Evidence Needed to Prove Fraud

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A Video Explaining the Need to Gather Evidence to Prove Fraud

See the full video at https://www.rumble.com/zalma and at https://youtu.be/nC6qi-AtCe4

Evidence is broken into two major categories: direct and circumstantial.

Direct Evidence

Direct evidence is proof that tends to show existence of a fact in question without the intervention of the proof of any fact.  It includes testimony that tends to prove or disprove a fact in issue directly, such as eye-witness testimony or a confession.

Sometimes, direct evidence may not exist because records have been destroyed in a fire, destroyed by water, stolen, discarded, or eaten by vermin.

If direct evidence does not exist for any reason, circumstantial evidence must be produced to prove the fraud.

Circumstantial Evidence

Circumstantial evidence is all evidence of an indirect nature when the existence of the principal fact is deduced from evidentiary facts by a process of probability reasoning.  The investigator takes circumstantial evidence and uses deductive reasoning to reach a conclusion.  Circumstantial evidence and the deductions of a professional investigator are often more reliable than direct evidence like eye-witness testimony.  Circumstantial evidence is sufficient to establish proof of arson and other criminal activities.

Clear and Convincing Evidence

The “clear and convincing” standard is a very difficult and stringent standard to establish.  In New Jersey, in the case of Italian Fisherman, Inc. v. Commercial Union, 215 N.J. Super. 278, 521 A. 2d 912 (1987), the court refused to accept the clear and convincing evidence standard of proof proposed by the plaintiff in an insurance fraud defense, pointing out that proof of fraud by a preponderance of the evidence (50 percent plus one, which is much easier to establish than the “clear and convincing evidence” standard) renders the insurance policy void from its inception.

Preponderance of Evidence

An insurer need only prove arson by a preponderance of the evidence. In our view the defense of arson against a fire insurance claim is established if it is proved by a preponderance of the evidence.

Scienter

In fraud cases, where intent, knowledge, and scienter (evil intent or guilty knowledge) constitute essential elements of the offense, evidence of similar frauds and misrepresentations is admissible at trial. The insurer need only demonstrate the facts elicited during an investigation that support the founded belief that a fraud was attempted. Circumstantial evidence is sufficient to prove such facts if a party’s conduct may be reasonably inferred based upon logical inferences to be drawn from the evidence.

ZALMA OPINION

It is absolutely necessary that every person involved in the insurance claims profession understand the evidence that is needed to prove fraud so that they can evaluate whether or not to deal with an attempted fraud.


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at https://www.rumble.com/zalma ; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

 

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Even When Insured Fails to Defend Suit It is Difficult to Obtain Judgment

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Hard Work Pays and Default Judgment Entered for Failure to Pay Additional Premium

Starr Underwriting Agency, Inc., (“Starr”), sued S A S Services Group, Inc. (“S A S”) alleging one claim for breach of contract for failure to pay additional premium on Workers’ Compensation Premium after audit. In Starr Underwriting Agency, Inc. v. S A S Services Group, Inc., No. 2:21-cv-02622-CAS(JPRx), United States District Court, C.D. California (September 20, 2021).

INTRODUCTION

S A S was served with the operative complaint and a copy of the summons by personal service (“Proof of Service”) was submitted to the court. Defendant S A S did not answer nor otherwise respond to plaintiffs complaint.

Thereafter Starr requested the Clerk of Court to enter default against S A S. The Clerk entered default.

Starr, thereafter, filed a motion for default judgment by the Court. Starr served S A S and filed a notice of non-opposition to the plaintiffs motion for default judgment by the Court.

BACKGROUND

Starr is an insurance agency that acts as the servicer for Pacific Indemnity Company on certain insurance policies. Starr alleged that S A S is incorporated in the State of California with its principal place of business in El Segundo, California. Starr alleged that at the request of defendant S A S, Starr issued a workers’ compensation policy, (“WC policy”) which covered the time period from January 15, 2018 to January 15, 2019. The WC policy is an insurance contract in which Starr, as the servicer for Pacific Indemnity, provides insurance coverage for S A S in exchange for payment of premiums.

The estimated payroll for the WC policy term was $11,551,500.00. Starr performed an audit of S A S’s books as related to the WC policy. Based on the results of the audit’s findings, Starr revised the audit of the WC policy and determined the actual payroll was $19,683,797.00. The difference between the estimated and actual payroll led to an increase in the insurance premium and surcharges of $349,123.00 ($9,689.00 state surcharges plus $339,443.00 premium). Payment of the revised audit was due no later than October 31, 2020. Defendant has failed to remit payment of the balance owed to plaintiff pursuant to the terms of the WC policy.

DISCUSSION

Starr has satisfied the procedural requirement for entry of default judgment under the Federal and Local Rules, and the Court proceeds to the merits of its motion.

Risk of Prejudice to Plaintiff

S A S has not participated in the action to date, and Starr will therefore be prejudiced if default judgment is not entered in its favor.

Sufficiency of the Complaint and the Likelihood of Success on the Merits

For the purposes of default judgment, all well-pleaded allegations in the complaint, except those relating to damages, are assumed to be true. To prevail on a claim for breach of contract under California law, a plaintiff must establish:

  1. the existence of the contract,
  2. plaintiffs performance or excuse for nonperformance,
  3. defendant’s breach, and
  4. the resulting damages to the plaintiff.

Plaintiff sufficiently alleged the elements of a breach of contract claim. Moreover, plaintiff alleges that it has fulfilled its contractual obligations by providing insurance coverage afforded by the WC policy. By providing insurance to S A S, plaintiff had demonstrated performance under the contract. Finally, by failing to remit payment of the cost of the final premium based on the results of the audit, defendant has breached the contract. Plaintiff alleged that S A S’s breach has caused plaintiff to suffer damages including a balance owed on the WC policy of $349,132.00.

Sum of Money at Stake in the Action

If the sum of money at issue is reasonably proportionate to the harm caused by the defendant’s actions, then default judgment is warranted.

The total amount plaintiff seeks to recover is $377,145.62, plus post-judgment interest. The Court observed that the damages alleged by plaintiff are a straightforward computation of damages owed by defendant based on the contract. Therefore, the amount at stake appeared appropriate given the nature of the misconduct alleged.

Possibility of a Dispute Concerning a Material Fact

Starr filed a well-pleaded complaint alleging the facts necessary to establish its claims, and the court clerk entered default against S A S. Accordingly, no dispute has been raised regarding the material averment of the complaint, and the likelihood that any genuine issue may exist is, at best, remote.

Possibility of Excusable Neglect

Here, the possibility of excusable neglect is remote. Where a defendant is properly served with the Complaint, the notice of entry of default, as well as the papers in support of the instant motion, there is little possibility of excusable neglect.

Policy Favoring Decisions on the Merits

A party’s failure to answer or appear makes a decision on the merits impractical, if not impossible. Notwithstanding the strong policy presumption in favor of a decision on the merits, where a defendant’s failure to appear and respond makes a decision on the merits impractical, if not impossible, default judgment is appropriate. Thus, S A S’s failure to appear or otherwise respond makes a decision on the merits in this case impractical, if not impossible.

Relief Sought by Plaintiffs

The general rule of law is that upon default the factual allegations of the complaint, except those relating to the amount of damages, will be taken as true. Moreover, the movant seeking default judgment must prove the damages sought, and although the Court may hold an evidentiary hearing to determine the amount of damages, no hearing is necessary if the amount of damages can be determined from definite figures contained in the documentary evidence or in detailed affidavits.

CONCLUSION

The Court granted plaintiffs motion for default judgment. The Court ordered that judgment be entered against defendant, and that defendant shall be liable to plaintiff in the amount of $349, 132.00 plus $465.67 in costs plus $27,547.95 in prejudgment interest, along with an additional $95.65 per day until default judgement is entered and post-judgment interest.

ZALMA OPINION

When a defendant fails to respond to a suit seeking damages he, she or it basically admits the allegations of the complaint. Courts, when asked to enter a judgment on default, even when it is as obvious was the failure of S A S to pay the premium it promised to pay when it acquired the workers’ compensation policy, are wary of default judgments. Starr, to collect, was required to jump through multiple hoops to get the demand of the complaint and the damages requested. S A S probably hoped it would be too difficult to get a judgment and saved the attorneys fees to fight a suit that it clearly owed. Insurers, like those represented by Starr should never allow a premium default to go by the wayside.


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at https://www.rumble.com/zalma ; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

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The False Claims Act and Qui Tam Actions

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A Video Explaining the False Claims Act and How Insurers Can Take Advantage of it to Deter Fraud

See the full video at https://www.rumble.com/zalma and at https://youtu.be/J2UXvt64pRU

The False Claims Act, also known as the “Lincoln Law,” dates back to the Civil War. President Lincoln signed the act into law in 1863 because war profiteers were selling the Union Army shoddy supplies at inflated prices. The original law included qui tam [“Qui tam” is an abbreviation of the Latin phrase “qui tam pro domino rege quam pro si ipso in hac parte sequitur” meaning “Who sues on behalf of the King as well as for himself.”  There are a number of pronunciations of the Latin abbreviation qui tam.  The simplest is key tam (rhymes with “ham.”) Black’s Law Dictionary suggests kweye (rhymes with “eye”) tam.provisions that allowed a private person (plaintiff) to sue those who defrauded the federal government. If the suit was successful the plaintiff would receive 50% of any recovery from the defendant.]

The qui tam provisions were weakened greatly as a result of congressional amendments in 1943, and qui tam legislation became virtually nonexistent. However, in 1986, Sen. Charles Grassley, R–Iowa, and Rep. Howard Berman, D Calif., joined forces to amend the law and strengthen the incentives for citizens to uncover and fight fraud as qui tam relators. (Relators are the private plaintiffs under the False Claims Act).

The 1986 False Claims Act amendments received widespread bi-partisan support, and were signed into law by President Reagan. Since the revitalization, the qui tam provisions have increasingly been used.

If the government does intervene, it assumes primary responsibility for the prosecution of the case, and is not bound by any act of the relator. 31 U.S.C. § 3730(c)(1). The relator remains as a party to the action, however, subject to certain limitations set forth in the Act. Id. Specifically, the government may dismiss the action notwithstanding the objections of the relator, provided, however, that “the person has been notified by the Government of the filing of the motion and the court has provided the person with an opportunity for a hearing on the motion.” [31 U.S.C. § 3730(c)(2)(A).; U.S. ex rel. Atkins v. EEOC, 1993 U.S. Dist. LEXIS 21268.]

Since the qui tam provisions were added to the Act in 1986, the US Department of Justice calculates that the government has recovered more than $1.09 billion in qui tam cases, with whistleblowers receiving nearly 18% (or $184 million) of the government’s recovery. When considering a qui tam action be certain, however, that the authorizing statute authorizes the action.

ZALMA OPINION

Insurance fraud is ever growing with estimates from $80 billion to $300 billion a year. The Qui Tam suit is a method to deter insurance fraud by hitting the fraud perpetrator in the pocket book and deter the crime when the state or federal government refuses to file criminal actions.

 


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at https://www.rumble.com/zalma ; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

 

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Insurers Beware: A Chink in the Armor of New York v. Sullivan

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Actual Malice in Republication of Defamation by Implication

Devin Nunes, a Member of Congress from California, appealed an order of the district court dismissing his complaint alleging defamation and conspiracy claims against Ryan Lizza and Hearst Magazine Media, Inc. The claims are based on an article published in Esquire magazine and republished after suit was filed claiming the article was false and defamatory. In Devin G. Nunes v. Ryan Lizza, Hearst Magazine Media, Inc., No. 20-2710, United States Court of Appeals, Eighth Circuit (September 15, 2021) Nunes established the complaint sufficiently alleged defamation by implication and that the defamation was actually malicious.

FACTS

Representative Nunes has been a Member of Congress since 2003. He worked on his family’s farm in California as a child, and later owned farmland with his brother. In 2006, the Nunes family sold its farmland in California, and the Congressman’s parents and brother moved to Sibley, Iowa, where his father purchased a dairy farm, NuStar Farms. According to the complaint, the farm is operated by the Congressman’s family without his involvement, and the Congressman has no financial interest in the farm.

On September 30, 2018, Esquire magazine (then owned by Hearst) published an article about Representative Nunes and the farm. Lizza authored the piece. The online version is entitled “Devin Nunes’s Family Farm Is Hiding a Politically Explosive Secret.” The print version is entitled “Milking the System,” and includes a caption that asks two questions about a Congressman who has “spun himself as a straight talker whose no-BS values are rooted in his family’s California dairy farm”: “So why did his parents and brother cover their tracks after quietly moving the farm to Iowa? Are they hiding something politically explosive?”

The article maintains that Representative Nunes and his family hid the fact that the family farm is now in Iowa and declares it “strange . . . that the family has apparently tried to conceal the move from the public-for more than a decade.”

The article later asserts that the farm uses undocumented labor: “According to two sources with firsthand knowledge, NuStar did indeed rely, at least in part, on undocumented labor. One source . . . had personally sent undocumented workers to Anthony Nunes Jr.’s farm for jobs” and “assert[ed] that the farm was aware of their status.”

Two statements insinuate that the farm’s use of undocumented labor is the reason that Representative Nunes and his family were hiding the family’s move and their operation of an Iowa dairy farm. The article also accuses Representative Nunes of improper conduct during his tenure as Chairman of the House Intelligence Committee. The article says that he used his chairmanship (1) “to spin a baroque theory about alleged surveillance of the Trump campaign that began with a made-up Trump tweet about how ‘Obama had my “wires tapped” in Trump Tower, ‘” and (2) as a “battering ram to discredit the Russia investigation and protect Donald Trump at all costs, even if it means shredding his own reputation and the independence of the historically nonpartisan committee in the process.”

After the article was published, Nunes sued Lizza and Hearst in the district court, alleging common-law defamation and conspiracy. The complaint, as amended, claims express defamation based on eleven alleged false statements in the article, and defamation by implication. The alleged defamatory implication is that the article implies falsely that Representative Nunes “conspired or colluded with his family and with others to hide or cover-up” that the farm “employs undocumented labor.”

The trial court dismissed the complaint and Nunes appealed the dismissal. Nunes contended that his complaint states a claim for express defamation and defamation by implication. Defamation is an invasion of the interest in reputation and good name that is comprised of the twin torts of libel and slander-the former being written and the latter being oral. Nunes’s complaint sounds in libel.

Because Representative Nunes is a public figure, the Supreme Court’s jurisprudence on the First Amendment also requires him to prove by clear and convincing evidence that the defamatory statement is false and was made with actual malice. [Harte-Hanks Commc’ns, Inc. v. Connaughton, 491 U.S. 657, 659 (1989); N.Y. Times Co. v. Sullivan, 376 U.S. 254, 279-80 (1964).]

A claim asserting defamation by implication requires proof of similar elements, except that a plaintiff need not show that individual statements are defamatory. The implication constitutes defamation even though the particular facts are correct, unless it qualifies as an “opinion.”

The Eighth Circuit agreed with the district court that the complaint fails to state a claim for express defamation based on the statements, and adopted the court’s conclusions. Nunes contended that his complaint states a plausible claim for defamation by implication. It is well settled that the arrangement and phrasing of apparently nonlibelous statements cannot hide the existence of a defamatory meaning when a reader could reasonably arrive at the implication, the author may be accountable.

Here, the article’s principal theme is that Nunes and his family hid the farm’s move to Iowa-the politically explosive secret.

A conspiracy is an agreement that requires knowledge-here, knowledge that the farm employed undocumented labor-and a knowing agreement to cover up that politically embarrassing fact. Whether Nunes knew about the farm’s hiring practices, including the potential use of undocumented labor, and whether he agreed with others to keep that information secret, are issues of verifiable fact. The implication is “sufficiently factual to be susceptible of being proved true or false,” so it is not a protected opinion.

To demonstrate that a defendant intended subjectively an implication, it is sufficient to show that the particular manner or language in which the true facts are conveyed, supplies affirmative evidence suggesting that the defendant intends or endorses the defamatory inference. The Eighth Circuit found that Nunes plausibly alleged that Lizza and Hearst intended or endorsed the implication that Nunes conspired to cover up the farm’s use of undocumented labor.

The next issue for consideration is “actual malice.” The Supreme Court’s interpretation of the First Amendment requires a public official to prove that defamatory statements or implications are made with “actual malice,” meaning with knowledge that it was false or with reckless disregard of whether it was false or not.. In this context, reckless conduct is not measured by whether a reasonably prudent man would have published. Instead, the defendant must have made the false publication with a high degree of awareness of probable falsity, or must have entertained serious doubts as to the truth of his publication.

Under the demanding standard set by the New York Times case, the Eighth Circuit agreed with the district court that the complaint is insufficient to state a claim of actual malice as to the original publication.

There is a distinction in defamation law between an original publication and a republication. In that situation, the publication reaches a new group and the repetition justifies a new cause of action. The justification for this exception to the “single publication” rule is that the subsequent publication is intended to and actually reaches a new audience. A speaker who repeats a defamatory statement or implication after being informed of its falsity “does so at the peril of generating an inference of actual malice.” Bertrand v. Mullin, 846 N.W.2d 884, 901 (Iowa 2014). Once the publisher knows that the story is erroneous the argument for weighting the scales on the side of its first amendment interests becomes less compelling.

Nunes’s initial complaint was filed on September 30, 2019. The complaint denied that Nunes had any involvement in the farm’s “operations,” denied that there was a “secret” involving the farm’s move to Iowa and his alleged hypocrisy on immigration policy, and denied that he “was involved in, covered-up, . . . conspired with others to conceal, or was aware of criminal wrongdoing.”

Nonetheless, on November 20, 2019, Lizza posted a tweet with a link to the article. The complaint plausibly alleges that the article defames Nunes by implication. The complaint  adequately alleges that Lizza intended to reach and actually reached a new audience by publishing a tweet about Nunes and a link to the article. In November 2019, Lizza was on notice of the article’s alleged defamatory implication by virtue of this lawsuit. Under those circumstances, the complaint sufficiently alleges that Lizza republished the article after he knew that the Congressman denied knowledge of undocumented labor on the farm or participation in any conspiracy to hide it.

Republication of a statement after the defendant has been notified that the plaintiff contends that it is false and defamatory may be treated as evidence of reckless disregard.  The Eighth Circuit remanded for further proceedings on Nunes’s claim alleging defamation by implication, and the related claim alleging a common-law conspiracy, as to the publication of November 20, 2019.

ZALMA OPINION

Insurers who insure against defamation and have relied on the “actual malice” requirement of defamation of a public figure, should read this decision with care. Although the Eighth Circuit refused to reconsider New York Times v. Sullivan it found actual malice in the republication and allows Nunes to go forward with his suit against Lizza and Hearst. Their insurers will be required to defend through trial and may find a claim for payment of damages. The issue may also reach the Supreme Court where some justices have discussed the need to reconsider the New York Times v. Sullilvan case.


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at https://www.rumble.com/zalma ; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

 

 

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Retaining an Attorney by a Claims Person

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A Video About Selecting and Working With Counsel

See the full video at https://www.rumble.com/zalma and https://youtu.be/dTu6XuH6vHs

In instances where insurance claims may entail litigation, insurers must move quickly to engage counsel. When an attorney is retained to defend a person insured, the fact should be documented in writing by the attorney, the adjuster, and the insured who is to be defended.

Before an insurer retains an attorney to represent an insured to defend an insured who has been sued for a tort the claims person should be certain the lawyer is competent to defend the insured. This can be accomplished by attending a trial conducted by the lawyer where the claims person can evaluate the lawyer’s competence at trial. If that option is not available the claims person should seek recommendations from other insurance claims professionals who have retained the lawyer in the past or the insurance company’s list of approved defense lawyers who have been evaluated by the insurer’s management.

