Louie limited his descriptions of the property stolen to the list he had written before he called the insurance company. Despite how detailed the lawyer’s probing, Louie stuck to the description he had written.

When the lawyer questioned Louie’s ability to earn money to keep up the condo, he created a story to show that he had a source of income. Louie told the lawyer that Toni’s “family” sent him, after her death, an annuity of $10,000 cash every month. The money came each month in a plain brown baggage via UPS.

When the examinations under oath were finished, the insurance company and its lawyer were convinced Louie was attempting to defraud it. The lawyer, with the approval of the insurance company, advised Louie that the insurance company denied the claim.

He sued. Five years later a Superior Court jury, after hearing all of the evidence, sent him away with nothing. Although Louie was a convincing actor, the jury concluded only that Louie had been robbed. The jury concluded, also, that he had lied to the insurance company about the existence and value of the property.  They gave judgment for the insurance company. It did not have to pay $400,000 to Louie. It did, however, find itself paying more than $700,000 to its lawyers and experts who made it possible for them to win the lawsuit.

Insurance fraud did not pay for Louie. Fighting fraud, however, on the surface saved his insurance company nothing. In fact, to defeat the fraud the insurance company spent more than it would have cost if it had paid his claim in full. However, Louie’s insurance company gained the reputation of being a fighter and found very few attempts at fraud in the next few years which saved it ten times what it cost to defeat Louie’s claim.

Justice was done and Louie lived happily ever after. During the trial he met Carla, a CPA with offices on the twenty-third floor of a building on California Street that his attorneys hired to prosecute his claim.

Carla took Toni’s place. Louie still lives in his condo surrounded by antiques. Whenever Carla visits, Louie receives a new bauble. Carla pays his expenses.

Louie will never again try insurance fraud.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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

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Go to X @bzalma; Go to the podcast Zalma On Insurance at https://podcasters.spotify.com/pod/show/barry-zalma/support; 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 – http://zalma.com/blog/insurance-claims-library.

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Insurance Fraud is a Violent Crime

A Murderer Guilty of Killing for Insurance Money Must Serve the Full Sentence 60 Year Sentence

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See the full video at  https://rumble.com/v4ecyr5-insurance-fraud-is-a-violent-crime.html and at https://youtu.be/Bimzmn7IVb8

CHUTZPAH: DEFENDANT KILLS GIRLFRIEND AND TRIES TO COLLECT LIFE INSURANCE

Ronald Epps, a prisoner in federal custody, filed a Motion to Vacate, Set Aside, or Correct his Sentence as well as a filing he called a Motion for Compassionate Release.

In Ronald Epps v. United States Of America, Nos. 11-CR-309-A, 12-CR-305-A, 19-CV-1021-A, United States District Court, W.D. New York (February 13, 2024) the USDC refused his request.

BACKGROUND

Epps was charged in a three-count Superseding Indictment with maintaining premises for the purpose of manufacturing and distributing narcotics, with possessing a .32 caliber revolver in furtherance of drug trafficking, and with possession while a previously convicted felon of the same firearm. In addition the narcotics and firearms charges arose after a search warrant was executed as part of the investigation of the murder of Ms. Moss by a gunshot to the back of her head. Epps was later charged with seven additional offenses, beginning with wire fraud for executing a scheme fraudulently to collect the proceeds of a life insurance policy on the life of Ms. Moss; with mail fraud for executing a fraudulent scheme to collect proceeds of a renter’s insurance policy covering the premises, after the premises had twice been damaged by intentionally set fires; and with five specific arson-related offenses in connection with those two fires.

A jury trial was conducted before the USDC and the jury returned guilty verdicts on all counts. Epps was sentenced to an aggregate term of 60 years in prison; the final judgment was entered on January 4, 2017. Epps, Pro se, timely filed a motion to vacate, set aside or correct sentence.

THE TRIAL EVIDENCE

The trial evidence showed that Epps drove Ms. Moss to her job at a health-care facility on California Road in Orchard Park, New York, on August 27, 2009. After Ms. Moss’s body was found on the morning of August 28, 2009, police conducted a search of Epps’s residence at 21 Cascade Drive and found and seized the .32 caliber revolver underlying the two charged firearms offenses set forth in the Indictment. Evidence about Epps’s actions and the statements involving a so-called “bag of guns” tended to explain why the 9 mm firearm used to shoot Ms. Moss in the back of the head was not recovered by law enforcement when they searched Epps’s residence.

DISCUSSION

Defense counsel’s strategic decision to agree to the consolidation of the two indictments in hopes that it would influence the Court to grant her motion to sever and allow her to try at least one indictment free of any evidence regarding Epps’s possession of firearms was reasonable. Notwithstanding that such strategy was rendered unsuccessful by virtue of this Court’s decision to consolidate and not sever such outcome hardly renders defense counsel’s performance constitutionally ineffective.

With the direct appeal establishing the legal correctness of the Court’s evidentiary ruling, the Court further found that a single, apt analogy referenced by the Court- outside the presence of the jury-in conjunction with its ruling does not, based on Epps’s disapproval alone, constitute partiality. Judicial rulings alone almost never constitute a valid basis for a bias or partiality motion.

EPPS IS NOT ENTITLED TO COMPASSIONATE RELEASE

A court may not modify a term of imprisonment once it has been imposed except pursuant to statute. Epps failed to establish-as he must-that extraordinary and compelling reasons warrant reduction of his sentence. Finally, Epps has failed to establish-as he must-that the applicable sentencing factors under §3553(a) do not, on balance, cut against any reduction. Based on those deficiencies, his motion for compassionate release was denied.

ZALMA OPINION

I have been told by prosecutors over the last 55 years that they don’t want to prosecute insurance fraud because they need the time to prosecute violent criminals. Mr. Epps killed his girlfriend to collect insurance money while simultaneously setting fires to profit from his crimes. Two violent crimes, arson and murder, resulted in a sentence of 60 years only to waste the time of the court with a pro se motion to set aside the judgment because the judge was prejudiced against him, his lawyer was inadequate, and he needed to be released from prison. Fortunately for the public of the USA his ploys failed and he will stay in prison for the next 60 years because insurance fraud is either a violent crime or the reason for two violent crimes.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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

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Go to X @bzalma; Go to the podcast Zalma On Insurance at https://podcasters.spotify.com/pod/show/barry-zalma/support; 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 – http://zalma.com/blog/insurance-claims-library.

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Bloods Gang Member Guilty of RICO to Defraud Insurers

Gangs Took Over Fire Reconstruction Industry in New York

See the full video at https://rumble.com/v4dsnef-bloods-gang-member-guilty-of-rico-to-defraud-insurers.html  and at https://youtu.be/APS-gKatDpE

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Insurance Fraud is a Violent Crime and is Everywhere

Jatiek Smith (also known as “Tiek”) a member of the Bloods Gang was charged with one count of racketeering conspiracy, in violation of 18 U.S.C. § 1962(d), and one count of extortion conspiracy, in violation of 18 U.S.C. § 1951, arising out of allegations that Smith and his co-conspirators engaged in a pattern of extortionate conduct to dominate the fire restoration industry. Smith’s case was tried in a ten-day bench trial between November 27, 2023 and December 11, 2023.

In United States Of America v. Jatiek Smith et al., No. 22-cr-352 (JSR), United States District Court, S.D. New York (February 14, 2024) the USDC found Smith guilty on all courts in a lengthy and detailed opinion.

FINDINGS OF FACT

Based on the record presented at trial the Court made the following findings of fact

The Fire Restoration Industry

The “fire restoration industry” refers to the businesses that redress and repair properties that have suffered damage from fires or exposures to fires. Within this industry, “fire restoration companies” (sometimes referred to as “emergency mitigation services companies,” or simply “fire mitigation companies” or “restoration companies”) provide emergency mitigation services, demolition, and construction services to properties that have suffered such damages.

Another group of participants in the fire restoration industry are the “public adjusters.” A public adjuster represents the property owners in their claims made against the insurance companies that insure their properties.

The term “chasing fires,” as conventionally used in the industry, refers to a fire mitigation company’s or public adjuster’s efforts to solicit business from the owners of fire-damaged properties.

Both public adjusters and restoration copaMnies will chase fires in an attempt to be the first to sign any given fire.

Smith’s Rise Within First Response

“First Response” is a fire mitigation company at the center of this action. Carl Walsh, the owner and founder of First Response, hired Jatiek Smith in approximately October 2019. While Walsh retained legal ownership of First Response, in practice Smith effectively took control over many aspects of the business from Walsh and by early 2020 was understood to be its leader. Smith is a member of the Bloods street gang.

Clash with AES

When Smith joined First Response, American Emergency Services (“AES”) was First Response’s primary competitor. A fight ensued, and someone from AES fired a gun at Jackson.

On May 5, 2020, Smith, along with Jackson and three other members of the Enterprise, went to an AES warehouse to assault AES’s owners in retaliation for the events of the prior day.

The Enterprise Imposes Rules on the Industry

After AES left the industry, Smith imposed a set of rules on fire restoration companies that had once competed.

The Enterprise Enforces Its Rules Through Violence and Threats of Violence

Multiple people adverse to Smith were assaulted by his organization.

INSURANCE FRAUD

The vast majority of work performed by First Response and other restoration companies is paid for by insurance companies. If insurance companies do not pay for any restoration work, as a practical matter that work will frequently go uncompensated, as home owners are rarely in a position to pay. Restoration companies such as First Response therefore have a strong financial incentive to ensure any insurance claim is accepted.

When First Response, under Smith’s leadership, saw illegal conditions in a property, at times it used the fact of those conditions as a tool to get Public Adjuster Peralta retained. When First Response, under Smith’s leadership, saw an illegal condition that could interfere with an insurance claim, employees would remove or effectively cover-up that condition and conceal it from the insurance carrier. As a result of fraud claims excluded were paid by the insurance carriers.

OBSTRUCTION OF OFFICIAL PROCEEDING

Before learning that Walsh was speaking with federal investigators, Smith directed Walsh to meet Smith in Smith’s car. Smith eventually tricked Walsh into revealing that Walsh had spoken to law enforcement.

CONCLUSIONS OF LAW

Extortionate Conspiracy

The Government has proved numerous instances in which Smith and his co-conspirators confirmed their agreement by actually carrying out such extortion. Specifically, of the six specific instances in which the Government alleges that Smith and his co-conspirators carried out such extortions, namely the alleged extortions AES (McKenzie), ServPro (Vargas), EFS (Boryk), Willon Charles, iFlood, and an unnamed contractor during the “mala sagure incident,” the Court found the Government proved beyond a reasonable doubt that the first four extortions occurred in furtherance of an agreement-to-extort entered into by Smith and his co conspirators.

Specifically, the Court concluded as follows: The Government proved beyond a reasonable doubt that Smith and his co-conspirators agreed to extort McKenzie and AES in at least two respects. First, Smith and other members of the Enterprise attempted to extort McKenzie and AES by demanding that AES pay $100,000 to continue chasing fires. In addition Smith and his co-conspirators successfully extorted AES by forcing them out of the fire chasing business. Accordingly, the Court concluded that Smith and other members of the Enterprise agreed to extort AES.

It was virtually undisputed at trial that AES stopped chasing fires after these events occurred. The Court concluded beyond a reasonable doubt that AES exited the industry as a result of violence and threats of violence perpetrated by Smith and his co-conspirators.

The Government presented evidence from numerous witnesses of at least six specific acts of intimidation carried out by Smith and his co-conspirators against participants in the industry, in addition to the violence against AES described above. These include the threats or acts of intimidation.

The evidence of specific assaults against public adjusters who refused to give fires to Smith and his co-conspirators support an inference that assaults would also have been carried out on other companies that attempted to take away fires from the Enterprise.

RICO CONSPIRACY

The essence of a RICO conspiracy is the existence of an agreement to violate RICO’s substantive provisions. RICO conspiracy was established by proof of: (a) of an agreement to join a racketeering scheme, (b) of the defendant’s knowing engagement in the scheme with the intent that its overall goals be effectuated, and (c) that the scheme involved, or by agreement between any members of the conspiracy was intended to involve, two or more predicate acts of racketeering.

Predicate Acts of Extortion.

The Court concluded that the Government proved beyond a reasonable doubt that Smith and other members of the Enterprise agreed to, and in fact did, commit predicate acts of Hobbs Act extortion on numerous occasions during the specified period as part of a larger pattern of racketeering activity.

Predicate Act – Mail & Wire Fraud.

The Government proved beyond a reasonable doubt that members of the Enterprise conspired to, and in fact committed, mail and wire fraud by submitting, or assisting others to submit, false and fraudulent insurance claims on a continuing basis during the specified period. In short, Smith is independently guilty of the RICO conspiracy because of the conspirators’ agreement to commit a pattern of mail and wire fraud, as clearly evidenced by their continuing engagement in that fraud.

VERDICT

For the reasons set forth above, the Court finds the defendant guilty of Count One and Count Two charged in the Indictment in the above-captioned case.

ZALMA OPINION

Insurance fraud is a violent crime when infiltrated and conducted by members of a violent street gang like Smith and the Bloods gang. They took over the fire reconstruction industry in New York by assaulting, threatening, and controlling public insurance adjusters and fire reconstruction contractors all in an effort to defraud insurers and victims of fire (whether accidental or intentional) and profit from organized crime efforts. The federal investigators and prosecutors have acted to protect the public and their insurers from criminal conduct and forced normally honest people into either joining in the criminal scheme or give up their business.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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

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Go to X @bzalma; Go to the podcast Zalma On Insurance at https://podcasters.spotify.com/pod/show/barry-zalma/support; 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 – http://zalma.com/blog/insurance-claims-library.

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Why to Never Take an Assignment of Claim Against Insurer

Burning Limits Policy Defeats Attempt to Collect $60,000,000 Verdict

Post 4735

See the full video at https://rumble.com/v4dkqr9-why-to-never-take-an-assignment-of-claim-against-insurer.html and at https://youtu.be/nIsplGAO1LM

Unless There is Coverage or Evidence of Bad Faith Assignment Useless

FACTUAL BACKGROUND

In Kevin Julmist, et al v. Prime Insurance Co., et al, No. 22-10614, United States Court of Appeals, Eleventh Circuit (February 8, 2024) established that death of two liposuction patients were unable to collect any of the judgments over $60 Million because the policy protecting the doctors had a $50,000 burning limits per person policy limit and a $100,000 burning limit aggregate. The insurer refused to pay after expending its full $100,000 in defense and expense costs.

The insurance case grew out of tort claims after  Dr. Nedra Dodds performed a surgical liposuction procedure on April Jenkins at CJL Healthcare, LLC (the Clinic) in Georgia. Jenkins died that same day. Four months after her death, on June 20, 2013 at the same clinic, Dr. Dodds performed a surgical liposuction procedure on Erica Beaubrun, who died that night.

The current case  arises from the Clinic’s assignment to the Beaubrun estate of some of the Clinic’s claims against its insurance companies after a consent judgment in the amount of $60,000,000 was entered in favor of the Beaubrun estate and against the Clinic in the estate’s lawsuit.

The Eleventh Circuit found that the bottom line for this appeal is that under the terms of the policy, the defense of the Jenkins and the Beaubrun estates’ lawsuits exhausted the Clinic’s insurance coverage.

The Jenkins estate rejected an offer for the limits available. Prime notified the Clinic that the policy’s Professional Liability Limit of $50,000 for a single claim had been depleted defending the Jenkins estate lawsuit. Dodds was dismissed as a party, and the Jenkins estate’s case proceeded to trial, during which the Clinic was not represented by counsel. A default judgment was entered against the Clinic, and in December 2018 a jury awarded the Jenkins estate $60,000,000 in damages.

Similarly the Beaubrun estate rejected Prime’s $50,000 offer and sued. Prime’s letter to Dodds and the Clinic stated that the $50,000 “per claim limit of liability” had already been “completely depleted” in providing a defense in the Beaubrun “matter.” It added that the $50,000 per claim limit had also been expended “in relation to the claims of the Jenkins estate against the defendants. Prime withdrew its defense in the Beaubrun “matter” since the aggregate limit had been exhausted.

 

The Claims in the Present Lawsuit

In their complaint, the Beaubrun estate and the Clinic asserted the following claims against the defendants: Count 1 breach of duty against Claims Direct; Count 2 breach of contract against Prime; Count 3 negligence against Prime and Claims Direct; (the complaint has no Count 4); and Count 5 unauthorized sale of surplus lines insurance against Prime and Evolution. Counts 6 and 7 sought punitive damages and attorney’s fees against all the defendants.

DISCUSSION

The Limits of Liability section in the policy states that “[e]ach Wrongful Act Limit of Liability listed on the Declarations is the most we will pay for any combination of Damages and/or Claim Expenses because of all Damages arising or allegedly arising out of any one Wrongful Act.” The policy also caps payouts on multiple claims against the insured and “[n]otwithstanding anything contained in this Policy to the contrary, the Insurer’s financial obligation imposed by the coverage with respect to all Claims hereunder shall not exceed the amount specified on the Declarations as the aggregate Limit of Liability.” That’s a $100,000 cap on coverage for “all Claims.”

According to the policy’s plain terms, claim expenses come out of the policy’s limits. The policy defines “Claim Expenses” to include “[a]ll fees, costs, and expenses charged by any lawyer or other service provider designated by the Insurer to represent the Insured” and “[a]ll other fees, costs, and expenses . . . resulting from the investigation, adjustment, defense, and appeal of a Claim.” It sets the “Limit(s) of Liability” as the “maximum amount the Insurer will be obligated to pay for an otherwise covered Claim, including payment for Claim Expenses, Damages, or any other sums due under this Policy, the amount of which is set forth on the Declarations.” And “[a]ll Claim Expenses reduce the available Policy Limits.”

The district court was correct.

ZALMA OPINION

Burning limits policies were created to allow the insurer to know the exact amount it will need to pay in the event of catastrophic losses. Prime Insurance set a professional liability limit of $50,000 per occurrence and $100,000 in the aggregate – an obviously too small limit for the exposures faced by the doctor and the clinic. When the insurer exhausted the available limits it denied all further coverage and regardless of the judgments obtained in state court the Eleventh Circuit applied the contract terms and found that the insurer properly refused to pay more than the limit. Bad facts often make bad law but in this case the law was applied as the policy was written and made good law applying the contract as written. Why a medical practice would buy insurance with such small limits was suicidal.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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

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Go to X @bzalma; Go to the podcast Zalma On Insurance at https://podcasters.spotify.com/pod/show/barry-zalma/support; 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 – http://zalma.com/blog/insurance-claims-library.

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Zalma’s Insurance Fraud Letter – February 15, 2024

ZIFL Volume 28, Issue 4

Post 4735

See the full video at  https://rumble.com/v4de1di-zalmas-insurance-fraud-letter-february-15-2024.html  and at https://youtu.be/APCrcm2M9xw

The Source for the Insurance Fraud Professional

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Zalma’s Insurance Fraud Letter (ZIFL) continues its 28th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma.  It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/

The current issue can be read in full at http://zalma.com/blog/wp-content/uploads/2024/02/ZIFL-02-15-2024.pdf and includes the following articles:

Do the Crime, Serve the Time

Chutzpah: After Pleading Guilty Fraudster Tried to Reduce his Sentence by an Appeal

After pleading guilty, Armando Valdes appealed his 60-month sentence for health care fraud, in violation of 18 U.S.C. § 1347. Valdes’s conviction and sentence arose out of his scheme to submit millions of dollars in fraudulent medical claims to United Healthcare and Blue Cross Blue Shield for intravenous infusions of Infliximab, an expensive immunosuppressive drug. These infusions, purportedly given to patients at Valdes’s medical clinic, Gasiel Medical Services (“Gasiel”), were either not provided or were medically unnecessary.

In United States Of America v. Armando Valdes, No. 22-12837, United States Court of Appeals, Eleventh Circuit (December 19, 2023) was not convinced of his many arguments against the sentence imposed by the District Court.

Read the full article in Adobe pdf format at http://zalma.com/blog/wp-content/uploads/2024/02/ZIFL-02-15-2024.pdf

More McClenny Moseley & Associates Issues

This is ZIFL’s twenty fourth installment of the saga of McClenny, Moseley & Associates and its problems with the federal courts in the State of Louisiana and what appears to be an effort to profit from what some Magistrate and District judges indicate may be criminal conduct to profit from insurance claims relating to hurricane damage to the public of the state of Louisiana.

Read the full article in Adobe pdf format at http://zalma.com/blog/wp-content/uploads/2024/02/ZIFL-02-15-2024.pdf

California Insurance Commissioner Lara Issues Consumer Fraud Alert As Flood Recovery Begins In San Diego County

Following the recent flooding in San Diego which damaged and destroyed hundreds of homes, businesses, and vehicles, Insurance Commissioner Ricardo Lara put the Department of Insurance on alert for potential fraud and illegal actions targeting flood victims. The Department has received reports from San Diego consumers of public adjusters approaching them immediately after the recent floods. The Department has posted “Don’t Get Scammed After a Disaster” tips in English and Spanish urging consumers not to rush into decisions and to report any suspected illegal actions by contractors or public adjusters.

Read the full article in Adobe pdf format at http://zalma.com/blog/wp-content/uploads/2024/02/ZIFL-02-15-2024.pdf

Health Insurance Fraud Convictions

Guilty in Arkansas

Shaona Mizell, 52, of Paragould, Arkansas. in Pulaski County Circuit Court on January 23, Mizell pleaded guilty to Medicaid Fraud, a class A misdemeanor.

Mizell was a personal care aide who billed Medicaid for several months of care that she did not provide. She was sentenced to one year of probation, a $200 fine and payment of $3,331.38 in restitution to the Arkansas Medicaid Program.

Read the full article in Adobe pdf format at http://zalma.com/blog/wp-content/uploads/2024/02/ZIFL-02-15-2024.pdf

Arson and Restitution

CONVICTED ARSONIST MUST PAY RESTITUTION

A fire at a residential property destroyed several structures and made nearly all of the owner’s personal property unsalvageable. M.W. pleaded guilty to first degree reckless burning for his role in starting the fire. The trial court ordered M.W. to pay over $1 million in restitution. In State Of Washington v. M.W., No. 85908-1-I, Court of Appeals of Washington, Division 1 (January 29, 2024) the court resolved the issue.

Read the full article in Adobe pdf format at http://zalma.com/blog/wp-content/uploads/2024/02/ZIFL-02-15-2024.pdf

New Book Now Available from Barry Zalma

Property Investigation Checklists: Uncovering Insurance Fraud, 14th Edition provides detailed guidance and practical information on the four primary areas of any investigation of suspicious claims. Available at the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

Other Insurance Fraud Convictions

Kentucky Farmer Pleads Guilty to Multi-Million Dollar Crop Insurance Fraud Scheme

David Manion, a farmer from Simpson County, Kentucky, has confessed to orchestrating a fraudulent scheme that defrauded the federal government’s crop insurance program out of millions of dollars. This marks Manion’s second conviction related to crop insurance fraud within ten years, highlighting a recurring pattern of deceitful activities aimed at exploiting agricultural support programs.

Manion’s admission of guilt can after charges filed in November, accusing him of making false statements on crop insurance applications from 2016 to 2022. This fraudulent activity resulted in a staggering $3.5 million loss to the Federal Crop Insurance Corp., according to the plea agreement. The USDOJ is seeking a prison sentence and restitution totaling $3.5 million from Manion, alongside an additional $5,498,023 to settle other disputes.

Read the full article in Adobe pdf format at http://zalma.com/blog/wp-content/uploads/2024/02/ZIFL-02-15-2024.pdf 

Insurance Fraud Attempt Defeated

THE HAWAIIAN, ATTEMPTED FRAUD DEFEATED BY A THOROUGH INVESTIGATION

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

Read the full article in Adobe pdf format at http://zalma.com/blog/wp-content/uploads/2024/02/ZIFL-02-15-2024.pdf

Barry Zalma

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

Over the last 55 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.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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

Subscribe to my substack at https://barryzalma.substack.com/publish/post/107007808

Go to Newsbreak.com  https://www.newsbreak.com/@c/1653419?s=01

Go to X @bzalma; Go to the podcast Zalma On Insurance at https://podcasters.spotify.com/pod/show/barry-zalma/support; 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 – http://zalma.com/blog/insurance-claims-library.

Read the full article in Adobe pdf format at http://zalma.com/blog/wp-content/uploads/2024/02/ZIFL-02-15-2024.pdf

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Insurance Fraud Attempt Defeated

The Hawaiian

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

Post 4734

See the full video at  https://rumble.com/v4d6bkh-insurance-fraud-attempt-defeated.html and at https://youtu.be/xmOjP1QLWGw

The insured was a contractor in Honolulu. He made an excellent living cheating his customers. The insured’s most lucrative scheme was an electronic vermin killer. It consisted of a long wire and a transformer. The contractor strung the wire around a house and plugged it in a wall. The device, charged with low voltage from the transformer, allegedly repelled vermin. The insured guaranteed that all roaches, flying insects and rodents could not pass the charge in the wire.

When it didn’t work and a customer called to complain the insured would ignore the complaints.

Since the tropical Hawaiian climate is a prime breeding ground for insects, the insured had no lack of customers. He bought a Ferrari sports car with the profits.