If the attorney is being retained for the first time by the insurer, the insurer should obtain an engagement letter from the attorney setting forth the terms and conditions of the retention and signed by the attorney, the claims person, and the insured. If the attorney or law firm has an ongoing relationship with the insurer, only the person being defended need sign an engagement letter.

The claims person must understand that an engagement letter is an effective contract between the lawyer and the insurer. As a matter of law, there could not have been an implied contract between Plaintiffs and Gulley, personally. Because the Court has decided the implied contract issue as a matter of law based on undisputed facts, the issue of whether there is a factual dispute regarding the existence of an implied contract is moot. Like an insurance policy a lawyer’s engagement letter will be read as written if there is no ambiguity.

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

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

ZALMA OPINION

How to effectively retain a lawyer is important to everyone. It is essential to an insurance claims person who is called upon to retain a lawyer to represent the interests of a person or entity insured.


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at https://www.rumble.com/zalma ; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

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Man Bites Dog Story: State Farm Sues Chiropractors for Fraudulent Claims

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Insurers Frustrated by Lack of Prosecution for Insurance Fraud Proactively Sue Chiropractors they Claim Defrauded the Insurers

Insurers, victims of insurance fraud, see little or no prosecution of those who defraud them. State Farm, not willing to wait, proactively sued defendants James Marshall, D.C. and Marshall Chiropractic, LLC (collectively “Defendants”) for fraud. After discovery was completed the Chiropractors moved for summary judgment seeking dismissal of State Farm’s suit. In State Farm Guaranty Insurance Company, and State Farm Indemnity Company v. Marshall Chiropractic, LLC and James Marshall, D.C., Civil Action No. 20-1918 (MAH), United States District Court, D. New Jersey (September 17, 2021) the USDC was asked to dismiss because State Farm failed to file an  affidavit of Merit asserted against the chiropractors required of malpractice suits against health care providers. State Farm did not allege malpractice.

BACKGROUND

Plaintiffs are auto insurers who provide personal injury payment (“PIP”) coverage to their insureds. Defendant Marshall is a chiropractor licensed in the State of New Jersey and the owner of Defendant Marshall Chiropractic.

Plaintiffs sued the chiropractors asserting four causes of action: common law fraud; breach of the New Jersey Insurance Fraud Prevention Act; unjust enrichment; and declaratory relief. According to the Complaint, Defendants fraudulently acquired PIP payments from Plaintiffs by imposing a predetermined treatment protocol and subjecting State Farm-insured patients to “virtually the same laundry list of services on nearly every visit, ” rather than conducting an individualized assessment and creating a personalized treatment plan. Plaintiffs demanded reimbursement for PIP-benefit payments totaling “approximately $850,000.” They also sought treble damages, costs, and declaratory relief as redress for Defendants’ alleged misconduct.

Fifteen months after the initiation of the suit and over twelve months after filing their Answer, Defendants moved for summary judgment. They assert for the first time that Plaintiffs were required to file an affidavit of merit under New Jersey statutes.

DISCUSSION

Application of the New Jersey Affidavit of Merit Statute

Defendants argued that Plaintiffs were required to comply with the New Jersey Affidavit of Merit Statute because the Complaint contains allegations that Defendants “breach[ed] the applicable standard of care owed . . . to their patients in providing medical services.” Plaintiffs responded that their claims are outside the statute’s scope because they are not pursuing personal injury, wrongful death, or property damages, and they have not filed an action for malpractice or negligence.

The failure to provide an appropriate affidavit or a statement in lieu thereof shall be deemed a failure to state a cause of action and ordinarily requires dismissal of the complaint with prejudice. However, plaintiffs have not filed an action for malpractice or negligence.  The USDC concluded that claims seeking to recoup a finite sum previously paid, does not fall within the Affidavit of Merit Statute.

In this case, Plaintiffs sought to recover a sum that is substantially certain. Specifically, Plaintiffs seek the return of “more than $850,000 in PIP benefits” paid because of Defendants’ alleged scheme. Although Plaintiffs relatedly seek treble damages, declaratory relief, and costs, those potential damages do not change the Court’s analysis. The demands for repayment do not hinge upon a showing that Defendants committed professional malpractice. Accordingly, Plaintiffs’ allegations do not trigger the Affidavit of Merit Statute.

Defendants’ motion for summary judgment was denied.

ZALMA OPINION

State Farm, and other insurers, that proactively sue the persons and entities they believe are defrauding them have found that taking money from fraudsters is more effective than the rare prosecution by the state of the fraud perpetrators. As victims of fraud any insurer has the right to be indemnified from the fraudsters and, more importantly, take the profit out of the crime. Waiting for a state prosecutor – especially with some state prosecutors who are averse to even prosecuting serious criminal activities like assault, battery, and murder, it is time that all insurers – if their SIU develops evidence that they are being defrauded – should proactively file for damages under the state fraud statutes and the federal RICO statutes.


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at https://www.rumble.com/zalma ; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

 

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Evaluation and Settlement of Liability Claim

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A Video Explaining Evaluation & Settlement

See the full video at https://youtu.be/OV06h8SdKIU and at https://www.rumble.com/zalma

Case evaluation is necessary to the efficient operation of a third party liability claims department.

The evaluation should be completed as soon as reasonably practical after the completion of a thorough investigation. A quick resolution and payment of the claim will result in a lower amount of settlement with the claimant and lower expenses incurred by the insurer.

It should be the goal of every claims adjuster to pay the deserving claimant every dollar owed as soon as possible. This goal should be tempered by the need to preserve the assets of the insurer and the insured. It is axiomatic that a liability claim can be settled for less before suit is filed than after.

Settlement is favored by the law, and by insurers, claimants, and insureds. Every effort should be made to resolve the claim before litigation begins.

The adjuster must learn to quantify these damages in order to reasonably evaluate the exposure faced by the insured and, simultaneously, the insurer. Sources to help quantify this type of subjective damages include:

  • jury verdict research (publishers provide the adjuster with the historical and current values juries put on the same type of injury in the same jurisdiction);
  • the records of the insurer on the amounts paid to settle similar claims in the same jurisdiction;
  • the experience of the individual adjuster: his or her knowledge of the amounts needed to settle claims in his or her location; and
  • the experience of the mediator or settlement conference judge.

ZALMA OPINION

Every liability claims adjuster, defense lawyer and plaintiffs’ lawyer must understand how to evaluate a third party liability claim for bodily injuries or property damage or both is essential to the resolution of such claims and litigation. This video will help the professional to work to reach the careful evaluation and prompt resolution of liability claims.


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at https://www.rumble.com/zalma ; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

 

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Business Use Exclusion Is Reasonable and Common in a Homeowners Policy

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Warranty Statute Does Not Apply to an Exclusion

Steven Kutchera bought a homeowners policy from defendant State Farm Fire and Casualty Company. In 2020, Kutchera submitted a claim to State Farm under that policy, alleging that his garage collapsed because of the weight of ice and snow on the roof. State Farm denied the claim on the ground that Kutchera had been using the garage for business purposes, so it was excluded from coverage. In Steven Kutchera v. State Farm Fire And Casualty Company, No. 20-cv-930-jdp, United States District Court, W.D. Wisconsin (September 15, 2021) the USDC was asked to make an exclusion a warranty or an exclusion.

BACKGROUND

Kutchera concedes that he was using his garage to repair cars for money during the relevant policy period. But he contends that the damage to his garage was unrelated to any car repair work that he was doing, so State Farm was prohibited from denying coverage under Wis.Stat. § 631.11(3), which applies when there is “a failure of a condition” or a “breach of a promissory warranty.” State Farm contends that the business-use clause is an exclusion, not a warranty or a condition, so § 631.11(3) doesn’t apply.

Kutchera asserts claims for breach of contract, bad faith, and a violation of Wis.Stat. § 628.46 for untimely payment of an insurance claim. Both Kutchera and State Farm moved for summary judgement.

Kutchera purchased a homeowner’s policy with an off-premises structures endorsement, which would afford coverage for the garage. Kutchera began running an automobile service center out of the garage. He contacted State Farm to buy an insurance policy for the garage, but State Farm told him that it didn’t provide insurance for “automotive-type repair.” So Kutchera bought a business policy for “Kutchera LLC” from another insurance company, with an annual premium of $2,590.

Later, Kutchera cancelled his business policy. He contacted State Farm again, stating that he had “basically closed” the service center and needed insurance on the garage for “personal use.” His homeowner’s policy still included an off-premises structures endorsement, so no additional policy was needed.

State Farm’s homeowner’s policy included an off-premises structures endorsement with the following language: “This coverage does not apply to any structure: … (4) used either completely or in part for business purposes; …”

In January 2020, Kutchera reported to State Farm that the roof on his garage had collapsed as a result of the weight of accumulated ice and snow. A claim adjuster visited the garage and observed that there was a hydraulic car lift inside. But Kutchera told the adjuster that he closed the garage in 2017. State Farm later obtained tax records, invoices, and other records from Kutchera showing that he was still doing business out of the garage in 2018 and 2019. His ledger showed $22,179 in gross receipts for 2019, and most of that amount was for dates during the policy period. In May 2020, State Farm denied Kutchera’s claim because its investigation had revealed business use of the garage.

ANALYSIS

The portion of the policy at issue in this case is an endorsement for “other structures.” The endorsement includes the following clause: “This coverage does not apply to any structure . . . used either completely or in part for business purposes.”

The statute provides that is the basis of Kutchera’s argument states: “No failure of a condition prior to a loss and no breach of a promissory warranty constitutes grounds for rescission of, or affects an insurer’s obligations under, an insurance policy unless it exists at the time of the loss and either increases the risk at the time of the loss or contributes to the loss.”

The question presented to the court was whether the clause is a “condition” or a “promissory warranty” within the meaning of the statute, as Kutchera contends, or simply an exclusion, as State Farm contends.

The clause at issue is written as an exclusion: it states that the policy “does not apply” to structures used for business purposes.

There is little case law interpreting § 631.11(3), and the Wisconsin Supreme Court has indicated that the meaning of the terms hasn’t changed and is the same as their common-law meaning. In an insurance policy, an exclusion is a provision which eliminates coverage where, were it not for the exclusion, coverage would have existed. An exclusion limits the scope of coverage provided by the policy in the first place.

A promissory warranty is a statement made by the insured, which is susceptible of no construction other than that the parties mutually intended that the policy should not be binding unless such statement be literally true. It is clear that the clause relating to business use isn’t a statement by Kutchera that he won’t use his garage for business use. Rather, the clause is framed as an exclusion because it limits the scope of coverage takes out events otherwise included within the defined scope of coverage, and expressly refuses to assume a specific hazard or risk, namely a structure used for business purposes.

Black’s Law Dictionary says: “A warranty that facts will continue to be as stated throughout the policy period, such that a failure of the warranty provides the insurer with a defense to a claim under the policy.” That definition is consistent with and supports State Farm’s view. A business-pursuits exclusion, such as the one in this case, is a common exception to the broad coverage provided in homeowners and general liability insurance policies.

Kutchera’s position, if adopted by the court, would significantly change the law on business-use exclusions, requiring insurers in each instance to prove that the loss was related to the business use. In a situation like Kutchera’s, involving a structure that had both personal and business uses, determining which use contributed to the loss could turn into an expensive and time-consuming investigation.

Taken to its logical conclusion, Kutchera’s view would permit an insured to use a homeowner’s insurance policy to obtain coverage for a structure that was used entirely for business purposes, so long as any damage to the property was unrelated to the business use, such as a tree falling on the structure.

The USDC noted that Kutchera raised interesting questions but his view isn’t supported by Wisconsin law and would significantly change the scope and application of business-use exclusions in Wisconsin. Therefore, the court granted State Farm’s motion for summary judgment on the breach-of-contract claim. As for Kutchera’s other claims, both are contingent on the success of his breach-of-contract claim. A bad-faith claim requires the plaintiff to show that there is no reasonable basis for the insurer to deny the insured’s claim for benefits under the policy.

The court granted State Farm’s motion for summary judgment and denied Kutchera’s. The clause at issue is written as an exclusion, not a warranty or a condition. Kutchera’s other arguments challenging the scope and validity of the business-use clause also fail. Accordingly, State Farm is entitled to summary judgment on the breach-of-contract claim. Kutchera’s other claims are contingent on the success of his contract claim, so those claims fail as well.

ZALMA OPINION

Kutchera knew exactly what he was doing. He had purchased business insurance to cover the garage and paid a hefty premium for the coverage. He cancelled that policy and told State Farm that he had stopped doing business at the garage. In so doing he misrepresented the use of the garage to State Farm who discovered the lies during its investigation. Because there was clearly no coverage Kutchera tried to use a statute to make coverage that didn’t exist. He should have told the truth and kept the business coverage.


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at https://www.rumble.com/zalma ; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

 

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Some Appellate Cases Establishing the Tort of Bad Faith

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A Video About the Birth & Growth of the Tort of Bad Faith

See the full video at https://rumble.com/zalma and at https://youtu.be/RMk_et9UDZ4

Fletcher v. Western Life

In Fletcher v. Western Life Ins. Co., 10 Cal. App. 3d 376, 89 Cal. Rptr. 78 (1970), the plaintiff, Fletcher was, at the time of trial, a 41-year-old father of 8 children, seven of whom were still in school.

Defendants’ conduct was premeditated, continuous and persistent (citation) and defendant Amason, who was still employed as Western National’s claims manager at the time of trial, indicated that he would conduct himself similarly if a similar situation should again arise. The primary function of punitive damages is to deter the defendant and those similarly situated from engaging in similar tortuous conduct in the future.

Gruenberg v. Aetna

It is manifest that a common legal principal underlies all of the foregoing decisions; namely, that in every insurance contract there is an implied covenant of good faith and fair dealing. The duty to so act is imminent in the contract whether the company is attending to the claims of third persons against the insured or the claims of the insured itself. Accordingly, when the insurer unreasonably and in bad faith withholds payment of the claim of its insured, it is subject to liability in tort.

“We conclude, therefore, that the duty of good faith and fair dealing on the part of defendant insurance companies is an absolute one. At the same time, we do not say that the parties cannot define, by the terms of the contract, their respective obligations and duties. We say merely that no matter how those duties are stated, the nonperformance by one party of its contractual duties cannot excuse a breach of the duty of good faith and fair dealing by the other party while the contract between them is in effect and not rescinded.”

Silverg v. California Life

under these circumstances defendant’s failure to afford relief to its insured against the very eventuality insured against by the policy amounts to a violation as a matter of law of its duty of good faith and fair dealing implied in every policy. 11 Cal. 3d at 462. (Emphasis added.)

ZALMA OPINION

An insurer should never leave the insured without benefits while it is involved in a dispute with another insurer or provider of benefits. It should, rather, protect its right to dispute coverage and get its money back by means of a reservation of rights letter or a non-waiver agreement. The reservation of rights letter keeps the insurer, while it is taking care of an insured whose coverage is in question, from being bound to the insured forever. It allows the insurer, unilaterally, to give itself the opportunity to complete a thorough investigation, determine whether coverage applies, and then—if it does not apply—withdraw its benefits and even seek return of what it has paid. The non-waiver agreement is a contract where both the insured and the insurer agree that while the insurer is investigating neither party waives the rights available under the contract.


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at https://www.rumble.com/zalma ; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

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Cancellation Rule Requires Contradictory Evidence to be Ignored

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It’s Not Nice to Lie to Your Insurer

An insurance company sought a judgment that an automobile insurance policy issued to a mechanic does not provide coverage for an accident involving the mechanic. After examining the mechanic under oath, the insurance company moved for summary judgment, arguing that the policy contained a business purpose exclusion for accidents occurring while road testing a vehicle, which the mechanic stated he was doing at the time the accident occurred. In Tennessee Farmers Mutual Insurance Co. v. John A. Simmons et al., No. E2020-00791-COA-R3-CV, Court of Appeals of Tennessee, Knoxville (September 14, 2021) the insurer asked that the Court of Appeal reverse based on the cancellation rule.

FACTUAL BACKGROUND

John Arthur Simmons (“Simmons”) worked as a diesel mechanic specializing in repairing vehicles and farming equipment that run on diesel engines. Jeremy Shipley (“Shipley”) brought his 2005 Ford F-250 diesel pick-up truck to Simmons for repairs after the truck’s oil pressure warning light came on. Three days later, on June 2, 2017, Simmons was involved in an automobile accident while driving Shipley’s truck (“the Accident”).

Celeste Miller and her husband, Robert Miller, sued Simmons, Shipley, and Shipley’s wife, Stephanie Shipley, seeking compensation for personal injuries and property damage, alleging that Simmons negligently rear-ended the vehicle driven by Mrs. Miller while operating the truck for the purpose of “mechanical evaluation” with permission from the Shipleys.

Tennessee Farmers Mutual Insurance Company (“Farmers”) had issued an automobile insurance policy to Simmons that was in effect on the date of the Accident. The policy contained a “business purpose” exclusion, which states: “We do not provide liability coverage . . . for any person or entity while employed or otherwise engaged in the business or occupation of selling, repairing, servicing, storing or parking vehicles designed for use mainly on public highways, including road testing and delivery.”

On March 16, 2018, after receiving notice of the lawsuit filed by the Millers, Farmers conducted an examination under oath (“EUO”) of Simmons as part of its investigation of the facts alleged by the Millers concerning the Accident. At the EUO Simmons and his wife both testified he was test driving the pickup to help in its repair.

Farmers filed a Complaint for Declaratory Judgment in the trial court, seeking a declaration that the policy it had issued to Simmons did not provide coverage for the Accident pursuant to the policy’s business purpose exclusion. Farmers asserted that Simmons’ statements during the EUO indicated that he was operating Shipley’s truck “while engaged in his business and/or occupation of repairing and/or servicing vehicles.” Simmons responded denying that he was road testing the truck at the time of the Accident. He asserted that he was “simply running personal errands” and that he had permission to use Shipley’s truck until “Shipley got back in town and could arrange to pick up his vehicle.”

The case was tried by a jury on March 9, 2020. Farmers called Shipley and Simmons to the witness stand; Simmons did not call any witnesses. Shipley testified he had taken his diesel truck to Simmons’ Diesel at least twice before the Accident because he “trusted him more than [he] would a dealership.” Shipley acknowledged that he would not have had a problem with Simmons driving the truck as part of repairing the vehicle. Simmons testified that Simmons’ Diesel has been a licensed business in Loudon County for over ten years. He testified that Shipley was a repeat customer and that he had Shipley’s truck on the date of the Accident only because Shipley had “brought it to be repaired.” Simmons disputed that Shipley did not give him permission to use the truck for personal errands. He said Shipley told him that the truck “had a full tank of fuel, if I needed to drive it or wanted to drive it, I could.”

Simmons admitted that when he was asked during the EUO if he was “test driving [the truck] or road testing it on June 2nd,” he answered in the affirmative. He also acknowledged that when Shipley said to drive the truck, Shipley was “wanting to see if there’s anything else wrong with it.”

The case was considered by the jury, which found that the policy’s automobile business exclusion did not exclude coverage for the Accident. On March 20, 2020, the trial court entered its judgment on the jury’s verdict and ordered Farmers to provide Simmons with coverage for the Accident.

Farmers moved for judgment in its favor notwithstanding the jury’s verdict because:

  1. that the trial court erred in failing to apply the cancellation rule and allowing Simmons to contradict his own prior sworn testimony;
  2. that the weight of the evidence preponderated against the jury’s verdict that the automobile business exclusion did not apply; and
  3. that the trial court erred in allowing Simmons to introduce evidence of an insurance agent’s potential fault when comparative fault had not been alleged as an affirmative defense.

The trial court denied Farmers’ motion. The trial court found that the weight of the evidence supported the verdict.

DISCUSSION

Under the cancellation rule, when a witness makes contradictory statements on the same question of fact, the statements cancel each other and, therefore, do not amount to evidence of the fact. The Tennessee Court of Appeal has observed that no sensible decision holds that a witness’s testimony on a fact is automatically discounted simply because the witness contradicted himself or herself on that fact. Rather, the court assesses whether there is an explanation for the inconsistency and whether either version is corroborated by other evidence.

The question is not one of the credibility of a witness or of the weight of evidence; but it is whether there is any evidence at all to prove the fact. If the proof of a fact lies wholly with one witness, and he both affirms and denies it, and there is no explanation, it cannot stand otherwise than unproven. It would be mere caprice in a jury upon such evidence to decide it either way.

Upon a careful review of the record, we find that Simmons’ statements are both contradictory and mutually exclusive. Simmons’ assertions at trial directly contradict his prior sworn statements during the EUO that he was “test driving [the truck] or road testing it to see if there were any other problems that might need to be addressed” because Shipley “wanted to make sure it was fixed.”

Before Farmers filed this declaratory action, Simmons had stated during the EUO that he was test driving the truck because Shipley wanted him to make certain it was fixed, and he never made any mention of running personal errands. At trial, Simmons added that the repair was completed on May 30, 2017, and that he was driving the truck at the time of the Accident to run personal errands. Given the circumstances and statements surrounding Simmons’ contradictory statements, the Court of Appeal concluded that Simmons’ competing accounts of the reason for using Shipley’s truck at the time of the Accident cannot be reconciled.

Therefore, the Court of Appeal concluded that the trial court should have applied the cancellation rule to Simmons’ testimony. When the rule is applied, the only remaining evidence supports but one conclusion: that Simmons was driving the truck for business purposes.

After applying the cancellation rule, the evidence in the record only supports the conclusion that Simmons was test driving the truck. Consequently, the trial court should have directed a verdict declaring that the automobile insurance policy Farmers issued to Simmons provides no coverage for the Accident pursuant to the policy’s business purpose exclusion. As a result the Court of Appeal remanded the case to the trial court for the entry of a verdict in favor of Tennessee Farmers Mutual Insurance Company.

ZALMA OPINION

The covenant of good faith and fair dealing requires that neither party do anything to deprive the other of the benefits of the contract. Simmons attempted to deprive Farmers of its right to exclude coverage while he was test driving the vehicle involved in the accident by changing his sworn testimony at trial from the sworn testimony at EUO. Since the two statements were contradictory they fell afoul of the cancellation rule and should have been ignored by the trial court and the jury. They were not and the judgment was reversed in favor of the insurer. What the court did not consider was that one of his sworn statements was false, sufficient grounds to deny the claim and void the policy.


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at https://www.rumble.com/zalma ; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

 

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How to Enforce Public Adjuster Ethics

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A Video Explaining the Need for Ethical Public Adjusters

See the full video at https://www.rumble.com/zalma at https://youtu.be/z91etOoeWYM

Public Adjusters are claims professionals who are employed exclusively by a policyholder who has sustained an insured first party property loss. The public adjuster handles every detail of the claim, working closely with the insured to provide the most equitable and prompt settlement possible.

The conduct of the public adjuster is governed, in most states, by statute. For example, the state of California uses the following statutes to regulate the business of a public insurance adjuster starting at §§ 15000 et seq of the Insurance Code and presented in full in Appendix 1. As a licensing statute, it attempts to require a public insurance adjuster to act ethically and in good faith on behalf of his or her client.

To perform the duties imposed upon a public adjuster to properly represent an insured should inspect the loss site immediately, analyze the damages, assemble claim support data, review the insured’s coverage, determine current replacement costs and exclusively serve the client, not the insurance company while working ethically with the insurer’s adjuster.

The National Association of Public Insurance Adjusters (NAPIA) publishes a code of conduct which sets forth the ethical standards that all public insurance adjusters should follow. It provides:

The public adjuster should not engage in the unauthorized practice of law, not engage in activities that may be construed as presenting a conflict of interest or obtaining a financial interest in salvaged property that is the subject of a claim, nor should the public adjuster use advertisements that violate the Insurance Code. The public adjuster must use contract forms that are approved by the commissioner.

An example of less than appropriate action by a public insurance adjuster and the lawyer who represented the same client, involved a claim for the 1994 Northridge earthquake that resulted in claims of multiple wrongful claims handling. The 1994 Northridge, California earthquake caused billions of dollars in damages across Southern California.

Zalma Opinion

Public adjusters perform an important service to busy professionals who simply do not have the time or skill to deal with a first party property claim. By agreeing to pay the public adjuster a portion of the claim payment the policyholder understands that after the fee is paid the payment by the insurer will not be enough to complete repair and will take the cost as an expense worthy to save the insured the time needed to deal with the insurer. An ethical public adjuster will resolve a claim quickly and fairly. An unethical public adjuster will not. It is imperative that state regulators enforce the requirement that public adjusters comply with state law and ethically work to resolve claims.


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at https://www.rumble.com/zalma ; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

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Claims Made Policies are Very Different from Occurrence Policies

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Insured Who Settled Suit Without Insurer’s Consent Lost Indemnity Coverage

Benecard Services, Inc. is a company that manages prescription drug benefit plans. In 2015, it was sued by its onetime business partner, another company that sponsors such plans under Medicare Part D. The lawsuit included claims for breach of contract and fraudulent misrepresentation. In 2016, the lawsuit settled. In Benecard Services, Inc. v. Allied World Specialty Insurance Company, f/k/a Darwin National Assurance Company; Atlantic Specialty Insurance Company; Rsui Indemnity Company; Travelers Property Casualty Company Of America; Ace Property & Casualty Insurance Company, Allied World Assurance Company (US) Inc v. Benecard Services, Inc., Nos. 20-2359, 20-2360, United States Court of Appeals, Third Circuit (September 8, 2021) it sought  coverage for its defense and settlement costs under various business insurance policies it held. Denials of coverage, and then litigation, followed. In 2020, the District Court granted summary judgment to the insurers in both cases composing this litigation-one case involving Benecard’s directors and officers liability and general liability policies, and another involving its errors and omissions liability policy.

CHALLENGES

Benecard challenged the District Court’s grant of summary judgment to its errors and omissions insurer, Allied World Specialty Insurance Company. Allied World paid Benecard’s defense costs to the tune of $3.8 million, but declined to indemnify any portion of the settlement because Benecard settled the underlying lawsuit against it without obtaining Allied World’s prior written consent – an express condition of coverage under the policy’s consent clause.

The trial Court merely pointed to the policy’s plain language, which links exhaustion to “payment” by the insurer-rather than accrual by the insured-of defense costs. The Court then referred to the undisputed facts and concluded that Benecard did not exhaust its coverage limit. That conclusion is amply supported by Benecard’s express admission that Allied World paid defense counsel only $3.8 million – rather than its limits of $5 million.

Benecard then tried to claim that New Jersey’s appreciable prejudice doctrine applies to its claims made policies. The trial court disagreed and noted that the appreciable prejudice doctrine only applied to “occurrence” policies.  The Third Circuit agreed that the doctrine has no application whatsoever to a “claims made” policy that fulfills the reasonable expectations of the insured with respect to the scope of coverage. That is because “claims made” policies are generally held by knowledgeable insureds, purchasing their insurance requirements through sophisticated brokers. Benecard’s errors and omissions policy is a “claims made” policy.

The consent clause is a clear term of Benecard’s claims made policy. Accordingly, Allied World need not show appreciable prejudice to enforce it.

Benecard also argued that Allied World operated with less than candor and engaged in “gotcha” claims handling, because it knew Benecard was considering (and then actively negotiating) settlement, yet it failed to remind Benecard of the E&O Policy’s Consent Clause when it was a clear and unambiguous condition of the policy. Although Allied World was informed that settlement negotiations were a possibility just five to six weeks before the settlement was consummated. There was no evidence that Allied World led Benecard to believe the consent clause had been satisfied.

Benecard also failed to show that the District Court erred in granting summary judgment to Allied World in the errors and omissions action. The operative policy’s consent clause states that “[n]o coverage is available under this Policy for . . . any settlements or settlement offers made[] without [Allied World’s] prior written consent.” It is undisputed that Benecard failed to obtain that consent. Accordingly, the District Court correctly concluded that Allied World is not required to indemnify the settlement.

Benecard next challenged the District Court’s grant of summary judgment to Allied World in the action involving its directors and officers liability policy. There, the Court held that Benecard’s claim fell within that policy’s “Third Party” and “Professional Services” exclusions. The Third Circuit concluded that coverage exclusions in insurance policies are presumptively valid and are enforced if they are specific, plain, clear, prominent, and not contrary to public policy. The exclusions at issue meet this standard. The “Third Party” exclusion unambiguously barred coverage for claims involving, among other things, “alleged . . . misleading statement[s] or breach[es] of duty in connection with the rendering of . . . services to a third party.” The “Professional Services” exclusion likewise unambiguously bars coverage “relating to the rendering [of] or failure to render any professional services.” These exclusions sweep broadly and overlap to some degree, with one another and with a third exclusion Benecard mentions.  But there is nothing unclear or uncertain about their language.

Benecard argues that enforcing the exclusions as written renders coverage illusory, and that the policy should instead be interpreted to honor Benecard’s objectively reasonable expectations. Coverage was not illusory because the exclusions leave intact the policy’s coverage for breaches of duty by company executives acting in their executive capacity-the typical domain of directors and officers liability insurance. The exclusions were, therefore, enforceable as written.

Benecard also challenged the District Court’s grant of summary judgment to another of its directors and officers liability insurers, Atlantic Specialty Insurance Company. The Court concluded that Benecard’s policy with Atlantic Specialty provided no coverage for the underlying lawsuit against Benecard, because that suit falls within the policy’s exclusion for “Managed Care Activities.” The District Court correctly concluded that the exclusion “unambiguously” bars coverage for Benecard’s claim.

Benecard next challenged the District Court’s summary judgment for Travelers Property Casualty Company of America, again in the directors and officers action. New Jersey law provides that if the terms of an insurance policy are clear, courts should interpret the policy as written and did so affirming the denial by Travelers.

Lastly, Benecard argued that the District Court erred in ruling that it could not maintain bad faith claims against the insurers absent a finding of coverage. Under New Jersey law, a claimant who could not have established as a matter of law a right to summary judgment on the substantive coverage claim would not be entitled to assert a claim for an insurer’s bad-faith refusal to pay the claim.

Likewise for bad faith claims premised on alleged processing delays, the test is essentially the same. Such bad faith claims are viable only when the substantive claim for coverage is “valid” and “uncontested.” Here, however, Benecard could not establish a right to coverage. Additionally, Benecard’s citation to the New Jersey Unfair Claim Settlement Practices Act were unavailing, because that statute does not create a private right of action.

ZALMA OPINION

Insurance protects the insureds against many risks of loss – not every possible loss. It is the duty of the insured to prove that the loss was due to a peril insured against and that it fulfilled the terms and conditions of the policy. One of those conditions required that the insurer consent to any settlement. Since Benecard effected a settlement without requesting the consent of the insurer, it breached the contract condition and was not entitled to any benefits. Its other claims of coverage against three different insurers were not viable and it must now use its own funds to pay the settlement. It is imperative that every insured read, understand and apply the terms and conditions of the policy and act fairly and in good faith in its dealings with its insurers. Failure to do so in this case was very expensive to Benecard.


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at https://www.rumble.com/zalma ; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

 

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Ethical Behavior and Success

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A Video Explaining the Connection Between Ethics and Excellence in Claims 

See the full video at https://youtu.be/wIEuq6bta_U and at https://www.rumble.com/zalma

To understand the connection between ethics and quality service it is important to understand the meaning of ethical values in the insurance context.  The ethical insurer and its ethical claims and underwriting staff must treat the insureds and claimants with whom they come in contact honestly, fairly and with utmost good faith. The contact must reflect the highest integrity, respect and empathy for the people who need the service of the insurer.

Finally, the insurer must reflect a high level of trustworthiness, fairness; honesty and personal accountability. Vince Lombardi reportedly said

The quality of a person’s life is in direct proportion to their commitment to excellence, regardless of their chosen field of endeavor.

The statement applies equally to football – about which Lombardi was speaking – and insurance. Excellence in the organization depends on the high ethical values and excellence in keeping the promises made by an insurance policy by the insurer’s employees and officers.

Without excellence in those involved in the business of insurance; without excellence in claims handling; and without excellence in underwriting coupled with ethical behavior and conduct, an insurer will almost certainly fail. The insurer that demands excellence in claims handling and underwriting within the confines of ethical conduct and values will invariably succeed.

The professional insurance adjuster recognizes that the work of adjusting insurance claims is a profession of public trust. Independent insurance adjusters should maintain a standard of integrity that will promote the goal of building public confidence and trust in the insurance industry.

ZALMA OPINION

Every insurers needs, to be fair and profitable, a dedication to provide excellence in claims handling. This is accomplished by creating a staff of ethical insurance professionals who are ready and able to deal with those it insures, or those making claims against its insured, fairly, ethically and with the utmost good faith.


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at https://www.rumble.com/zalma ; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

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Void Exclusion Does not Void Entire Policy

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A Contractual Provision That Violates Public Policy Is Invalid, But Only To The Extent Of The Conflict Between The Stated Public Policy And The Contractual Provision.

Following an automobile accident in March 2016, appellant Dinora Dominquez sought insurance coverage from her insurer, Government Employees Insurance Company (“GEICO”). When GEICO denied Ms. Dominquez’s claim for coverage, she sued GEICO alleging breach of contract. GEICO moved for summary judgment, and the circuit court granted GEICO’s motion. In Dinora Dominquez v. Government Employees Insurance Company, No. 811-2020, Court of Special Appeals of Maryland (September 13, 2021) the Court of Special Appeals was asked to declare an exclusion in GEICO’s policy to violate public policy and reverse the trial court’s grant of summary judgment.

FACTS AND PROCEEDINGS

The facts were undisputed. On the morning of March 22, 2016, Ms. Dominquez was riding as a passenger in her adult daughter Elena Dominquez’s car. At approximately 6:05 a.m., an unknown person driving an unidentified vehicle struck the rear of Elena’s car. The vehicle then fled the scene before Elena or Ms. Dominquez could identify its driver. The collision caused Ms. Dominquez to suffer serious injuries.

At the time of the collision, Elena was living in Ms. Dominquez’s household, and Elena’s vehicle was insured by a GEICO insurance policy which provided uninsured motorist bodily injury coverage limits of $30,000 per individual and $60,000 per occurrence. Ms. Dominquez, however, was insured under a separate GEICO policy which she and her husband had purchased through GEICO to cover their own vehicle (the “GEICO Policy”). The GEICO Policy provided Ms. Dominquez (and her husband) single limits uninsured/underinsured coverage of $300,000 per individual and occurrence.

GEICO accepted the claim Ms. Dominquez made under Elena’s policy, but it denied Ms. Dominquez’s claim under her GEICO Policy. Ms. Dominquez sued GEICO alleging breach of contract based on GEICO’s denial of her claim for uninsured motorist coverage under her GEICO Policy. GEICO eventually moved for summary judgment, arguing that, as a matter of law, an exclusion contained in the GEICO Policy permitted it to deny Ms. Dominquez’s claim. The circuit court granted summary judgment in favor of GEICO.

DISCUSSION

Generally, appellate courts will only consider the grounds upon which the trial court granted summary judgment. There is an exception to this general rule, however, where an appellate court may affirm the trial court on a different ground so long as the trial court would have had no discretion to deny summary judgment on that ground.

  • A Maryland statute authorizes motor vehicle insurers to insert provisions into their policies that exclude certain claims from the policies’ otherwise mandatory uninsured motorist coverage;
  • An insurer [GEICO] attempted to insert such an exclusion into its policy, but the express terms of the exclusion were impermissibly broader than what the clear terms of [the] statute allow – thus sweeping into the exclusion’s ambit claims that the insurer could not lawfully exclude; and
  • A claim arose that the insurer could have excluded from coverage if its policy contained an exclusion that precisely tracked the statutory language.

Ms. Dominquez also conceded that, if the GEICO Policy had precisely tracked the statutory language that authorizes the exclusion, GEICO could have also lawfully denied her claim. Nevertheless, Ms. Dominquez argues that the GEICO Policy language is impermissibly broad in contravention of the statute, and claims that when an exclusion in an insurance policy is impermissibly broad, “the proper remedy for the Court” is to invalidate the exclusion ” in totality.”

Even assuming, as Ms. Dominquez alleges, the GEICO Policy is impermissibly broad, under settled Maryland law, it would only be invalid to the extent it conflicts with the statute. The statute which lies at the heart of this case, Md. Code (1995, 2017 Repl. Vol., 2020 Supp.), § 19-509(f)(1) of the Insurance Article (“Ins.”), provides:

(f) An insurer may exclude from the uninsured motorist coverage required by this section benefits for:

(1) the named insured or a family member of the named insured who resides in the named insured’s household for an injury that occurs when the named insured or family member is occupying or is struck as a pedestrian by an uninsured motor vehicle that is owned by the named insured or an immediate family member of the named insured who resides in the named insured’s household[.]

The purpose of this statute is to prevent a family from avoiding paying premium for UM/UIM coverage on all vehicles and being able to claim UM/UIM benefits from the first insurer even though no premium was paid to the first insurer for coverage of the other vehicles.

Regarding uninsured motorist coverage, the GEICO Policy provides, in relevant part: “We [GEICO] will pay damages for bodily injury and property damage caused by an accident which the insured is legally entitled to recover from the owner or operator of an uninsured motor vehicle arising out of the ownership, maintenance or use of that vehicle.” The GEICO Policy then lists several exclusions, or circumstances whereby it will decline to provide coverage. The relevant Exclusion here states that GEICO’s uninsured motorist coverage does not apply: “To bodily injury sustained by an insured while occupying a motor vehicle owned by an insured and not described in the Declarations and not covered by the Bodily Injury and Property Damage liability coverages of this policy.”

Ms. Dominquez acknowledged that her daughter Elena, who lived in her household at the time of the accident, also qualifies as an “insured” under the GEICO Policy, and that Elena’s vehicle was not described in the Declarations of the GEICO Policy. By virtue of the fact that Ms. Dominquez, an insured, sustained injuries while occupying a motor vehicle owned by another insured (her daughter Elena) which was not specifically covered under the GEICO Policy, the GEICO Policy allows GEICO to deny Ms. Dominquez coverage for the injuries she sustained in Elena’s vehicle.

“Maryland law is clear: when the contractual provision of an insurance policy conflicts with a stated public policy, the policy provision is invalid, but only to the extent of the conflict between the stated public policy and the contractual provision.” (emphasis added) A contractual provision that violates public policy is invalid, but only to the extent of the conflict between the stated public policy and the contractual provision.

Regardless of the type of exclusion at issue, Maryland appellate courts have consistently invalidated an exclusion only to the extent it contradicts established public policy.

In conclusion, assuming that the GEICO Policy exclusion is invalid because it excludes coverage where the injury occurs in any family member’s vehicle as opposed to only an immediate family member’s vehicle as provided by statute, the remedy would be to construe the exclusion to ensure that it complies with the statute. Here, that remedy would limit the exclusion to immediate family members as prescribed in the statute. Because Ms. Dominquez concedes that she could not recover uninsured motorist benefits from the GEICO Policy exclusion if it is construed to conform to the statute, and since it conformed to the statute, GEICO was entitled to summary judgment on Ms. Dominquez’s claim for benefits under the GEICO Policy.