Eventually the attorney general of the State of Hawaii learned of his fraud. Investigation showed that the vermin killer did not work. Eye witnesses reported cockroaches dancing on the wire unharmed.

The Attorney General filed administrative charges accusing the insured of consumer fraud. The local press published reports of the charges. His sales began to drop. He needed cash flow.

The insured went to the most exclusive jewelry store in all of Honolulu. The store occupied the 15th floor of a high-rise office building. To enter he needed to show identification to a guard and pass through two steel doors.

He bought a single wrist watch at the jeweler and charged it on his American Express card. He asked the jeweler for, and received, an appraisal of the wrist watch.

He then visited the local public library and withdrew three textbooks on gemology.

He returned to his office and made a Xerox copy of the appraisal. He then covered the description of the wrist watch with a large Post-It Note. He photocopied 20 new copies of the appraisal. The Post-It-Note was invisible to the Xerox machine and he had clean appraisals with no descriptions.

Using the books on gemology, he wrote out descriptions for forty-five separate items of ladies and men’s jewelry. He set values beside each item so they totaled over $500,000. He gave the blank appraisals to his secretary and had her type up the descriptions and values he had written onto the appraisal forms he had created. He then made two copies of the new appraisals and destroyed the originals.

Armed with his appraisals he visited a large retail insurance brokerage in Honolulu. He advised the broker that he had recently acquired the jewelry from his deceased mother and needed it insured. The broker was familiar with the jewelry establishment and its impeccable reputation. He accepted the Xerox copies of the appraisals, prepared an application, and submitted the application and appraisals to various markets. He received quotations from three different insurers. Each agreed to insure the jewelry. The insured selected the insurer that offered the lowest premium. He explained to his agent that he had a slight cash flow problem and the agent helped him by financing the premium.

He made one payment on the premium finance contract and then reported a theft.

He advised his insurer that the jewelry was secured in the locked drawer of his office which he considered to be a safe. His office was a small structure with a warehouse facility where he parked his construction truck and, on that night, the Ferrari. It was an employee’s birthday and he and five employees went to a local restaurant to celebrate the birthday. Since they could not fit in his Ferrari, they all went in his foreman’s eight passenger van.

When they returned from the birthday party, they immediately noticed that the Ferrari was no longer in the warehouse. The aluminum overhead door was off its track. Someone had broken in. The thieves must have found the keys to his Ferrari in the desk. The desk drawer was broken and on the floor. No jewelry remained in the building. The insured was distraught since the jewelry was his only connection with his deceased mother. He demanded that the police do everything they could to catch the thieves and return his jewelry. He told the police he did not want insurance money. He only wanted his family heirlooms back. He even asked his insurer to offer a reward for the return of the stolen jewelry.

The insurer, faced with a $500,000 loss assigned their most senior investigator to the claim. He agreed with the insured and offered a $50,000 reward for the return of the jewelry. He then began his investigation with the recorded statement of the insured.

Besides advising the investigator of the theft he informed him that his mother had mailed him the jewelry shortly before her death. She died four years before in a small village in the Philippines. She was afraid that the Philippine government would take the jewelry for taxes. To avoid those taxes mother had simply packaged them in a plain brown wrapper and sent them by mail. She did not insure the delivery nor did she register or declare to US Customs the contents. He kept them in his home, for safekeeping until her death when he believed they had become his property. Then he took them to the jewelry store to establish the value of the gift his mother had made to him. He was astonished that the jewelry had as great a value as reported by the jeweler. He immediately took steps to insure the jewelry.

Two days after the theft, the police found the Ferrari in a gully. Since it was only one of eight Ferraris on the entire island, there was little the thieves could do with it. The police believed the thieves set it afire. The police found only a burned out hull and no evidence available to lead them to the thieves. The destruction of the Ferrari seemed to establish the legitimacy of the claim.

The adjuster began the steps necessary to complete what might be a routine investigation. His first stop was at the jewelry store. He found the gemologist who signed the appraisal. He showed the appraisal to him and asked that he verify the appraisal. The jeweler stated:

“That is our appraisal form. That is a copy of my signature. I have no record of ever doing this appraisal. I have no recollection of ever doing this appraisal. I have no knowledge of the person with the name of the insured. That isn’t unusual however since I do one thousand appraisals a year.”

“Do you have your file copy?” the adjuster asked.

“That’s what is strange, I can’t find the file copy. But my secretary, just about the time of this appraisal began chemotherapy treatment for cancer. She’s dying and I can’t disturb her.”

The adjuster had a logical explanation for the failure to verify the appraisal. He could not, however, let it sit. As a simple straightforward theft claim was becoming complicated.

The adjuster next had a friend who works the South Pacific attempt to verify that the insured’s mother did in fact live in the village in the Philippines described by the insured. The investigator was successful. He found neighbors and relatives who knew the insured’s mother. He could not, however, verify that she had $500,000 in jewelry to donate to her son. In fact, he found that the insured’s mother lived in a one room house on stakes with a grass roof, no electricity, no running water and no indoor plumbing. Her ex-husband still lived in Honolulu.

The insured’s family name was unusual in Hawaii and it only took the investigator two days to find the insured’s father. The father lived in a basement apartment in a rundown area of Honolulu. He was pleased to give the adjuster an interview. He had been estranged from his son for twenty years and his wife for ten so he had no first hand, up-to date information. He did acknowledge that his wife owned jewelry. He told the adjuster:

“Yes, I believe it was very valuable jewelry she owned.”

“How much to do think it was worth?”

“At least $500-$600.”

The adjuster began his investigation in earnest. He invited the insured’s secretary out to lunch. Over a chef’s salad and a glass of ice tea he learned the secretary’s life story. He knew she had been in Hawaii for only two years having come to the islands from Iowa. She was young and very innocent. She liked her job but made only enough money to survive in the Islands. She could not believe the cost of housing compared to what it had been in Iowa.

After gaining her confidence the adjuster confronted the secretary with the result of his investigation. He told her he knew that the appraisals were not done by the jeweler. He showed her where he had discovered that the typewriter used to type the description of the items of jewelry was different from the typewriter used to type the name of the appraiser. He told her that he liked her and would be very sorry if she was involved in aiding her boss in committing a crime.

She began to cry. When he calmed her down, she confessed that she had typed in all of the descriptions and the values of the jewelry. Her boss, the insured, took the print ball out of the IBM Selectric typewriter and smashed it under his shoe. If asked, she was to say that his children broke the typewriter while playing with it. The adjuster thanked her, paid for lunch and suggested she get a new job. He told her he would do what he could to keep her out of criminal problems.

He then got permission from his client, the insurer, to deny the claim.

He wrote a simple brief, letter to the insured stating as follows: “Your claim is denied because it was presented by you with the knowledge that it was false and fraudulent.”

He said nothing more. The adjuster, as required by law, reported his findings to the local police agency and to the U.S. Postal Inspectors. Both promised to complete a prompt criminal investigation and prosecute the insured for insurance fraud. The adjuster waited, patiently, for five years. Every twelve months he would ask the police concerning their investigation. He would always receive the same response “We’re working on it.”

On the fifth year, just before the statute of limitations ran, they arrested the insured for insurance fraud, wire and mail fraud. On the testimony of the adjuster and the secretary the insured was convicted. The court sentenced him to five years in jail, suspended on the condition that he actually serve 30 days and that he make restitution of $10,000 in investigation costs to the insurer.

Five years elapsed since his conviction. He is still making a living as a contractor in Hawaii defrauding his customers. He paid when the probation officer caught him what he told the probation officer he could afford. In five years the insured paid, on the restitution order that is a condition of his probation, a total of $250.00. His probation is over.

The crime did not succeed. He did not collect $500,000. The insurance company did not succeed. It paid out over $10,000 to its investigators which it will never recover and the ordered restitution was never paid.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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

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Go to X @bzalma; Go to the podcast Zalma On Insurance at https://podcasters.spotify.com/pod/show/barry-zalma/support; 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 – http://zalma.com/blog/insurance-claims-library.

 

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Agent’s Statement Binds Insurer

It is not Bad Faith Only to Deny a Claim

Post 4734

See the full video at https://rumble.com/v4cz4cc-agents-statement-binds-insurer.html  and at https://youtu.be/FLwTo0vAjDE

The California Court of Appeals dealt with a claim by Wynzell Lynn, Jr. in a breach of insurance contract case against defendants AAA Life Insurance Company and its agent, Craigory Webb. Plaintiff appealed from a final judgment of dismissal that was entered after the trial court struck certain causes of action in plaintiff’s operative complaint and sustained the defendants’ demurrer as to other causes of action, without leave to amend.

In Wynzell Lynn, Jr. v. AAA Life Insurance Company et al., F085402, California Court of Appeals, Fifth District (February 9, 2024) explained in a lengthy opinion why the trial court erred.

FACTUAL BACKGROUND

Plaintiff purchased from defendant AAA Life Insurance Company (AAA) a life insurance policy for himself, along with a child term rider (rider) providing up to $10,000 in coverage per insured child. According to the First Amended Complaint (FAC) plaintiff understood from his prepurchase conversations with Webb that the rider would cover all of the children in plaintiff’s household, even those without a biological or legally defined relationship (i.e., as an adopted child, foster child, or stepchild) to him. However, when one of the children in plaintiff’s household-17-year-old Mahki Bowen-was murdered while the rider was in effect, AAA rejected plaintiff’s claim for coverage because Bowen was not plaintiff’s biological or legally recognized child (i.e., adopted child, foster child, or stepchild).

When plaintiff first contacted Webb within their household were four children under the age of 19: three with plaintiff’s surname, plus Bowen, who was the biological child of plaintiff’s fiancee and another man. Bowen’s biological father had died in 2007, when Bowen was four years old, and Bowen had lived in plaintiff’s household, as part of plaintiff’s family, since he was about six years old. Although the FAC alleges that Bowen “was [plaintiff’s child since he was approximately six years old,” all agree that Bowen was not plaintiff’s biological, step, adopted, or foster child.

Webb, as the agent for the insurer, stated, “‘the rider covers all your children for $7.00.”

The three-page rider contained the following relevant provisions. The rider “provides term life insurance coverage for each Insured Child.” An Eligible Child must be dependent upon the Insured for support and living within the Insured’s household or attending an educational institution as a full-time or part-time student.

In November 2020, about seven months after plaintiff’s policy became effective, tragically, Bowen was fatally shot. On the date of his death, Bowen was 17 years old, unmarried, financially dependent on plaintiff, and living in plaintiff’s household. Plaintiff contacted Webb to inform him of the death, and Webb “again represented to [plaintiff] that the Child Term Rider would provide coverage” and told plaintiff how he could initiate his claim. AAA formally denied plaintiff’s claim under the rider, stating in its final rejection letter that Bowen was “not a ‘qualifying child.’ ”

DISCUSSION

Breach of Contract (Express Contract Theory)

The trial court sustained the demurrer for failure to plead a breach of the rider by AAA.

Here, the definition of “Eligible Child” as it appears in the rider’s first paragraph is, on its face, ambiguous, in that it is susceptible to more than one reasonable interpretation as to whom the term covers . The Court of Appeals noted that definition of this term as denoted in the first paragraph, can reasonably be read as the trial court read it, to limit coverage as of the policy’s effective date, to children who meet all of the undisputed criteria and are the insured’s biological, adopted, step, or foster children (that is, children who are encompassed in the categories specified in the second paragraph of the definition). The definition can also reasonably be read to provide coverage, as of the policy’s effective date, for children who meet all of the undisputed criteria and are openly held out by the insured to be his children, consistent with California parentage law. As discussed below, “California parentage law creates a presumption that a person who openly holds out a child as his own is the child’s natural parent.” (emphasis added)

To the extent the rider can reasonably be interpreted to provide coverage for a child with a relationship to the insured akin to Bowen’s relationship with plaintiff, the FAC properly pleads the element of breach-the only element the trial court found missing.

Defendants’ contention that the phrase “all of the Insured’s. children” an interpretation of the rider to the effect it covers children who were adopted by the insured or became his stepchildren or court-appointed foster children after it took effect, but not the insured’s existing adopted children, stepchildren, and court-appointed foster children as of its effective date, would be unreasonable.  The Court of Appeals concluded that “Eligible Child” in the first paragraph of the rider is ambiguous, in that it is reasonably susceptible to two interpretations.The FAC, liberally construed, indicates that plaintiff held Bowen out as his child; the FAC also alleges that Bowen lived in plaintiff’s household and was dependent on plaintiff for support. Accordingly, in light of its ambiguity, the definition of “Eligible Child” in the first paragraph must be construed to protect that expectation.

In addition, in Shade Foods, Inc. v. Innovative Products Sales &Marketing, Inc. (2000) 78 Cal.App.4th 847 (Shade Foods) the Court of Appeals held that an insurance carrier is “bound by its agent’s interpretation of coverage under the policy,” and an agent’s authority to bind the principal “unquestionably extends to giving ambiguous contract provisions an interpretation that the insurer itself might reasonably adopt.” As a result, the court concluded, the insurer was “bound by its agent’s interpretation of the contract.”

Breach of the Covenant of Good Faith and Fair Dealing

The mere fact that an insurer withholds coverage based on an erroneous interpretation of the policy does not necessarily mean there was a breach of the covenant; to be liable in tort, the insurer must have acted unreasonably. Although the reasonableness of an insurer’s denial of benefits” ‘is ordinarily a question of fact,'” a court can conclude as a matter of law that an insurer’s denial of a claim is not unreasonable, as long as there existed a genuine issue as to the insurer’s liability.

The trial court’s dismissal of the FAC’s cause of action for breach of contract on an express contract theory, defendants argue in the alternative that plaintiff cannot plead this tort claim (i.e., breach of the covenant) because AAA’s interpretation of the rider was reasonable and therefore shielded by the genuine dispute doctrine. The Court of Appeals  agreed with AAA and it affirmed the trial court’s dismissal of plaintiff’s breach of covenant claim.

Negligence

An insurance agent has an obligation to use reasonable care, diligence, and judgment in procuring insurance requested by an insured. The law is well established in California that an agent’s failure to deliver the agreed-upon coverage may constitute actionable negligence and the proximate cause of an injury. Accordingly, it concluded the FAC alleges adequate facts to show a special duty of care, breach of that duty, causation, and damages.

The judgment of dismissal was, therefore, reversed. The matter is remanded with instructions to the trial court to vacate the order sustaining the demurrer without leave to amend and to enter a new order (1) overruling the demurrer to the breach of contract (express contract theory) cause of action and (2) sustaining the demurrer to the breach of the covenant of good faith and fair dealing cause of action with leave for plaintiff to further amend his complaint to allege, if he is able, causes of action against AAA for breach of contract by estoppel, against AAA and Webb for violation of Business and Professions Code section 17200 et seq., against AAA and Webb for negligent misrepresentation, against AAA and Webb for negligence, and for reformation based on mutual mistake. The parties shall bear their own costs on appeal.

ZALMA OPINION

This case, over a $10,000 dispute, went through a claim denial, a demurrer dismissing the entire action, an appeal, a reversal of the breach of contract claim, and a return to the trial court to allow amendment of a statutory breach claim, if possible, and trial on the breach of contract case. No bad faith because it took the court to find a statute making a person “held out as a son” to be a son even if there is no physical, natural relationship nor a relationship by adoption. This is a case where the concept of “millions for defense and not a dime for tribute” requires reconsideration, mediation and settlement.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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

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Go to X @bzalma; Go to the podcast Zalma On Insurance at https://podcasters.spotify.com/pod/show/barry-zalma/support; 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 – http://zalma.com/blog/insurance-claims-library.

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No Duty to Defend No Possible Duty to Indemnify

Legal Conclusions are Not Allegations of Fact

See the full video at https://rumble.com/v4ct78x-no-duty-to-defend-no-possible-duty-to-indemnify.html  and at https://youtu.be/Gkc6TQmMVZc

Post 4734

Zox LLC (“Zox”) appealed the district court’s grant of summary judgment in favor of West American Insurance Company. The district court held that West American had no duty to defend or indemnify Zox in an underlying trademark dispute between Zox and a group of entrepreneurs known as the “Zox Brothers” (“the Zox Litigation”). Zox contends the district court erred because the Zox Brothers sought damages for three potentially covered claims: (1) malicious prosecution; (2) disparagement; and (3) use of an “advertising idea.”

In ZOX LLC, a California Limited Liability Company, v.  West American Insurance Company; et al., No. 23-55125, United States Court of Appeals, Ninth Circuit (February 9, 2024) the Ninth Circuit resolved the dispute.

ANALYSIS

Under California law, a liability insurer owes a broad duty to defend its insured against claims that potentially seek damages within the coverage of the policy. Coverage turns not on the technical legal cause of action pleaded by the third party but on the facts alleged.

While the duty to defend is broad, an insurer will not be compelled to defend its insured when the potential for liability is tenuous and farfetched. To determine whether the duty to defend was triggered, the Ninth Circuit was compelled to compare the allegations in the Zox Brothers’ pleadings (“the Pleadings”) with the terms of West American’s Insurance Policy (“the Policy”).

Malicious Prosecution

To plead a malicious prosecution claim, the Zox Brothers must plead facts to prove that an underlying action was initiated or maintained (i) by, or at the direction of, [Zox] and pursued to a legal termination in favor of the Zox Brothers; (ii) without probable cause; and (iii) with malice. The Zox Brothers did not plead facts, nor provide extrinsic evidence, to satisfy any of the requisite elements of a malicious prosecution claim. The Pleadings did not trigger coverage for malicious prosecution.

Disparagement

To plead a disparagement claim, the Zox Brothers must plead facts to show a false or misleading statement that (1) specifically refers to the Zox Brothers’ product or business and (2) clearly derogates that product or business. The Ninth Circuit was required to look past labels and at the facts alleged. Zox was unable to cite a single factual pleading in support of a disparagement claim.

Appropriation of Advertising Ideas

Zox contends that the Zox Brothers triggered coverage by claiming that Zox appropriated their “advertising ideas” by using the “Zox” name and “passing off” their products as Zox Brothers’ goods. An “advertising idea” is a “process or invention” used to market one’s goods. The district court did not err in finding that the Pleadings did not trigger coverage for a “use of another’s advertisement” claim.

CONCLUSION

For the reasons stated by the Ninth Circuit, outlined above, it found that West American did not have a duty to defend or indemnify Zox in the Zox Litigation because, there was no duty to defend.

Where there is a duty to defend, there may be a duty to indemnify; but where there is no duty to defend, there cannot be a duty to indemnify.

ZALMA OPINION

The Ninth Circuit applied the clear and unambiguous language of the policy to the “facts” alleged; found that the allegations were mostly speculative or based on legal conclusions, failure to allege facts to support the three claims failed and, therefore, the Ninth Circuit had no choice but to affirm the summary judgment find no duty to defend nor a duty to indemnify.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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

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Go to X @bzalma; Go to the podcast Zalma On Insurance at https://podcasters.spotify.com/pod/show/barry-zalma/support; 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 – http://zalma.com/blog/insurance-claims-library.

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Arson and Restitution

Convicted Arsonist Must Pay Restitution

Post 4731

See the full video at https://rumble.com/v4bz7jx-httpsyoutu.besu9qwq568du.html  and at https://youtu.be/su9qwq568dU

A fire at a residential property destroyed several structures and made nearly all of the owner’s personal property unsalvageable. M.W. pleaded guilty to first degree reckless burning for his role in starting the fire. The trial court ordered M.W. to pay over $1 million in restitution.

In State Of Washington v. M.W., No. 85908-1-I, Court of Appeals of Washington, Division 1 (January 29, 2024) the Court of Appeals resolved the issues.

FACTUAL BACKGROUND

According to the affidavit of probable cause, on July 5, 2021, a fire occurred in Battle Ground, WA, involving a structure locally known as the “Old Cherry Grove Church,” two dwellings, and a storage structure, all located on the same property. The property is owned by Steven Slocum. The damage resulted in a total loss of the structures and their contents.

Within two months after the fire, the investigating officer obtained recorded verbal and handwritten statements from five juveniles, including M.W., who came forward and admitted involvement in throwing a “mortar type firework” at Slocum’s property.

The State charged M.W. with first degree arson. On January 5, 2022, the State charged M.W. by amended information with first degree reckless burning, to which M.W. pleaded guilty on the same day. M.W.’s statement on plea of guilty. M.W. agreed to pay restitution in full to all victims on charged counts, including dismissed counts and causes.

The trial court found that there was good cause to continue the hearing because there appeared to be a potentially complete loss of property and because of Slocum’s emotional state. The court entered an order extending the restitution deadline to August 4, 2022 and a separate order setting a contested restitution hearing for August 3, 2022.

At the restitution hearing on September 28, 2022, the trial court took testimony from Slocum and admitted exhibits into the record. Slocum testified his property included a former church and his home, a parsonage house, and three separate buildings for classrooms, and carports. Slocum purchased the property because it had ample storage space, he was “kind of a hoarder,” he had “a lot of stuff,” and “this was an ideal place to have it.” Slocum decorated the church with “a lot of antiques” and completed “repairs and upgrades.” His collection included “[a] lot of phonographs, old victrolas and Edison cylinder players and musical- musical things.” Slocum also bought a “couple of pianos, player pianos and a lot of slot machines.” Slocum kept several items of family sentimental value in his home, such as furniture pieces, photographs, his mother’s jewelry box and purse, his father’s TV shop’s test equipment, and an Aga cookstove.

Slocum and his nephew were in the back of the church on July 5, 2021, when the fire started. Slocum called 911 and was unable to extinguish the fire using a fire extinguisher. While on the phone with emergency dispatchers, he started taking pictures. The court admitted several photographs into evidence, including ones Slocum took during the fire and after the fire documenting the damage. State Farm prepared an estimate to rebuild the structures for $999,354.74. State Farm paid $569,255.85 for the damage to the buildings and Geico paid $7,000.00 for the truck. The remaining vehicles were not covered by insurance.

Courts in other contexts have construed “good cause” to require a showing of some external impediment that did not result from a self-created hardship that would prevent a party from complying with statutory requirements.

The fact that he could not salvage anything from his destroyed home also speaks to the difficulty in cataloging and estimating his personal property losses within 180 days after the disposition hearing. The trial court did not abuse its discretion in finding there was good cause to extend time for the restitution hearing.

M.W. argued there was insufficient evidence of the value of the items ordered as restitution. Restitution must be limited to easily ascertainable damages for, relevant here, injury to or loss of property. Where the offender has contractually undertaken to pay restitution pursuant to a plea agreement, the offender is bound by the terms of the agreement.

When disputed, the facts supporting a restitution award must be proved by a preponderance of the evidence. Evidence supporting restitution is sufficient if it affords a reasonable basis for estimating loss and does not subject the trier of fact to mere speculation or conjecture.

M.W. argues for the first time in his reply brief that State Farm’s estimate does not make sense but at another point, it estimated loss as $999,354.74 and indicated it issued him a check for $569,255.85. The Court of Appeals noted that this argument appears to misread the State Farm documents, which separate the repair costs for the church structure and the dwelling structure, and plainly indicate a replacement cost of $999,354.74 for the two.

Given the extensive nature of the personal property loss, the amount for which Slocum had insured it provided a reasonable basis for estimating that he had suffered loss in at least that amount.

ZALMA OPINION

Arson is an evil act where innocent people and firefighters are injured or die. Mr. Slocum and his nephew were in the building at the time the fire was set and deserved the punishment he got and if he did not go to jail he will spend the rest of his young life earning the money needed to pay the restitution.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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Ambiguous Exclusion Unenforceable

Unrepaid, Unrecoverable, or Outstanding Credit Exclusion Unenforceable

Post 4731

See the full video at https://rumble.com/v4bywi9-ambiguous-exclusion-unenforceable.html  and at https://youtu.be/H26hZ10akmE

Huntington National Bank (“Huntington”) sued AIG Specialty Insurance Company and National Union Fire Insurance Company of Pittsburgh, Pennsylvania (together, “AIG”) alleging breach of contract and bad faith stemming from AIG’s denial of insurance coverage for Huntington’s settlement of a bankruptcy fraudulent transfer proceeding brought by the trustee of a bankrupt company. In granting summary judgment for AIG, the district court held that:

  1. Huntington’s claim for insurance coverage was uninsurable under Ohio law,
  2. Huntington’s claim was independently excluded under the insurance contract’s exclusion for “unrepaid, unrecoverable, or outstanding credit” and
  3. the larger settlement rule did not apply to Huntington’s settlement.

In Huntington National Bank v. AIG Specialty Insurance Co., et al., No. 23-3039, United States Court of Appeals, Sixth Circuit (February 1, 2024) the Sixth Circuit resolved the dispute.

FACTS

AIG issued to Huntington a bankers professional liability insurance (BPL) policy for that provided coverage up to $15 million, after a $10 million retention. Any liability exceeding the primary policy was covered by an excess policy issued by National Union for the same coverage period, which provided $10 million in excess coverage. The parties do not dispute that these policies apply to Huntington’s claim.

The policy covers any actual or alleged Wrongful Act of any Insured in the rendering or failure to render Professional Services. Relevant to the dispute are exclusions specific to Huntington’s performance of “Lending Acts.” The relevant exclusion clarifies that “[t]he Insurer shall not be liable to make any payment for Loss in connection with any Claim or Claims made against any Insured: for the principal and/or interest of any unrepaid, unrecoverable, or outstanding credit.”

The policy was implicated when Huntington unwittingly became the bank for a fraudulent company, Cyberco Holdings, Inc. Cyberco represented that it purchased computer equipment from a vendor, Teleservices. In reality, Teleservices was a paper company that Watson created to perpetuate his fraud.

Huntington’s security department discovered that the FBI was investigating Cyberco, that Watson had been permanently blacklisted by the National Association of Securities Dealers, and that he had confessed to and served time for fraud-related crimes. But the Huntington security department did not share any of this with the team responsible for Cyberco. From May 2004 to October 2004, Cyberco gradually repaid its entire loan, a relief for the Huntington team.  Later in 2004, the FBI raided Cyberco’s offices, and Watson committed suicide shortly thereafter.

Following the FBI raid, creditors of Cyberco and Teleservices, both entirely fraudulent companies, discovered that the companies were bankrupt. The trustees of Cyberco and Teleservices filed adversary proceedings against Huntington, claiming that Huntington put its desire to be repaid ahead of its concerns that Watson was committing fraud and, by doing so, perpetuated the Ponzi scheme to its benefit and other lenders’ detriment.

The bankruptcy proceedings were long and complex, including two trials and multiple opinions.  Huntington argued it was not liable for any repayments before April 30, 2004, and that its liability was thus limited to the $12,821,897.07 in loan repayments for which the Sixth Circuit had already found Huntington liable. On the other hand, the trustee argued that Huntington had knowledge of the voidability of the transfers it received after November 16, 2003, making $35,968,475, plus interest, the proper recoverable amount. In March 2018, Huntington settled with the trustee for $32,000,000.

THE INSURANCE CLAIM

Throughout the bankruptcy litigation, Huntington sent AIG several requests for coverage. AIG disclaimed coverage, acknowledging that there was “potential coverage” under the policy because the Wrongful Acts alleged arose from Huntington’s performance of banking services to Cyberco, but citing  exclusions. AIG refused Huntington’s claims.

Huntington subsequently sued AIG. AIG also moved for summary judgment, asserting that Huntington’s settlement payment was not a “Loss” under the policy and, even if it was, Endorsements 5, 7, and 10 precluded coverage.

The district court granted AIG’s motion for summary judgment on the grounds that Huntington’s claim was uninsurable under Ohio law. The district court also granted summary judgment for AIG on the grounds that Huntington’s claim was independently excluded by Endorsement 7, which bars recovery for “unrepaid, unrecoverable, or outstanding credit.”

ANALYSIS

Under Ohio law, an insurance policy is a contract between the insurer and the insured. It is “well-settled” in Ohio law that, where provisions of a contract of insurance are reasonably susceptible of more than one interpretation, they will be construed strictly against the insurer and liberally in favor of the insured.

Exclusions of coverage must be clear and unambiguous to be enforceable. Where exceptions, qualifications, or exemptions have been added to an insurance contract, there is a general presumption that anything not clearly excluded by such provisions is included in the insured’s coverage.

Under the insurance policy, the definition of “Loss” excludes “civil or criminal fines or penalties imposed by law, punitive or exemplary damages . . . or matters that may be deemed uninsurable under the law pursuant to which this policy shall be construed.”

Huntington’s claim was for $15,000,000 of a $32,000,000 settlement of a bankruptcy fraudulent transfer proceeding. Huntington correctly asserted that there was no showing of intentional malice by the transferee that is required under the fraudulent transfer provisions of the bankruptcy code, meaning that an order to return funds is not a punishment in any sense. Liability under the fraudulent conveyance statutes is not tantamount to the type of culpable conduct that Ohio courts have held precludes insurance recovery. Fraudulent transfer laws are remedial not punitive

The Sixth Circuit concluded that Huntington had no ill will or malice when it made the loan or sought its repayment, obviating any deterrent effect of denying coverage.

AIG’s arguments to the contrary were unavailing. On appeal, AIG cites several authorities in support of its argument that there is a “well-established principle in insurance law that when an insured returns property that it was never legally entitled to acquire, the insured has not sustained a ‘loss’ within the meaning of an insurance policy.”

AIG and the district court made a form-over-substance argument for exclusion. AIG’s interpretation is not unreasonable. However, that its position is one of multiple reasonable interpretations of the text and  because the application of the contra proferentem rule in this context conclusively resolves the interpretation of “unrepaid, unrecoverable, or outstanding credit.

The Sixth Circuit reversed the district court’s grant of summary judgment for AIG on the insurability of Huntington’s claim under Ohio law and the exclusion of Huntington’s claim under Endorsement 7.

ZALMA OPINION

Bankruptcy litigation, banking, and fraud upon a bank by a Ponzi schemer who, when caught by the FBI committed suicide, Huntington Ban was sued by creditors of the Ponzi scheme because the bank had its loan repaid and they did not. After lengthy litigation the bank settled the bankruptcy suits only to have its insurer refuse to pay based upon an exclusion that was not sufficiently clear to be enforced. AIG will need to pay its limits to its insured and the excess – that followed form with AIG – will probably find it must pay its limits as well. The Sixth Circuit read the full policy and interpreted it in line with Ohio law as should AIG before it rejected coverage.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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Do the Crime, Serve the Time

Chutzpah: After Pleading Guilty Fraudster Tried to Reduce his Sentence by an Appeal

See the full video at https://rumble.com/v4bkm60-do-the-crime-serve-the-time.html  and at https://youtu.be/hrfjwKNeGrI

Post 4730

After pleading guilty, Armando Valdes appealed his 60-month sentence for health care fraud, in violation of 18 U.S.C. § 1347. Valdes’s conviction and sentence arose out of his scheme to submit millions of dollars in fraudulent medical claims to United Healthcare and Blue Cross Blue Shield for intravenous infusions of Infliximab, an expensive immunosuppressive drug. These infusions, purportedly given to patients at Valdes’s medical clinic, Gasiel Medical Services (“Gasiel”), were either not provided or were medically unnecessary.

In United States Of America v. Armando Valdes, No. 22-12837, United States Court of Appeals, Eleventh Circuit (December 19, 2023) was not convinced of his many arguments against the sentence imposed by the District Court.

LOSS AMOUNT

Under sentencing guidelines, U.S.S.G. § 2B1.1(b)(1), a defendant’s offense level increases with the amount of “loss” caused by the offense. In Valdes’s case, his base offense level was increased by 22 levels because the district court found that the loss amount was $38 million.

Section 2B1.1(b)(1)(L) provides that a defendant’s base offense level is increased by 22 levels if the loss from the fraud offense was more than $25 million but less than $65 million. Guidelines do not require a precise determination of loss. Instead, the district court need make only a reasonable estimate based on the available information.

While the government has the burden to prove the loss amount with specific, reliable evidence, the district court may make its factual findings as to the loss amount based on, among other things, evidence presented at trial or sentencing or on the undisputed statements in the presentence investigation report (“PSI”).

ANALYSIS

Valdes was unable to show the district court’s determination that the loss amount of $38 million was clear error. In his factual proffer and at his plea hearing, Valdes admitted that through his medical clinic, Gasiel, he submitted approximately $33 million in fraudulent claims to United Healthcare and approximately $5 million in fraudulent claims to Blue Cross Blue Shield. Because there is a strong presumption that those statements are true the district court could rely on them in determining the loss amount.

Valdes’s arguments failed because: First, for purposes of the loss amount under the intended loss includes unlikely amounts of pecuniary harm, such as claims that exceed the insured value; Second, at the sentencing hearing, Valdes’s own fraud analyst testified that, even accounting for duplicate claims, the total loss amount was above $25 million.

The Eleventh Circuit concluded that Valdes did not show clear error in the district court’s determination.

SOPHISTICATED MEANS ENHANCEMENT

Valdes also challenged the district court’s application of a sophisticated means enhancement. Valdes argues that his offense involved the largely repetitive act of billing for a service that was not provided and was easily detectable.

If a defendant’s fraud offense involved sophisticated means, his offense level is increased by two levels. Whether conduct is sophisticated is based on the conduct as a whole, not on the individual steps. Repetitive and coordinated conduct can be a sophisticated scheme even when no one step is particularly complicated. Addressing a sophisticated means enhancement, the Eleventh Circuit reviews a district court’s factual findings for clear error.

The Eleventh Circuit found no error in the district court’s application of the two-level sophisticated means enhancement. Based on his factual proffer and undisputed facts in the PSI, Valdes operated an elaborate, years-long scheme to defraud insurance companies for expensive Infliximab infusions, obtaining over $7 million as a result. The large amount of money defrauded and the six-year period the scheme went undetected support a finding of sophisticated means. The fact that Gasiel was a real medical clinic that provided other, legitimate medical services to real patients, including primary care services and other intravenous infusions, made the fraud scheme involving Infliximab infusions more difficult to detect and was, thus, sophisticated.

ABUSE-OF-TRUST ENHANCEMENT

If a defendant abused a position of public or private trust, or used a special skill, in a manner that significantly facilitated the commission or concealment of the fraud offense, the sentencing court increases his offense level by two levels. Being a doctor is a type of special skill.

The undisputed facts show Valdes used his skills as a trained doctor, whether licensed or not, to facilitate his fraud by submitting false medical claims. Given that Valdes used a special skill in the commission of his offense, the district court properly applied § 3B1.3’s two-level enhancement.

FORFEITURE OF VALDES’ RESIDENCE

Valdes argues the district court erred by ordering the forfeiture of his home as substitute property. Valdes admits that as part of his plea agreement, he agreed to forfeit his primary residence as substitute property.

The record showed that the forfeiture allegations in Valdes’s indictment and the plea agreement he signed both expressly identified Valdes’s primary residence by address as being substitute property potentially subject to forfeiture. The district court explained, among other things, that Valdes “not only agree[d] to give up property that was directly derived from this crime,” but also “to give up what is known as substitute assets.” Valdes responded that he understood the forfeiture provision.

The record as a whole reflects that Valdes understood that his primary residence was the substitute property that could be subject to forfeiture.  Because Valdes showed no plain error in the district court’s accepting his guilty plea as to the forfeiture allegations, he failed to show the district court erred in ordering the forfeiture of his primary residence as substitute property.

ZALMA OPINION

Insurance fraud perpetrators have unmitigated gall and refuse to admit that they were actually caught committing the crime of insurance fraud and must serve the time and pay the restitution or fines required. Valdes tried, after entering into a plea agreement to avoid trial and a more lengthy sentence, included the forfeiture of his home, only to file a spurious appeal to save it. The Eleventh Circuit saw through his scheme and made him serve the time in prison for 60 months and pay for the crime with the assets he gained as a result of his years of fraud.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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

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Serious Injury Does Not Change Policy Wording

UIM Policy Reduced Limit Reduced by Amount Paid by Other Insurers

Post 4729

See the full video at  https://rumble.com/v4bjaof-serious-injury-does-not-change-policy-wording.html and at https://youtu.be/j1fh2FIpfdo

In an interpleader action involving the insurance coverage for survivors of a tragic auto accident De Smet Insurance Company of South Dakota (De Smet) proposed distribution of the available insurance funds that had been paid into the Court.

In Hallmark Insurance Company, De Smet Insurance Company; and National Casualty Company v. Gail Hoefert and Aaron Hoefert, as personal representatives of The Estate Of Andrew Joseph Hoefert; Gail Hoefert and Kerry Hoefert, as Legal Guardians of B.E.H. minor and C.T.H. minor; et al, No. 4:22-cv-4069, United States District Court, D. South Dakota, Southern Division (January 29, 2024) the court resolved the dispute.

BACKGROUND

The Hoefert Family-Jennifer, Andrew, Jennifer’s daughter, and the two young children of Jennifer and Andrew- were traveling on Interstate-90 in rural Montana. The driver of a Chevrolet Suburban crossed the center line, striking the Hoeferts’ rental car, and killing himself and all occupants of the Hoefert car except the two young children. The latter were seriously injured and are currently under the guardianship of Gail Hoefert and Kerry Hoefert.

Plaintiff Hallmark insured the tortfeasor and filed this interpleader action to determine the liability of the insurance companies toward the survivors. Hallmark tendered $50,000, the amount of coverage in its policy. Two other insurance companies are involved. National Casualty insured the rental car occupied by the Hoefert Family, which carried coverage of $50,000 that has been tendered to the Court. De Smet was the insurance company of the Hoeferts, who had an underinsured motorist (UIM) policy of $500,000. De Smet has tendered $400,000 to the Court in satisfaction of the Hoefert Estates’ claims.

Insurance Contract Provisions Governing Hoefert Estates Claims

The insurance policy De Smet provided to the Hoeferts lists “C. Underinsured Motorist Bodily Injury – $250,000 ea person, $500,000 ea accident.” The De Smet policy provided that “The limit of liability shown in the Declarations for each person for Underinsured Motorists Coverage is our maximum limit of liability for all damages, including damages for care, loss of services, or death, arising out of ‘bodily injury’ sustained by any one person in any one accident. Subject to this limit for each person, the limit of liability shown in the Declarations for each accident for Underinsured Motorists Coverage is our maximum limit of liability for all damages for ‘bodily injury’ resulting from any one accident. “

ANALYSIS

In addition to their serious physical injuries, the surviving children of the Hoeferts have experienced the tragic loss of their parents and older sister. Apart from the emotional impact, the economic loss has been and will continue to be significant. The court realized that payment of the insurance proceeds at issue in this case will only compensate a part of the total losses.

The disagreement presented was how to calculate the proper payment of the insurance coverage. The Hoeferts’ insurance policy with De Smet provided for $500,000 in underinsured motorist coverage. The policy also provides in Section D OTHER INSURANCE that the maximum amount that will be paid is the “highest limits of underinsured motor vehicle coverage that the ‘insured’ specifically requested under any one policy.”

This means that if a person with a De Smet policy of this type purchased, for example, an umbrella policy from another insurer which included underinsured motorist coverage of $500,000 and thought this was increasing the UIM coverage to one million dollars under both policies, the person would in fact receive no additional UIM coverage because of the language of the De Smet policy.

Because the Estates were compensated $100,000, De Smet claimed, based on the policy wording, that it owes only the amount of what is said to be “uncompensated damages” remaining, amounting to $400,000. The damages for which no compensation will be received clearly exceeds $500,000.

CONCLUSION

De Smet has moved for summary judgment, arguing the issue presented is legal, not factual. De Smet deposited with the court $400,000 that it believed was all it owed.  The total amount Hoefert Estates would receive is $500,000.  Hoefert Estates argued the calculated its rights differently. The total for the Estates under that argument would be $550,000 taking into account the fact that there are two UIM coverages involved in the case.

South Dakota’s statute authorizing payment of underinsured motorist damages that are uncompensated and the provisions of the insureds’ De Smet policy. Because Hallmark and National together compensated the Estates in the amount of $100,000, De Smet is responsible for only $400,000 under the statute and its policy with the Hoeferts.

ZALMA OPINION

There was no question that the various insurers owed money to the estates. They deposited into court the amounts they believed was owed under the terms of the policy and the statutes of the state of South Dakota. The court read all the policies applied their terms and South Dakota statutory law and concluded that the policies must be enforced as they were written and the estates were only entitled to the highest limit of Underinsured Motorist Coverage available, $500,000.00.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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Appraisal Pointless if Coverage Not Provided

If Policy Says Building Coverage is “Not Provided” There Can be no Claim

Post 4728

See the full video at https://www.youtube.com/watch?v=8AXdDrS5NfU at https://rumble.com/v4axay6-appraisal-pointless-if-coverage-not-provided.html

Plaintiff Kota Me Patates LLC (“KMP”) filed a motion to compel appraisal to abate an insurance coverage dispute. Defendant Nationwide Mutual Fire Insurance Company responded with a separate motion for summary judgment asserting that the policy does not cover KMP’s claimed losses.

In Kota Me Patates LLC v. Nationwide Mutual Fire Insurance Company, No. 4:23-cv-01573, United States District Court, S.D. Texas, Houston Division (December 21, 2023) the USDC’s magistrate judge recommended a resolution of the disputes.

BACKGROUND

KMP had a business insurance policy with Nationwide (the “Policy”), effective from January 1, 2020 to January 1, 2021. The Policy states that it “includes Buildings …, Business Personal Property …, or both, depending on whether a Limit of Insurance is shown in the Declarations for that type of property.” (emphasis added). The referenced Declarations page explicitly states that coverage for KMP’s building is “NOT PROVIDED[.]”

On January 24, 2022, a year after expiration of the policy a representative from the office of KMP’s attorney contacted Nationwide to report a claim for structural damage to KMP’s property. The damage allegedly resulted from a plant explosion two years earlier, on January 24, 2020.

KMP sued Nationwide in Texas state court. Nationwide removed the suit to the USDC. In the meantime, Nationwide contacted KMP’s counsel to obtain more information about KMP’s claim. Eventually, KMP’s attorney sent a formal notice of claim, stating that KMP intended to invoke the Policy’s appraisal provision. Nationwide requested more information, including an opportunity to inspect the asserted damage and a sworn proof of loss. KMP failed to provide the information that Nationwide requested. Nationwide therefore denied coverage for the loss, noting that KMP failed to provide a description of how, when and where the loss or damage occurred, did not provide prompt notice of the loss or damage, and failed to submit a signed, sworn proof of loss as requested.

Despite filing the suit months earlier, KMP’s attorney finally sent Nationwide a demand letter on October 2, 2022. The letter included an estimate of $92,508.92 to repair KMP’s structure. KMP then filed a motion to compel appraisal and abate the suit. Nationwide instead filed a motion for summary judgment.

ANALYSIS

Nationwide sought summary judgment on KMP’s breach of contract claim on multiple grounds, including that the Policy does not cover KMP’s claim for damages to its building. Given the clear Policy language, the Court had no need to address Nationwide’s alternative contentions.

The Policy provides zero coverage for any damage to the building. Because Nationwide did not breach the Policy by denying coverage, it is entitled to summary judgment on KMP’s breach-of-contract claim.

Nationwide also argued that KMP cannot recover on its extracontractual claims for breach of the common law duty of good faith and fair dealing, violations of the Deceptive Trade Practices Act (“DTPA”) and Chapters 541 and 542 of the Texas Insurance Code, common law fraud, and civil conspiracy. The USDC noted that the lack of coverage, coupled with the lack of any injury independent of Policy benefits, forecloses any extracontractual basis for relief.

Mere allegations do not constitute competent summary judgment evidence. Bare allegations that an insurer “misrepresented the scope of” coverage are not sufficient to show that the misrepresentation induced the purchase.

KMP’s Request For Appraisal Was Denied.

The disposition of KMP’s breach of contract claim defeats its request to compel appraisal. The purpose of appraisal is to resolve disputes concerning a property’s value or the amount of a covered loss. Appraisal is pointless when, as here, the Policy explicitly states that the loss is not covered.

ZALMA OPINION

The KMP claim was incompetent on many bases, not the least of which was a claim for damage to a building that the policy explicitly said in bold print that building coverage was “NOT PROVIDED.” Add to that a two year late report, no compliance with policy conditions, and a spurious argument for tort damages and the Magistrate apparently had no choice but to recommend granting Nationwide’s motion and sending KMP and its counsel home with a total loss. Counsel for KMP apparently failed to read the Declarations page of the policy. A total waste of time for the litigants and the court.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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A Incomplete Aircraft is Still an Aircraft

Injured by an Aircraft Fuselage Arose Out of Ownership of Aircraft

See the full video at https://rumble.com/v4aq632-a-incomplete-aircraft-is-still-an-aircraft.html  and at https://youtu.be/DRTMwAsXbcU

Post 4727

A woman was severely injured while moving an inoperable airplane. She now seeks to recover from her husband’s homeowner’s insurance policy. The insurance policy excludes injuries “arising out of” the ownership, maintenance, use, loading or unloading of an aircraft. The policy further defines “aircraft” as “any conveyance used or designed for flight.”

In Lisa Thompson v. United Services Automobile Association and Matthew Mrzena, No. S-18462, Supreme Court of Alaska (January 26, 2024) the Supreme Court resolved the dispute over interpretation of the policy wording.

FACTS

Claiming that the policy should cover her injury because in her view the aircraft became mere “parts” after her husband removed the wings, elevators, and tail rudder. The superior court disagreed, concluding that the fuselage was still an “airplane” and that, in any event, her injuries arose from her husband’s ownership of the aircraft. The court determined that her injuries were therefore not covered by the policy.

Around 2011 Matthew Mrzena purchased a 1946 Piper PA-12 airplane (Piper). Mrzena stopped using the Piper in 2014 when it failed an annual inspection and was deemed no longer airworthy. Mrzena removed the wings, tail rudder, and elevators from the fuselage, leaving the remainder of the fuselage and many other parts intact, including the wheeled landing gear, propeller, seats, windows, and engine. Mrzena kept the Piper in a plastic temporary garage at his home in Palmer, Alaska.

In 2019, Mrzena purchased a new residence where he planned to live with his now-wife Lisa Thompson. During the summer Thompson and Mrzena were in the process of moving their belongings, including the Piper, to the new home. As part of the move the Piper needed to be pushed out of the garage and onto a trailer. Mrzena was pushing from the back of the Piper, with Thompson at the front, when Thompson became pinned under the Piper’s nose. Thompson’s resulting injuries were severe.

At the time of the injury Mrzena had the Piper registered as an aircraft with the Federal Aviation Administration (FAA). He also held an aircraft owner-specific liability policy on the Piper with Avemco Insurance Company (Avemco). Throughout his ownership of the Piper, Mrzena continued to renew both the Piper’s FAA registration and the Avemco aircraft policy.

DISCUSSION

Interpreting USAA’s aircraft exclusion pursuant to the reasonable expectations of the lay insured, the Supreme Court concluded that the policy’s exclusion of coverage for injuries arising out of the ownership or maintenance of an aircraft applies to exclude coverage for Thompson’s injuries. Regardless of whether the Piper was an airplane or a collection of airplane “parts” when it injured Thompson, the injury arose out of Mrzena’s ownership.

The Policy Excludes Coverage For Thompson’s Bodily Injuries Because They Arose Out Of Mrzena’s Ownership And Maintenance Of The Piper.

Generally, courts determine the liability of an insurer by the terms of the policy the insurer  issued. Policy language is construed in accordance with ordinary and customary usage. A restriction on coverage is enforceable if an insurer, by plain language, limits the coverage of its policy.

The USAA policy broadly excludes coverage for bodily injury “arising out of”  ownership and maintenance of an aircraft. This language supports the reasonable expectation that Thompson’s injuries would not be covered because Mrzena and Thompson’s movement of the fuselage, and her resulting injuries, “ar[ose] out of” Mrzena’s ownership and maintenance of the Piper.

Reasonable plane owners would not expect that their planes cease to be aircraft solely because the aircraft had been partially disassembled to perform maintenance.

Mrzena testified that he removed the wings, tail rudder, and elevator to repair damage to the plane’s exterior fabric, and to begin the process of re-covering the components. The Supreme Court noted that clear and unambiguous policy language excluding injuries arising out of ownership or maintenance of an aircraft forecloses Thompson’s argument that her injuries were covered by the policy.

The Supreme Court concluded that a reasonable person interpreting the USAA policy language’s broad exclusions for ownership, maintenance, and use would understand that the aircraft exclusion was intended to create “broad exclusions” for incidents involving a homeowner’s airplane.

Thompson asserted that the Piper was not an “actual aircraft” and became mere “aircraft parts” at some point before her injury. The Supreme Court concluded that it need not determine whether the Piper was an aircraft or mere “parts” at the time of Thompson’s injuries because it concluded that Thompson’s injuries “arose out of” Mrzena’s ownership of the Piper.

ZALMA OPINION

Common sense exists in the Alaska Supreme Court. An aircraft under repair is still an aircraft even if it cannot fly. The Plaintiff was injured while she an her husband were moving the aircraft to a new home where the intended repairs could continue. Therefore, the Plaintiff and her husband were involved in the ownership, maintenance use of an aircraft and the exclusion applied.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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Zalma’s Insurance Fraud Letter February 1, 2024

ZIFL Volume 28 Issue 3

Post 4726

See the full video at https://rumble.com/v4aircl-zalmas-insurance-fraud-letter-february-1-2024.html   and at https://youtu.be/cOhwnmCvuxY

Subscribe here:

Zalma’s Insurance Fraud Letter (ZIFL) continues its 28th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma.  It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/

The current issue can be read in full at http://zalma.com/blog/wp-content/uploads/2024/01/ZIFL-02-01-2024.pdf and includes the following articles:

Fraudulently Submitting Fake Applications Violates Licensing Statutes

Insurance Producer Fraudulently Submits Applications to Insurer

Paul B. Kumar appealed a final agency decision of Commissioner of the Department of Banking and Insurance (Commissioner or Department) revoking his insurance producer license and imposing $60,774.25 in civil penalties, surcharge, attorney’s fees and costs of investigation, for violations of the New Jersey Insurance Producer Licensing Act of 2001 and the New Jersey Insurance Fraud Prevention Act (Fraud Act).

Read this full article and the entire issue of ZIFL here.