ZALMA OPINION

Insureds often try to stack UM/UIM coverages that were not intended to be stacked – a means to cover serious injuries where the primary insurance is inadequate. Insurers, in accordance with state law, work to avoid the stacking because they did not collect appropriate premium for two or more policies paying claims for a single accident in a single insured automobile.


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

 

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Insurance Litigants Only Get One Bite of the Apple

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When Insured’s Assignee Loses in South Dakota He May Not Sue in Minnesota

Assignment of a Claim Where there is no Coverage is Valueless

After being seriously injured in a car accident in Worthington, Minnesota, appellant Alaaldeen Mussa sued the driver for negligence. When it became clear that the driver was unable to pay Mussa’s medical bills, Mussa instead sought satisfaction of his claim from the driver’s insurance provider, respondent Western Agriculture Insurance Company (Western Agriculture), in Minnesota district court. Western Agriculture then brought a declaratory-judgment action in South Dakota district court to determine whether there was coverage under the terms of the driver’s insurance policy. After a two-day trial, the South Dakota district court determined-and the South Dakota Supreme Court later affirmed- that the policy did not provide coverage. Unhappy with the result of his appeal to the South Dakota Supreme Court he tried to try his case again in Minnesota.

In Alaaldeen Mussa v. Western Agricultural Insurance Company, et al., No. A21-0099, Court of Appeals of Minnesota (September 13, 2021) the trial court concluded that having prevailed in South Dakota, Western Agriculture was entitled to have that judgment granted full faith and credit in Minnesota.

FACTS

In fall 2013, Altayeb Arbab-Azzein and appellant Alaaldeen Mussa, both South Dakota residents working in Minnesota, were involved in a car accident near Worthington, Minnesota. Arbab-Azzein had been driving Mussa and at least thirteen other coworkers to a manufacturing plant in Worthington when he crashed. Mussa suffered significant injuries and sued Arbab-Azzein in Minnesota district court for negligence. At the time of the accident, Arbab-Azzein was insured by respondent Western Agriculture. But after learning of the crash, Western Agriculture denied coverage.

Mussa and Arbab-Azzein entered into a Miller-Shugart agreement. [Miller v. Shugart, 316 N.W.2d 729 (Minn. 1982)]. In doing so, Arbab-Azzein stipulated to judgment in favor of Mussa in the amount of $1,500,000, and Mussa agreed to seek satisfaction of that judgment from Western Agriculture’s policy. After the agreement, Mussa then sued Western Agriculture in Minnesota district court for breach of contract, bad faith refusal to settle, and negligent procurement of insurance coverage.

Instead of proceeding in the Minnesota action Western Agriculture obtained a declaratory judgment against Arbab-Azzein and Mussa in South Dakota. Despite his pending Minnesota claim, Mussa appeared and fully participated in the South Dakota action. The South Dakota district court determined that Western Agriculture had no contractual obligation to defend or indemnify Arbab-Azzein for claims arising out of the motor vehicle accident. Mussa appealed this decision, but the South Dakota Supreme Court affirmed.

No further action was taken on Mussa’s Minnesota claim until March 2020 after the South Dakota Supreme Court ruled in favor of the insurer.

DECISION

Mussa’s central argument is that the district court erred by granting full faith and credit to the South Dakota judgment. Because the accident happened in Minnesota and the claim was brought in Minnesota district court, Mussa asserts that Minnesota law should apply. He further asked the appellate court to conclude that, applying Minnesota law, Western Agriculture is liable for satisfaction of the stipulated judgment in the amount of $1,500,000.

The district court did not err by granting full faith and credit to the South Dakota judgment.

Generally, “full faith and credit shall be given in each state to the public acts, records, and judicial proceedings of every other state.” U.S. Const. art. IV, § 1. A foreign judgment so filed has the same effect and is subject to the same procedures, defenses and proceedings for reopening, vacating, or staying as a judgment of a district court or the supreme court of this state, and may be enforced or satisfied in like manner. Exceptions to the grant of full faith and credit exist. A challenge to the enforceability of a foreign judgment cannot be used to collaterally attack that judgment on its merits. And, where the parties submitted to the jurisdiction of the original forum, the parties cannot subsequently challenge personal jurisdiction.

Mussa conceded that South Dakota had proper jurisdiction over the parties and the action and does not dispute that he had the opportunity to fully participate in that case.

Although both claims were ongoing, Mussa’s Minnesota district court claim remained dormant during the South Dakota proceedings.Since Mussa did not allege, and the record did not suggest, that the South Dakota courts lacked jurisdiction, or that the judgment was obtained fraudulently or was already satisfied, or that Mussa’s due-process rights were violated his arguments were inadequate and  the district court did not err by granting full faith and credit to the South Dakota judgment.

Res judicata and collateral estoppel preclude Mussa’s remaining arguments.

In his remaining claims, Mussa asserts that, under Minnesota law, Western Agriculture is liable for satisfaction of the judgment pursuant to the Miller-Shugart agreement reached by Arbab-Azzein and Mussa.

However, res judicata bars subsequent litigation of a claim when:

  1. the earlier claim involved the same set of factual circumstances;
  2. the earlier claim involved the same parties or their privies;
  3. there was a final judgment on the merits; and
  4. the estopped party had a full and fair opportunity to litigate the matter.

Res judicata applies to claims actually litigated and claims that could have been litigated in the earlier action. Collateral estoppel is narrower in scope and bars relitigation of a specific issue. A party is collaterally estopped from relitigating an issue when the issue is identical to one in a prior adjudication; there was a final judgment on the merits; the estopped party was a party or in privity with a party to the prior adjudication; and the estopped party had a full and fair opportunity to be heard on the issue.

Here, the South Dakota judgment involved the same factual circumstances at issue in Mussa’s Minnesota district court claim: Mussa, injured in a car accident, sought satisfaction of a stipulated judgment in the amount of $1,500,000 from Western Agriculture, the driver’s insurance provider. The precise issue was raised in both courts: whether Mussa was entitled to coverage under Arbab-Azzein’s insurance policy. The South Dakota judgment was final and was affirmed by the South Dakota Supreme Court.

Finally, Mussa had the opportunity to fully and fairly participate in the South Dakota litigation-even going so far as to appeal the judgment to the South Dakota Supreme Court. Because the elements of res judicata and collateral estoppel were met, Mussa was precluded from relitigating his claims concerning Western Agriculture’s liability in Minnesota district court.

ZALMA OPINION

A $1,500,000 stipulated judgment that became uncollectable resulted in the temptation to try a court in the scene of the accident. It failed because the assignee participated in the trial and eventual appeal in the Supreme Court of South Dakota. Mussa lost in a fully litigated and appellate honored case and lost again when he tried to bring the same action to another court. The Constitutional right requiring one state’s court to give full faith and credit to the judgment of a sister state is impossible to overcome. When a party loses a suit in one state he has no right to try again in another court.


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

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Zalma’s Insurance Fraud Letter – September 15, 2021

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A Video from ZIFL – 9/15/2021 – New Articles on Insurance Fraud

See the full video at https://rumble.com/c/c-262921 and at https://youtu.be/IvHYv6qW4jI

Cease And Desist Orders Issued to Four Companies Allegedly
Selling Home Warranties Without a License
The California Department of Insurance announced September 7, 2021 that it has issued Cease and Desist Orders, effective
immediately, to four companies who allegedly engaged in selling home warranty contracts in California without proper authorization.
Under the Orders, the companies must immediately stop selling the contracts. To protect consumers from fraud, any company marketing and selling home warranty contracts to California consumers must be licensed by the Department of Insurance.

“California consumers place their trust in home warranty companies to provide coverage when something breaks,” said Insurance Commissioner Ricardo Lara. “Our licensing process is intended to protect consumers and ensure ethical standards and practices. Our
team works diligently to help companies understand and meet these standards, and when they do not, we take decisive action.”
The Cease and Desist Orders were issued to:
Complete Care Home Warranty, LLC

Global Home Protection, LLC

Fundamental America, LLC, doing business as Priority Home Warranty

First Premier Home Warranty

The Department launched an investigation after receiving a complaint from a consumer alleging that these unlicensed home warranty companies were marketing and selling their plans in California. During the investigation, Department investigators, using aliases, visited each of the companies’ websites and obtained multiple coverage quotes for California addresses. After initially receiving the quotes by emails, the companies then sent multiple follow-up emails to the investigators in attempts to sell the warranty contracts. Consumers are advised to check the license status of a company before purchasing a policy and contact the Department at 800-927-
4357 if they suspect they may be a victim of fraud.

Insurance Fraud Indictment Thrown Out Because of Inadequate Presentation to Grand

Jury Prosecutor Improperly Relied on Insurer’s Fraud Investigator’s Inadequate Investigation to Indict Physician and Assistant

New Jersey State insurance law requires insurers to maintain a Special Investigative Unit (SIU) to investigate and report insurance fraud to the state. After the report is made the state must conduct its own investigation to determine if a prosecutable fraud occurred. In State Of New Jersey v. Yvonne Jeannotte-Rodriguez, Marta I. Gal Van, Lisa Ferraro, Nos. A-4361-19, A-4371-19, A-4374-19,  Superior Court of New Jersey, Appellate Division (August 25, 2021) The New Jersey Appellate Division was faced with three appeals, after the State contended the trial court wrongly dismissed (without prejudice) a six-count indictment against Lisa Ferraro, M.D., Yvonne Jeannotte-Rodriguez, and Marta Galvan. During the relevant time period, Rodriguez served as a medical assistant in Dr. Ferraro’s medical office, and Galvan was the office manager and worked on billing.

THE INDICTMENT

The State alleged Rodriguez practiced medicine without a license; Dr. Ferraro and Rodriguez fraudulently billed for Rodriguez’s services; and Galvan joined Rodriguez and Dr. Ferraro in conspiring to commit this fraud. The State asserts it presented sufficient
evidence to survive dismissal and urges us to reinstate
The indictment is the second attempt to indict the doctor and her assistant. The trial court dismissed the indictment without prejudice, holding it was “palpably deficient in its failure to produce any testimony before the grand jury to support the dates set forth in the indictment.

You can read the total issue and the full articles identified below at https://zalma.com/zalmas-insurance-fraud-letter-2/

ClaimSchool, Inc. – Insurance Education

Good News From the Coalition Against Insurance Fraud

Insurance Fraud Results in Murder

Health Insurance Fraud Convictions

Other Insurance Fraud Convictions

Free Insurance Videos

Zalma on Insurance Claims Part 105 Third Edition

The full text of the September 15, 2021 issue of Zalma’s Insurance Fraud Letter is now available with the September 1 issue of ZIFL and you can read last two issues of ZIFL here.


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

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The Fortuity Doctrine

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A Video Explaining Expected, Intended or Fortuity in Insurance

See the full video at Rumble.com at https://rumble.com/zalma and at https://youtu.be/O9kKEHOUKnc

The Fortuity Doctrine arises from the basic concept upon which insurance is founded: that insurance covers risks, not losses that were planned, intended, or anticipated by the insured. It has always been the view of insurers that losses that were expected by the insured could not be insured. To do so would have a counterproductive effect. No one would buy insurance until they were certain they would have a loss. The concept of spreading the risk on which insurance is based would be defeated.

An accident or occurrence is never present when the insured performs a deliberate act unless some additional, unexpected, independent, and unforeseen happening occurs that produces the damage. when the injury was caused by the insured’s manufacture and sale of products the manufacture and sale of products without right were deliberate and intentional acts, and there were no additional, unexpected, independent, and unforeseen happenings that caused the infringement alleged by the plaintiff or the indemnity obligation. The court concluded that the conduct giving rise to the underlying action was not an “accident” nor an “occurrence” within the coverage provision. because there was no potential basis for coverage, there is no duty to defend.6

The Loss-In-Progress Rule codifies a fundamental principle of insurance law that an insurer cannot insure against a loss that is known or apparent to the insured. (See Bartholomew v. Appalachian Ins. Co. (1st Cir. 1981) 655 F.2d 27, 28-29.) The public policy rule is premised on the view that to hold the insurer liable for a progressive and continuing property loss that was discovered before the carrier insured the risk would be to impose upon the insurer a guaranty of the good quality of the property insured, which liability under the policy the insurer had not assumed. (Greene v. Cheetham (2d Cir. 1961) 293 F.2d 933, 937.)

In Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645, 691, 693 where the existence and extent of injuries were unknown from the insured’s “standpoint,” coverage of continuous or progressively deteriorating property damage under a CGL policy did not offend the loss-in-progress rule.

The Fortuity Doctrine Or “Loss in Progress” Rule, where damage began to occur prior to the inception of the policy, requires that, as a matter of law, no part of the loss may be insured against. (See E.G., Summers v. Harris, (5th Cir. 1978)573 F.2d 869, 872; Presley v. National Flood Insurers Association (E.D. Mo. 1975) 399 F. Supp. 1242. The Fortuity Doctrine only precludes a party from insuring against a loss that has occurred or is certain to occur within the term of the policy. (See, E.G., Sabella v. Wisler (1963)59 Cal. 2d 21, 34 [27 Cal. Rptr. 689, 377 P.2d 889]; Standard Structural Steel v. Bethlehem Steel Corp. (D.Conn. 1984) 597 F.Supp. 164, 193; Essex House v. St. Paul Fire & Marine Insurance Co. (S.D. Ohio 1975) 404 F.Supp. 978, 988-990; Avis v. Hartford Fire Insurance Company (1973) 283 N.C. 142 [195 S.E.2d 545, 548].)

ZALMA OPINION

Everyone involved in the insurance industry must understand the doctrine of fortuity. Without fortuity insurance makes no sense.


© 2021 – Barry Zalma

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/zalma; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

Zalma on Insurance Claims Part 105 Third Edition:  

A Comprehensive Review of the law and Practicalities of Property, Casualty and Liability Insurance Claims

by Barry Zalma | Sep 2, 2021

Kindle $9.95  Available instantly

Hardcover , $35.95

Paperback , $25.95

This is the fifth part of a Treatise on Insurance Claims consisting of a series of ten books, of which this is the latest addition to Barry Zalma’s insurance claims Treatise that will form the most thorough, up-to-date, expert-authored insurance claims guide available today.

Written by nationally-renowned insurance coverage expert Barry Zalma, a semi-retired insurance coverage attorney, consultant, expert witness and blogger, Zalma on Insurance Claims provides in-depth explanations, analysis, examples, and detailed discussion of Property insurance claims; Third-party liability claims; Casualty claims; and Insurance Fraud.

Thorough, yet practical, this fifth part of the ten-part treatise form the ideal guide for any professional who works in, or frequently interacts with, the insurance industry. Claims professionals, risk managers, producers, underwriters, attorneys (both plaintiff and defense), and business owners will benefit greatly from the ten volume Treatise. It is also the perfect resource for insurance educators, trainers, and students whose role requires an understanding of insurance law.

As you read through the various volumes of Zalma on Insurance Claims, you will find comprehensive—yet comprehensible—coverage of key topics, dealing with all property, casualty and liability insurance.

Table of Contents

Chapter 1 Investigation Of Liability Claims.

Chapter 2 Errors & Omissions & the Claims Made & Reported Policies

Chapter 3 The Notice-Prejudice Rule.

Chapter 4 Types Of Torts.

Chapter 5 The Liability Claim File.

Chapter 6 Duty To Defend.

Chapter 7 Tests For Determining Duty To Defend:

Chapter 8 Scope Of The Duty To Defend.

Chapter 9 Grounds To Reject Coverage For Defense Or Indemnity.

Appendix 1 Form Letter To Expert

Appendix 2 Form Letter To Independent Medical Examiner

Appendix 3 Non Waiver Agreements

Appendix 4 Form Letter: Rescinding Automobile Policy.

Appendix 5 Form Letter: Rescission And Denial Letter

Appendix 6 Form Letter: Advising Of Right To Appraisal

Appendix 7 Form Letter: Reservation Of Rights Letter To Insured.

Appendix 8 Form Letter: Reservation Of Rights Letter B.

Appendix 9 Authorization Forms

Appendix 10 California Actual Cash Value Statute.

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USDC in Oregon Finds Covid Shutdowns Resulted Only in Economic Losses

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Insurance Policies Must be Read Using the Common Meaning of the Words in the Policy Like “Physical Loss or Damage”

Hillbro LLC d/b/a Hills Restaurant attempted a class action lawsuit against Oregon Mutual Insurance Company seeking a declaratory judgment that its insurance policy covers its business income losses stemming from the COVID-19 pandemic. In Hillbro LLC, dba Hills Restaurant, individually and on behalf of all others similarly situated v. Oregon Mutual Insurance Company, an Oregon corporation, No. 3:21-cv-00382-HZ, United States District Court, D. Oregon (September 7, 2021) dealt with another of the interminable business interruption claims made as a result of the Covid-19 Pandemic.

BACKGROUND

People across the world have lost their lives and livelihood as a result of the pandemic. The Court sympathizes with the plight of businessowners who suffered significant and even catastrophic financial losses due to the government closure orders.

Plaintiff operates a restaurant and bar in Shoreline, Washington. Compl. Plaintiff insured its business with a business insurance policy from Defendant. Due to the COVID-19 pandemic and business closure orders issued by the state of Washington, “Plaintiff had to close, suspend, and/or curtail its business” leading to financial losses. Although the closure orders allowed restaurants to serve take-out food for off-premises consumption, Plaintiff’s business revenues have significantly reduced because Plaintiff has been unable to use its dining room and full-service bar for on-premises food and beverage consumption. Plaintiff admits that COVID-19 has not been detected in its restaurant.

DISCUSSION

Defendant moved to dismiss Plaintiff’s complaint because there was no “direct physical loss of or damage to” property occurred to invoke coverage under the Business Income and Civil Authority coverages, and no “direct physical loss or damage to” property occurred that would provide coverage under the Extra Expense and Ingress or Egress coverages. Defendant also argues that the Ordinance or Law Exclusion excludes coverage for Plaintiff’s losses.

Applicable Law

Generally, when parties to a contract clearly express in the contract the law that applies, the contractual rights and duties of the parties are governed by the law or laws that the parties have chosen.

Plain Meaning of Policy’s Terms

Each of the coverage provisions apply only if a Covered Cause of Loss occurred. The requirement that the loss be physical, given the ordinary definition of that term, is widely held to exclude alleged losses that are intangible or incorporeal and, thereby, to preclude any claim against the property insurer when the insured merely suffers a detrimental economic impact unaccompanied by a distinct, demonstrable, physical alteration of the property.

Meaning Of “Direct Physical Loss Of Or Damage To Property”

The plain meaning of the policy requires a Covered Cause of Loss to directly cause property to be lost or physically damaged for coverage to exist under the Business Income and Civil Authority provisions. Physical loss or damage means any injury or harm to a natural or material thing. The inclusion of the terms “direct” and “physical” could only have been intended to exclude indirect, nonphysical losses.

While the insured no doubt sustained consequential losses it did not sustain “direct physical loss.” Construing Plaintiff’s allegations in the light most favorable to Plaintiff, the losses Plaintiff alleges are purely economic and not the result of any “direct physical loss of or damage to property.”

When the terms of an insurance policy have plain meaning, then the Court applies the plain meaning without need to resort to other methods of contract interpretation. However, it is worth emphasizing that the context in which the phrases “direct physical loss, ” “direct physical loss of or damage to property, ” and “direct physical loss or damage to property” appear in the Policy confirms the accuracy of the Court’s conclusion that the Policy requires a direct physical alteration of the condition of the property or dispossession of the property for coverage to apply.