More McClenny Moseley & Associates Issues

This is ZIFL’s twenty third installment of the saga of McClenny, Moseley & Associates and its problems with the federal courts in the State of Louisiana and what appears to be an effort to profit from what some Magistrate and District judges indicate may be criminal conduct to profit from insurance claims relating to hurricane damage to the public of the state of Louisiana.

12/19/2023

$10,170,665.53 Default Judgment Against MMA (Including Interest)

Read this full article and the entire issue of ZIFL here.

Now Available The Compact Book of Adjusting Property Claims – Fourth Edition

On January 2, 2024, in Kindle, paperback and hardback formats, The Compact Book of Adjusting Property Claims, Fourth Edition is now available for purchase here.and here. The Fourth Edition contains updates and clarifications from the first three editions plus additional material for the working adjuster and the insurance coverage lawyer.

Read this full article and the entire issue of ZIFL here.

Convictions From the Coalition Against Insurance Fraud

Dr. Michael Villarroel, working as a doctor in the US Navy, was sentenced in federal court to one year and one day in custody. Villarroel admitted that from 2012 to at least December 2015, he conspired with other members of the Navy to obtain money from the United States by making claims for life insurance payments based on exaggerated or fake injuries and disabilities. Villarroel certified that he reviewed the records and determined the injuries were legitimate when in fact he knew they were fake or exaggerated. At times, Villarroel falsely stated that he interviewed the claimant and provided other service members with actual medical records to be used in fabricating claims. Villarroel knew the claims were false, but he signed off on them to receive kickbacks once the fake injuries resulted in insurance payouts. In addition to prison time, Villarroel will have to pay $180K as criminal forfeiture.

Read this full article and the entire issue of ZIFL here.

Health Insurance Fraud Convictions

Four Plead Guilty to Healthcare Offenses, Including Doctors and Lab Owners

Mark Rubin, 58, Renee Field, 44, Kelly Nelson, 52, and Carlos Hornedo, 61, were all charged via felony informations in December 2023. Mr. Rubin, on January 17th, and Mr. Hornedo, on January 10th, both pleaded guilty to one count of conspiracy to solicit and receive illegal kickbacks. On December 13th, Ms. Field and Ms. Nelson both pleaded guilty to one count of conspiracy to pay and receive health care kickbacks. The defendants each face a maximum penalty of not more than five years in federal prison, a $250,000 fine, and may be ordered to pay restitution.

Read this full article and the entire issue of ZIFL here.

Lawyer With Unfortunate Name & Advertising Asking that People Should ‘Hire A Dick’ Faces Six Figure Sanctions

Eric B. Dick, Esq, for the second time in three months has been ordered to reimburse an insurer more than $100,000 for filing a “frivolous, groundless” lawsuit made “solely for the purpose of harassment.”

Read this full article and the entire issue of ZIFL here.

New Book Now Available from Barry Zalma

Property Investigation Checklists: Uncovering Insurance Fraud, 14th Edition

Property Investigation Checklists: Uncovering Insurance Fraud, 14th Edition provides detailed guidance and practical information on the four primary areas of any investigation of suspicious claims. The book also examines recent developments in areas such as arson investigation procedures, bad faith, extracontractual damages, The fake burglary, and Lawyers Deceiving Insurers, Courts & Their Clients During, Catastrophes—A New Type Of Fraud and the appendices includes the NAIC Insurance Information and Privacy Protection Model Act and usable forms for everyone involved in claims and will provide necessary information to the claims adjuster, SIU fraud investigator, claims manager, or coverage lawyer.

Read this full article and the entire issue of ZIFL here.

Other Insurance Fraud Convictions

Life Insurance Fraud in South Africa

Onthatile Sebati and her co-accused and cousin Tumelo Mokone with Mokone’s brother Kagiso, were found guilty of killing her parents, sister and brother in 2016.

Sebati, 23, and her two cousins were found guilty in the Pretoria high court of murdering her father, mother, eight months pregnant sister and young brother. Sebati paid her cousins Tumelo and Kagiso Mokone R100,000 from life insurance payouts she received after the murders. She was 15 years old when she came up with the plot to kill her father, police constable Solomon Lucky Sebati, mother Mmatshepo, a nurse at an old-age home, her 19-year-old pregnant sister Tshegofatso and her young brother Quinton at their home at Mmakau near Brits in the North West in December 2016.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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

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Go to X @bzalma; Go to the podcast Zalma On Insurance at https://podcasters.spotify.com/pod/show/barry-zalma/support; 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 – http://zalma.com/blog/insurance-claims-library.

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Punitive Damages

How to Put Fear of Insolvency Into a Defendant

Post 4725

See the full video at https://rumble.com/v4aaf7k-punitive-damages.html  and at https://youtu.be/QeGvDvfn_p8

For more than fifty six years working in and about the insurance industry I have personally seen the fear in the faces of corporate executives faced with a suit claiming wrongful conduct and punitive damages. Even those who knew that they had acted properly and fairly and that the allegations of the suit were totally spurious, the fear and trembling engendered by a suit seeking punitive damages is patent.

The defendant who should be leading a charge like General Patton acts more like Prime Minister Neville Chamberlain. Defendants seem to prefer to appease a plaintiff rather than litigate good and viable defenses. Unless counsel advises a 100% chance of total victory – a statement no trial lawyer will ever make – the defendant does not want to go to trial and is willing to pay more than it owes to avoid the potential of a serious punitive damage judgment.

Contrary to common belief the chances of a suit seeking punitive damages actually obtaining an award of punitive damages is very small.

Defendants often, incorrectly, concentrate on trial verdicts and overlook that almost all civil litigation matters result in out-of-court settlements. Verdicts are important but punitive damage verdicts are more like the tip of the proverbial iceberg than evidence of a trend. Practical evidence indicates that the small number of trials affect decisions in the vast majority of lawsuits that do not proceed to trial.

Verdicts are taken as important signals to the litigants. It is important to first understand the basic dynamics of a lawsuit. Most of the work in pre-trial litigation is designed to provide the litigants with enough information to allow them to reach an amicable settlement. A large punitive damages verdict skews the evidence available to the litigants and causes plaintiffs to demand more than their cases are truly worth and defendants to pay more than they should to resolve a suit seeking punitive damages.

Under basic American litigation practice the plaintiff has the opening strategic advantage. A plaintiff with a weak case places the defendant in the position of having to defend himself (and therefore incurring legal costs), or else the defendant will be liable for the full claim on a default judgment. Even a defendant facing a suit that has no merit and no chance of success before a court will often be willing to pay an amount that is less than his prospective defense costs to settle the case and “make it go away.” Appeasement of the plaintiff is, to a corporate defendant, seen to be economically the best solution.

According to various studies, the cost of defense in an average tort lawsuit ranges from $6000 to $10,000, depending on the kind of suit. A litigant with even a mildly plausible basis for an average suit can often expect a nuisance settlement value within this range.

Most often a defendant is willing to pay a settlement up to the amount of his defense costs in order to avoid having to respond to the plaintiff’s complaint.

The main determining factor of whether a filed lawsuit will yield a settlement to the plaintiff is the credibility of the threat made by the suit. The defendant and counsel determines the probability of a verdict favorable to the plaintiff if the case goes to trial. If the probability is that the plaintiff will succeed the defendant then analyzes the likely amount of damages that the plaintiff could obtain from a trier of fact in the jurisdiction where the suit is filed.

In frivolous or marginal lawsuits, or lawsuits with a doubtful chance of success at a trial, settlements often occur because the defendant rarely knows the merits of the claim with any level of certainty. Since refusing to take a valid claim seriously can be quite costly, a frivolous plaintiff may be able to take advantage of the defendant’s uncertainty regarding the claim’s validity to extract a substantial settlement.

The Supreme Court’s rulings in State Farm Mutual Automobile Insurance Co. v. Campbell, 123 S.Ct. 1513, 155 L.Ed.2d 585 (U.S. 2003) limits, by due process, the multipliers that can be applied when setting punitive damages.

In addition, the uncertainty posed by the prospect of unlimited punitive damages, combined with the relative probability of a punitive damage award if a case goes to jury trial, provide litigants who demand punitive damages with potent leverage against risk-averse defendants, like insurance companies or candidates for the presidency, and tip the balance in settlement bargains in favor of litigants with weak or even frivolous cases.

The California Supreme Court, in a concurring and dissenting opinion by Justice Clark, stated the reality of punitive damages:

Punitive damages are an anomaly in our civil jurisprudence. The civil law is concerned with vindicating rights and compensating persons for harm suffered as a result of infringement upon those rights. A plaintiff is customarily made whole for infringement by compensatory damages; punitive damages awarded to him rather than to the government constitute a windfall or unjust enrichment for plaintiff. (See, e.g., Carsey, The Case Against Punitive Damages (1975) 11 The Forum 57, 60; Note, Insurance Coverage of Punitive Damages (1974) 10 Idaho L.Rev. 263, 268.) [Egan v. Mutual of Omaha Insurance Co., 24 Cal. 3d 809, 620 P.2d 141, 169 Cal. Rptr. 691 (Cal. 08/14/1979)]

The windfall about which Justice Clark spoke is impossible to resist the temptation to sue for punitive damages and why, California has been subject to thousands of insurance bad faith cases claiming punitive damages. The principal criticism to the concept of punitive damage, recognized by Justice Clark, is that standards are so vague that the determination whether to award is left to absolute and unguided jury discretion.

Punitive damage demands, especially if other litigants had obtained a successful punitive damage judgment, will provide the plaintiff with strong bargaining power even with a weak or frivolous case. It does so in two ways:

  • By increasing the size of a prospective jury award (by an unpredictable and potentially enormous amount) if the case is taken to trial, and
  • By increasing the legal costs that a defendant will have to incur to fight the suit at trial.

The presence of a punitive damage demand provides leverage for the plaintiff to force a higher settlement value from a suit. The presence of a punitive damage demand often requires a more extensive, costlier, and more time-consuming defense by the defendants. Defending against such extraordinary claims usually requires a more expensive discovery process than ordinary damage claims.

Lawyers representing clients faced with a suit seeking punitive damages must do a serious analysis of the facts and the law and advise the client in accordance with the potential for the plaintiff obtaining an award of punitive damages. If there is a potential equal or better than 50% settlement negotiations should be entered with advice to the plaintiff that punitive damages are taxable to the plaintiff. If, on the other hand, the case seeking punitive damages is spurious the client should tell its counsel to defend through trial and any possible appeals and refuse to pay tribute to the plaintiff.

For further detail see my book Insurance Bad Faith and Punitive Damages Deskbook available from Full Court Press at the Fastcase bookstore at  http://fastcase.com/

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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

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Liability Insurance & the Need for Fortuity

Liability Insurance & the Need for Fortuity

Post 4724

See the full video at https://rumble.com/v4a2ie8-liability-insurance-and-the-need-for-fortuity.html  and at https://youtu.be/7P2LjIWo5F8

Liability insurance requires that the loss or damage that needs defense or indemnity from an insurer, must be contingent or unknown at the time the policy was acquired. For insurance to apply, on a third party policy, the risk of loss insured against must be fortuitous. Simply stated fortuitous means the loss happened by chance. The doctrine of fortuity (accidental or unintended acts causing injury) requires it be established that the event was a chance event beyond the control of the insured. [Martin/Elias Props., 544 S.W.3d at 643 & Blakeley v. Consol. Ins. Co. (Ky. Ct. App. 2021)]

A “fortuitous event” is defined as: “[A]ny occurrence or failure to occur which is, or is assumed by the parties to be, to a substantial extent beyond the control of either party.”

Thus, the requirement of a fortuitous loss is a necessary element of insurance policies based on either an “accident” or “occurrence.” The insured has the initial burden of proving that the damage was the result of an “accident” or “occurrence” to establish coverage where it would not otherwise exist [Northville Indus., 89 N.Y.2d at 634).] Once coverage is established, the insurer bears the burden of proving that an exclusion applies. [Consolidated Edison Co. v. Allstate Ins., 774 N.E.2d 687, 746 N.Y.S.2d 623, 98 N.Y.2d 208 (N.Y. 2002)]

Insurance is designed to protect against unknown, fortuitous risks, and fortuity is a requirement of all policies of insurance. [Burlington Ins. Co. v. Tex. Krishnas, Inc., 143 S.W.3d 226, 230 (Tex. App.-Eastland 2004, no pet.); Scottsdale Ins. Co. v. Travis, 68 S.W.3d 72, 75 (Tex. App.-Dallas 2001, pet. denied); Two Pesos, Inc. v. Gulf Ins. Co., 901 S.W.2d 495, 502 (Tex.App.-Houston [14th Dist.] 1995, no writ) (op. on reh’g).]

An insured cannot insure against something that has already begun and which is known to have begun. [Summers v. Harris, 573 F.2d 869, 872 (5th Cir.1978).]

The fortuity doctrine precludes coverage for two categories of losses: known losses and losses in progress. A “known loss” is one that the insured knew had occurred before the insured entered into the contract for insurance. [Burch v. Commonwealth County Mut. Ins. Co., 450 S.W.2d 838, 840-41 (Tex.1970)] A “loss in progress” involves those situations in which the insured knows, or should know, of a loss that is ongoing at the time the policy is issued. [Warrantech Corp. v. Steadfast Ins. Co., 210 S.W.3d 760 (Tex. App. 2006)]

When a trial court determined that the plaintiffs’ complaint did not allege any bodily injury or property damage caused by an “occurrence.” In reaching this conclusion, it relied on Cincinnati Insurance Company v. Motorists Mutual Insurance Company, 306 S.W.3d 69, 73-74 (Ky. 2010), as corrected July 19, 2011. In Cincinnati Insurance Company, the Kentucky Supreme Court held that “accident” and “occurrence” are unambiguous, and that they embody the principle of “fortuity” inherent in all liability insurance policies.

In determining whether an event constitutes an accident courts must analyze this issue according to the doctrine of fortuity:

  • whether the insured intended the event to occur; and
  • whether the event was a chance event beyond the control of the insured.

Policy language insuring against accidents applies only if the insured did not intend the event or result to occur. [Blakeley v. Consol. Ins. Co. (Ky. Ct. App. 2021)]

Wisconsin caselaw provides several alternative definitions, all of which attempt to capture the fortuity principle central to liability insurance. [Lucterhand v. Granite Microsystems, Inc., 564 F.3d 809, 812-13 (7th Cir.2009).] An “accident” for purposes of liability insurance coverage is “[a]n unexpected, undesirable event or an unforeseen incident which is characterized by a lack of intention.” [Everson v. Lorenz, 2005 WI 51, ¶ 15, 280 Wis.2d 1, 15, 695 N.W.2d 298, 15 (2005) (internal quotation marks omitted).] The word “accident,” in accident policies, means an event which takes place without one’s foresight or expectation. A result, though unexpected, is not an accident; the means or cause must be accidental. [Am. Family Mut. Ins. Co. v. Am. Girl, Inc., 2004 WI 2, ¶ 37, 268 Wis.2d 16, ¶ 37, 673 N.W.2d 65, ¶ 37 (2004) (quoting BLACK’S LAW DICTIONARY 15 (7th ed.1999); and Eberts v. Goderstad, 569 F.3d 757 (7th Cir. 2009)]

Faulty workmanship is not included in the standard definition of “property damage” because “a failure of workmanship does not involve the fortuity required to constitute an accident.” [9A Couch on Insurance 3d § 129:4.] Liability insurance is not intended to act as a performance bond. [W. World Ins. Co. v. Carrington, 90 N.C.App. 520, 523, 369 S.E.2d 128, 130 (1988)] Since the quality of the insured’s work is a “business risk” which is solely within his own control, liability insurance generally does not provide coverage for claims arising out of the failure of the insured’s product or work to meet the quality or specifications for which the insured may be liable as a matter of contract. [Builders Mut. Ins. Co. v.  Mitchell, 709 S.E.2d 528 (N.C. App. 2011)]

Insurance policies generally require “fortuity” and thus implicitly exclude coverage for intended or expected harms. New York Insurance Law § 1101(a)(1) itself defines “insurance contract” as: “any agreement * * * whereby one party, the `insurer’, is obligated to confer benefit of pecuniary value upon another party, the Insured’, * * * dependent upon the happening of a fortuitous event * * *.”

A “fortuitous event” is defined as: “[A]ny occurrence or failure to occur which is, or is assumed by the parties to be, to a substantial extent beyond the control of either party.” (§ 1101[a][2].) Thus, the requirement of a fortuitous loss is a necessary element of insurance policies based on either an “accident” or “occurrence.” [Consolidated Edison Co. of Ny v. Allstate, 774 N.E.2d 687, 98 N.Y.2d 208, 746 N.Y.S.2d 622 (N.Y. 2002)]

Fortuity must be judged using a subjective standard, because requiring this knowledge element best serves the overall principle of insurance law. [Aetna Cas. & Sur. Co. v. Dow Chemical Co., 10 F.Supp.2d 771, 789 (E.D.Mich.1998)] The crucial issue is whether the insured was aware of an immediate threat of the injury for which it was ultimately held responsible and for which it now seeks coverage, not the insured’s awareness of its legal liability for that injury. [Aetna Cas. & Sur. Co. v. Com., 179 S.W.3d 830 (Ky. 2005)]

The term “probability” indicates the presence of contingency and fortuity, the lack of which is the very essence of the known loss doctrine. Even if there is a probability of loss, there is some insurable risk, and the known loss doctrine should not apply. [Sentinel Ins. Co., Ltd. v. First Ins. Co. of Hawai’i, Ltd. (1994), 76 Hawai’i 277, 875 P.2d 894, 920.]

“Certainty,” on the other hand, refers not to the likelihood of an occurrence, but rather to the inevitability of an occurrence. Therefore, a “substantially certain” loss is one that is not only likely to occur, but is virtually inevitable. [General Housewares Corp. v. National Surety Corp., 741 N.E.2d 408 (Ind. App. 2000)]

The “fortuity” and “accident” concepts require that first party insurance does not protect against losses which are certain to occur and third party liability insurance does not protect against nonaccidental harm inflicted by the insured. [Commercial Union Ins. Co. v. Superior Court (1987) 196 Cal.App.3d 1205, 1207-1209, 242 Cal.Rptr. 454.); Chu v. Canadian Indemnity Co., 274 Cal.Rptr. 20, 224 Cal.App.3d 86 (Cal. App. 1990)]

Faulty workmanship is not included in the standard definition of ‘property damage’ because ‘a failure of workmanship does not involve the fortuity required to constitute an accident. [Builders Mut. Ins. Co. v. Mitchell (N.C. App. 2011)]

The principle of fortuity is central to the notion of what constitutes insurance. [Cincinnati Ins. Co. v. Motorists Mut. Ins. Co., 306 S.W.3d 69, 74 (Ky.2010), quoting 46 Corpus Juris Secundum, Insurance, Section 1235 (2009).] The parties to an insurance agreement in effect, wager against the occurrence or non-occurrence of a specified event; the carrier insures against a risk, not a certainty. [Bartholomew v. Appalachian Ins. Co., 655 F.2d 27, 29 (1st Cir.1981).] Given this, courts have recognized that the principle of fortuity can be both an inherent requirement of every insurance contract and a specified requirement reflected in particular terms agreed to by the parties. [ 3 Peritz, Law and Practice of Insurance Coverage Litigation, Section 35:3 (July 2021), quoting Robert Keeton, Insurance Law, Section 5.4(a), at 288 (1971)] A requirement that loss be accidental in some sense in order to qualify as the occasion for liability of an insurer is implicit, when not express, because of the very nature of insurance. [Motorists Mut. Ins. Co. v. Ironics, Inc., 2022 Ohio 841 (Ohio 2022)]

Adapted from my book Insurance Fraudsters Deserve No Quarter Available as a paperback here.  Available as a hardcover here. Available as a Kindle Book here.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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

Subscribe to my substack at https://barryzalma.substack.com/publish/post/107007808

Go to Newsbreak.com  https://www.newsbreak.com/@c/1653419?s=01

Go to X @bzalma; Go to the podcast Zalma On Insurance at https://podcasters.spotify.com/pod/show/barry-zalma/support; 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 – http://zalma.com/blog/insurance-claims-library.

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Property Investigation Checklists – 14th Edition

Publisher: Clark Boardman Callaghan, Copyright: 2024

Property Investigation Checklists: Uncovering Insurance Fraud, 14th Edition provides detailed guidance and practical information on the four primary areas of any investigation of suspicious claims:

  •  Recognizing suspicious claims
  •  Proper investigation procedures
  •  Analysis of laws concerning fraudulent personal and real property claims
  •  Evaluating and settling claims

The book also examines recent developments in areas such as arson investigation procedures, bad faith, extracontractual damages, The fake burglary, and Lawyers Deceiving Insurers, Courts & Their Clients During, Catastrophes—A New Type Of Fraud and the appendices includes the NAIC Insurance Information and Privacy Protection Model Act and usuable forms for everyone involved in claims. .

Table of Contents

CHAPTER 1. INSURANCE AND THE INDICATORS AND ELEMENTS OF FRAUD
CHAPTER 2. INVESTIGATION
CHAPTER 3. THE “ARSON DEFENSE”
CHAPTER 4. CIVIL REMEDIES: RESCISSION AND AVOIDANCE
CHAPTER 5. CONDITIONS PRECEDENT
CHAPTER 6. AUTOMOBILE MATERIAL DAMAGE FRAUD
CHAPTER 7. GOOD FAITH; BAD FAITH
CHAPTER 8. ADJUSTING AND PAYING THE SUSPICIOUS CLAIM
CHAPTER 9. DISPUTE RESOLUTION—SETTLEMENT AND APPRAISAL
CHAPTER 10. CASE HISTORIES
CHAPTER 11. RESCISSION AS A TOOL TO DEFEAT INSURANCE FRAUD
FRAUD IN THE ACQUISITION OF INSURANCE
CHAPTER 12. LAWYERS DECEIVING INSURERSCOURTS & THEIR CLIENTS DURING CATASTROPHES—A NEW TYPE OF FRAUD — McClenny Moseley & Associates & Louisiana

The newest book joins other insurance, insurance claims, insurance fraud, and insurance law books by Barry Zalma all available at https://store.legal.thomsonreuters.com/law-products/Forms/Property-Investigation-Checklists-Uncovering-Insurance-Fraud-14th/p/107001900 and  the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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First Party Property Losses

What is Required of a Claims Department After a Claim is Presented When Faced With Loss Report

Post 4722

See the full video at https://rumble.com/v49w8g3-first-party-property-losses.html  and at https://youtu.be/fckgq5VNoAc

Every claim begins with receipt of the Notice Of Loss

A Notice of Loss is a written or oral report to the insurer that the insured has incurred a loss. It advises the insurer that it has incurred a loss due, with respect to the insured, a wildfire to one or more properties the risk of loss of which was insured. The loss notice will advise the insurer:

  1. The name, address and telephone number and/or email address of the person most knowledgeable.
  2. The date and time of the loss.
  3. The location(s) of the loss
  4. The cause of the loss e.g., wildfire, flood, earthquake, vandalism, or major theft.

After the insurer receives a Notice of Loss the insurer is required by the custom and practice of professional claims handling and the requirements of the California Fair Claims Settlement Practices statute and Regulations to enforce the statute, the insurer must acknowledge receipt of the Notice of Loss in writing immediately but in no event more than 15 calendar days.

The acknowledgement letter must also include advice to the insured on the coverage available. To properly acknowledge the notice of loss the claims person must obtain a complete copy of the policy, read and analyze the policy and create a summary of the coverages available.

California Fair Claims Settlement Practice Regulations Section 2695.4, for example,  provides “Every insurer shall disclose to a first party claimant or beneficiary, all benefits, coverage, time limits or other provisions of any insurance policy issued by that insurer that may apply to the claim presented by the claimant. When additional benefits might reasonably be payable under an insured’s policy upon receipt of additional proofs of claim, the insurer shall immediately communicate this fact to the insured and cooperate with and assist the insured in determining the extent of the insurer’s additional liability.”

The letter should include, as a bare minimum, information like:

  1. the limits of liability of the policy,
  2. any deductibles or self-insured retentions,
  3. advice concerning any specific exclusions or conditions that apply to the facts established by the notice of loss,
  4. a written notice that a proof of loss is required within 60-days of the letter with an attached proof of loss form,
  5. a requirement for the production of necessary documents,
  6. a reservation of rights (if called for), and
  7. any other information the insured needs to fulfill the conditions of the policy.

The letter should include, because a wildfire’s damages are almost always serious, and realize that to an individual any claim is serious, and should include confirmation by the claims person of an appointment to meet with the insured to view the damaged property(ies).

The inspection should be as soon as possible but no later than 15 calendar days after the notice of loss. The inspection should include the creation of a scope of loss. The scope of loss the claims person prepares should be written in the same form as a professional contractor that the claims person has determined is acceptable to a professional contractor. The adjuster should contact several reconstruction contractors who are willing to do reconstruction work for detail on the claims person’s scope. The adjuster must understand that standard prices in software like Xactimate will change in a catastrophe situation because of the shortage of people and materials available to repair structures.  The agreed scope of loss should include all damages incurred by the insured to real and personal property, equipment, stock, merchandise, inventory, appurtenant property, plants, trees, shrubs, etc.

The Scope of Loss

The scope of a major loss will often be recorded and later transcribed especially when there is major damage and multiple properties and types of property. The scope of a major loss can be multiple pages and supplemented with photos and videos of the loss location(s). The scope is not an estimate nor is it an adjustment, it is an outline of the damages that the insured and the adjuster agree the items that need to reach a later agreement after a thorough investigation the full amount of loss can be determined. The Scope of Loss is the beginning of the thorough investigation of the claim that is required to be commenced immediately but in no event more than 15 calendar days after the receipt of a notice of loss.

The Thorough Investigation

A thorough investigation is a thorough investigation is conducted for each claim sufficient to allow a determination of coverage, the liability of the insured, the nature and extent of damages, or the obligations of the insurer or surety. An investigation is not sufficient if the work of the claims handler is limited to a mere reading the policy and comparing it to a loss notice. Once a scope of loss is agreed it is the obligation of the insurer to obtain estimates from:

  1. contractors
  2. construction experts to put a dollar amount on the structure losses.
  3. If personal property is involved the scope details the property damaged or destroyed and once agreed obtain estimates from:
    1. personal property or equipment experts
    2. personal property values.
    3. If there are time element losses once the scope of the loss is agreed the insured and insurer will work together with a CPA or forensic accountants to establish the extent to which time element losses have occurred.
    4. Depending on the extent of the loss it is essential that the claims department work, preferably in person, in establishing a scope of loss.

The Proof of Claim

  1. The claims person must then work closely with the insured to reach agreement as to the amount of loss and damage.
    1. Once the insured presents a “proof of claim” as defined in the California Fair Claims Practices Regulations: “’Proof of claim’ means any evidence or documentation in the possession of the insurer, whether as a result of its having been submitted by the claimant or obtained by the insurer in the course of its investigation, that provides any evidence of the claim and that reasonably supports the magnitude or the amount of the claimed loss.” [Regulations, Section 2695.2 (s)]
    2. A “proof of claim” is not a sworn statement in proof of loss required by almost all first-party property insurance policies as a condition precedent to indemnity.
    3. Rather, it is something less than a proof of loss and, if the insurer wants a proof of loss, it must demand it in writing in accordance with the policy wording.
    4. The insurer must still respond promptly (within the time limits set by the Regulations) to the proof of claim. Failure to do so would be an obvious and clear violation of the Regulations.
    5. The claims person is not required to accept or reject the claim within 40 calendar days but must respond to the presentation of the proof of claim either accepting, rejecting or advising the insured/claimant that the insurer needs further investigation and time to respond to the proof of claim.
    6. If investigation is needed to respond to the proof of claim it is necessary to repeat, every 30 days, an explanation why the insurer is unable to respond to the proof of claim and when it expects to be able to properly respond.
    7. If the insurer agrees to the “proof of claim” the amount stated becomes undisputed and payment is required immediately but in no event more than 40 calendar days from the date the “proof of claim” becomes undisputed.
    8. It is the obligation of the claims personnel to work to resolve the claim promptly and as soon as reasonably practicable.
      1. The “proof of claim” is a starting point from which the insurer and the insured can get a total resolution.
      2. If they cannot agree the insured and the insurer have options to assist:
        1. The insurer must advise the insured what additional information it needs to conclude the claim.
        2. The Regulations require that the insurer advise the insured what is needed and how much time it will take them to resolve the claim(s).
        3. The insurer is obligated to do so every 30 calendar days.

The Poof of Loss

Unlike the “proof of claim” the policy requires a proof of loss to resolve a claim. A “proof of loss” is usually a means of reciting the agreement between the insured and the insurer as to the amount of loss. If an agreement cannot be reached, once demanded, the insured must submit its proof of loss.

After the insured’s proof of loss is received the insurer must, immediately but no later than 30 calendar days after receipt, its agreement, disagreement, acceptance, or refusal of the proof of loss explaining in detail the reason why the proof of loss is not acceptable, what is needed to be acceptable, and how much time the insurer needs to resolve the claim(s). The insurer can require, as part of the proof of loss that the insured or its employees submit to an examination under oath. Once the transcripts are signed and delivered to the insurer it must respond to the full proof of loss immediately but in no event more than 30 calendar days.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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FAKE APPLICATIONS COSTS AGENT HIS LICENSE

Fraudulently Submitting Fake Application Violates Licensing Statutes

Post 4721

See the full video at https://rumble.com/v497zy3-fake-applications-costs-agent-his-license.html  and at https://youtu.be/F8r9EGSoNHk

Paul B. Kumar appealed a final agency decision of Commissioner of the Department of Banking and Insurance (Commissioner or Department) revoking his insurance producer license and imposing $60,774.25 in civil penalties, surcharge, attorney’s fees and costs of investigation, for violations of the New Jersey Insurance Producer Licensing Act of 2001 and the New Jersey Insurance Fraud Prevention Act (Fraud Act).

In Marlene Caride, Commissioner, New Jersey Department Of Banking And Insurance v.  Paul B. Kumar, No. A-2627-21, Superior Court of New Jersey, Appellate Division (December 29, 2023) the Appellate Division spent dozens of pages to resolve appeal.

FACTS

On August 3, 2015, Kumar entered into an employment contract with Combined Insurance Company (Combined) as an insurance agent. For any insurance policy to be written, Combined required: the producer to meet, face to face, with the insurance applicant; the applicant to sign the application; and the producer to witness the applicant’s signature on the application.

Kumar submitted multiple insurance applications to Combined where the proposed insureds never met Kumar, never applied for insurance with Combined and never signed the applications in Kumar’s presence.

ORDER TO SHOW CAUSE

The Department issued a two-count Order to Show Cause (OSC) to Kumar concerning the insurance applications. In the first count, the Department alleged violations of the Producer’s Act and violations of the Fraud Act because Kumar “submitted . . . insurance policy applications to Combined . . . for the purpose of obtaining an insurance policy, knowing that each of these applications contained a forged signature of the prospective insured, and other false or misleading information concerning any fact or thing material to the application or contract …. ”

The OSC was tried before an Administrative Law Judge (ALJ) who found the testimony of Kumar was not credible. The ALJ concluded Kumar demonstrated throughout the proceedings that his inconsistent, evasive and confusing testimony, could not be believed.

The ALJ concluded, the Department met its burden by demonstrating that Kumar submitted eight fraudulent applications for insurance and concluded that Kumar’s actions warranted revocation of his producer license; the imposition of statutory monetary penalties; reimbursement of investigation costs; and attorney’s fees.

The Commissioner adopted the ALJ’s finding that the Department established Kumar violated the Fraud Act, because he knowingly failed to disclose that the proposed insureds did not sign their applications and because he submitted insurance applications that he knew contained false or misleading information regarding material facts.

ANALYSIS

The language of the regulation empowers the insurer to control the requirements for insurance applications. The Commissioner determined that Kumar submitted six applications for three separate individuals without the applicants’ knowledge or consent.

The Commissioner adopted the ALJ’s determination that the Department proved  the violations.

The Commissioner determined that Kumar violated the Fraud Act. After detailing her duty to protect the public welfare and to instill public confidence in both insurance producers and the industry as a whole, the Commissioner found the record was more than sufficient to support license revocation.

The statute specifically authorizes the Commissioner to revoke the insurance producer’s license.  The appellate court concluded that Commissioner’s decision is entitled to deference and will not be disturbed.

ZALMA OPINION

Insurance companies rely on the honesty of those who represent them to the public and expect the state to protect them from representatives who fail to fulfill the obligations imposed on the insurance agent’s license. Mr. Kumar, for several years, attempted to profit from submitting multiple fraudulent applications for insurance never ordered by the persons who allegedly signed the applications. It took seven years from the first fraud to the OSC, the proceedings before an ALJ and an appeal to take away the license and obtain a monetary judgment against the fraudulent agent. It is time to improve the process.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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Infestation of Vultures Excluded

Reasonable Basis for Denying Coverage Defeats Bad Faith Claim

Post 4720

See the full video at https://rumble.com/v490ax5-infestation-of-vultures-excluded.html?mref=22lbp&mrefc=2  and at https://youtu.be/FhwvgPTiQn8

Mitchellville Plaza Bar LP (“Mitchellville”) appealed the district court’s granting summary judgment to Hanover American Insurance Company on Mitchellville’s breach of contract and bad faith claims arising from an insurance dispute over the infestation of its property by vultures. Mitchellville’s complaint alleged that Hanover wrongfully denied coverage under its insurance policy for commercial property damage caused by turkey vultures to the roof of one of Mitchellville’s properties. Hanover denied coverage under an exclusion for damage caused by an “infestation” of birds.

In Mitchellville Plaza Bar LP v. The Hanover American Insurance Company, No. 22-2089, United States Court of Appeals, Fourth Circuit (January 19, 2024) the Fourth Circuit resolved the policy interpretation.

FACTS

Mitchellville conceded that the only disputed issue in its breach of contract claim is whether the “infestation” policy exception applies to bar its claim. A contract is not rendered ambiguous by the mere fact that the parties do not agree upon the proper construction.

ANALYSIS

Mitchellville argued the exclusion was ambiguous. The court must consider a written contract and can find it is ambiguous only when a policy provision is reasonably susceptible of more than one meaning. The Fourth Circuit noted that the district court did not err in determining that the vulture presence on Mitchellville’s property constituted an “infestation” under a plain and ordinary understanding of this term.

Indeed, as the district court found, the various definitions of the term “infestation” commonly characterize an infestation as the persistent, invasive presence of unwanted creatures. The evidence of the vulture activity at the property, including the eyewitness testimony detailing the substantial bird activity at the property over the course of many months, meets this definition. Accordingly, the district court properly granted summary judgment to Hanover on Mitchellville’s breach of contract claim.

Bad Faith

While an insurer’s motive of self-interest or ill-will is potentially probative it is not a mandatory prerequisite to bad faith recovery. Proof of the insurer’s knowledge or reckless disregard for its lack of reasonable basis in denying the claim is sufficient.

Hanover based its denial of policy benefits on several reports that, taken together, gave Hanover a reasonable basis for denying coverage. The reports indicated that substantial, persistent, and troublesome bird activity had caused the relevant damage to the roof of the property. Accordingly, the Fourth Circuit concluded that the district court did not err in granting summary judgment to Hanover on this claim and affirmed the judgment of the district court.

ZALMA OPINION

When a flock of vultures lands on a roof over a period of months and damages or destroys the roof, that is an infestation of birds and was excluded by clear and unambiguous language of the policy. Courts are required to apply the facts and the law to the clear and unambiguous language of the policy. No insurance policy covers every possible cause of loss. This policy told the insured, when it acquired the policy, that it would not cover losses caused by an infestation of birds and that is what happened.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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False Statement on Application Requires Rescission

Never Sign an Application Without Reading It

Post 4719

See the full video at https://rumble.com/v48s8di-false-statement-on-application-requires-rescission.html and at https://youtu.be/Cl_4fSIj1vQ

Betty Baldwin appealed from a summary judgment in favor of Kentucky National Insurance Agency (KNIC) and Holton, Melugin, and Haverstock Insurance Agency, Inc., d/b/a Haverstock Insurance Agency, Inc. (Haverstock) because of false statements on an application for insurance.

In Betty Baldwin v. Kentucky National Insurance Company; and Holton, Melugin And Haverstock Insurance Agency, Inc., D/B/A Haverstock Insurance Agency, Inc., No. 2022-CA-0840-MR, Court of Appeals of Kentucky (January 19, 2024) the Court of Appeals applied state law to resolve the issues.

FACTS

  1. According to Baldwin two of the answers provided on the application were incorrect at the time of signing. Baldwin indicated in Question 28 that she did not specifically have a German Sheperd. Further, Baldwin in Question 32 indicated that she had never had a prior fire loss.
  2. Sometime after signing the Kentucky Homeowner Application, Baldwin purchased a homeowner insurance policy through Kentucky National Insurance Company.
  3. On October 13, 2019, a fire occurred and resulted in the total loss of the above-described home.
  4. On March 5, 2020, after denying Baldwin’s coverage, Kentucky National Insurance Company (hereinafter “KNI”) filed a Complaint for Declaration of Rights and Monetary Damages arising from the house fire on October 13, 2019.

KNIC filed a motion for summary judgment. Because of the admitted misrepresentations in the application, KNIC maintained that it was permitted to rescind the homeowner’s insurance policy and the Circuit Court agreed.

Baldwin argued that she did not make the misrepresentations in the application. Rather, Baldwin asserted that Van Haverstock or an employee under his direction completed the application, and she merely signed same without reading it.  The circuit court rendered summary judgment in favor of KNIC and Haverstock. In so doing, the circuit court reasoned that it was undisputed that Baldwin did not read the application before signing it; that above Baldwin’s Signature was the language that avered: ‘I have read the entire application and I warrant that to the best of my knowledge and belief all of the statements made herein are true.”

In this case, it is undisputed that Baldwin suffered a major fire loss to her previous home in 1994 and was paid $90,000 by her homeowner’s insurance company. It is also uncontroverted that in the insurance application with KNIC, Baldwin was asked if she “ever had a fire loss,” and the answer was no. Baldwin signed the insurance application without reading it. Because Baldwin was solely responsible for the answers in the application, the misrepresentations were only her responsibility and KNIC was entitled to rely on the statements and could rescind the policy when it was established that the application contained false representations.

The Court of Appeals concluded that the circuit court properly rendered summary judgment dismissing Baldwin’s claims against KNIC.

ZALMA OPINION

Baldwin tried to avoid the rescission by claiming she relied on the broker and did not read the application because she trusted the broker. The trust was misplaced because she signed the application without reading and finding the misrepresentations to which she admitted at deposition. She was responsible for the statements in the application and as a result had no insurance at the time of the fire.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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Court May Not Rewrite Policy

Insured Must Fulfill Policy Conditions

Post 4718

See the full video at https://rumble.com/v48ken9-court-may-not-rewrite-policy.html and at https://youtu.be/FgAtPWARwPA

Pharmacia Corporation appealed the District Court’s order granting summary judgment declaring that one of its excess insurers, Twin City Fire Insurance Company, did not owe a duty to pay Pharmacia’s settlement and defense costs from a shareholder class action.

In Pharmacia Corporation n/k/a Pfizer, Inc. v.  Arch Specialty Insurance Company; Twin City Fire Insurance Company; Liberty Mutual Insurance Company, No. 22-2586, United States Court of Appeals, Third Circuit (January 19, 2024) the conditions were applied.

FACTS

Pharmacia, a pharmaceutical drug manufacturer, purchased a $200 million directors and officers insurance tower from thirteen companies through an insurance broker. The first layer of the tower consisted of a $25 million primary policy issued by National Union Fire Insurance Company of Pittsburgh, Pa (the “Primary Policy”). The next twelve policies provided excess insurance totaling $175 million. Twin City sold Pharmacia the eighth-layer excess policy (the “Policy”), which provided $10 million in coverage and specified that “liability for any loss shall attach to [Twin City] only after the Primary and Underlying Excess Insurers shall have [(1)] duly admitted liability and [(2)] . . . paid the full amount of their respective liability.”

Pharmacia shareholders sued seeking class action qualification against the company, alleging that it artificially inflated its stock by misrepresenting the results of a clinical drug study. After ten years of litigation, the case settled, and Pharmacia incurred approximately $207 million in defense and indemnity costs. Pharmacia then provided Twin City proof that the excess carriers ahead of it in the insurance tower paid their policy limits and asked Twin City to provide coverage. Twin City declined.

Pharmacia sued Twin City. The District Court granted Twin City’s motion for summary judgment and dismissed the case with prejudice. The Court found that: (1) the plain language of the Policy required the other excess insurers to admit liability as a condition precedent for coverage to attach; (2) six of them had disclaimed liability, and (3) as a result, a condition for coverage was not satisfied. Pharmacia appealed.

POLICY INTERPRETATION

The Third Circuit concluded that no conflict exists here. Specifically, courts:

  • Give effect to the intent of the parties as expressed in the clear language of the contract, and the plain language of the contract is the cornerstone of the interpretive inquiry.
  • May not make a different or better contract than the parties themselves saw fit to enter into.
  • Courts should refrain from rewriting the agreement to accomplish their notions of abstract justice or moral obligation.
  • May avoid a literal construction of the words of a contract only if that interpretation defies all bounds of common sense.

ANALYSIS

When the intent of the parties is plain and the language is clear and unambiguous, a court must enforce the agreement as written, unless doing so would lead to an absurd result.

Applying these principles, the Policy unambiguously imposed two distinct conditions precedent for coverage to attach. Specifically, Pharmacia must show both that the insurers ahead of Twin City in the tower have:

  • duly admitted liability and
  • paid the full amount of their respective liability.

Pharmacia failed to show that both conditions to trigger Twin City’s coverage were met since six insurers refused to admit liability.

Regardless of whether the other insurers in the tower paid their policy limits, the record does not demonstrate that all of those insurers admitted liability and the court is not required to accept the error of the six insurers refusing to admit liability who still paid. Because Pharmacia failed to establish at least one condition precedent, the District Court correctly declined to declare that Twin City owes Pharmacia coverage. The trial court was affirmed.

ZALMA OPINION

Conditions precedent in an insurance policy must be met or the insurer has no obligation to provide defense or indemnity under the policy. Twin City established that six insurers in Pharmacia’s tower below Twin City did not admit liability and that, therefore, it failed to prove compliance with the condition precedent. Pharmacia luckily received contributions from insurers accepting coverage and insurers who did not but decided not to litigate. After reading this case, if the six had the same condition, they have explanations to make to their shareholders.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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Who’s on First – Defense and/or Indemnity

Insurer v. Insurer Disputes Should be Resolved by Mediation Rather Than Litigation

Post 4717

See the full video at https://rumble.com/v4801wq-whos-on-first-defense-andor-indemnity.html  and at https://youtu.be/_BTsDxR5J4Y

In an insurance coverage dispute that arose out of the tragic death of an employee on a construction site the Fifth Circuit was called upon to determine which insurer was obligated to deal with the claims of the family of the deceased employee because the insurers could not agree.

In Gemini Insurance Company v. Indemnity Insurance Company of North America, No. 23-20026, United States Court of Appeals, Fifth Circuit (January 12, 2024) the court dealt with the coverage disputes over which insurer is obligated to defend and or indemnify which person or entity.

BACKGROUND FACTS

ExxonMobil Corporation (“Exxon Mobil”) retained Bechtel Oil, Gas, and Chemicals, Inc. (“Bechtel”) as a general contractor to build a new hydrocarbon processing facility in Beaumont, Texas (the “Project”). As part of its contract with Bechtel, Exxon Mobil implemented an Owner Controlled Insurance Program (“OCIP”), which provided workers’ compensation and employers’ liability coverage to Bechtel and all of its subcontractors. Bechtel retained Echo Maintenance, L.L.C. (“Echo”) as a subcontractor to perform mechanical, structural, and piping work on the Project. Bechtel and Echo subsequently entered into a contract that incorporated the OCIP and required Echo to enroll in the program (the “Subcontract”). Both Bechtel and Echo were enrolled in the OCIP.

Indemnity’s Workers’ Compensation and Employers’ Liability Policies Issued Under The OCIP

Under the OCIP, Indemnity Insurance Company of North America (“Indemnity”) issued a workers’ compensation and employers’ liability insurance policy to Bechtel (“OCIP Policy”). Separately, Gemini Insurance Company (“Gemini”) issued a general commercial liability policy to Echo under which Bechtel was an additional insured.

Part Two the OCIP Policy sets forth the type of covered claim that Indemnity agreed to defend and indemnify Bechtel. The OCIP contained a VCEL Endorsement whose first provision explains that the endorsement “adds Voluntary Compensation Insurance to the policy,” and that the insurance applies to bodily injury by accident so long as it is “sustained by an employee included in the group of employees described in the Schedule” and “arise[s] out of and in the course of employment necessary or incidental to work in a state listed in the Schedule.”

Employers’ Liability Insurance

It defines “State of Employment” in relevant part as “Texas but only at the site indicated in the designated premises endorsement.”

Underlying Incident and Lawsuit

In December 2017, Ms. Espinoza was working as a pipefitter helper on the Project when she was struck by a piece of pipe and sustained fatal injuries. In response to the suit brought by her heirs, Bechtel sought coverage as an additional insured on the commercial general liability policy issued by Gemini to Echo and received a defense from Gemini under a reservation of rights.

Bechtel moved for summary judgment on the heirs suit because Exxon Mobil’s OCIP provided blanket workers’ compensation insurance and coverage to Bechtel and Echo, Intervenors’ sole remedy in accordance with Texas Labor Code was workers’ compensation benefits. The state court granted Bechtel’s motion for summary judgment.

DISCUSSION

The main issue was whether Ms. Espinoza was an “employee” of Bechtel within the terms of the OCIP policy. Reading the VCEL Endorsement together with Part Two, the Fifth Circuit concluded that the only reasonable interpretation was that the VCEL Endorsement expanded the definition of a Bechtel “employee.” The ordinary meaning of “employee” is someone who works in the service of another person (the employer) under an express or implied contract of hire, under which the employer has the right to control the details of work performance. The Fifth Circuit concluded that the VCEL Endorsement expanded the OCIP Policy’s definition of “employee” to include employees of Bechtel’s subcontractors, such as Ms. Espinoza.

THE DUTIES TO DEFEND AND INDEMNIFY

Duty to Defend

Ms. Espinoza was an employee of Echo, but also simultaneously working for Bechtel at the designated premises, thus satisfying the VCEL Endorsement. Ms. Espinoza was killed while working in the scope of her employment. The allegations, construed liberally, constitute a claim potentially within the OCIP policy. As a result Indemnity had a duty to defend Bechtel in the Underlying Litigation.

Duty to Indemnify

There is no dispute that Ms. Espinoza was an Echo employee, that Echo was a subcontractor of Bechtel, that Bechtel and Echo had a written contract, and that the work they performed was on a “designated premises” within the meaning of the OCIP Policy the workers’ compensation OCIP coverage applies. Bechtel “provided” workers’ compensation insurance to Echo when they executed the Subcontract. Accordingly, Indemnity has a duty to indemnify Bechtel as well.

Contractual and Equitable Subrogation

Because the district court concluded that Indemnity did not have a duty to defend or indemnify Gemini, it never addressed the substance of Gemini’s subrogation arguments. The Fifth Circuit reversed the district court’s grant of Indemnity’s motion for summary judgment and remanded the case back to the district court with instructions to:

  1. grant Gemini’s motion for summary judgment on Indemnity’s duties to defend and indemnify under the Policy, and
  2. consider the subrogation issues in the first instance.

ZALMA OPINION

Insurance policies must be dealt with as an entirety, no matter how extensive or complex. Once the court determined that Ms. Espinoza was an employee it resolved the dispute and found that Indemnity owed defense and indemnity to the defendants. The insurer’s should not have engaged in this litigation but worked out a resolution to the benefit of the insureds with the assistance of a mediator knowledgeable about insurance issues. Failing to do so, after the expenditure of discovery, a summary judgment and an appeal the obvious resulted a case where only one party was happy and there existed a possibility that much would be saved by an agreement between equals.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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Go to X @bzalma; Go to the podcast Zalma On Insurance at https://podcasters.spotify.com/pod/show/barry-zalma/support; 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 – http://zalma.com/blog/insurance-claims-library.

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TOO FUNNY NOT TO PASS ON!!

How Do Court Reporters Keep Straight Faces?

The following comments are from a book called Disorder in the Courts and are things people actually said in court, word for word, taken down and published by court reporters that had been tormented by needing to stay calm while the exchanges were taking place and not break out laughing.

ATTORNEY: What was the first thing your husband said to you that morning?
WITNESS: He said, ‘Where am I, Cathy?’
ATTORNEY: And why did that upset you?
WITNESS: My name is Susan!
_______________________________
ATTORNEY: What gear were you in at the moment of the impact?
WITNESS: Gucci sweats and Reeboks.
____________________________________________
ATTORNEY: Are you sexually active?
WITNESS: No, I just lie there.
____________________________________________
ATTORNEY: What is your date of birth?
WITNESS: July 18th.
ATTORNEY: What year?
WITNESS: Every year.
_____________________________________
ATTORNEY: How old is your son, the one living with you?
WITNESS: Thirty-eight or thirty-five, I can’t remember which.
ATTORNEY: How long has he lived with you?
WITNESS: Forty-five years.
_________________________________
ATTORNEY: This myasthenia gravis, does it affect your memory at all?
WITNESS: Yes.
ATTORNEY: And in what ways does it affect your memory?
WITNESS: I forget..
ATTORNEY: You forget? Can you give us an example of something you forgot?
___________________________________________
ATTORNEY: Now doctor, isn’t it true that when a person dies in his sleep, he doesn’t know about it until the next morning?
WITNESS: Did you actually pass the bar exam?
____________________________________

ATTORNEY: The youngest son, the 20-year-old, how old is he?
WITNESS: He’s 20, much like your IQ.
_______________________________________________________________________________________

ATTORNEY: She had three children , right?
WITNESS: Yes.
ATTORNEY: How many were boys?
WITNESS: None.
ATTORNEY: Were there any girls?
WITNESS: Your Honor, I think I need a different attorney. Can I get a new attorney?
____________________________________________
ATTORNEY: How was your first marriage terminated?
WITNESS: By death..
ATTORNEY: And by whose death was it terminated?
WITNESS: Take a guess.
___________________________________________

ATTORNEY: Can you describe the individual?
WITNESS: He was about medium height and had a beard
ATTORNEY: Was this a male or a female?
WITNESS: Unless the Circus was in town I’m going with male.
_____________________________________
ATTORNEY: Is your appearance here this morning pursuant to a deposition notice which I sent to your attorney?
WITNESS: No, this is how I dress when I go to work.
______________________________________
ATTORNEY: Doctor , how many of your autopsies have you performed on dead people?
WITNESS: All of them. The live ones put up too much of a fight.
_________________________________________
ATTORNEY: ALL your responses MUST be oral, OK? What school did you go to?
WITNESS: Oral…
_________________________________________
ATTORNEY: Do you recall the time that you examined the body?
WITNESS: The autopsy started around 8:30 PM
ATTORNEY: And Mr. Denton was dead at the time?
WITNESS: If not, he was by the time I finished.
____________________________________________
ATTORNEY: Are you qualified to give a urine sample?
WITNESS: Are you qualified to ask that question?