An inability to use property in the manner the insured intended is not something that can be repaired, rebuilt, or replaced. Consequently, the context in which the phrases “direct physical loss of or damage to” and “direct physical loss or damage” appear in the Policy supports the Court’s conclusion that coverage does not apply under the plain meaning of the Policy’s terms.

The Court, therefore, granted Defendant’s Motion to Dismiss and Plaintiff’s Complaint was dismissed with prejudice. The plain meaning of the policy language and the multitude of cases interpreting identical and similar language make clear that “direct physical loss of or damage to property” does not include a loss of use or loss of functionality of undamaged property for its intended purpose.

ZALMA OPINION

Business owners and their lawyers must be commended for their efforts to continue to find a way to get an insurance company to pay for losses caused to their clients by their state governments who shut them down, and continue to fail with great regularity. The parties ignore the Fifth Amendment to the U.S. Constitution that, by the 14th Amendment applies to the states, and that prohibits any person to “be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use without just compensation.” The plaintiff was deprived of its ability to use its property that was taken for what is claimed as a public use – protect the public against the spread of the pandemic – without compensation. The losses are clearly not covered by insurance but are arguably covered by the Fifth Amendment.


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

 

 

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Zalma on Insurance

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Free Insurance Videos With More than 280 Free Videos Available

Barry Zalma, Esq., CFE has published five days a week videos on insurance claims, insurance claims law, insurance fraud and insurance coverage matters at https://rumble.com/zalma more than 280 free insurance claims and insurance law videos.  As you view the videos please click on the “Rumble” button or the “Like” button on YouTube.

 © 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/ podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

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False Swearing & Insurance Fraud

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A Video Explaining that an Insurance Policy is Void if the Insured Swears Falsely in Presenting a Claim

See the full video at https://rumble.com/c/c-262921 and at https://youtu.be/zpk191Y254o

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

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

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

In common language the “false swearing” provision of an insurance policy merely relates to a lie under oath.

In Texas and Oklahoma, false swearing is explained this way: “Where an insured knowingly and willfully overestimates the value of property destroyed or damaged, the policy is voided and the insured’s right to recover is defeated.”[Summit Machine Tool Manufacturing Corp. v. Great Northern Insurance Co., 997 S.W.2d 840 (Tex. App. Dist. 3, 1999)].

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

The U.S. Supreme Court stated the rule, as follows:

A false answer as to any matter of fact material to the inquiry, knowingly and willfully made, with an intent to deceive the insurer, would be fraudulent. If it accomplished its result, it would be a fraud effected; if failed, it would be a fraud attempted. No one can be permitted to say, in respect to his own statements upon a material matter, that he did not expect to be believed; their materiality, in the eye of the law, consists in their tendency to influence the conduct of the party who has an interest in them and to whom they are addressed. Claflin v. Commonwealth Insurance Co., 110 U.S. 81, 3 S. Ct. 507, 28 L. Ed. 76 (1884).


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

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Convicted Insurance Fraud Perpetrator Could Not Understand Why He Was in Jail

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A Person Capable to Commit 784 Fraudulent Acts is Capable of Understanding the Effects of a Guilty Plea

After pleading guilty to multiple charges of insurance fraud and other crimes, Rafael Levi was sentenced to spend multiple years in Pennsylvania state prison. He accepted the sentence and then tried a petition under the Post Conviction Relief Act (“PCRA) in Commonwealth Of Pennsylvania v. Rafael Levi, No. 1560 MDA 2020, Superior Court of Pennsylvania (July 29, 2021) claiming his poor physical condition and poor advice from his lawyers should allow him  to leave jail.

THE PRCA COURT FINDING

The PCRA court concluded that Levi was charged with a total of seven hundred eighty-four (784) charges related to a large fraudulent scheme dubbed “Operation Car Wash” that was investigated by the Pennsylvania Attorney General’s Office. Levi ultimately pled guilty on March 9, 2018 to a total of thirty-six (36) counts.

Sentencing was deferred for completion of an evidence-based presentence investigation and risk assessment (“PSI”). On June 21, 2018, Levi was sentenced to an aggregate term of five (5) to ten (10) years of incarceration at a state correctional institution, followed by five (5) years of probation. Levi was ordered to pay restitution in the amount of $1,500,000 joint and several with his co-defendants. Additionally, Levi’s date to report to prison was deferred to July 2, 2018.

Levi field a Petition for Modification of Sentence and/or Release of the Petitioner. The court denied the petition as an untimely post-sentence motion, as well as that it lacked jurisdiction. On June 25, 2019, Levi filed a timely Petition for PCRA Relief. The court appointed PCRA counsel who filed a petition. After conducting the evidentiary hearing, the court dismissed Appellant’s petition

THE APPEAL

Levi claimed that the PCRA Court erred imposing sentence of lengthy incarceration. The Appellate Court grants great deference to the findings of the PCRA court if the record contains any support for those findings.

Levi acknowledged that he entered an open guilty plea, but he claims that he did not understand the consequences of his plea at the time of entry. Appellant asserts that during plea negotiations, plea counsel told Appellant that state prison was off the table and, at most, he would spend twelve months in a work release center.

Levi maintained his sentence of imprisonment was too severe because he suffers from advanced kidney disease. Levi contended he suffered prejudice because plea counsel’s inaction resulted in the waiver of a meritorious challenge to the discretionary aspects of his sentence.

ANALYSIS

Pennsylvania law presumes counsel has rendered effective assistance. When asserting a claim of ineffective assistance of counsel, the petitioner is required to demonstrate:

  1. the underlying claim is of arguable merit;
  2. counsel had no reasonable strategic basis for his action or inaction; and,
  3. but for the errors and omissions of counsel, there is a reasonable probability that the outcome of the proceedings would have been different.

The failure to satisfy any prong of the test for ineffectiveness will cause the claim to fail. Counsel cannot be found ineffective for failing to pursue a baseless or meritless claim. Once this threshold is met the court will apply the “reasonable basis” test to determine whether counsel’s chosen course was designed to effectuate his client’s interests. If the court concludes that the particular course chosen by counsel had some reasonable basis, the inquiry ceases and counsel’s assistance is deemed effective.

When challenging the discretionary aspects of a sentence, an appellant, like Levi, must demonstrate that there is a substantial question as to the appropriateness of the sentence under the Sentencing Code. This requirement furthers the purpose evident in the Sentencing Code as a whole of limiting any challenges to the trial court’s evaluation of the multitude of factors impinging on the sentencing decision to exceptional cases.

A claim that a sentence is manifestly excessive might raise a substantial question if the appellant sufficiently articulates the manner in which the sentence imposed violates a specific provision of the Sentencing Code or the norms underlying the sentencing process. Bald allegations of excessiveness, however, do not raise a substantial question to warrant appellate review.

Where the sentencing court had the benefit of a PSI report, the appellate court can presume the court was aware of and weighed relevant information regarding a defendant’s character along with mitigating statutory factors.

In addition, Levi’s lawyer identified as “Plea counsel” testified about his interactions with Levi prior to the entry of the plea. Plea counsel advised Levi about the maximum sentences he faced and explained the concept of an “open” guilty plea. Plea counsel denied guaranteeing Levi that he would receive a particular sentence. After the court accepted Levi’s plea and imposed the sentence of imprisonment, the court read through the colloquy giving Levi his post-sentence rights in detail, and Levi had no questions and expressed understanding.

The PCRA court determined Levi’s sentencing claim lacked arguable merit because Levi did not request plea counsel to file an appeal. Here, the PCRA court credited plea counsel’s testimony and found that Levi did not specifically request the filing of a post-sentence motion or notice of appeal.

Because plea counsel’s testimony supported the PCRA court’s findings, the appellate court deferred to those findings. The sentencing court had the benefit of a PSI report. The court was aware of all relevant sentencing considerations, including Appellant’s chronic health issues. Under these circumstances, the court properly determined that there was no merit to Levi’s ineffectiveness claim. The order was affirmed and Levi stays in jail.

ZALMA OPINION

Levi’s actions are an expression of “chutzpah,” or unmitigated gall. He was involved in a multi-million dollar insurance fraud scheme that required – because of its extensive and convoluted scheme – was not an ignorant and naive criminal who was taken advantage of by his lawyer and the prosecution who had kindly accepted a plea of a small portion of the crimes charged. The court refused to fall for his scheme and he will continue to spend the time required in prison.


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

 

 

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ClaimSchool, Inc. Presents Excellence in Claims Handling Programs

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A Program of Video Training To Create Insurance Claims Professionals

Barry Zalma Presents What You Need to Become an Insurance Claims Professional

Mr. Zalma’s presentations are practical, thought-provoking, entertaining and will not cause you to reevaluate your budget. Barry is enthusiastically committed to professionalism in insurance and insurance claims. He positively influences other insurance professionals through the spoken and written word. He specializes in clarifying the importance of insurance in a modern society and in  making insurance understandable.

You will profit from subscribing to the ClaimSchool series of educational programs and learn everything you need to know to be a professional property and casualty insurance claims professional.

If you wish your organization to obtain a license to use the training produced by Mr. Zalma contact him at ClaimSchool, Inc. at 310-390-4455 or zalma@zalma.com to discuss licensing fees.

You can expect:

  • Clear and understandable presentations that are useful to the novice claims person but will also entice the person who believes he or she is most experienced claims person in the organization where he or she is employed.
  • The ability to enhance communications between claims and legal service providers.
  • Methods to make claims operations more cost effective.
  • Basic investigative techniques.
  • Advanced investigative techniques.
  • Advanced interviewing techniques.
  • How to examine an insured under oath.
  • Improved recognition of the indicators or “red flags of fraud.”
  • Better understanding of how to deal with people presenting claims.
  • Methods to achieve a quantifiable reduction in claims expenses and indemnity payments.
  • In addition Mr. Zalma will create a one or more programs to meet your specific needs.

Publications Available

In addition to the training classes ClaimSchool publishes Zalma’s Insurance Fraud Letter twice a month, the blog Zalma on Insurance, and e-books written by Barry Zalma available on line through amazon.com and various other publishers.

Subscribe to e-mail Version of ZIFL, it’s Free!  Read last two issues of ZIFL here. Go to the Barry Zalma, Inc. web site here , Videos from “Barry Zalma on YouTube”  Go to Barry Zalma videos at Rumble.com at https://rumble.com/zalma. Barry Zalma and ClaimSchool can be reached at 310-390-4455 or zalma@zalma.com, Twitter: @bzalma, Zalma on Insurance, at https://zalma.com/blog,  All of Mr. Zalma’s insurance claims books are available at the Insurance Claims Library, Listen to the Podcast: Zalma on Insurance,  

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Zalma on Insurance Claims Part 105 Third Edition:    

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Zalma on Insurance Claims Part 105 Third Edition:

A Comprehensive Review of the law and Practicalities of Property, Casualty and Liability Insurance Claims

by Barry Zalma | Sep 2, 2021

Kindle $9.95  Available instantly

Hardcover , $35.95

Paperback , $25.95


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

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Comunale v. Traders & General Ins. Co

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A Video Revealing The Birth of the Tort of Bad Faith in Comunale

See the full video and full text of the case at https://youtu.be/A0I909NN-nI and at https://rumble.com/c/c-262921 

The California supreme court in Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 328 P.2d 198, held the insurer liable for amounts over the policy limit because of its wrongful refusal to settle the underlying action. The opinion distinguishes the consequences of a wrongful refusal to settle and a wrongful refusal to defend, pointing out that as to the latter, the liability of the insurer is ordinarily limited to the amount of the policy plus attorneys’ fees and costs.

Mr. and Mrs. Comunale were struck in a marked pedestrian crosswalk by a truck driven by Percy Sloan. Mr. Comunale was seriously injured, and his wife suffered minor injuries. Sloan was insured by defendant Traders & General Insurance Company under a policy that contained limits of liability in the sum of $10,000 for each person injured and $20,000 for each accident. He notified Traders of the accident and was told that the policy did not provide coverage because he was driving a truck that did not belong to him. When the Comunales filed suit against Sloan, Traders refused to defend the action, and Sloan employed competent counsel to represent him. On the second day of the trial Sloan informed Traders that the Comunales would compromise the case for $4,000, that he did not have enough money to effect the settlement, and that it was highly probable the jury would return a verdict in excess of the policy limits. Traders was obligated to defend any personal injury suit covered by the policy, but it was given the right to make such settlement as it might deem expedient. Sloan demanded that Traders assume the defense and settlement of the case. Traders refused, and the trial proceeded to judgment in favor of Mr. Comunale for $25,000 and Mrs. Comunale for $1,250.

The decisive factor in fixing the extent of Traders’ liability is not the refusal to defend; it is the refusal to accept an offer of settlement within the policy limits. Where there is no opportunity to compromise the claim and the only wrongful act of the insurer is the refusal to defend, the liability of the insurer is ordinarily limited to the amount of the policy plus attorneys’ fees and costs.

Comunale v. Traders & General Ins. Co., 328 P.2d 198, 50 Cal.2d 654, 68 A.L.R.2d 883 (Cal. 1958)

The Video covers the full text of the California Supreme Court decision.

ZALMA OPINION

This is the first case that created the tort of bad faith and allowed a person to obtain both contract and tort damages as a result of a bad faith refusal to defend and or settle a claim within policy limits. It us imperative that everyone interested in insurance claims know the full text of the case that started the creation of the tort of bad faith.


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

 

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Insurance Fraud Indictment Thrown Out Because of Inadequate Presentation to Grand Jury

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Prosecutor Improperly Relied on Insurer’s Fraud Investigator’s Inadequate Investigation to Indict Physician and Assistant

New Jersey State insurance law requires insurers to maintain a Special Investigative Unit (SIU) to investigate and report insurance fraud to the state. After the report is made the state must conduct its own investigation to determine if a prosecutable fraud occurred.

In State Of New Jersey v. Yvonne Jeannotte-Rodriguez, Marta I. Gal Van, Lisa Ferraro, Nos. A-4361-19, A-4371-19, A-4374-19, Superior Court of New Jersey, Appellate Division (August 25, 2021) The New Jersey Appellate Division was faced with three appeals, after the State contended the trial court wrongly dismissed (without prejudice) a six-count indictment against Lisa Ferraro, M.D., Yvonne Jeannotte-Rodriguez, and Marta Galvan. During the relevant time period, Rodriguez served as a medical assistant in Dr. Ferraro’s medical office, and Galvan was the office manager and worked on billing.

THE INDICTMENT

The State alleged Rodriguez practiced medicine without a license; Dr. Ferraro and Rodriguez fraudulently billed for Rodriguez’s services; and Galvan joined Rodriguez and Dr. Ferraro in conspiring to commit this fraud. The State asserts it presented sufficient evidence to survive dismissal and urges us to reinstate

The indictment is the second attempt to indict the doctor and her assistant. The trial court dismissed the indictment without prejudice, holding it was “palpably deficient in its failure to produce any testimony before the grand jury to support the dates set forth in the indictment.”

FACTS

Dr. Ferraro knew Rodriguez was not a licensed medical doctor in the United States. Still, when speaking with patients, Dr. Ferraro would refer to Rodriguez as “Dr. Rodriguez or Dr. Yvonne.” Although Dr. Ferraro said “most of the time” she would come into the room to go over Rodriguez’s impressions of the patient with the patient present, Dr. Ferraro acknowledged there were times when she did not do that, and instead submitted billing orders based solely on Rodriguez’s exam and impressions.

Rodriguez told the grand jury that her effort to secure a license was stymied by her failure to obtain a residency. Instead, she worked as a medical assistant, first at St. Joseph’s Hospital, and then for Ferraro.

Menendez, an insurer’s SIU investigator described how his “audit” of a random sample of 100 patients’ files led him to conclude that Dr. Ferraro’s office received over $150,000 in payments for services that Rodriguez performed, but which the office billed in Ferraro’s name. One patient told Menendez that Rodriguez treated her when Dr. Ferraro was not physically present in the office. By examining patient notes, Menendez claimed to be able to distinguish between Rodriguez’s and Ferraro’s handwriting.

In dismissing the indictment, the trial judge identified three flaws in the grand jury process.

  1. The prosecutor improperly referred to evidence that was not presented to the grand jury by referring to “thousands of claims” of health care claims fraud.
  2. Tthe evidence the State did present was insufficient. The court noted that Menendez’s analysis was too speculative, because it consisted of “inferences drawn from unfounded inferences leading to a further inference.” There was no proof Rodriguez or Galvan obtained a financial benefit. And there was inadequate evidence regarding the scope of practice of a medical assistant.
  3. The indictment lacked sufficient specificity regarding dates of treatment and the names of patients to provide defendants notice and a fair opportunity to defend.

ANALYSIS

The grand jury fulfills a dual role under the Constitution: to decide if there is probable cause that a crime was committed, and to protect the innocent against unfounded charges. Though the grand jury is an arm of the court, an appellate court will reluctantly and sparingly review the grand jury’s actions to protect its independence.

A court may also act if the indictment does not clearly and in sufficient detail apprise a defendant of that against which he must defend..

The most significant defect in the grand jury process was the prosecutor’s failure to adequately and accurately instruct the jury about what a medical assistant, as an unlicensed medical professional, may do, and what activities encroach upon the licensed practice of medicine.

A physician may not delegate tasks that require the exercise of medical judgment and assessment (although that may be easier to say than to implement) or that encroach on tasks specifically assigned to other licensed professionals. What specific tasks a physician may delegate should best be defined by the Legislature and the expert regulators of the profession.

The “fair warning” requirement is manifest. There are some things that are black or white. For example, the court logically assumed it “reasonably clear” that medical assistants may not prescribe medicine or diagnose illness (as opposed to other health care professionals who are licensed and specifically authorized to do so). However, the prosecutor did not instruct the grand jury to limit itself to such clear encroachments into the practice of medicine. Instead, the prosecutor relied upon the testimony of a witness, Horizon Blue Cross/Blue Shield’s fraud investigator.

The failure to clearly instruct the grand jury as to the appropriate scope of a medical assistant’s practice tainted the counts charging theft by deception, health care claims fraud, and conspiracy to commit health care claims fraud. The crux of the deception and the fraud was that Dr. Ferraro sought reimbursement for procedures and activities that Rodriguez performed, by falsely conveying Dr. Ferraro performed them instead. Menendez stated that only licensed health care professionals had identification numbers to bill insurers for services.

Menendez’s opinion lacked sufficient reliability to support the indictment.  An indictment’s “primary purpose” is to enable a defendant to prepare a defense by adequately describing the offense charged. Under the circumstances, the State’s allegation that the crimes occurred “on or about January 2012 until on or about May 2017” failed to apprise defendants of the crimes alleged or to enable them to mount a defense.

The prosecutor failed to adequately and accurately instruct the grand jury about what a medical assistant may do without encroaching upon the licensed practice of medicine. And, because the law does not clearly draw a line around a medical assistant’s allowable activities, prosecuting someone for crossing the line may violate the right to fair warning.

The prosecutor also improperly referred to additional evidence that he did not present to the grand jury, and presented a questionable analysis of the amount of money involved in the charged offenses. And the indictment lacked sufficient detail to give defendants a fair opportunity to mount a defense.

ZALMA OPINION

SIU investigators are insurance people not police officers nor are the investigators working for prosecutors. They are required by statute to advise the state that fraud is suspected. The state is obligated, before seeking an indictment, to gather evidence that supports a criminal charge. The state of New Jersey relied upon Mr. Menendez, an insurance investigator, whose inferences indicated fraud but failed to provide the grand jury with actual evidence. Although it is often true that a grand jury will indict a ham sandwich no court will allow trial to go forward against the sandwich and that is why this indictment failed.


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

 

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Rosina Crisci v. Security Ins. Co.

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A Video Recitation of Crisci v. Security Ins. Co. of New Haven, Conn.

See the full video at https://youtu.be/ok3Q2wa1K_k and at https://rumble.com/c/c-262921 

A jury awarded Mrs. DiMare $100,000 and her husband $1,000. After an appeal (DIMARE V. CRESCI, 58 CAL.2D 292, 23 CAL.RPTR. 772, 373 P.2D 860) the insurance company paid [66 Cal.2d 429] $10,000 of this amount, the amount of its policy. The DiMares then sought to collect the balance from Mrs. Crisci. A settlement was arranged by which the DiMares received $22,000, a 40 percent interest in Mrs. Crisci’s claim to a particular piece of property, and an assignment of Mrs. Crisci’s cause of action against Security. Mrs. Crisci, an immigrant widow of 70, became indigent. She worked as a babysitter, and her grandchildren paid her rent. The change in her financial condition was accompanied by a decline in physical health, hysteria, and suicide attempts. Mrs. Crisci then brought this action.

The trial court found that defendant ‘knew that there was a considerable risk of substantial recovery beyond said policy limits’ and that ‘the defendant did not give as much consideration to the financial interests of its said insured as it gave to its own interests.’ That is all that was required. The award of $91,000 must therefore be affirmed.

In determining whether an insurer has given consideration to the interests of the insured, the test is whether a prudent insurer without policy limits would have accepted the settlement offer.

Crisci v. Security Ins. Co. of New Haven, Conn., 66 Cal.2d 425, 58 Cal.Rptr. 13, 426 P.2d 173 (Cal. 1967)

ZALMA OPINION

It is important that claims professionals understand why there exists a tort of bad faith. The treatment of Mrs. Crisci that drove her to suicide when a minimally $100,000 case could have settled for less than the policy limits of only $10,000 was egregious. By presenting the entire decision claims personnel can better understand why they are required to deal fairly and in good faith when defending an insured and should determine whether – if there was no limit – the settlement offer would or should have been accepted.


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

 

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Insurance Fraud Results in Murder

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Insurance Fraud is a Violent Crime

Willie Hall, appealed judgments of the Lucas County Court of Common Pleas which, following a jury trial convicting him of aggravated murder, aggravated burglary, and burglary sentenced him to life imprisonment. In State of Ohio v. Willie Lewis Hall, 2021-Ohio-2968, Nos. L-20-1089, L-20-1090, Court of Appeals of Ohio, Sixth District, Lucas (August 27, 2021) the Ohio Court of Appeal was asked to reverse Hall’s conviction.

The January 11, 2019 Burglary

On January 12, 2019, the victim, Ben Ward, called 911 to report that his home had been burgled. Police arrived at approximately noon and observed a cut screen in the main bedroom. Ward reported that the intruder stole a television, Xbox, Play Station 4, multiple games for each, a Rolex watch, various other jewelry items, approximately 15 pair of Nike Air Jordan athletic shoes, and $500 cash.

It is undisputed that Ward lied to police. The testimony showed that the break-in occurred on January 11, 2019, and the intruder stole $3,000 cash, a few jars of marijuana, and possibly one pair of Nike Air Jordan athletic shoes. Ward lied to police to conceal the fact that he sold marijuana and to potentially allow him to file a claim on this renter’s insurance.

Murder and Aggravated Burglary of February 3, 2019

Following the presentation of the state’s case, appellant moved for acquittal. The defense then rested. Following deliberations, the jury found appellant guilty of all the charges. On April 13, 2020, appellant was sentenced to life imprisonment without the possibility of parole; this appeal followed with appellant sought reversal based on multiple grounds.

Joinder of the indictments was permissible under Crim.R. 8(A). The two incidents were closely related in time, involved the same individuals, and were similarly executed. Appellant broke into Ward’s house on Broadstone and stole money and marijuana. He left a glove at the scene of the crime and the match was found at his residence. Following the burglary, he was photographed with a large sum of cash, he paid cash for multiple items, though unemployed, and jars of marijuana like the ones stolen were found in his mother’s bedroom. Appellant again broke into Ward’s home later.

Admission and Exclusion of Evidence at Trial

However, as correctly noted by the state, at trial appellant’s counsel stipulated to the admission of the bodycam video. Counsel further exploited the fact that Ward expressed a strong belief that his neighbor, Mike Lowe, had committed the burglary. Accordingly, appellant cannot now claim error that he invited by stipulating to the admission of the evidence.

Where testimony was admitted for the purpose of explaining how the image was produced it is not hearsay.

Weight and Sufficiency of the Evidence

Appellant’s claims on appeal center around his theory that the victim fabricated the January 11 burglary in order to conceal his illegal enterprise and to perpetrate insurance fraud and that the prosecution used this false crime to bolster the evidence relating to the murder charge.

An appellate court, reviewing the entire record, weighs the evidence and all reasonable inferences, considers the credibility of witnesses and determines whether in resolving conflicts in the evidence, the jury clearly lost its way and created such a manifest miscarriage of justice that the conviction must be reversed and a new trial ordered. As to appellant, the charge of aggravated murder required proof that appellant purposely caused the death of another while committing or attempting to commit, or fleeing after committing, aggravated burglary.

Reviewing the evidence presented to the jury the state provided sufficient evidence to support the convictions. A rational trier of fact could conclude that while Ward lied about various details of the burglary, he was honest about the fact that there was a burglary and finding the glove in the back bedroom. Appellant’s DNA found on the glove, as a major contributor, and the matching glove found at his home. Evidence was presented that as to each incident the intruder entered by force with the intent to commit a criminal act.

The jury’s verdicts relative to the February 3, 2019 aggravated burglary and aggravated murder were supported by the weight of the evidence. Appellant’s convictions were supported by sufficient evidence and were not against the manifest weight of the evidence. Judgment affirmed.

ZALMA OPINION

The murder victim accused the burglar who later entered the victim’s house a second time after the victim tried to profit from the burglary, was murdered by the burglar on his second effort. Insurance fraud had nothing to do with the crime of murder but did give the murderer an excuse to claim the crime had nothing to do with the burglary. It was not even a good try. Insurance fraud is a dangerous crime and resulted in the death of the fraudster who made the mistake of accusing the person who perpetrated the crime and who later killed him and will now spend the rest of his life in prison.


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

 

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Multiple Types of Insurance Fraud

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Insurance Fraud Perpetrators are Creative

See the full video at https://rumble.com/c/c-262921 and at https://youtu.be/Y5UEJ8wkrMM

We All Do it Fraud

The California Court of Appeal, in Cassim v. Allstate Insurance Co., 94 P.3d 513, 33 Cal.4th 780, 16 Cal. Rptr.3d 374 (Cal. 07/29/2004), was faced with a trial verdict of bad faith against an insurer that it found was based upon prejudicial final argument leading the jury to believe that “some fraud” is permissible

The law in California, as it should be everywhere, is that an insured cannot commit a little fraud. You either commit fraud or you do not. You cannot commit a little fraud any more than you can be a little dead.

If you commit fraud, regardless of the bad faith of the insurer, you recover nothing.

Hard Fraud

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

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

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

The Staged Loss

A theft where the owner contracts with an intermediary to dispose of a vehicle. The owner ‘gives up’ the vehicle and then reports it to the insurer as stolen.The person to whom the vehicle is given up will pass it to a salvor who breaks it up into its component parts and sells the parts (a “chop shop.”) Staged theft also includes cases where the insured ships an auto to Mexico, China, Vietnam, or other foreign country where it is sold after which the insured makes claim reporting the vehicle stolen. All staged thefts are planned and performed for the sole purpose of defrauding an insurer.

Abandonment

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

Dumping

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

ZALMA OPINION

Insurance fraud takes from the insurance buying public between $80 and $300 billion every year. It is essential that those who perpetrate the fraud are defeated or, at least, reduced and more spend time in prison. This can only happen if insurers are aware of the variations the crime takes and what is needed to defeat those who try fraud to profit.


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

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Covid Class Action Insurance Claim Fails in Florida

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Covid Shut Down is not Direct Physical Loss or Damage

Defendants Certain Underwriters at Lloyd’s, London moved to dismiss the Amended Class Action Complaint (the “Motion”) brought in Sun Cuisine, LLC d/b/a Zest Restaurant and Market, individually and on behalf of all others similarly situated v. Certain Underwriters At Lloyd’s London Subscribing to Contract Number B0429BA1900350 Under Collective Certificate Endorsement 350OR100802, No. 1:20-cv-21827-GAYLES/OTAZO-REYES, United States District Court, S.D. Florida (August 31, 2021)

BACKGROUND

Plaintiff Sun Cuisine, LLC d/b/a Zest Restaurant and Market owns, operates, manages, and controls restaurants and related food and beverage operations at a location in Miami, Florida. On February 23, 2020, Defendants issued a standard form ISO all-risk commercial property insurance policy (the “Policy”) to Plaintiff under which Plaintiff agreed to make premium payments in exchange for Defendants’ promise to indemnify Plaintiff for losses. Those losses include, but are not limited to, business income losses at the insured properties. The Policy provides coverage for the period between February 23, 2020, and February 23, 2021.

The Policy

The Policy includes a standard policy form titled “Business Income (and Extra Expense) Coverage Form, ” which provides for business income losses. The insuring agreement provided:

We will pay for the actual loss of Business Income you sustain due to the necessary “suspension” of your “operations” during the “period of restoration.” The “suspension” must be caused by direct physical loss of or damage to property at premises which are described in the Declarations and for which a Business Income Limit [o]f Insurance is shown in the Declarations. The loss or damage must be caused by or result from a Covered Cause of Loss. (emphasis added).

Acts of Governmental Authorities

On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a worldwide pandemic. Following the guidance from the World Health Organization (WHO), the Presidential guidelines and the act of former Miami-Dade County Mayor Carlos Gimenez who issued  Emergency Order 03-20 on March 17, 2020, closing all restaurants in Miami-Dade County other than for delivery to slow the spread of COVID-19 through person-to-person and surface-to-person contact. Governor Ron DeSantis issued Executive Order 20-69 restricting public access to businesses and facilities deemed non-essential, including restaurants in South Florida. As a result, Plaintiff was unable to welcome patrons into its restaurant and was required to drastically alter its property to reduce its operations to take-out and delivery.

The Lawsuit

Plaintiff sued seeking insurance coverage under the Policy for business interruption related to the COVID-19 pandemic. Defendants filed a Motion to Dismiss, arguing that Plaintiff failed to allege any physical loss or damage to the property. Plaintiff alleges that it suffered physical loss and damage to its property because COVID-19 altered the property to an unsatisfactory and highly dangerous state, unusable, inhabitable, and unfit for its intended purpose; this loss caused significant business income loss and extra expenses. Defendants moved to dismiss Plaintiff’s claims.

DISCUSSION

Defendants seek dismissal with prejudice of Plaintiff’s Amended Complaint for two main reasons. First, Defendants argued that Plaintiff’s allegations do not trigger coverage under the Policy. Specifically, Defendants argued that the Amended Complaint fails to allege either “direct physical loss of or damage to” the insured property or a nearby property as to trigger coverage under the Policy’s Business Income and Civil Authority provisions. Second, Defendants argue that coverage is barred by the Policy’s microorganism and pollution exclusions.

Insurance coverage cases under Florida law require courts to look at the insurance policy as a whole and give every provision its full meaning and operative effect. Insurance contracts are construed according to their plain meaning and courts begin their analysis by looking at the plain language of the policy, as bargained for by the parties.

To trigger coverage under the Business Income or Civil Authority provisions of the Policy, Plaintiff must prove that there was “direct physical loss of or damage to” the insured property or a nearby property while the Policy was in effect. There is no dispute that the alleged loss occurred while the Policy was in effect. Thus, a showing of direct physical loss of or damage to the property or a nearby property is the fundamental predicate to Plaintiff’s claims. Plaintiff’s Amended Complaint fails to meet this burden.

The Policy does not explicitly define “direct physical loss or damage.” A direct physical loss contemplates an actual change in insured property then in a satisfactory state, occasioned by accident or other fortuitous event directly upon the property causing it to become unsatisfactory for future use or requiring that repairs be made to make it so.

Plaintiff alleged, creatively, that the presence of COVID-19 on the insured property physically altered the property from a satisfactory state to an unsatisfactory state, and Plaintiff had to make substantial physical changes to the property “including the reconfiguration of seating, installation of plexiglass shields and sanitizer dispensers, and the enhancement of air filtration systems in response to the threat of transmission of the coronavirus from those coming in and out of the property.”

As a threshold matter, the mere presence of the virus on the physical structure of the premises does not amount to direct physical loss. [Mena Catering, Inc. v. Scottsdale Ins. Co., 512 F.Supp.3d 1309, 1318 (S.D. Fla. 2021); see also Carrot Love, LLC v. Aspen Specialty Ins. Co., 513 F.Supp.3d 1364, 1367 (S.D. Fla. 2021).] Plaintiffs’ argument that the presence of COVID-19 made the property unsuitable for its intended purposes because it closed for business due to the pandemic does not establish the physical loss or damage required by the Policy.

Secondly, the fact that Plaintiff had to reconfigure furniture and make physical alterations to the layout of the property to avoid contamination of COVID-19 does not qualify as physical loss or damage. While the Court is sympathetic to Plaintiff’s situation, it declined to depart from the prevailing consensus in this Circuit or rewrite the policy to provide a coverage neither party to the policy agreed to as a condition of indemnity.

The Court found, therefore, that Plaintiff’s allegations, even if taken as true, do not plausibly show direct physical loss or damage to the insured property or nearby property to trigger coverage under the Policy, and granted the defendants’ motion for summary judgment.

ZALMA OPINION

People whose businesses were shut down as a result of governmental orders to reduce the spread of the Pandemic continue to try to get their losses covered by insurance with creative pleading claiming the existence of the virus damaged their property. They continue, with regularity, to fail. If the government orders acted to take the property of the various restaurants, like the plaintiffs, they have a remedy under the Fifth Amendment to the U.S. Constitution to obtain compensation for property taken by the government.


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

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Tests For Determining Duty To Defend

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A Video Explaining Duty to Defend and the Four Corners Rule

See the full video at https://rumble.com/c/c-262921 and at  https://youtu.be/a6KfQ-sMIsA

Some states apply a rule of interpretation of the duty to defend a liability claim by limiting their review to the facts alleged in the lawsuit and the wording of the insurance policy.

 

They refuse to consider any evidence extrinsic to the allegations of the suit.

If any of the allegations are potentially covered by the policy, the duty to defend is established. If none of the allegations in the complaint is potentially covered by the policy, the insurer can generally refuse to defend.

“Four corners” refers to the parameters of the policy; there is a variant test known as the “eight corners rule.” There is little difference between the two; they both take into consideration the four corners of the suit and the four corners of the policy.

Courts operating under the four corners or eight corners rule will not consider extrinsic facts or the potential for a suit drafted out of spite. The prudent insurer will, before making a decision, determine what rule or test is applied in the jurisdiction where the loss occurred.

The rationale behind the two rules is to require insurers to defend their insureds against all covered claims regardless of merit. Allowing an insurer to admit extrinsic evidence that contradicts a plaintiff’s allegations to establish the applicability of a policy exclusion would circumvent the very reason for the rules.52

Many jurisdictions have ruled that any doubt regarding the obligation to defend is to be resolved in favor of the insured [Miller v. Elite Ins. Co., 100 Cal. App. 3d 739 (1980)].

Potentiality

The insurer is not required to indemnify the insured if the potentiality of an accidental cause never materializes, if the jury finds that the insured intentionally caused the plaintiff’s injury, or if the insured is convicted of the crime of battery. However, even though a policy excludes liability arising from violations of law, there is the potentiality that the jury would find there was no violation of law and that the policy provided coverage. However, if the claims of negligence against the insured were potentially covered under the policy the insurer will have a duty to defend.

Determining whether insurance coverage exists requires analysis of the claims asserted in the state court action. [ Elec. & Power Co. v. Northbrook Prop. & Cas. Ins. Co., 475 S.E.2d 264, 265-66 (Va. 1996); Bohreer v. Erie Ins. Grp., 475 F. Supp. 2d 578, 584 (E.D. Va. 2007)] noting that Virginia recognizes the “potentiality rule,” wherein an insurer’s duty to defend is triggered if there is any possibility that a judgment against the insured will be covered under the insurance policy. The “eight corners rule,” compares the four corners of the insurance policy with the four corners of the underlying complaint to determine whether coverage exists. [Erie Ins. Exch. v. State Farm Mut. Auto. Ins. Co., 60 Va. Cir. 418 (Va. Cir. Ct. Dec. 16, 2002); AES Corp. v. Steadfast Ins. Co., 725 S.E.2d 532, 535 (Va. 2012]


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

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Damage by Thief to Real Property Clearly Excluded

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Courts do not Have the Power to Rewrite an Insurance Policy

When Richard Hermanns bought his first citrus grove in 2009, he hired Richard McKenzie – who had experience with starting and managing citrus groves – to take care of things for him. He relied on McKenzie for everything: clearing the land, buying the supplies, planting the trees, keeping the trees healthy, maintaining the groves, and picking the fruit. McKenzie, in turn, billed Hermanns for materials purchased and labor expended. Hermanns left everything in McKenzie’s hands and did not visit the groves often. That error eventually resulted in litigation called The Travelers Indemnity Company Of Connecticut v. Richard Mckenzie & Sons, Inc., Hermanns Real Estate Ventures, LLC, No. 18-13172, United States Court of Appeals, Eleventh Circuit (August 26, 2021) attempting to provide coverage for the damage done by the thief.

FACTS

Hermanns’ trust in McKenzie was a mistake. Hermanns would later allege that McKenzie billed him for hundreds of thousands of dollars’ worth of trees that were never planted, fertilizer that was never applied, and diesel fuel that was never delivered. He also stole some of Hermanns’ diesel fuel for his own use. And through his negligence, McKenzie damaged Hermanns’ groves: He planted only 115 trees per acre instead of the industry-standard 150, planted many of the trees too deep, failed to apply enough fertilizer and pesticides, failed to dig enough drainage ditches, and generally did a bad job of caring for the trees. Hermanns discovered McKenzie’s fraud, theft, and negligence and fired him.

Hermanns sued McKenzie in Florida state court. His original complaint alleged facts about McKenzie falsely billing Hermanns and stealing from him, and based on that it asserted claims for breach of contract, breach of fiduciary duty, and an equitable accounting. The complaint had no claim for negligence. Almost a year later, and two days after finding out that McKenzie had an insurance policy issued by Travelers, Hermanns successfully moved to amend the complaint to add a claim for negligence. Hermanns notified Travelers of the amended complaint against McKenzie. Travelers disclaimed coverage.

In the state court litigation, Hermanns and McKenzie entered into a settlement agreement. They settled the three non-negligence claims for $200,000, which was to be paid by McKenzie personally. But as to the negligence claim, they attempted to bring that part of the settlement within the “Coblentz doctrine,” meaning McKenzie would not be on the hook for paying it. Their attempt consisted of agreeing that McKenzie owed to Hermanns $2,965,750 in damages for the negligence claim, but that Hermanns would not try to collect any of the judgment from McKenzie. Instead, Hermanns could only go after Travelers for those damages.

Travelers sued seeking a declaratory judgment action against McKenzie and Hermanns declaring that, based on the insurance policy’s provisions, it had no duty to defend against or indemnify McKenzie for Hermanns’ original state court complaint, or his amended state court complaint, or the state court consent judgment that had been entered for Hermanns against McKenzie.