______________________________________
And last:

ATTORNEY: Doctor, before you performed the autopsy, did you check for a pulse?
WITNESS: No.
ATTORNEY: Did you check for blood pressure?
WITNESS: No.
ATTORNEY: Did you check for breathing?
WITNESS: No..
ATTORNEY: So, then it is possible that the patient was alive when you began the autopsy?
WITNESS: No.
ATTORNEY: How can you be so sure, Doctor?
WITNESS: Because his brain was sitting on my desk in a jar.
ATTORNEY: I see, but could the patient have still been alive, nevertheless?
WITNESS: Yes, it is possible that he could have been alive and practicing law.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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

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Go to X @bzalma; Go to the podcast Zalma On Insurance at https://podcasters.spotify.com/pod/show/barry-zalma/support; 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 – http://zalma.com/blog/insurance-claims-library.

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Diminution of Value Excluded

Public Policy Argument Fails for Lack of Evidence of Statute or Judicial Statement

Post 4716

See the full video at https://rumble.com/v47rz2q-httpsyoutu.besrufrkzia90.html and at https://youtu.be/SRufrkZIa90

Following a car accident, Kenan Watkins (“Watkins”) filed a diminished value claim with his insurer, Allstate Property and Casualty Insurance Company (“Allstate”). Allstate denied his claim. The district court held that Allstate’s policy did not violate Mississippi law and that Watkins failed to state a plausible claim. Consequently, the district court granted Allstate’s motion to dismiss and Watkins appealed.

In Kenan Watkins, individually and on behalf of all others similarly situated v. Allstate Property & Casualty Insurance Company, No. 23-60141, United States Court of Appeals, Fifth Circuit (January 12, 2024) the Fifth Circuit resolved the dispute.

BACKGROUND

Kimberly Jones (“Jones”) crashed her vehicle into Watkins’ 2021 Chevrolet Tahoe in Baldwyn, Mississippi. Watkins’ vehicle sustained substantial damage. Watkins had an insurance policy with Allstate that provided coverage for his 2021 Chevrolet Tahoe. Jones’ insurer, Safeway Insurance Company, paid $24,314.25 to Watkins for his damage claim. Watkins alleged that his car sustained an additional $13,545.00 in diminished value. Safeway Insurance Company offered the remaining $685.75 of Jones’ policy limit to Watkins. Because Jones’ policy limit did not cover the diminished value of Watkins’ vehicle, Watkins filed an uninsured motorist claim with his insurer, Allstate.

Allstate denied Watkins’ diminished value claim, relying upon a provision in its policy that excludes “any decrease in the property’s value, however measured, resulting from the loss and/or repair or replacement.” Watkins sued.

Specifically, Watkins alleged that Allstate’s automobile insurance policies impermissibly deny insurance coverage that is required by law without establishing which law required Allstate to pay for the diminished value of his truck.

The district court concluded that Watkins failed to plausibly allege that Jones’ vehicle was an “uninsured motor vehicle.” The district court also concluded that Allstate’s diminished value exclusion is valid under Mississippi law.

Because Watkins failed to state a claim upon which relief could be granted the district court granted Allstate’s motion to dismiss with prejudice. An appeal followed.

DISCUSSION

In his Complaint, Watkins alleged that “[p]ursuant to Miss. Code. Ann. § 83-11-101(2), Kimberly Jones was underinsured, and [that he] is entitled to recover from the uninsured motorist coverage provided by the Policy.”

Watkins’ mere assertions, however, re insufficient to establish that Jones’ vehicle qualified as an “uninsured motor vehicle.” The Complaint only alleges that Jones was underinsured, which is a legal conclusion. No court will  accept legal conclusions as true. Thus, the district court correctly concluded that Watkins failed to make a plausible claim for relief because a reasonable inference that Allstate was liable for misconduct could not be drawn from the factual content in the Complaint and legal conclusions alone are never accepted as true.

The Fifth Circuit concluded that Allstate’s diminished value exclusion was valid under Mississippi law.

Watkins claim that the diminished value exclusion violates public policy failed because Watkins did not point to a pronouncement, either legislative or judicial, requiring that diminished value be a part of all automobile insurance policies.

Only an affirmative expression of an overriding public policy by the legislature or judiciary prompts a Court to rule that an insurance policy’s plain meaning does not control. Since neither the legislature nor the judiciary have pronounced that insurers must provide for payment of diminished value in all issued automobile policies the plain meaning of Allstate’s policy controls and Allstate’s diminished value exclusion is valid under Mississippi law.

ZALMA OPINION

Claims for diminished value of a vehicle after an accident were popular ten years ago because auto material damage policies did not deal with the issue. Insurers, like Allstate, recognized it had no intent to cover diminished value of a vehicle after an accident, did not charge a premium for the claim, and eventually wrote a clear and unambiguous exclusion to avoid paying for a loss for which it had not charged a premium. Absent some showing of a public policy requiring that coverage, the exclusion is enforceable.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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

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Go to X @bzalma; Go to the podcast Zalma On Insurance at https://podcasters.spotify.com/pod/show/barry-zalma/support; 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 – http://zalma.com/blog/insurance-claims-library.

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You Only Get What You Pay For

To Obtain Coverage Insured Must Pay a Premium

See the full video at https://rumble.com/v47r513-you-only-get-what-you-pay-for.html  and at https://youtu.be/nNZN6sg8Tbw

Erie Insurance Exchange (Erie Insurance) claims that the trial court erred in granting partial summary judgment in favor of Icon, d/b/a Allure on the Lake (Icon), on Icon’s complaint for breach of contract. Erie Insurance contends that the trial court improperly determined as a matter of law that the commercial insurance policy (the Policy) it issued to Icon was ambiguous and entitled Icon to additional income protection coverage after a fire had destroyed Icon’s building.

In Erie Insurance Exchange v. Icon, Inc., d/b/a Allure on the Lake, et al., No. 23A-PL-664, Court of Appeals of Indiana (January 12, 2024) the Court of Appeals interpreted the entire policy.

FACTS

On June 3, 2019, a fire in Chesterton, Indiana destroyed a banquet hall (the Hall) that Icon owned. At the time of the fire, the Hall was insured by Erie Insurance. The Policy stated that “in return for your timely premium payment, your compliance with all of the provisions of this policy . . . [Erie Insurance agrees] to provide the coverages you have purchased.” [emphasis added]

The Declarations page specifically directed the insured to refer to the Supplemental Declarations to find additional information about included coverages under the Policy.  Income protection coverage-as identified in “Coverage 3” of the Declarations-is defined as loss of “income” and/or “rental income” you sustain due to partial or total “interruption of business” resulting directly from “loss” or damage to property on the premises described in the “Declarations” from a peril insured against. “Loss” or damage also includes property in the open, or in a vehicle, on the premises described in the “Declarations” or within 1,500 feet thereof.

The Supplemental Declarations specifically indicate what “amount of insurance” the Policy provides for by displaying a dollar amount under the “amount of insurance” column.

The Policy further provided that when additional income coverage is not purchased by the insured, a minimal, i.e., “standard” protection coverage is provided as part of the basic package.

CLAIM PAYMENTS

After the Hall was destroyed, Icon submitted a timely claim to Erie Insurance under the Policy. Although Erie Insurance paid both the property damage and building contents portion of Icon’s claim, it maintained that the maximum income protection afforded under the Policy was $25,000 and not $1 million because Icon did not pay a premium for additional income protection coverage.

REFUSAL TO PAY INCOME LOSSES

When Erie Insurance refused to pay for those additional losses, Icon filed an amended complaint against Erie Insurance on March 10, 2020, for breach of contract and bad faith. Thereafter, Erie Insurance filed a motion for partial summary judgment, claiming that it was entitled to judgment as a matter of law because Icon did not pay a premium for additional income protection and, therefore, the $1 million maximum coverage was not available to Icon for its income losses.

The trial court granted Icon’s cross-motion for partial summary judgment, concluding that the Policy was ambiguous as to the available amount of income protection coverage to which Icon was entitled.

DISCUSSION AND DECISION

Insurance policies are contracts subject to the same rules of judicial construction as other contracts. Insurance policies must be read as a whole. That is, specific words and phrases cannot be construed exclusive of other policy provisions. Furthermore, the language of an insurance policy should be construed so as not to render any words, phrases or terms ineffective or meaningless.

In this case, the first page of the Declarations in the Policy denotes the coverages for which Icon paid a premium. The Policy’s plain language was clear that the “Each Occurrence Limit” is specifically limited to include the total amount of insurance that will be paid for bodily injury or property damage liability and for medical expenses under the liability portion of the Policy. Hence, the unambiguous language of the Policy demonstrates that the “Each Occurrence Limit” on page l of the Declarations, which Icon relies upon, is a limit for general liability coverage, not a limit for property coverage. As a result, the $1 million “Each Occurrence Limit” shown there is irrelevant to the amount of income protection coverage afforded under the Policy.

The lack of a dollar amount for Coverage 3 is a clear and unambiguous statement that additional income protection coverage was not included for the subject property.

The Declarations show that Icon paid no premium for Coverage 3-income protection-and, in accordance with the plain language of the Policy, Erie Insurance did not provide such coverage to Icon. Thus, Icon is limited to income protection coverage up to $25,000 in accordance with the standard protection section of the Policy.

The trial court’s conclusion was reversed and the trial court was instructed to enter partial summary judgment for Erie Insurance and to conduct further proceedings consistent with this opinion.

ZALMA OPINION

Insurance contracts must be read before accepting the offer from an insurer to insure. In this case the insured, Icon, either failed to read the coverages provided or decided to not purchase income coverages. The Court of Appeals found that since Icon did not pay a premium for the income coverage it had no coverage. Regardless of why it did not pay the premium by not doing so Icon recovered the minimal coverage for Income but not the coverages they wanted after a real loss.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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

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Go to X @bzalma; Go to the podcast Zalma On Insurance at https://podcasters.spotify.com/pod/show/barry-zalma/support; 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 – http://zalma.com/blog/insurance-claims-library.

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The Baseball Card Scam

Insurance Fraud Costs Everyone

Fictionalized True Crime Story of Insurance Fraud from an Expert who explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story that follows are designed to help everyone Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the ­­­Perpetrators than any Other Crime.

See the full video at https://rumble.com/v47jo1c-the-baseball-card-scam.html and at https://youtu.be/fpcTkmIvoZI

The insurance industry, unintentionally, instructs its insureds how to successfully perpetrate insurance fraud. Insurers encourage fraud by:

  1. decimating its professional claim staff by short-sighted cost cutting.
  2. by selling insurance to persons unknown to the company or the broker.
  3. by accepting the word of new applicants without a pre-risk survey.
  4. by allowing threats of bad faith lawsuits to intimidate the company into a quick settlement.

Commercial property insurance has proven to be an excellent training ground for novice frauds. Baseball cards are collectibles with widely varying values depending on rarity and condition. The value of a collectible card is totally subjective and, as a result, difficult to insure.

Why A Retail Baseball Card Store Was an Invitation to Fraud

The husband and wife had failed in several tries to conduct a profitable retail business. They simultaneously closed their comic book store and opened a new business called Out In Left Field where they sold baseball cards in the 1980’s at the apex of the baseball card fad. They located in a new, strip shopping center, in a residential area of Fresno, California.

The store lease required Out In Left Field to maintain liability insurance for the landlord. Out In Left Field first tried to buy insurance from the captive agent of a major mutual insurance company. Because of their lack of experience in the baseball card business the agent’s mutual insurer would not accept the risk.

The agent then investigated the surplus lines market seeking insurance for the business. In that market he found an insurer willing to take the risk without a signed application. The husband and wife, at first, had only requested the liability policy required by their lease. The agent advised them that it would be in their best interest to have a business owners’ policy (BOP). The premium was relatively low and they, therefore, bought an all risk coverage with $50,000 limits of liability on their business personal property.

At no time, before the inception of the policy or after, did anyone ask the insureds for substantiation that Out In Left Field had an inventory of $50,000 in business personal property. No one asked for any documentation to show that Out In Left Field had ever performed a physical inventory. No one asked for any documentation that they had any business records that the insurer could rely upon at the time of loss. Only the local agent even visited their shop.

The insureds went to several baseball card shows and began purchasing an inventory of low value cards for between one and three dollars a card. They offered these for sale at retail price in their local Fresno showroom.

The earnings of Out In Left Field were no better than its predecessor, the comic book store. The insureds were considering closing their store down and walking away from their lease. They had no assets which their landlord could attach, even if he got a judgment against them.

Fortuitously, for the insureds, a burglar entered the premises, removed a portable radio, an adding machine, $50.00 in change from their cash register and a few baseball cards. The insureds reported the loss to their insurer.

A young adjuster, who had never been in a retail business in his life except as a customer, made first contact by telephone. He had no knowledge of the marketplace for baseball cards and no personal experience operating a business. In fact, he had just graduated from the insurer’s two week claims training class. The adjuster spoke briefly with the insureds and took a three minute recorded statement limited to the discovery of the burglary.

The adjuster mailed the insureds blank sheets to fill out listing all of the property claimed taken. He also asked for purchase invoices to support the ownership of the items in question.

The insureds, at the time of the burglary, were basically honest people. Their business was failing and the temptation provided to them by the young adjuster was too much to resist.

The insureds stayed up for three nights and prepared a list. It included not only the theft of the radio, the cash from the cash register, and the adding machine but also of fifty (50) prime, excellent condition, baseball cards and two hundred fifty (250) modern cards valued at $2.00 each. The descriptions and values came directly from a catalogue.

The list included a card of the year Henry Aaron broke the home run record and Mickey Mantle’s rookie year. It also included Roger Maris’ 61 home run year and Willie Mays’ rookie year.

Each card was valued by the insureds at more than $1500 each. They then changed the purchase invoices and added to the purchase price three numbers to the left of each invoice amount. The invoices thus appeared to verify the purchases of the cards they claimed stolen. The total amount of claimed loss exceeded their policy limits. They made Xerox copies of each of the invoices to give to the adjuster. The adjuster did not even bother looking at the originals. The adjuster did not, therefore, see that some of the invoices were written in different color ink. If the adjuster saw the original invoices, he would have seen the changes.

The adjuster was surprised when he received the claims forms.  He did not expect such a large loss. He telephoned another retail baseball card store and learned that fifty baseball cards like those claimed stolen could easily be worth more than $50,000.

He did not know what to do. He spoke with his supervisor. The supervisor suggested an audit of the books and records of Out In Left Field by an accountant. The accountant, receiving the same forged documents, the adjuster had received found that the insureds’ calculations were correct. The accountant hired to audit the records of the insureds never looked at original documentation.

The supervisor, still wary of the claim, suggested an attorney conduct an examination under oath of the insureds. However, before the lawyer started the insured’s wife telephoned the adjuster to advise that, as the adjuster knew, her disabled husband’s only interest was Out In Left Field.

She explained that because of the delays in the payment of their claim and the time they had to spend with the accountant the insureds were unable to buy inventory. The insureds had sold nothing and could not pay their rent.

Her husband had become so depressed as a result of the delays of the adjuster that he had tried suicide. He was well, at the moment, she said and begged him to make the claim payment. The adjuster and the supervisor, with a minuscule investigation, and no facts to go on, decided to pay the policy limits as soon as possible.

The adjuster delivered a draft for the amount claimed the next day. A notice of nonrenewal of the policy followed.

The insureds took the money and paid their back rent. They bought some new clothes and a new car. With what was left they tried to buy additional inventory for the store. Business was still poor since they were inept at running a retail business.

They decided, since the claim was so easy the first time that they would get a new insurance policy. They called every insurance agency in Fresno until they found one who was willing to present their risk to an insurer. Out In Left Field’s owners knew, because they had first tried honesty that they could not reveal the prior loss. When they reported, the prior loss to a different broker insurance was refused. When they did not reveal the prior loss, they got a policy with $150,000 in limits. The insurer’s only office was in Nebraska.

The new insurer relied totally on the representations of the insureds in the application. They conducted no pre-risk survey. The broker filled in the application over the phone. The broker did not even bother visiting the store.

Out In Left Field was in business again. Two months into the policy, after it had sufficiently ripened and before the second payment on the premium finance agreement was due, the insureds reported a burglary. This time, the loss more than $150,000 in baseball cards.

Fortunately, for the insurer, it retained an experienced independent adjuster to investigate its loss. Checking the ISO All Claims Data Base, the adjuster for the new insurer learned of the first loss. With the authorization of the insureds he saw a complete copy of the first insurer’s claim file. The new insurer demanded examination under oath before an attorney.

As soon as the demand letter arrived at the insureds’ home, the wife called the lawyer and begged an immediate settlement since her husband, depressed by the delays of the insurer, tried suicide. She told counsel she was afraid that if the insurer did not pay quickly, he would be successful in his next try.

The attorney, having read the first insurer’s claim file and seen the same threat of suicide, had been forewarned. He advised his client to strengthen their resolve. He advised them not to succumb to the fear as had the first insurer. Counsel then informed the insured that to conclude the claim she and her husband must first appear for, and testify at, an examination under oath. The insurer also required they bring to the examination all original documents.

The insureds retained counsel on a contingency fee who had no knowledge of their fraud. The insureds produced what they said were all original documents supporting their claim.

Although the insurer’s counsel was not an expert, the documents appeared to be forgeries to counsel. He repeatedly questioned the insureds about the documents until he got clear answers. The insureds testified that they received each of the original documents from sellers. They testified that they had never modified or changed the documents in any way. They further testified that the records were the business records of Out In Left Field and had been prepared the normal course of its business. All of their testimony was false.

To establish his suspicion counsel forwarded the original documents to a questioned document expert. The expert advised that every document had been changed or modified in date, amount and description from the original. Further, each of the invoices was written by two separate people in two difference handwritings, using two different writing instruments. The insurer, faced with such damming evidence, and on the advice of its counsel, rescinded the policy. The grounds stated were the material misrepresentation of fact concerning prior losses in the application for insurance. The insurer, as an alternative reason, also denied the claim for fraud. Counsel for the insurers also provided counsel for the insureds a copy of the questioned documents expert’s report.

Counsel for the insured immediately withdrew representation. The insureds agreed to rescission of the policy to get the return of their premium.

The insureds appeared satisfied with the resolution. At the time of their examination under oath they appeared in the offices of counsel for the insurer wearing a cervical collar and back brace respectively. At the examination under oath, they informed the insurer’s counsel that they had just had a rear-end auto accident where their best friend and neighbor had accidentally rear-ended them.

Although one insurer escaped making payment to these frauds, two did not. The first, who provided the training paid $50,000 for a loss that was probably no more than $800.00. An auto insurer also found itself making payments for an automobile accident that seemed to be fictitious.

This type of loss will continue to occur as long as insurers fail to maintain adequately trained claims and underwriting staff. If insurers continue to accept insureds at face value without any pre-risk inspections or investigation this type of loss will multiply. Insurance agents and brokers will have their loss ratios increase logarithmically. Profits will fall because they did not inspect and control the risks they insure.

Adapted from my book, Insurance Fraud Costs Everyone Available as a Kindle Book and Available as a Paperback from Amazon.com.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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

Subscribe to my substack at https://barryzalma.substack.com/publish/post/107007808

Go to Newsbreak.com  https://www.newsbreak.com/@c/1653419?s=01

Go to X @bzalma; Go to the podcast Zalma On Insurance at https://podcasters.spotify.com/pod/show/barry-zalma/support; 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 – http://zalma.com/blog/insurance-claims-library.

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Zalma’s Insurance Fraud Letter – January 15, 2024

ZIFL Volume 28, Issue 2

See the full video here https://rumble.com/v475g46-zalmas-insurance-fraud-letter-january-15-2024.html and here https://youtu.be/xs4PPJ3NPDg

Subscribe here:

Zalma’s Insurance Fraud Letter (ZIFL) continues its 28th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma.  It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/

The current issue includes the following articles:

GEICO Takes a Bite Out of Fraud

NO FAULT INSURANCE IS A FORMULA FOR INSURANCE FRAUD

GEICO, as a pro-active victim of insurance fraud, sued Jean-Pierre Barakat, M.D., et al, alleging that Defendants defrauded GEICO in violation of the Racketeering Influenced and Corrupt Organizations Act (“RICO,” 18 U.S.C. § 1962(c), (d)), by submitting hundreds of fraudulent bills for no-fault insurance charges. Plaintiffs also allege common law fraud and unjust enrichment and seek a declaratory judgment as to all pending bills.

In Government Employees Insurance Company, et al v. Jean-Pierre Barakat, M.D.et al No. 22-CV-07532 (NGG) (RML), United States District Court, E.D. New York (January 2, 2024) the USDC provided an injunction.

Read the full January 15, 2024 issue of ZIFL here. 

More McClenny Moseley & Associates Issues

This is ZIFL’s twenty first installment of the saga of McClenny, Moseley & Associates and its problems with the federal courts in the State of Louisiana and what appears to be an effort to profit from what some Magistrate and District judges indicate may be criminal conduct to profit from insurance claims relating to hurricane damage to the public of the state of Louisiana.

Read the full January 15, 2024 issue of ZIFL here. 

Florida Residential Property Claims and Litigation Report

Closed Claims Data for Calendar Year 2022 as of 11/1/2023

The full report is available at https://www.floir.com/docs-sf/default-source/property-and-casualty/other-property-casualty-reports/january-2024-pclr.pdf?sfvrsn=d8c92a4f_4 The report was prepared Pursuant to Section 624.424(11), Florida Statutes, each authorized insurer or insurer group issuing personal lines or commercial lines residential property insurance policies in Florida is required to annually file a supplemental report on an individual and group basis for closed claims with the Florida Office of Insurance Regulation (OIR). The first year of data collected was for 2022 and the information below compiles aggregated information stemming from that data. Various elements of this data have been released by the Office in other reports and presentations throughout the 2023 calendar year.

Read the full January 15, 2024 issue of ZIFL here. 

Now Available The Compact Book of Adjusting Property Claims – Fourth Edition

On January 2, 2024, in Kindle, paperback and hardback formats,  The Compact Book of Adjusting Property Claims, Fourth Edition is now available for purchase here.and here. The Fourth Edition contains updates and clarifications from the first three editions plus additional material for the working adjuster and the insurance coverage lawyer.

Read the full January 15, 2023 issue of ZIFL here.

ALLSTATE TAKES A BITE OUT OF CRIME

Another Proactive Insurer Works to Take the Profit Out of Insurance Fraud

In Allstate Insurance Company, Allstate Indemnity Company, Allstate Fire & Casualty Insurance Company, and Allstate Property & Casualty Insurance Company v. Bradley Pierre, Medical Reimbursement Consultants Inc., Marvin Moy, M.D., Rutland Medical P.C. D/B/A Medicalnow, William A. Weiner, D.O., and Nexray Medical Imaging, P.C. d/b/a Soul Radiology Medical Imaging, No. 23-CV-06572 (NGG) (LB), United States District Court, E.D. New York (January 8, 2024) Allstate joins GEICO and other insurers taking a proactive effort against no-fault insurance fraud perpetrators.

Insurance Fraud

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

Read the full January 15, 2024 issue of ZIFL here. 

Health Insurance Fraud Convictions

New Jersey Laboratory and Its Owner and CEO Agree to Pay Over $13 Million to Settle Allegations of Kickbacks

Clinical laboratory RDx Bioscience Inc. (RDx), of Kenilworth, New Jersey, and its owner and Chief Executive Officer Eric Leykin, of Brooklyn, New York, agreed to pay to the United States $10,315,023 to resolve False Claims Act allegations involving illegal kickbacks and medically unnecessary laboratory testing. RDx and Leykin will pay an additional $2,934,977 to the State of New Jersey, which jointly funded claims paid by the New Jersey Medicaid program. RDx and Leykin have agreed to cooperate with the Justice Department’s investigations of, and litigation against, other participants in the alleged schemes.

Read the full January 15, 2024 issue of ZIFL here. 

It’s Time to Subscribe to Substack or Locals

For Subscribers Only I Have Published Special Insurance Articles and Videos

I published on Locals.com more than 25 videos and two webinars of the Excellence in Claims Handling program. I also published on Substack.com videos and webinars of the Excellence in Claims Handling Program available only to Subscribers. The subscribers have access to all the videos and a webinar on “The Examination Under Oath A Tool Available to Insurers to Thoroughly Investigate Claims and Work to Defeat Fraud” among others.

The videos start with the history of insurance and work their way through various types of insurance and how to obtain and deal with insurance claims. Subscribe and receive videos and articles available only to subscribers to the Excellence in Claims Handling at locals.com and to articles and videos also available to subscribers at Substack.com for a small fee of only $50 a year. You can Subscribe to “Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe  and to “Excellence in Claims Handling” at https://barryzalma.substack.com/welcome.

Read the full January 15, 2024 issue of ZIFL here. 

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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Loss of Inventory by Bankruptcy

Bankruptcy of Storage Facility Created a Compensable Loss

Post 4711

See the full video at https://rumble.com/v46nn1r-loss-of-inventory-by-bankruptcy.html and at https://youtu.be/i3novf2CLZA

Plaintiffs insurers sought a declaration that there is no coverage for the insurance claim made under the policy for the loss of soybeans. The Defendants moved for partial summary judgment on its first and second counterclaim. In Endurance American Insurance Company, Zurich American Insurance Company, and, Atain Insurance Company v. Stonex Commodity Solutions, LLC F/K/A FC Stone Merchant Services, LLC, 2024 NY Slip Op 30076(U), Index No. 653234/2022, Motion Seq. No. 004, NYSCEF Doc. No. 108, Supreme Court, New York County (January 8, 2024) the Supreme Court (trial court) resolved the dispute.

BACKGROUND

From 2017 to 2021, defendant stored millions of bushels of soybeans at warehouses owned by non-party, Express Grain Terminals, LLC (“EGT”). In September 2021, upon the discovery by EGT’s lender that EGT had less inventory than it was reporting, EGT was forced into bankruptcy, resulting in the dispossession from StoneX of 2,780,000 bushels of soybeans subject to a determination by the bankruptcy court of various competing interests in the disposition of EGT’s assets.

Ultimately, in the bankruptcy proceedings, defendant recovered all but 502,315 bushels of soybeans. Defendant seeks coverage for the loss of these 502,315 bushels of soybeans.

SUMMARY JUDGMENT STANDARD

The proponent of a motion for summary judgment must tender sufficient evidence to show the absence of any material issue of fact and the right to entitlement to judgment as a matter of law. Courts have also recognized that summary judgment is a drastic remedy that deprives a litigant of his or her day in court. Therefore, the party opposing a motion for summary judgment is entitled to all favorable inferences that can be drawn from the evidence submitted.

DISCUSSION

In support of its motion defendant cites to the language of the insurance policy that provides that warehouse receipts, together with third-party inspection reports showing that the warehouse has sufficient goods to meet the insureds requirements, demonstrates the existence of an insurable interest.

Defendant contends that the warehouse receipts establish that EGT was in possession of the requisite number of soybeans to cover the amount of defendant’s soybeans. Further, inspection reports, prepared by independent inspectors, confirm that EGT maintained the appropriate number of soybeans to satisfy defendant’s stored amount. With respect to the date of the loss, defendant contends that September 2021 is the date when it became actually dispossessed based on the bankruptcy filing by EGT.

Specifically, plaintiffs contend that inspector indicating that “obligations to other depositors cannot be adequately verified […] therefore I am unable to make any certifications on these actual obligations and their effect regarding these inventories” creates an issue of fact as to whether the soybeans for which defendant seeks coverage were in existence.

CONCLUSION

The New York Court found that defendant established an actual loss as well as an ascertainable date of the loss, September 29, 2021. The Court declined to read terms into the policy that are not there, specifically that defendant was required to ascertain whether EGT had sufficient soybeans to satisfy all receipt-holders. The parties could have contracted to include those terms in the policy but did not.

The unrefuted evidence was that there were in fact a sufficient number of bushels of soybeans to satisfy defendants claim at the time EGT filed for bankruptcy, it follows that once EGT filed for bankruptcy defendant no longer had access to the soybeans, thus triggering the date of the loss.

Defendant’s motion for partial summary judgment on its first counterclaim is granted; and it is further Adjudged and Declared there is insurance coverage to cover the loss of 502,315 bushels of soybeans; and it is further Ordered that defendant’s motion for summary judgment on its second counterclaim is granted; and it is further adjudged and declared that plaintiffs have breached the underlying contract between the parties for refusing to provide coverage.

ZALMA OPINION

Since the evidence showed that there were enough soybeans to cover that deposited by the defendants when EGT was forced into bankruptcy the division of the assets by the court resulted in a loss to the defendants that was not excluded from the coverages provided by the Plaintiffs.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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ALLSTATE TAKES A BITE OUT OF CRIME

Another Proactive Insurer Works to Take the Profit Out of Insurance Fraud

Post 4709

See the full video at https://rumble.com/v46fyt8-allstate-takes-a-bite-out-of-crime.html and at https://youtu.be/AMcxMaSN2mg

In Allstate Insurance Company, Allstate Indemnity Company, Allstate Fire & Casualty Insurance Company, and Allstate Property & Casualty Insurance Company v. Bradley Pierre, Medical Reimbursement Consultants Inc., Marvin Moy, M.D., Rutland Medical P.C. D/B/A Medicalnow, William A. Weiner, D.O., and Nexray Medical Imaging, P.C. d/b/a Soul Radiology Medical Imaging, No. 23-CV-06572 (NGG) (LB), United States District Court, E.D. New York (January 8, 2024) Allstate joins GEICO and other insurers taking a proactive effort against no-fault insurance fraud perpetrators.

Plaintiffs Allstate Insurance Company sued Bradley Pierre, et al, alleging that Defendants defrauded Allstate in violation of the Racketeering Influenced and Corrupt Organizations Act (“RICO,” 18 U.S.C. § 1962(c), (d)), by submitting hundreds of fraudulent bills for no-fault insurance payments. (See Compl. (Dkt. 1) ¶¶ 459-542.) Plaintiffs also allege common law fraud and unjust enrichment and seek a declaratory judgment as to all past, present, or future bills.

Allstate moved for a preliminary injunction to stay all pending no-fault insurance collection arbitrations commenced against Allstate by Defendants and Plaintiffs requested waive their obligation to post security for the injunction.

BACKGROUND

Operation of the Alleged Scheme

The USDC concluded that the “allegations reviewing the fraudulent scheme in Allstate’s Complaint are overwhelming.” Defendant Marvin Moy, M.D., a licensed physician, purported to be the sole officer, director, and shareholder of Rutland but was merely a nominal owner. In reality, Moy ceded actual control over Rutland to Defendant Bradley Pierre, a layperson who does not hold a medical license and therefore is not authorized to own, control, or manage a medical professional corporation.

As a result of this extensive scheme, Allstate has paid in excess of $2,749,000.00 for no-fault claims submitted by the PC Defendants. Moreover, Defendants Pierre, Moy, and Weiner are currently facing criminal charges related to the scheme and the very allegations at issue in this case. See United States v. Pierre, No. 1:22-CR-00019 (PGG) (S.D.N.Y.) (hereinafter, the “Criminal Action”).

Evidence of the Alleged Scheme

In support of its fraud claims, Allstate has submitted an abundance of evidence. Accordingly, Allstate seeks reimbursement of the more than $2,749,000.00 it has paid Defendants and in addition to a declaration that it is under no obligation to pay any pending or future no-fault insurance claims.

DISCUSSION

When seeking an injunction a party must establish that without the injunction the plaintiff will suffer irreparable harm. To establish irreparable harm, a party seeking preliminary injunctive relief must show that there is a continuing harm which cannot be adequately redressed by final relief on the merits and for which money damages cannot provide adequate compensation. The harm must be shown to be actual and imminent, not remote or speculative.

Allstate argued that it will suffer irreparable harm because (1) there is significant risk of inconsistent results in the arbitration proceedings, (2) the time, effort, and money spent litigating these proceedings cannot be cured by money damages, and (3) arbitrations continue to be filed and adjudicated despite Defendant Moy, the sole official shareholder of Rutland, disappearing in October 2022.

The risk of inconsistent judgments is in addition to the expenditure of time, effort, and money that Allstate will exhaust dealing with a morass of litigation in the absence of relief that will not be cured by money damages.

Here, Allstate has sufficiently alleged that there is a serious question going to the merits of its declaratory judgment claim against Defendant Rutland and others. In its 102-page Complaint supported by numerous exhibits totaling thousands of pages, Allstate details an extensive and complex scheme centered around the fraudulent operation and control of Rutland, among other PCs, by non-physician Pierre for his own personal financial gain; unlawful patient referrals to the PC Defendants pursuant to improper agreements and kickback schemes; and fraudulent billing for unnecessary and excessive services yielding hundreds of false claims submitted to Allstate in violation of various New York state licensing laws.

CONCLUSION

Allstate’s motion for preliminary injunctive relief was GRANTED. Consequently:

  1. all pending no-fault collection arbitrations by Rutland (or its agents) against Plaintiffs are stayed.
  2. Rutland is enjoined from filing any further no-fault collection arbitrations or lawsuits against Allstate pending resolution of the instant federal action.
  3. Allstate’s request that the court waive their obligation to post security was also GRANTED.

ZALMA OPINION

Allstate, like many other insurers writing no-fault auto insurance in New York state find that they are victims of fraudulent schemes like the one described by Allstate in its lengthy and well documented law suit and the state does nothing to stop it. The court faced with overwhelming evidence, including the fact that one of the defendants is under indictment by the federal Department of Justice. This lawsuit indicates a complete failure of the no-fault insurance system and the inability of the state of New York to police the crime. Allstate, like GEICO, should be honored and emulated for their action in an attempt to take the profit out of insurance fraud.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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Murder Pays

LIFE INSURANCE FRAUD FOR FUN & PROFIT

This following is a Fictionalized True Crime Story of Insurance Fraud from an Expert who explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is one of many designed to help the public Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the ­­­Perpetrators than any Other Crime. 

Post 4708

See the full video at https://rumble.com/v469lgk-murder-pays.html  and at https://youtu.be/bdpraCrkXDU

George and Adam were partners. Their business, consulting with aerospace manufacturers on preparing the reports required by the Department of Defense, had been immensely successful. For the first five years of business their billings exceeded $3,000,000 a year.

They lived well. Like the average Americans they were, they spent every dollar they made and about 10% more than they made. They had no savings. They did have large credit card balances.

Because they knew how important each was to the success of the partnership, they purchased Key man life insurance policies with limits of $3,000,000 each from Trustme Life Insurance Company.

In 2008 the bottom fell out of the aerospace industry with the election of President Obama who cancelled space programs. Their customers stopped hiring consultants. The billings of the partnership shrank like Alice after she bit the mushroom.

Adam and George could not make their mortgage or credit card payments. Their business was failing. They were facing both business and personal bankruptcy. Adam, the adventurous partner, had an idea.

“George,” Adam said, “The only way we can get out of this financial mess is our life insurance policies.”

“I don’t want to die to collect,” George said.

“Neither do I,” Adam replied. “But I still want to collect.”

“Do you propose to murder me.”

“No, George, I propose that we find a homeless person who physically resembles one of us and kill him. We can plant identification on the corpse and then share in the $6,000,000 double indemnity payment.”

“My,” replied George, “that’s a brilliant, although evil and criminal, plan.”

“I see no other way out. It’s either the death of a useless human being or total financial catastrophe for us.”

“Adam, they have a death penalty in this state.”

“So, what, the plan is perfect. No one will know. We’ll retire in luxury.”

“Okay, I’ll go along with it, but I don’t like it. This is dangerous.”

The partners began to travel skid row. They needed a homeless person who physically resembled one of them in height, weight and coloring. It took them a week to find the right person. They befriended him with a bottle of wine and a free meal. They told him that they had just completed a twelve-step program and part of that program was to help a person in need. Together, they took the homeless person to Adam’s house. The partners washed off the grime in Adam’s massive master bath, dressed him in Adam’s clothes, and outfitted him with accessories until he looked like a Century City lawyer about to meet an important client.

The homeless man was only known to them as “Fuzzy.” He was suspicious and refused to give them his full name.

Fuzzy was grateful. He thanked his benefactors profusely and offered to work to earn what they had given him.

Adam and George agreed and offered him the job operating the photocopy machine at their office at the rate of $18.00 an hour. While he was getting on his feet, Fuzzy could sleep in the guest room at Adam’s house. He could ride to work every morning with Adam.

The normal skepticism of the homeless floated from Fuzzy like seeds from a Dandelion in a gale. He slept soundly between clean sheets for the first time in five years. He was up at 6:00 a.m., made coffee and fried bacon and eggs that he and Adam shared. They then drove to the office together in Adam’s emerald green Jaguar XJ-8 convertible.

Fuzzy worked hard. He was on his best behavior all day, photocopying extra copies of old consultation reports. At noon George and Adam took Fuzzy out to lunch at their favorite restaurant and then stopped at Adam’s barber. Fuzzy was provided a free haircut exactly like that the barber had given to Adam.

After the day ended and all of the employees left, Fuzzy waited for Adam to finish his work sitting in the lobby reading Sports Illustrated.

Adam called Fuzzy into Adam’s office at 8:00 that night. He asked Fuzzy to sit in his desk chair and shot him in the face with a 12-gauge shotgun at close range. Adam discharged one barrel on each hand to eliminated all of Fuzzy’s fingerprints.

Adam then placed his wallet with all its money, credit cards and other identification in the inside coat pocket of his old suit, removed anything that might identify Fuzzy as being someone other than Adam and then drove to the airport in George’s 750 IL BMW leaving the Jaguar in the garage. At the airport, Adam, using cash, purchased a ticket in the name of Adam Smith to New Orleans, Louisiana. He had already purchased, from street vendors on Hoover Street in Downtown Los Angeles a driver’s license in the name of Adam Smith with a birth date five years earlier than Adam’s true date of birth, a social security card, a MasterCard and Visa all issued in the name of Adam Smith.

George spent that evening with a client eating dinner and then attending a performance of “Wicked” at the Pantages theater. After leaving his client at midnight George took a cab to the airport and picked up his car at long term parking. He paid in cash. His alibi was perfect.

On arrival in Louisiana Adam spent two days at the Sheraton and then rented an apartment. He obtained a Louisiana driver’s license and found a job as an engineer in an electronics factory outside New Orleans.

He started a scrap book with articles from the Los Angeles Times that he had obtained from the local library, dealing with his untimely and vicious murder. George, the distraught and devastated partner, filed a claim with the insurer. He informed the insurer that he left his partner in the office at 7:00 the night before his death. Adam was working on finishing a report for one of their clients. His secretary, who usually arrived at 8:00 in the morning, one hour before George, found the body when she opened the office. She telephoned George first and then the police. When George arrived, he was able, from the suit of clothes, to identify the body as that of his partner, Adam. There simply wasn’t enough of the face to identify.

The insurance company did as much investigation as it could, including interviews of the night staff at the office building, all of Adam’s friends and neighbors and the police. Although they recognized that the business was failing, George’s alibi for the time of death was airtight. Since George was the only person who could gain by the murder, since the shotgun was left at the scene and had no fingerprints, since the police traced the shotgun and found that it had been stolen a year before from someone in Wyoming, there were no leads.

The insurer issued a check in the amount of $6,000,000 to George who accepted it gratefully. George then deposited the money in his account, obtained a $3,000,000 cashier’s check and delivered it to Adam Smith in New Orleans. The plan was that Adam would stay in Louisiana, enjoy his newfound wealth and their perfect crime would be consummated.

Adam abided by the plan for a year and a half. He assumed nothing could go wrong and decided to come back to Los Angeles to renew an acquaintance with a young lady with whom he had been seriously in lust. When he arrived on her doorstep, unannounced, the young lady, who had attended his funeral in tears, was pleasantly surprised. She entertained him as he expected and dropped him at the Four Seasons where he was staying.

Although she considered Adam to be a prodigious lover, the young lady was more interested in cash than love. From the hotel, she drove directly to the West Los Angeles station of the Los Angeles Police Department and introduced herself to a detective. She knew that a life insurance claim had been made and wanted the police to know that the person whose murder they were investigating was presently sound asleep in his hotel room at the Four Seasons Hotel in Beverly Hills.

She explained to them how Adam, after twenty minutes of horizontal Rhumba, explained to her how he had defrauded an insurance company out of $6,000,000. She explained to the police that she would never be a party to such a crime and wanted it noted in their report that she was the source of the information and the person to whom any rewards posted by the insurance company should be paid.

Adam and George were arrested and tried for the murder of Fuzzy as well as several counts of insurance fraud. The testimony of the young lady, the presence of Adam and the Los Angeles Airport recording of George’s license plate on entry and exit from the airport parking lot made their defense impossible. They were convicted.

Adam and George are now spending the remainder of their lives in the State Penitentiary.

The insurer recovered $4,000,000 of the $6,000,000 (George and Adam had lived well for that year and a half) and paid the lustful young woman a $400,000 reward. She lived happily ever after.

Adapted from my book, Insurance Fraud Costs Everyone

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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

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No Coverage for Benefits no Right to Bad Faith Damages

CONCURRENT CAUSE REQUIRES SEGREGATION OF COVERED FROM NON COVERED LOSSES

Post 4707

See the full video at https://rumble.com/v4614d9-no-coverage-for-benefits-no-right-to-bad-faith-damages.html and at https://youtu.be/_1OWgl_l3P8

Landmark Partners, Inc. (Landmark) sued Western World Insurance (Insurance) after it denied Landmark’s claim under an insurance policy. Landmark asserted claims for breach of contract, statutory violations, breach of common-law duties, and attorney’s fees and statutory interest. Relying in part on the testimony of Landmark’s own expert, Insurance moved for summary judgment on the ground that the concurrent causation doctrine defeated Landmark’s contractual claim, which in turn defeated Landmark’s other claims. The trial court granted summary judgment for Insurance, and Landmark appealed.

In Landmark Partners, Inc. v. Western World Insurance, No. 02-23-00116-CV, Court of Appeals of Texas, Second District, Fort Worth (December 28, 2023) the Court of Appeals applied the concurrent cause doctrine to resolve the dispute.

BACKGROUND

Landmark’s policy with Insurance covered damage to Landmark’s commercial property, but only for damage that commenced during the policy period, which began on February 4, 2020. The policy included coverage for hail and wind damage but no coverage for rain damage to the property’s interior unless the rain entered the building through damage caused by a covered event. After a storm on May 7, 2020, Landmark filed a claim with Insurance, requesting that Insurance provide coverage for damage to Landmark’s building, which Landmark alleged had been caused by the storm.

Insurance sent a contract field adjuster to inspect the property. That adjuster reported no signs of hail damage on the property’s roofing materials. Landmark hired a public adjuster who disagreed and put in proof for more than one million. Insurance then retained an engineer, Jarrod Burns, who did find some hail damage, particularly to some mechanical units on the roof, but he determined that the damage had been caused before the policy took effect. Insurance denied the claim.

Landmark sued Insurance for failing to provide coverage.

Insurance filed a motion for summary judgment based on the concurrent causation doctrine, which applies “when covered and excluded events combine to cause an insured’s loss.” If both covered and uncovered events combine to cause a loss, and the covered and uncovered events are inseparable, then causation is concurrent, the insurance policy’s exclusion applies, and the insurer owes no coverage for the loss.

Covered damage to the property could not be segregated from non-covered damage. The trial court signed a final judgment granting summary judgment for Insurance. Landmark appealed.

DISCUSSION

Because an insurer has no obligation to pay for damage caused by an event not covered under the policy, if covered and non-covered events combine to cause the damage, the insured must segregate between the damage attributable to the covered event and the damage attributable to other causes. Thus, Landmark would have to show at trial one of three circumstances:

  1. that the damage had only one cause, which was covered by the policy;
  2. that the damage had multiple independent causes, one of which was covered; or
  3. although covered and non-covered events combined to cause the damage, Landmark had segregated between the covered damage and non-covered damage.

Landmark had the burden to show that the damage for which it sought coverage resulted from the May 2020 storm or another covered event. If Insurance’s summary judgment evidence established as a matter of law that segregation was impossible, Insurance was entitled to judgment unless Landmark responded with evidence raising a fact issue.

Because Insurance’s summary judgment evidence established that any damage caused by the May 2020 storm could not be segregated from the damage caused by previous storms that were not covered, Insurance demonstrated that it had no obligation to pay under the policy, thereby negating Landmark’s breach-of-contract claim.

Landmark failed to segregate between covered and non-covered damage or even raise the possibility that segregation could be done. Even under Landmark’s evidence, the covered and non-covered causes of property damage could not be separated.

Because Landmark’s evidence did not raise a fact issue sufficient to defeat summary judgment on Landmark’s contract claim, the Court of Appeal found no breach of contract.

EXTRACONTRACTUAL CLAIMS

In addition to its contract claim, Landmark alleged violations of Texas Insurance and breach of the common law duty of good faith and fair dealing in the context of processing and payment of insurance claims.

The Texas Supreme Court has explained, an insured cannot recover any damages based on an insurer’s statutory violation unless the insured establishes a right to receive benefits under the policy or an injury independent of a right to benefits.

As for Landmark’s common-law bad-faith claim, that, too, was negated by the summary judgment evidence.

Having overruled Landmark’s five issues, the Court of Appeals affirmed the trial court’s judgment.

ZALMA OPINION

Without a right to the benefits of a policy of insurance there can be no right to bad faith tort damages. Landmark failed to establish a right to the benefits of the contract of insurance because it could not segregate covered damages from damages that preceded the policy. No coverage no right to claim bad faith damages for improper claims handling.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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Oregon Allows Emotional Distress Damages for Poor Claims Handling

Violation of Statute Allows Suit for Negligent Failure to Resolve Insurance Claim

Post 4706

See the full video at https://rumble.com/v45wcqx-oregon-allows-emotional-distress-damages-for-poor-claims-handling.html  and at https://youtu.be/WW9Ij4oK0rQ

Christine Moody, individually, and in her capacity as the Personal Representative of the Estate of Steven “Troy” Moody, Deceased v. Oregon Community Credit Union, aka OCCU, an Oregon entity, association, union, or corporation et al., Defendants, and Federal Insurance Company, an Indiana corporation, 371 Or. 772, SC S069409, Supreme Court of Oregon (December 29, 2023)

Plaintiff, whose husband was accidentally shot and killed during a camping trip, brought this action against defendant, a first-party life insurer, claiming, among other things, that defendant had negligently failed to investigate and pay her claim for policy benefits, causing her to have fewer financial resources to navigate the loss of a bread-winning spouse and, consequently, to suffer economic harm and emotional distress.

FACTS

Plaintiffs husband, decedent, was accidentally shot and killed by a friend during a camping trip. Plaintiff filed a claim for life insurance policy benefits, and defendant initially denied plaintiffs claim on the ground that decedent’s death fell within a policy exclusion for deaths “caused by or resulting from [decedent] being under the influence of any narcotic or other controlled substance”-apparently based on the fact that decedent had had marijuana in his system at the time of his death.

Plaintiff sued alleging claims for breach of contract, breach of an implied contractual covenant of good faith and fair dealing, and negligence. Plaintiff sought both economic damages-the benefits payable under the policy-and emotional distress damages.

Defendant filed motions to dismiss plaintiffs’ claims for negligence and breach of the implied covenant of good faith and fair dealing and to strike the allegations seeking damages for emotional distress, arguing that plaintiffs only remedy under Oregon law was contractual. Plaintiff appealed the limited judgment but, while the appeal was pending, she filed an amended complaint that alleged only breach of contract and sought only the amount of benefits payable under the insurance policy-$3,000. Thereafter, defendant paid the $3,000 to plaintiff, the parties stipulated to the entry of a judgment in favor of plaintiff and against defendant, and the trial court entered a conforming general judgment.

ANALYSIS

Plaintiff takes the position that her claim for common-law negligence against defendant for its failure to act reasonably in performing the obligations of a life insurer and that she is entitled to recover the emotional distress damages that she alleges.

Plaintiffs’ Negligence per se claim is a shorthand for a negligence claim in which the standard of care is expressed by a statute or rule. When a negligence claim exists, and a statute or rule defines the standard of care expected of a reasonably prudent person under the circumstances, a violation of that statute or rule establishes a presumption of negligence.

The Supreme Court Concluded that it is settled that a negligence complaint, to survive a motion to dismiss, must allege facts from which a factfinder could determine (1) that defendant’s conduct caused a foreseeable risk of harm, (2) that the risk is to an interest of a kind that the law protects against negligent invasion, (3) that defendant’s conduct was unreasonable in light of the risk, (4) that the conduct was a cause of plaintiffs harm, and (5) that plaintiff was within the class of persons and plaintiffs injury was within the general type of potential incidents and injuries that made defendant’s conduct negligent.

Perhaps the simplest legally protected interest is in being free from physical harm at the hands of another. Physical harm includes both bodily injury and property damage. Generally, however, people do not have a legally protected interest in being free from emotional distress, and, to date, the Supreme Court has permitted common-law tort claims for emotional distress damages only in the following three circumstances: (1) when the defendant also physically injures the plaintiff; (2) when the defendant intentionally causes the emotional distress; or (3) when the defendant negligently causes foreseeable, serious emotional distress and also infringes some other legally protected interest.

In contrast to physical harm, emotional harm occurs frequently. Any number of people may suffer emotional distress as the foreseeable result of a single negligent act.