Travelers moved for summary judgment on all the claims and counterclaims. The district court granted summary judgment in favor of Travelers on all of the claims and counterclaims. The court ruled that Travelers had no duty to defend McKenzie against Hermanns’ complaint.

ANALYSIS

If Hermanns and McKenzie lose on the duty to defend, they lose on everything. And the district court ruled that they lost on the duty to defend. One of the bases for its ruling was that the damages alleged in Hermanns’ amended complaint were not covered by the insurance policy because of applicable policy exclusions and because there was no duty to defend, there was no wrongful refusal by Travelers to defend McKenzie. Therefore, the settlement agreement is unenforceable.

A Coblentz agreement can be enforced only if the plaintiff can make several showings. The plaintiff must show coverage, wrongful refusal to defend, and that the settlement was reasonable and made in good faith.

Under Florida law, an insurer’s duty to defend its insured against a legal action arises when the complaint alleges facts that fairly and potentially bring the suit within policy coverage. Florida law requires courts to determine whether an insurer has a duty to defend its insured based only on the eight corners of the complaint and the policy and only as the complaint’s alleged facts are fairly read.

The “facts” the court must consider in evaluating the duty to defend come solely from the complaint, regardless of the actual facts of the case and regardless of any later developed and contradictory factual record. Regardless of the rules of interpretation and the broad duty to defend, the lawsuit must be for something covered by the insurance policy. The insurer has no duty to defend when the pleadings show the applicability of a policy exclusion.

The insurance policy specifies a number of situations in which it does not apply. The trial court relied on the exclusion that applies to property damage to “[t]hat particular part of real property on which you . . . are performing operations, if the ‘property damage’ arises out of those operations.” The Eleventh Circuit concluded that the damage alleged in Hermanns’ complaint meets each requirement set out in the exclusion’s text.

The only property damage the complaint alleges was caused by McKenzie’s negligence is damage to real property, a point that Hermanns and McKenzie conceded.  That consequence and fix alleged indicates that McKenzie’s negligence, as distinguished from his intentional acts, damaged only the citrus groves, meaning the citrus trees and possibly the land on which they grew; trees, as well as land, are real property under Florida law.

The only fair reading of the complaint is that McKenzie’s operations were on all of the property that the complaint alleges was damaged: the groves. There is no other property to which the complaint refers or could be referring when it alleges that McKenzie’s negligence “has caused damages to [Hermanns]” that required clearing “70 to 100 acres of land to compensate for the past improper care.”

The Eleventh Circuit noted that any damage certainly arose out of McKenzie’s operations. The complaint alleges that kind of causal connection between the property damage and McKenzie’s operations. The Eleventh Circuit was compelled, by Florida precedent to never rewrite contracts, add meaning that is not present, or otherwise reach results contrary to the intentions of the parties. That means when contractual language is clear and unambiguous, an appellate court cannot indulge in construction or interpretation of its plain meaning.

An insurance policy can both provide coverage and also exclude some things that might otherwise fall within that coverage. That’s not a conflict. It’s just an exclusion. The Eleventh Circuit concluded that the plain meaning of the provisions is clear, the farm caretaker endorsement and the exclusion taken together mean that coverage extends to property damage caused by the insured’s farm care-taker operations, but not if the damage is to real property, such as citrus groves.

Hermanns’ and McKenzie’s contended that reading the exclusions as did the trial court makes the coverage provided by the farm care-taker endorsement illusory.

The Eleventh Circuit resolved that claim concluding that if the policy’s coverage and exclusion provisions do not negate one another, the coverage is not illusory, and there is no ambiguity, so the plain language of the exclusion controls. Coverage is illusory under Florida law only if the insurance policy grants coverage with one hand and then with the other completely takes away the entirety of that same coverage. Completeness is key. A policy is illusory only if there is an internal contradiction that completely negates the coverage it expresses to provides or if the exclusion completely swallows the insuring provision.

It may be that McKenzie does not like the terms of the insurance coverage that he purchased. However, after the fact wishes are not enough to change before the fact choices and the Eleventh Circuit had no authority to rewrite the insurance contracts to grant his wishes and cure buyer’s remorse.

Because the negligence claim in Hermanns’ amended complaint alleges only damage that falls within the exclusion, Travelers had no duty to defend McKenzie against Hermanns’ lawsuit, and there was no loss coverage.

ZALMA OPINION

Before entering into litigation on an insurance coverage issue it is best to do what the Eleventh Circuit did in this case: read the entire policy. Although the plaintiffs’ counsel tried valiantly to find a way around clear and unambiguous exclusions the acts complained of were simply excluded. The court, by ruling on the one exclusion, avoided all of the intentional acts and lack of fortuity since the insured was obviously a thief who did the damage intentionally and fraudulently. Either way there was no coverage and Travelers should not have been required to defend through trial and appeal this case.


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

 

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The Adjuster & Good Faith Claims Handling

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A Video Explaining How to Avoid Charges of Bad Faith Claims Handling

See the full video at https://youtu.be/fbQDfOb5-L0 and at https://rumble.com/zalma

The basic test in bad faith cases is whether the insurer has unreasonably and “without proper cause” refused to compensate the insured for a loss covered by the policy. [Gruenberg v. Aetna Insurance Co., 9 Cal. 3d 566, 108 Cal. Rptr. 480].

The adjuster should not attempt to adjust a claim, or even contact an insured, until he or she knows everything necessary to protect the rights of the insurer without doing anything to injure the right of the insured to receive the benefits of the policy. This means the adjuster must have thoroughly reviewed the wording of the insurance policy, the application for insurance, and the loss notice. The adjuster must then, begin to investigate all claims fully and thoroughly.

Charges of “bad faith” can be eliminated by adjusting all claims in a detailed and fundamentally sound manner.

People insure themselves for peace of mind and security. To protect these interests it is essential that an insurer fully inquire into the possible bases that might support the insured’s claim and act promptly. [Kanne v. Connecticut General, 607 F. Supp. 899 (C.D. Cal., 1985).]

The insurer may not gather just enough evidence to support a belief that the policy does not provide coverage and then quit the search.

The statutory cause of action for extra-contractual damages simply never comes into existence until expiration of the sixty-day window without the payment of the damages owed under the contract. We find that in creating this statutory remedy for bad-faith actions, the Legislature provided this sixty-day window as a last opportunity for insurers to comply with their claim-handling obligations when a good-faith decision by the insurer would indicate that contractual benefits are owed. Talat Enterprises, Inc. v. Aetna Cas. & Sur. Co., 2000 WL 232303, 753 So.2d 1278 (Fla., 2000).


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

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Reporting Requirement of a Claims Made Policy is a Condition Precedent

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Insureds Try Creative Analysis of Policy and Fail

Day Kimball Healthcare, Inc. and Erica J. Kesselman appealed from the judgment of the United States District Court for the District of Connecticut (Dooley, J.) dismissing their complaint that sought a declaratory judgment directing Allied World Surplus Lines Insurance Company and Steadfast Insurance Company to indemnify plaintiffs pursuant to their respective insurance policies in connection with an underlying medical malpractice lawsuit. In Day Kimball Healthcare, Inc., Erica J. Kesselman, M.D. v. Allied World Surplus Lines Insurance Company, Fka Darwin Select Insurance Company, Steadfast Insurance Company, No. 20-3803-cv, United States Court of Appeals, Second Circuit (August 27, 2021) the Second Circuit Refused to rewrite a policy to provide coverage for slothful insureds.

FACTS

Day Kimball is the hospital where Kesselman practices obstetrics. Day Kimball has a primary insurance policy through Lexington Insurance Company that covers a variety of liabilities, including professional liability coverage for medical malpractice claims and employee benefit claims (the “Lexington Policy”). Plaintiffs also contracted for excess coverage from both Allied World and Steadfast. Both plaintiffs were sued in Connecticut state court for medical malpractice, and Lexington is providing a defense in that action.

The Allied World policy is made up of three insurance agreements (“Insuring Agreements”): As relevant Insuring Agreement A provides excess coverage to the Lexington Policy for professional liability claims. It is a “claims-made and reported policy,” and the parties agree that plaintiffs failed to provide Allied World with timely notice of the malpractice claims. Allied World refused to provide excess coverage on the ground that the claim was untimely, and Steadfast, which follows form with the Allied World policy, denied coverage on the same basis. Because they were not able to access coverage through Insuring Agreement A, plaintiffs tried to obtain coverage for their malpractice under Insuring Agreement C, which provides excess coverage for claims related to employee benefit programs.

ANALYSIS

Connecticut law like most states requires that an insurance policy is to be interpreted by the same general rules that govern the construction of any written contract and enforced in accordance with the real intent of the parties as expressed in the language employed in the policy and the policy words must be accorded their natural and ordinary meaning. The court must look at the contract as a whole, consider all relevant portions together and, if possible, give operative effect to every provision in order to reach a reasonable overall result.

The Second Circuit concluded that the district court correctly dismissed the complaint. Insuring Agreement C unambiguously provides excess coverage to the Lexington Policy only for claims related to employee benefit programs. Insuring Agreement C states plainly that it is “in excess of the Applicable Underlying Limit for the insurance identified in Items 3 and 4,” and that the “terms and conditions of such Scheduled Underlying Insurance are, with respect to this Insuring Agreement C., made a part of this Policy. The underlying policy’s employee benefits coverage provides coverage for alleged wrongful acts committed “while acting solely within the administration of your employee benefit programs.”

Such programs include “[g]roup life insurance, group accident or health insurance, profit sharing plans, pension plans, employee stock subscription plans, workers compensation, unemployment insurance, social security benefits, disability benefits ….” The underlying litigation is a medical malpractice action that clearly implicates only the professional liability coverage and has no relationship to the benefit programs.

The Schedule of Underlying Insurance specifically and unambiguously identifies, among other attributes, the type of coverage and the underlying policy to which each item refers.

Plaintiffs, unwilling to give up, also asked the court to allow them to seek coverage under the Steadfast policy, which is excess to both the Lexington and Allied World policies, and follows form with those policies. Plaintiffs argue that because they are entitled to coverage under the Allied World policy pursuant to Insuring Agreement C, they are entitled to coverage under the Steadfast Policy.  Plaintiffs are wrong about their right to coverage under Insuring Agreement C, and thus are also incorrect about their entitlement to coverage under the Steadfast policy.

Finally, at oral argument before, defeating their creative arguments, the district court, plaintiffs asserted that the maintenance provision left Steadfast liable under Insuring Agreement C, not Insuring Agreement A, affirmatively agreeing that Insuring Agreement A was “no longer in play.”

The Second Circuit Court of Appeal concluded that the plaintiffs’ argument relating to the maintenance provision and Insuring Agreement A was forfeited and refused to interpret a clear and unambiguous policy to provide coverage for malpractice defense and indemnity from a coverage that only covers allegations of wrong doing in an employee benefit plan.

ZALMA OPINION

Although creativity in litigation and coverage analysis is to be commended it should not be honored when, as in this case, it should be sanctioned and the Second Circuit should be honored for not falling for the attempt to change a employee benefit coverage into a malpractice defense and indemnity coverage. Creativity is one thing. Trying to escape the insureds’ own sloth and change a coverage from what it was clearly intended to do into something else is ridiculous.


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

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The Tort of Bad Faith & Investigation of Insurance Fraud

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Fraud Must be Defeated Even in the Face of Claims of Bad Faith

See the full video at https://rumble.com/c/c-262921 and at https://youtu.be/7pC0y9ZnkCQ

It has been said that where fear enters, reason flees. Doubt, with its wavering in opinion and judgment, comes from a fear of the unknown. It is an unrealistic viewpoint that develops from defects in knowledge or evidence. But when a subject or situation is studied and understood, the unknown becomes known and fear and doubt are overcome. Irrational decisions are thereby avoided, or minimized, so that the problem at hand is more likely to be successfully resolved. And so it is with the irrational thinking and attitudes related to the handling of suspicious claims and concerns about tort of bad faith.

What do fear and doubt have to do with the tort of bad faith? The fact is that adjusters are faced almost daily with everything from an insured’s willful failure to cooperate to attempted bad faith setups, intimidation, and threats of bad faith lawsuits. [See Borland v. Safeco Ins. Co., 147 Ariz. 195, 709 P.2d 552 (Ct. App. 1985), for a detailed discussion of how an insured and her attorney played games with claims persons who the court described as “untrained or inexperienced, and careless.” The court was also critical of the activities of the attorney who was intimately involved with the claim from day one. The claim involved a burglary loss of jewelry and a concurrent policy with the Home Insurance Company. The insured’s reasons for having two homeowner’s policies were not addressed.

Enormous pressures come to bear on adjusters, which inevitably lead to a conflict between their duty to provide service to insureds and their equally important and compelling duty to keep them honest. Dishonest insureds and unethical attorneys use extortive tactics, which are designed to thwart an insurer’s legitimate investigation and to coerce insurers into paying questionable and meritless claims. Unfortunately, these tactics are frequently successful, as many adjusters do not have the specialized education, training or knowledge needed to respond properly.

Part of the problem is the unwillingness of some companies to educate, train, and support experienced claims adjusters and SIU investigators to be confident and confront the issues. Insurers must provide the moral and financial support, including proper staffing and training, to investigate, expose, and control fraudulent activity effectively. As a consequence, some inexperienced, untrained and ineffective claims adjusters are running scared and paying claims that should not be paid.

It is clear that the only way adjusters and insurers can minimize their vulnerability to bad faith exposures, and at the same time control fraud, is to become an expert in every facet of property claims handling. Mere competence is insufficient.

Although contract law is replete with references to the good faith duties of both parties, the rules generally have not been evenly and fairly applied in the case of insurance contracts. More often than not the burden of good faith and fair dealing has been one-sided, that is, it has been placed almost exclusively on the shoulders of insurance carriers. Little attention has been focused on the activities of the insured, whether that activity has been a breach of conditions or other conduct against public policy.

ZALMA OPINION

Insurance fraud is a hindrance to the ability to price insurance reasonably and to the effective operation of the insurance industry. The bad faith tort, created for the good reason that some insurers took unreasonable and wrongful advantage of those they insured. Insurance fraud perpetrators have taken advantage of the attempt to make insurers act fairly and have made the insurer a victim unable or unwilling to fight insurance fraud for fear of tort damages. This video goes far to explain what is really happening to insurers faced with fraud.


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

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Coverage Counsel Should Not Act Outside the Obligation to Advise the Insurer Client

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Neither the Attorney Client Privilege Nor the Work Product Protection Apply if Outside the Representation of the Insurer

The Court of Appeals was asked to resolve a discovery-related issue relating to the attorney-client privilege and work product doctrine. in State Of Missouri ex rel. Kilroy Was Here, LLC, et al. v. The Honorable Joan L. Moriarty, Circuit Judge, Twenty-Second Circuit Court Of Saint Louis Missouri, No. ED109351, Court of Appeals of Missouri, Eastern District, Writ Second Division (August 31, 2021)

FACTS

The underlying litigation is the latest episode in an unfortunate saga that began on April 28, 2012, when a large tent, which Kilroy Was Here had installed for its bar patrons near Busch Stadium in downtown St. Louis, came unmoored during a storm killing one and seriously injuring seven others. After the victims sued for damages alleging Kilroy was negligent in connection with the set up and maintenance of the tent, they offered to settle for $720,100 all claims against Kilroy and Kilroy’s insurer Starr Indemnity and Liability Company, which was providing the defense through attorney Brian McBrearty.

Two days later, Kilroy, through separate counsel, demanded that Starr settle the claims for the amount the underlying plaintiffs had offered, which was within the $1 million policy limits, and advised that the failure to do so would expose Starr to liability for bad faith refusal to settle. Starr retained attorney Keith Phoenix to advise Starr with respect to its potential liability exposure for bad faith refusal to settle.

On May 15, 2015, Starr, through Mr. Phoenix and on behalf of Kilroy, communicated its rejection of the underlying plaintiffs’ settlement demand by making a counteroffer of $249,999.99. No settlement was ultimately reached.

Around the same time, Phoenix also became involved in the factual and legal issues pending in the case. For instance, he prepared a legal memorandum summarizing his legal research relating to Kilroy’s “duty to monitor weather.”

The case proceeded to a jury trial in the Circuit Court of the City of St. Louis that resulted in a March 14, 2016, verdict in favor of the underlying plaintiffs and against Kilroy in the total amount of $5.2 million. The Court of Appeal affirmed the judgment entered on the verdict in Martinez v. Kilroy Was Here LLC, 551 S.W.3d 491 (Mo. App. E.D. 2018).

The dispute centers on a subpoena duces tecum directed to the law firm which requests “[t]he entire file, including correspondence, billing records, and any other documents, either received or generated, for the Kilroy litigation, or more specifically related to Martinez, et al., v. Kilroy was Here, LLC, 1222-CC02394.” The subpoena also requested testimony relating to those matters.

Starr objected and the he trial court sustained Starr’s objections and quashed the subpoena finding that Relators failed to demonstrate any applicable exception or waiver of the attorney-client privilege.

ANALYSIS

The documents and testimony sought by Relators from the SPvG law firm may be discoverable to the extent: (1) Phoenix acted outside the scope of his representation of Starr which was purportedly to assess Starr’s exposure for its alleged bad faith refusal to settle; (2) Phoenix acted as de facto co-counsel along with McBrearty in Kilroy’s defense to the underlying wrongful death and personal injury suit; (3) Phoenix participated in claims adjustment activities or acted as a claims adjuster; and (4) that any other exception to the attorney-client privilege applies such as communications made in the presence of a third party.

Parties may obtain discovery regarding any matter, not privileged, that is relevant to the subject matter involved in the pending action.

The Attorney-Client Privilege And Attorney Work Product.

Confidential communications between an attorney and his client concerning the representation of the client are protected by the attorney-client privilege. Privileged material is any professionally-oriented communication between attorney and client regardless of whether it is made in anticipation of litigation or for preparation for trial.  To be privileged, the communication must be made in order to secure legal advice. Absent a waiver, such privileged communications are immune from discovery.

The party seeking discovery has the burden of establishing the relevance of the sought-after materials. If relevance has been established or is uncontested and the opposing party asserts that a privilege precludes disclosure, the opposing party bears the burden of showing the privilege applies.

Blanket assertions of work product are insufficient to invoke protection. In order to invoke work product protection, the party opposing discovery “must establish, via competent evidence, that the materials sought to be protected

  1. are documents or tangible things,
  2. were prepared in anticipation of litigation or for trial, and
  3. were prepared by or for a party or a representative of that party.

Exceptions to the attorney-client privilege.

Not all communications between an attorney and client are privileged. For example, it is generally accepted that where the attorney acts as a collection agent, the communications between him and his client are not protected by the privilege. In State ex rel. Shelter Mut. Ins. Co. v. Wagner, 575 S.W.3d 476, 483 (Mo. App. W.D. 2018) the court recognized that when an “attorney acted as a claims adjuster, claims process supervisor, or claims investigation monitor, and not as a legal advisor, the attorney-client privilege would not apply.

Moreover, a party cannot claim attorney-client privilege over communications when a third person representing an adverse party was present.

In State ex rel. Great American Insurance Co. v. Smith, 574 S.W.2d 379, 386-87 (Mo. 1978). “[T]he determinative issue [is] whether the relationship of attorney and client existed between the parties at the time of the communication with reference to the subject matter of the communication.”

The Subject Matter Of Phoenix’s Representation Of Starr Was Starr’s Bad Faith Exposure To Kilroy.