Whether Plaintiff Here Has Alleged A Legally Protected Interest Sufficient To Subject Defendant To Liability For Purely Emotional Damages

In the case now before us, we must consider whether plaintiff has alleged a legally protected interest sufficient to subject defendant to liability for emotional distress damages. To decide whether that alleged interest is a legally protected interest sufficient to subject defendant to liability for emotional distress damages.

The statute, ORS 746.230, prohibits (1) “[refusing to pay claims without conducting a reasonable investigation based on all available information,” ORS 746.230(1) (d); and (2) “[n]ot attempting, in good faith, to promptly and equitably settle claims in which liability has become reasonably clear,” ORS 746.230(1)(f).

ORS 746.230 includes conduct that is independent of the obligation to pay benefits due under the insurance policy. For example, ORS 746.230 prohibits insurers from, “[flailing to acknowledge and act promptly upon communications relating to claims,” ORS 746.230.230(1)(b); “[f]ailing to affirm *** coverage of claims within a reasonable time,” ORS 746.230.230(1)(e); and “Compelling claimants to initiate litigation to recover amounts due,” ORS 746.230(1)(g). Those prohibitions suggest that the harm that the legislature sought to prevent was not limited to the financial harm that occurs when insurance benefits are not paid.

The Supreme Court will not permit recovery of purely emotional injury unless it determines that the claimed harm is “of sufficient importance as a matter of public policy.” The Supreme Court concluded that the question whether plaintiff has alleged a viable common-law negligence claim against defendant for emotional distress damages in the affirmative. It then cautioned that the conclusion does not make every contracting party liable for negligent conduct that causes purely psychological damage, nor does it make every statutory violation the basis for a common-law negligence claim for emotional distress damages. Far from it. Few contracting parties promise to provide necessary financial resources on the death of a spouse knowing that their obligation to act reasonably in doing so is required by statute. And few statutes impose obligations on contracting parties designed to protect the parties from the type of emotional harm that plaintiff in this case allegedly suffered. The decision in this case is a narrow one that applies and accords with the limiting principles that have been guided by past decisions and does not unfairly expose defendant to liabilities that it could not have expected and guarded against.

Plaintiff has alleged a viable common-law negligence claim against defendant for emotional distress damages. Therefore, the trial court erred in granting defendant’s motions to dismiss plaintiffs negligence claim and in striking her claim for emotional distress damages.

ZALMA OPINION

The state of Oregon, like many states, has enacted statutes punishing insurers for bad faith claims handling. The insurer, after a change in allegations, paid the plaintiff the $3,000 life insurance limit, only to find itself sued for negligent claims handling. The suit was dismissed by the trial court and reversed by the Court of Appeals and the Oregon Supreme Court. Since the statute requires fair claims handling the plaintiffs allegations allowed it to sue the insurer for emotional distress damages when it initially refused to pay because of an exclusion.  This is a limited decision and stretches the obligations of an insurer beyond fairness and even with a clear and unambiguous exclusion it can be sued for emotional distress.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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Equity Requires Fairness

Equitable Indemnity Only Available to One Without Fault

Post 4705

See the full video at https://rumble.com/v45tgrx-equitable-indemnity-only-available-to-one-without-fault.html and at https://youtu.be/Pm94OcqWFoU

In Martha M. Fountain and Curtis Fountain v. Fred’s, Inc. and Wildevco, LLC v. Tippins-Polk Construction, Inc. and Rhoad’s Excavating Services, LLC, of whom Tippins-Polk Construction, Inc. is the Petitioner, Appellate Case No. 2020-000651, Opinion No. 28086, 436 S.C. 40, 871 S.E.2d 166, Supreme Court of South Carolina (Filed March 2, 2022) established the requirements for obtaining equitable indemnity.

FACTS

Respondent Fred’s was a Tennessee corporation that operated a chain of discount general merchandise stores in several states, including South Carolina.

In April 2005, Wildevco entered into a contract with general contractor Tippins-Polk for the construction of the Fred’s store and adjoining strip center. The construction contract between Wildevco and Tippins-Polk included drawings prepared by an architect, as well as site plans prepared by an engineer. The contract specifically stated that Tippins-Polk was responsible for “All Site Work,” including “[g]rading, concrete curbing, utilities & paving [p]er site plans.”

Wildevco provided Tippins-Polk with two sets of construction drawings—the architectural drawings, which established the design elements including the sidewalk surrounding the store, and the site plans, which controlled the grading, elevations, pavement, and underground utilities. Tippins-Polk constructed the entrance to have a curb ramp at the entrance door. In front of the door, the ramp was flush with the parking lot, and on either side, it sloped upward to adjoin the rest of the curbing surrounding the building. Fred’s opened the Williston store in October 2005.

If an inspection had taken place, it would have been visible to the naked eye that an elevation change in the sidewalk existed and was not painted yellow.

Five years after the Fred’s store opened, Ms. Fountain hit her head and hand on the glass door and fell to her knees. In May 2010, Ms. Fountain and her husband filed a premises liability suit against Fred’s and Wildevco. Ms. Fountain sought to recover her medical expenses and lost wages, and her husband filed a loss of consortium claim. The Fountains did not pursue a construction defect claim against Tippins-Polk.

The case was set for a date certain trial in March 2016. On the eve of trial, Wildevco and Fred’s settled with the Fountains for $290,000, with Wildevco paying $250,000 and Fred’s paying $40,000.

The general theory of the third-party claim was that Tippins-Polk deviated from the site plans and improperly constructed the entrance curbing, which was the sole proximate cause of Ms. Fountain’s injuries. As to the relevant elements of equitable indemnification, the trial court found a special relationship existed between Fred’s and Tippins-Polk.

EQUITABLE INDEMNIFICATION

South Carolina has long recognized the principle of equitable indemnification.  Indemnity is that form of compensation in which a first party is liable to pay a second party for a loss or damage the second party incurs to a third party.

Tippins-Polk argued that it was error to affirm the finding that Wildevco and Fred’s were without fault.

Special Relationship

As a matter of equity, a party is entitled to indemnity if the relation between the parties is such that either in law or in equity there is an obligation on one party to indemnify the other, as where one person is exposed to liability by the wrongful act of another in which he does not join. The trial court and court of appeals found the connection between Fred’s and Tippins-Polk was established because Tippins-Polk knew the commercial space it constructed would be leased to Fred’s and open to the public and because Tippins-Polk had been the general contractor in several other unrelated construction projects for Fred’s stores.

Without Fault

A party may be entitled to equitable indemnification only if no personal negligence of his own has joined in causing the injury. Equitable indemnity cases involve a fact pattern in which the first party is at fault, but the second party is not. If the second party is also at fault, he comes to court without equity and has no right to indemnity.

The owner of property owes to an invitee or business visitor the duty of exercising reasonable or ordinary care for his safety and is liable for injuries resulting from the breach of such duty. As a matter of law, both Fred’s and Wildevco owed a duty of care to Ms. Fountain, as an invitee, to keep the premises reasonably safe and warn of any unreasonable dangers that could not be remedied. Indeed, it is in this context that Fred’s and Wildevco were sued for their own independent negligence — not vicariously for the negligence of Tippins-Polk. When speaking of proximate cause, courts are not referring to the “sole cause.” In order to establish actionable negligence, the plaintiff is required only to prove that the negligence on the part of the defendant was at least one of the proximate, concurring causes of his injury.

To be entitled to equitable indemnity on their crossclaim against Tippins-Polk, Fred’s and Wildevco were required to show not just that Tippins-Polk’s construction of the ramp was a proximate cause of Ms. Fountain’s injuries but also that Respondents’ failure to warn of or remedy the unsafe condition was not a proximate cause.

Since there was no evidence in the record that either Fred’s or Wildevco warned of or attempted to remedy the trip hazard identified by their own safety expert, despite the condition existing for almost five years before the accident occurred. In sum, Fred’s and Wildevco failed to establish they were without fault in the Fountains’ premises liability action.

Because the Supreme Court found Respondents failed to establish they were without fault in the underlying action, the trial court verdict was reversed.

ZALMA OPINION

The Supreme Court of South Carolina understood that equity requires fairness. No one is entitled to equitable indemnity if it would be unfair to allow them to recover when they are unable to prove that those seeking indemnity were without fault. Since they could not establish that they were without fault they had no right to indemnity.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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Coinsurance

An Important Condition of Every Commercial Property Insurer

(c) 2024 Barry Zalma

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An Important Condition of Commercial Property Insurance Policies Coinsurance is often misunderstood in first party property insurance. It is a clause that causes frequent dissatisfaction with insureds over claim settlements.

Historically most losses are partial losses. It is rare that the entire building or amount of covered property is destroyed. Knowing this, individuals deciding to insure their business property might insure for only part of its value. The insured may reason that since it is more likely to have a partial loss than a total loss, it is wasteful to spend premiums on complete insurance.

This reasoning, of course, defeats the concept that insurance is the sharing of risk. If the insured does not obtain insurance for the total values at risk, then the risk is not shared equally with other insureds. If most insureds chose to insure only part of the value of their property, the insurance industry would still have approximately the same number of claims to pay; however, the premiums that it collected to pay those claims would be vastly reduced. In order to have enough money to pay the losses, insurers would charge more for the lower values that insureds chose to insure.

Those insureds who chose to insure the full value of their property would pay even more than they now pay for the same amount of coverage. Encouraging insureds to carry full insurance on their property allows premium levels to be fairer and that is why the coinsurance provisions were created. The authors of the coverage forms were aware that expecting insured individuals and businesses to carry coverage for 100 percent of the value of their property was unrealistic. They allowed the choice (and the corresponding premium level) of insuring against the risk of loss of only a percentage of the value of the property.

The percentage that the insured chooses is called the “coinsurance percentage.” The insured and the insurance company are coinsuring the property because the percentage that the insured chooses not to insure represents the amount of coverage that the insured will pay. In order to encourage insureds to insure a reasonably high percentage of their property’s value, the coverage form provides the incentive of coverage extensions—broader coverage—to those insureds who choose at least an 80 percent coinsurance.

The term “coinsurance” means “a relative division of the risk between the insurer and the insured”. 15 Couch § 220.3. Coinsurance clauses are provisions in insurance policies that require the insured to maintain coverage to a specified value of the property. If the insured failed to maintain sufficient limits he or she becomes a coinsurer and must bear his or her proportional part of the loss. In regard to coinsurance, the Michigan Court of Appeal concluded that there is no ambiguity in the coinsurance provision. Neither the policy application nor the declarations page of the policy addresses the operation of coinsurance, except to indicate a percentage that would be integrated in the coinsurance clause. [Royal Property Group, LLC v. Prime Insurance Syndicate, Inc., 706 N.W.2d 426, 267 Mich. App. 708 (Mich. 2005)]

The Sixth Circuit, following Royal Property Group, supra dismissed plaintiff’s claim that there is something vicious about co-insurance. Its legality is no longer a debatable question. It has been authorized by law for over 40 years. [Masonic Temple Ass’n of Grand Rapids v. Michigan, 323 Mich. 662, 36 N.W.2d 317, 320 (1949) (citing Fine Arts Corp. v. Kuchins Furniture Mfg. Co., 269 Mich. 277, 257 N.W. 822 (1934)); at Melson v. Prime Ins. Syndicate, Inc., 429 F.3d 633 (6th Cir. 2005)]

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GEICO takes a Bite Out of Fraud

No Fault Insurance is a Formula For Insurance Fraud

Post 4703

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GEICO, as a pro-active victim of insurance fraud, sued Jean-Pierre Barakat, M.D., et al, alleging that Defendants defrauded GEICO in violation of the Racketeering Influenced and Corrupt Organizations Act (“RICO,” 18 U.S.C. § 1962(c), (d)), by submitting hundreds of fraudulent bills for no-fault insurance charges. Plaintiffs also allege common law fraud and unjust enrichment and seek a declaratory judgment as to all pending bills.

In Government Employees Insurance Company, et al v. Jean-Pierre Barakat, M.D. No. 22-CV-07532 (NGG) (RML), United States District Court, E.D. New York (January 2, 2024) the USDC provided an injunction.

BACKGROUND

GEICO, faced with at least 43 allegedly fraudulent no-fault claims from health care providers, moved for a preliminary injunction to stay all 43 pending no-fault insurance collection arbitrations commenced against GEICO by or on behalf of Defendants.

In New York, an insurer is required to provide certain no-fault insurance benefits (“No-Fault Benefits”) to the individuals that they insure (“Insureds”). No-Fault Benefits cover up to $50,000 of necessary healthcare expenses that result from automobile accidents. These benefits are provided to ensure that injured victims of motor vehicle accidents have an efficient mechanism to pay for and receive the health care services that they need.

Insurers are only given 30 days to review and investigate claims before paying those claims to avoid risk of penalty for denying or delaying a claim.

Operation of the Alleged Scheme

GEICO alleged that in 2021 Defendant Barakat was recruited by the John Doe Defendants to participate in a complex fraudulent insurance scheme to bill GEICO and other New York automobile insurers for medically unnecessary, experimental, and otherwise non-reimbursable services. Based on the arrangement, Barakat would receive a periodic payment in exchange for the use of his name, license, and the tax identification number of the Barakat Practices. Defendants would perform medically unnecessary, high-billing value procedures.

Between February 15,2021 and March 3, 2022, Barakat and the John Doe Defendants used Defendant Patriot Medical to bill GEICO and other New York automobile insurers for an experimental treatment called ESWT.   Moreover, Defendants submitted bills seeking more than $106,000,00 from GEICO, spread across 43 No-Fault individual arbitration proceedings pending before the American Arbitration Association (“AAA”) at the time this motion was filed.

Evidence of the Alleged Scheme

In support of its fraud claims, GEICO has submitted a “representative sample” chart, totaling 1,371 entries of allegedly fraudulent no-fault claims submitted by the Barakat Practices. GEICO asserts that it has paid at least $183,000.00 to the Barakat Practices in no-fault claims.

DISCUSSION

The showing of irreparable harm is perhaps the single most important prerequisite for the issuance of a preliminary injunction, and the moving party must show that injury is likely before the other requirements for an injunction are considered. The harm must be shown to be actual and imminent, not remote or speculative.

The USDC noted that Courts in this district have found, in analogous cases, that irreparable harm occurred where an insurer is required to waste time defending numerous no-fault actions when those same proceedings could be resolved globally in a single, pending declaratory judgment action.

There are currently 43 pending arbitrations that run the risk of inconsistent judgments. GEICO has shown that money damages may not be available if the Defendants are to prevail. This is sufficient to establish irreparable harm.

There is no indication that granting the stay will harm the public interest. To the contrary, GEICO asserts that the injunctive relief would serve the public policy against no-fault insurance fraud.

Plaintiffs have alleged irreparable harm absent a stay, that there are serious questions going to the merits of this case, that the balance of hardships tip in their favor, and that a stay would not harm the public interest. The court, therefore, granted Plaintiffs’ motion for a preliminary injunction.

CONCLUSION

For the foregoing reasons, GEICO’s motion to stay all pending no-fault insurance collection arbitrations by or on behalf of Defendants Patriot Medical and JPB Medical waive their obligation to post security were granted.

ZALMA OPINION

GEICO must be honored for its proactive conduct against fraud perpetrators since it appears the state of New York is not concerned about fraud against insurers and will not prosecute the fraudsters. Using RICO not only will allow GEICO to work to defeat the fraudulent claims but will take the profit out of the crime by forcing the fraudsters to pay the insurers for their fraudulent conduct. Other insurers, facing the same fraud, should jump in with GEICO to make the fraud perpetrators understand that they will lose their criminal profits and may find they will pay the insurers more than they stole.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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No Right to Indemnity After Policy Limit Exhausted

Insurer has no Obligation to Pay More than an Aggregate Limit of Liability

Post 4702

See the full video at  https://rumble.com/v44waj2-no-right-to-indemnity-after-policy-limit-exhausted.html and at https://youtu.be/Pl-tuUjAG28

Denis Mucha sustained injuries after he was assaulted by employees at defendant MDF 92 River Street, LLC d/b/a Wild Moose Saloon and The Birch (MDF) (the bar) in Hoboken, New Jersey while a patron. Plaintiff Watford Specialty Insurance Company (Watford) insured MDF. Watford filed a declaratory judgment action seeking a declaration that its obligation to provide insurance coverage to MDF arising out of Mucha’s lawsuit were satisfied under its endorsement for assault and battery claims, and Watford’s $1,000,000 limit of liability had been exhausted.

In Watford Specialty Insurance Company v. MDF 92 River Street, LLC, d/b/a Wild Moose Saloon & The Birch, and Matthew Garcia and Dashon Brown, Defendants, And Denis Mucha, No. A-3505-21, Superior Court of New Jersey, Appellate Division (December 22, 2023)

Mucha appealed from two Law Division orders entered on June 21, 2022, denying his motion for summary judgment and granting Watford’s cross-motion for a declaratory judgment barring coverage beyond the $192,325.51 amount that was already paid to Mucha and that exhausted Watford’s aggregate policy limit.

Mucha alleged defendants Matthew Garcia and Dashon Brown, bouncers at the bar, negligently assaulted him resulting in “severe and permanent” injuries. Mucha alleged Garcia’s and Brown’s conduct was “intentional but having unintended results,” and was “malicious, wanton, and reckless.” In his complaint, Mucha also alleged MDF “recklessly, carelessly, and/or negligently fail[ed] to properly hire, retain, train and/or supervise competent security,” resulting in his injuries.

THE POLICY

Watford issued a Commercial General Liability Policy (the Policy) to MDF. The Policy provided coverage up to $1,000,000 per occurrence and in the aggregate. There were five losses during the relevant Policy period, including Mucha’s claim.

Watford advised its insured MDF regarding Mucha’s claim, advising there was a sublimit of coverage for assault or battery related claims up to $1,000,000 per occurrence and in the aggregate. Watford advised Mucha’s counsel that there were five losses during the Policy period, including Mucha’s claim. The letter advised that as of December 18, 2020, the four other losses were resolved for a total pay-out of $799,920.53, leaving a remainder of $200,079.47 on the Policy’s eroding limits.

The trial court found that the facts of this case were more in line with that of an assault than wrongful eviction, considering that the arbitrator found that Mucha was grabbed and pulled down the stairs by a “security employee.”

ANALYSIS

When interpreting insurance contracts, appellate courts first examine the plain language of the policy and, if the terms are clear, they are to be given their plain, ordinary meaning.

Mucha, a business invitee, was forcefully removed from the bar as found by the arbitrator. The arbitrator’s determination that a security officer “grabbed [Mucha] and pulled him toward the stairs and then threw him down the stairs” resulting in personal injury describes “events more in line with that of assault then wrongful eviction.”

Watford has consistently maintained that Mucha’s claim arose out of an alleged assault perpetrated by MDF’s employees. Watford was not a party in the underlying lawsuit and could not file a trial de novo from the arbitrator’s award. Moreover, Watford has always asserted it was only responsible for the remaining portion of the $1,000,000 policy limit in it defense of MDF.

The arbitration award in favor of Mucha did not bar Watford’s amended declaratory judgment action seeking to limit its responsibility to the remainder of the aggregate policy limits.

The allegations in the amended complaint in the Mucha lawsuit-whether phrased as negligent assault or wrongful eviction-all arise out of the assault of Mucha by MDF employees.

Since the Assault and Battery Exclusion precludes coverage for any “bodily injury” claim “directly or indirectly” “arising out of” an “assault” or “battery,” the exclusion applies, barring coverage in excess of the aggregate limit.

The Court of Appeal concluded that the trial court’s decision was correct when if awarded Watford summary judgment.

ZALMA OPINION

Watford lived up to its mistake to insure the bar against assault and battery and paid out its policy limit of $1,000,000 to five different victims of the insured’s bouncers. Adding insult to the injury, Mr. Mucha tried to get around the assault and battery limit by claiming he was wrongfully evicted from the premises to obtain access to a different policy limit. The trial failed since throwing him down a flight of stairs was a clear battery and fit within the limit.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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Failure to Reside at Dwelling Eliminates Coverage

FOR COVERAGE TO EXIST ON A HOMEOWNERS POLICY THE INSURED MUST RESIDE AT THE RESIDENCE

Post 4700

See the full video at https://rumble.com/v44dtzi-failure-to-reside-at-dwelling-eliminates-coverage.html  and at https://youtu.be/lvFALpBzRoQ

The USDC was asked to grant dueling motions for summary judgment: (1) Motion for Summary Judgment filed by Defendant Nationwide Mutual Fire Insurance Company (“Nationwide”); and (2) Motion for Partial Summary Judgment filed by Plaintiff Maurice Heh, substituted by Perry Rutter and Mary Jane Urbanec, Executor and Executrix of Heh’s Estate (hereinafter collectively referred to as “Heh”).

In Perry Rutter And Mary Jane Urbanec, Executor And Executrix Of The Estate Of Maurice Heh, Deceased v. Nationwide Mutual Fire Insurance Company, Civil Action No. 20-1581, United States District Court, W.D. Pennsylvania (December 22, 2023) the USDC resolved the dueling motions.

BACKGROUND

Heh owned a home at 206 Parklane Drive in Braddock, Pennsylvania. At all times relevant to this case, Nationwide insured the risks of loss to the structure and contents of the home.

NATIONWIDE INSURANCE POLICY

Heh’s Nationwide Homeowner Policy names Heh as the insured and lists the Property on its Declarations under “Residence Premises Information.” At Page A1 of the Policy, under “Insuring agreement,” Nationwide avers that coverage is contingent on “compliance with all the policy provisions.” Coverage A (Dwelling) is described as coverage of “[t]he dwelling on the residence premises used mainly as your private residence, including attached structures and attached wall-to-wall carpeting.” Coverage C (Personal Property) is described as the coverage of “personal property owned or used by an insured at the residence premises.”

The term “residence premises” is defined as the “one, two, three or four-family dwelling, other structures and grounds located at the mailing address shown on the Declarations unless otherwise indicated.”

THE PROPERTY

Heh purchased the Property in 1990 and resided there with his wife until her passing. On January 1, 2019, Heh agreed to rent the Property and he and tenants entered a leasing agreement. There were indicia in the record that the agreement between Heh and his tenants provided for the possibility that the tenants would rent to own. There were also indicia in the record that Heh included his furniture-either for the tenants’ use during their occupancy or for the tenants to own-in the agreement.

After Heh leased the Property he moved to Point Pleasant Retirement Community. Once he moved into Point Pleasant, it is undisputed that Heh did not at any point move back to the Property.

FIRE AT THE PROPERTY

On February 3, 2020, before the tenants had fully moved out of the Property, there was a fire that resulted in significant physical damage to Heh’s home and the personal property inside of it.  After the fire Nationwide investigated the cause of the loss and denied coverage “based upon the policy provision related to the occupancy of the dwelling.” In its investigation, Nationwide determined that Heh “had not resided in the residence premises for an extended period and had not notified Nationwide that the property was rented to tenants.”

Heh sued Nationwide and alleged that an adjuster had determined that the loss caused by the fire resulted in damages over the Policy limit of $172,400.00.

DISCUSSION

Nationwide, in its summary judgment motion, argued the Policy predicates coverage under both coverage provisions on the insured residing at the Property. Nationwide established that there was no factual debate about whether Heh was living at the Property.

Coverage A (Dwelling)

Nationwide argued that Heh’s failure to reside at the Property was an appropriate basis for denial of Coverage A (Dwelling). Because there was no dispute Heh did not reside at the Property at the time of the fire or for a significant amount of time prior thereto, Coverage A (Dwelling) was unambiguously unavailable to him. Such coverage was only available for the dwelling on the residence premises that is used “mainly” as the named insured’s private residence.  Since the terms of Coverage A (Dwelling) are not reasonably susceptible to an interpretation that would entitle Heh to coverage where the Property was not being used “in the principal respect” or “more than anything else” as his private residence the Court granted Nationwide’s motion with respect to Heh’s allegation of breach of contract for failure to provide coverage under Coverage A (Dwelling).

Coverage C (Personal Property)

When the Policy is read as a whole and its meaning construed according to its plain language, Coverage C (Personal Property) is conditioned upon the named insured’s residence at the residence premises.

While the Court was not unsympathetic to Heh’s protestation that he should benefit from coverage when he lived at the Property and paid insurance premiums for decades before the 2020 fire, the Court concluded that it was required to give effect to unambiguous language of the Policy.

Nationwide’s Motion for Summary Judgment was granted and Heh’s Motion for Partial Summary Judgment was denied.

ZALMA OPINION

Anyone who reads a homeowners policy – as did the USDC – will see that it only provides coverage if the insured actually lives at the property that is the subject of the insurance. Heh left the residence and moved into a retirement facility. He did not tell his insurer of his move or attempt to obtain coverage for the property as a rental property that is commonly available. As a result of his decision to move Mr. Heh paid for insurance that provided no coverage for the loss to the property although it did provide liability coverage.  I, as was the court, am not unsympathetic to the loss incurred by Mr. Heh, he has no one to blame for his loss but himself.

(c) 2023 Barry Zalma & ClaimSchool, Inc.

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Go to the podcast Zalma On Insurance at https://podcasters.spotify.com/pod/show/barry-zalma/support; 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 – http://zalma.com/blog/insurance-claims-library.

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