Inasmuch as Starr hired SPvG to provide legal advice with respect to Kilroy’s potential bad faith claim against Starr, a review of the elements and nature of such a claim will help define the parameters and scope of SPvG’s representation.

Respondent’s Task Upon Remand Is To Determine To What Extent The Materials And Topics Encompassed By The Subpoena Along With Mr. Phoenix’s Actions, Communications, And Mental Impressions Exceeded The Scope Of His Representation Of Starr For Its Potential Exposure For Bad Faith Refusal To Settle.

The critical point(s) in time for an insurer’s liability exposure for the alleged bad faith refusal to settle is when the insurer had a chance to do so. On the limited record before us, the chance to settle on the part of Starr appears to have occurred in April 2015.

In the situation where a third party is suing an insurer’s policy holder, it is the insurance company’s control over the claim that creates a fiduciary relationship between insurer and insured.  So, Starr continued to provide and to control the defense through Mr. McBrearty and retained its right to control settlement negotiations and ultimately whether settlement occurred. But now that Kilroy had notified Starr that Kilroy believed that Starr’s failure to settle established grounds for Kilroy to sue Starr for the bad faith refusal to settle in the event of an excess verdict, Kilroy and Starr, at least in this context, were now in an adversarial posture.

On April 28, 2015, in apparent recognition of this potential conflict, Starr retained Mr. Phoenix “to provide advice and counsel. . . in connection with allegations of bad faith refusal to settle the underlying lawsuit.” Starr could continue to fulfill its contractual duty to Kilroy to defend it in the underlying lawsuit. And through Mr. Phoenix, it could receive advice with respect to its potential bad faith exposure. The record shows, however, that these two tracks converged.

Phoenix appears to have acted as Kilroy’s de facto co-counsel in the underlying litigation.

On the record before us summarized above, Mr. Phoenix appears to have imbedded himself as McBrearty’s co-counsel in Kilroy’s defense to the underlying lawsuit. Phoenix extended settlement offers, attended motion hearings, provided legal research and local rule information to lead counsel, participated in witness preparation, reviewed motions prior to filing, negotiated settlement with opposing counsel, and reviewed jury instructions. The record supports that while Phoenix was retained as bad faith counsel for Starr, he also acted with Starr’s knowledge and favor in Kilroy’s legal defense.

The convergence of these two tracks – what McBrearty was doing in defense of Kilroy, and what Phoenix was attempting to do on behalf of Starr in connection with its bad faith exposure – is troubling but not surprising. Thus, it would appear that to the extent Phoenix was acting as Kilroy’s lawyer, Kilroy should be to know what Phoenix did on Kilroy’s behalf and why.

Conclusion

Respondent erroneously quashed the subpoena at issue. Specifically, the Court of Appeal found discoverable all materials and testimony to the extent that (1) Phoenix acted as de facto co-counsel in Kilroy’s defense, (2) communications claimed to be privileged were made in the presence of a third party, or (3) any other exception to the attorney-client privilege applies.

ZALMA OPINION

Insurance coverage counsel must be careful to only act as attorney for the insurer and not get involved in the underlying actions. By getting involved coverage counsel can expose his client, himself and his firm to calumny and lose the protection of his hard earned law degree and license with his work read by his client’s opponents.


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

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Zalma’s Insurance Fraud Letter – September 1, 2021

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ZIFL – September 1, 2021

See the full video at https://rumble.com/zalma at https://youtu.be/1SbFs6FxrQo

California Legislature Wants to Make Application Fraud a Crime

Application fraud in California is only recognized with regard to workers’ compensation policies. The proposed new statute provides it will be a crime for any fraud in any insurance application.

Why it’s Difficult to Fire a Government Employee

Insurance Fraud Conviction Requires Dismissal of Government Employee

After Conviction for Fraud State Employee Demands Her Job

Fatu Rimbert appealed from a November 12, 2019 final administrative decision of the Civil Service Commission (Commission) affirming her removal as a family service worker for the County of Essex (County), Department of Citizen Services, Division of Family Assistance and Benefits (DFAB). In The Matter of Fatu Rimbert, Essex County Department of Citizen Services, No. A-1684-19, Superior Court of New Jersey, Appellate Division (August 18, 2021) was asked to reinstate the job from which she was fired.

Insurer’s Report to Insurance Fraud Authorities Is Privileged

It Is Not Defamation to Report a Suspected Fraud to The State

Cholla Bay Hotel Group LLC; CBHG Management S.A. DE C.V.; Desert Springs Equestrian Center LLC (“DSEC”); and Lorilei Peters (collectively “CBHG”) appealed from the trial court’s grant of summary judgment in favor of Farm Bureau Financial Services, its “affiliate,” Western Agricultural Insurance Company, and Paul Cully (collectively “Farm Bureau”), and the ultimate dismissal of its claims. In CBHG Management, S.A. de C.V., a foreign corporation; Cholla Bay Hotel Group, an Arizona corporation; Desert Springs Equestrian Center, LLC, an Arizona limited liability company; and Lorilei Peters, in her individual capacity v. Farm Bureau Financial Services, a foreign corporation, and Paul Cully, No. 2 CA-CV 2020-0111, Court of Appeals of Arizona, Second Division (August 6, 2021) the Court of Appeals was asked to reverse the trial court’s judgment.

The “Chutzpah” of Insurance Fraud Perpetrators

After Sentencing Defendant Attempts to Change His Plea of Guilty

It takes a massive amount of unmitigated gall (chutzpah) to file an appeal of a conviction and sentencing after pleading guilty with knowledge and understanding but insurance fraud perpetrators seem to have no trouble doing so rather than pay restitution or serve probation; a classic case of the dog biting the hand that feeds him.

Convictions from the Coalition Against Insurance Fraud

Health Insurance Fraud Convictions

Other Insurance Fraud Convictions


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 54 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/zalma; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

 

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When the Notice-Prejudice Rule Does Not Apply

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A Video Explaining Why a Claims Made Policy’s Notice Require is not Subject to the Notice Prejudice Rule

See the full video at https://youtu.be/e-cVLVIN47U and https://rumble.com/c/c-26292

Claims made and claims made and reported policies contain a date certain notice requirement.

Applying the notice-prejudice rule to the date-certain notice requirement in a claims-made policy would alter the parties’ agreed allocation of risk. In short, to excuse late notice in violation of such a requirement would alter a basic term of the insurance contract. Furthermore, it would prevent parties from defining coverage with certainty, no matter how definitive or express the notice requirement. Such a result would significantly diminish the advantages of claims-made policies for both insurers and insureds: insurers could no longer “close the books” on previous policy periods, and policy premiums presumably would rise to account for the risk that an insured might notify the insurer of a claim after the policy period has expired.

Where an insurance policy requires notice of a potential claim, the insured must promptly notify the insurer when the insured reasonably might expect to be the subject of a malpractice claim. This notice requirement operates as a condition precedent to coverage, and to the insurer’s obligation to defend and indemnify. Therefore, absent a valid excuse, the insured’s failure to satisfy the policy’s notice requirements vitiates the policy, and the insurer need not show prejudice in order to assert the defense of noncompliance.

Reading the contract as a whole, the notice provision in the Policy provides a strict reporting requirement. Accordingly, the Court finds that Plaintiffs were required to strictly comply with the notice provision of the contract, and the notice-prejudice rule does not apply to the Policy. Plaintiffs failure to comply with the Policy’s notice provision bars recovery.


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

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A Theft is a Taking of Property

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A Decision Finding Theft Can Be a Taking of More than Money Costs National Union $22,114,883  Plus Interest

Cargill, Inc.’s (Cargill) moved for judgment on the pleadings. Cargill seeks judgment in its favor as to the one disputed claim between the parties on the extent of theft coverage and as to the issue of prejudgment interest. Plaintiff National Union Fire Insurance Company of Pittsburg, Pa. (National Union) opposed the motion. In National Union Fire Insurance Company of Pittsburg, Pa., v. Cargill, Inc., No. 20-cv-0839 (WMW/JFD), United States District Court, D. Minnesota (August 24, 2021) the District Court found coverage applied.

BACKGROUND

National Union issued a commercial crime insurance policy to Cargill, effective October 1, 2014, through June 15, 2016 (Policy). The Policy provides up to $25 million in insurance coverage with a $10 million deductible. The employee theft clause of the Policy (Employee Theft Clause) provides that National Union, “will pay for loss of or damage to ‘money’ ‘securities’ and ‘other property’ resulting directly from ‘theft’ committed by an ‘employee’ whether identified or not, acting alone or in collusion with other persons.” The Policy defines “theft” as, “unlawful taking of property to the deprivation of the Insured.”

This dispute arose from the fraudulent actions of Cargill’s former employee, Diane Backis. Cargill employed Backis as a “Merchant/Admin Leader” in Cargill’s Albany, New York, grain facility. Cargill discovered uncharacteristically large accounts-receivable balances, which triggered a fraud investigation. Assisted by the Federal Bureau of Investigation (FBI), Cargill determined that between approximately December 2006 through June 2016, Backis misrepresented the prices that customers were willing to pay for corn and sorghum and made fraudulent entries in Cargill’s accounting system to memorialize these fictitious higher prices. Backis’s actions led Cargill to sell commodities at lower prices, leading Cargill to sustain approximately $32 million in losses, calculated as the “purchase price of corn and sorghum [that Cargill paid] less the cash receipts from corn and sorghum sales from June 1, 2007 through May 31, 2016.” Backis subsequently pleaded guilty to one count of mail fraud and one count of filing a false tax return after admitting that she deposited at least $3,115,610.89 of Cargill’s customers’ payments into her personal bank accounts.

Cargill notified National Union of a purported employee-theft loss under the Policy. The parties jointly retained an independent “Investigative Specialist” to investigate the facts and determine the quantum of loss as to Cargill’s claim and to create a “FRISC Report.” The Policy provides that the FRISC Report “issued by the Investigative Specialist will be definitive as respects the facts and the quantum of loss and shall be provided to both” Cargill and National Union. (Emphasis added.)

The FRISC Report determined that, “[a]s a result of Ms. Backis’ purchase of corn and sorghum at Albany’s cost above selling price from [fiscal year] 2008 through her termination, Cargill was adversely impacted $32,15,192, which includes $3,115,611 in theft of cash.” Cargill sought insurance coverage for the loss it sustained as a result of Backis’s actions identified in the FRISC Report. National Union denied coverage.

National Union sued seeking a declaratory judgment as to its contractual obligations contending it was only liable for the theft of cash which was below the deductible. Cargill filed a counterclaim alleging breach of contract and now moves for judgment on the pleadings.

ANALYSIS

Insurance Coverage

The parties dispute whether Cargill has demonstrated that Backis’s actions resulted in a loss of other property “resulting directly from theft.” The relevant “Insuring Agreement” in dispute is the Employee Theft Clause, which provides that National Union “will pay for loss of or damage to ‘money,’ ‘securities’ and ‘other property’ resulting directly from ‘theft’ committed by an ‘employee.’” “Property” is limited to property that Cargill owns, leases, or is holding for others. The disputed terms of the Policy are addressed in turn below.

 “Resulting Directly From”

The parties dispute whether the losses Cargill sustained were the direct result of Backis’s theft.

The Policy does not define “directly.” Accordingly, the Court must apply the ordinary and popular meaning of the term. Black’s Law Dictionary defines “directly” as “[i]n a straightforward manner, ” “[i]n a straight line or course, ” or “[i]mmediately.” Black’s Law Dictionary 557 (10th ed. 2014).

The FRISC Report provides that as part of her fraudulent scheme, Backis represented to Cargill in various ways, including through falsified sales contracts, that she was selling sorghum and yellow corn commodities at higher prices than she was. In fact, Backis was selling these commodities at competitive market prices. Ultimately, this fraudulent scheme led Cargill to sell commodities below cost between June 1, 2007, and May 31, 2016, the fraud period identified in the FRISC Report.

Backis’s actions caused Cargill necessarily to lose money because Cargill sold commodities below cost. Moreover, any doubts as to whether the losses here resulted “directly” from Backis’s actions were resolved in favor of the insured. Because Cargill’s losses at issue resulted directly from Backis’s actions, this term of the Policy is satisfied.

 “Theft”

The Policy provides coverage for “theft, ” which the Policy defined as “the unlawful taking of property to the deprivation of the Insured.”

The parties dispute the relatedness of Backis’s direct theft of approximately $3 million with the additional losses that Cargill sustained in excess of $25 million as a result of Backis selling commodities below cost. Cargill argues that “Backis admitted in her plea agreement to stealing more than $25,000,000 from Cargill” whereas National Union argues that the FRISC Report definitively concluded that there is “no connection between Backis’s embezzlement and the pricing misrepresentations.” National Union maintains that Backis’s pricing-misrepresentation scheme is separate from her embezzlement scheme.

A taking requires exercise of possession or control. The parties also disputed whether a “taking” requires physical possession of the purportedly stolen property. Because the term “taking” is not defined by the policies, case law interpretations are relevant. The Black’s Law Dictionary definition of “taking” does not require physical possession of the seized article, but does require, at a minimum, that the actor exert control over the article such that possession or control is transferred.

The Policy at issue here does not define a “taking.” And Minnesota law does not limit a “taking” under employee theft insurance coverage to physical takings. For these reasons, there is no basis for the Court to impose such a limitation. A “taking” requires “an implicit transfer of possession or control.” Black’s Law Dictionary 1682 (10th ed. 2014). The FRISC Report provides that “Backis controlled the pricing and recordkeeping elements of the sale” of corn and sorghum.

The court noted it was obligated to resolve any doubts concerning the meaning of language contained in the Policy in favor of the insured. Accordingly, if any doubt remains as to what constitutes “theft, ” the Policy must be construed in Cargill’s favor.

Backis’s conduct constitutes a “theft” under the Policy as a matter of law, and Cargill’s losses resulted directly from Backis’s theft. Accordingly, Cargill’s motion for judgment on the pleadings was granted.

Prejudgment Interest

Cargill argued that it is entitled to prejudgment interest in the amount of 10 percent per annum, or $6,058 per day, beginning on April 28, 2016, pursuant to Minn. Stat. § 60A.0811.

The court concluded, therefore, that:

  1. Defendant Cargill, Inc.’s motion for judgment on the pleadings, is GRANTED.
  2. Judgment shall be entered against Plaintiff National Union Fire Insurance Company of Pittsburgh, Pa., and in favor of Defendant Cargill, Inc., in the amount of $22,114,883 plus 10 percent prejudgment interest per annum, or $6,058 per day, beginning on April 28, 2016, and ending on the date that judgment is entered in this case, pursuant to Minn. Stat. § 60A.0811, subdiv. 2(a).

ZALMA OPINION

Why this was a question that took a trial is difficult to understand since “theft” is something any juror could understand. Yet, National Union tried to convince the court to ignore the plea agreement Ms. Backis entered into with the government that she successfully stole more than $32,15,192, which included $3,115,611 in cash. If only the theft of cash was covered it was an amount less than the deductible. Since the theft included more than cash National Union must pay more than $22 million (application of $10,000 deductible) plus interest at the rate of 10%. If National Union appeals and loses the interest will continue to grow at $6,058 per day,


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

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Declaring an Insurance Policy Void

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A Video Explaining the Contractual Right of an Insurer to Declare a Policy Void

See the full video at https://rumble.com/c/c-262921 and at https://youtu.be/1RTrAJywESg

A life insurance policy procured with the intent to benefit persons without an insurable interest in the life of the insured does violate the public policy of New Jersey, and such a policy is void at the outset. [Sun Life Assurance Co. of Canada v. Wells Fargo Bank (N.J., 2019)]

When a policy is declared “void” by the insurer, the most common ground is that the insured has breached a condition of the policy, which effectively forfeits the policy. “Forfeiture” is defined in Webster’s 3rd International Unabridged Dictionary as “loss of some right, privilege … in consequence of a … breach of condition or other act.” Generally, if the insurer accepts unearned premiums from the insured at the time of forfeiture or voidance with the knowledge of facts indicating a forfeiture, the insurer waives its right to defend on that ground.

Whenever an adjuster determines that a policy should be declared void based upon policy language similar to the language in the standard fire policy, he or she must coordinate with the underwriting department so that the underwriters are aware of the action and do not inadvertently waive a viable defense. The adjuster should be certain that a copy of the letter declaring that a policy is void is placed in the underwriting file as well as the claim file.

The insured did not make “[a] mere oversight or honest mistake” Rather, he made a knowing misrepresentation of a material fact. Notwithstanding that, even though the misrepresentation was not made at the inception of the insurance agreement, the court held that the insurer was justified in declaring the policy void.

The insurer must prove there was a knowing misrepresentation of fact with the intent of the insureds to have the insurer rely upon it to its detriment from the outset.


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

 

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Limited Stacking Provisions in Auto Policies Limits Recovery of UM/UIM Benefits

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RTFP (Read the Full Policy)

Benefits Limited to Statutory Limits

American Family Mutual Insurance Company, S.I. (“American Family”) appealed the entry of summary judgment in favor of Ms. Courtney Jones (“Jones”) on her claim for additional uninsured motorist (“UM”) benefits under two policies insuring two vehicles she was not driving at the time of her accident. In Courtney Jones v. American Family Mutual Insurance Company, S.I., No. WD84018, Court of Appeals of Missouri, Western District, Third Division (August 24, 2021) the insurer asked the Court of Appeals to limit the recovery to that required by state statute.

FACTUAL BACKGROUND

On August 4, 2017, Jones was traveling on Southwest 3rd Street in Lee’s Summit, Jackson County, Missouri, when a vehicle approaching from the opposite direction turned left in front of Jones, causing a wreck. Jones was insured under two automobile insurance policies and one motorcycle policy issued by American Family under which Jones was insured (all three policies are referred to collectively as “the policies”). The wreck was the direct and proximate result of the negligence of the other driver, who was an uninsured motorist as that term was defined in the policies. When the wreck occurred, Jones was driving the 2014 Toyota Sequoia, which was insured under the Sequoia policy.

American Family paid Jones $150,000 in UM benefits: $100, 000 under the Sequoia policy and the $25,000 Missouri Motor Vehicle Financial Responsibility Law (“MVFRL”) minimum limit under the Camry and Cycle policies.

Jones sued American Family seeking an additional $150,000 in UM benefits, for a total of $300,000 in UM coverage under the three policies. The parties stipulated that Jones’s damages from her injuries caused by the other driver’s negligence were at least $300,000.

The parties each filed motions for summary judgment and the trial court denied American Family’s motion, ranted Jones’s motion, and entered judgment in her favor and against American Family in the amount of $150, 000 on July 31, 2020.

The trial court determined that the owned-vehicle exclusion was unenforceable in all three insurance policies. The trial court concluded that the policies were: “ambiguous, when read as a whole, because the policies unequivocally and unconditionally promise $300,000 in UM coverage . . . but then, in a manner that would be confusing and ambiguous to a lay person when a policy attempts to take away coverage in the Exclusions section of the Endorsement 53 to the Uninsured Motorist Coverage-Missouri.

ANALYSIS

The parties agree that there are three policies; that the Declarations page of each policy states $100,000 UM coverage; that the Declarations page of each policy expressly notes in capitalized and bold letters – “PLEASE READ YOUR POLICY”; and that Jones is entitled to $100,000 in UM coverage under the American Family policy on the Sequoia, the vehicle involved in the accident.

American Family asserts that the trial court erred in granting summary judgment to Jones and in denying its cross-motion for summary judgment because the court misapplied the law. American Family contended that the owned-vehicle exclusion and the minimum-financial-responsibility clause, when read together with all other applicable coverage provisions of the UM policies, unambiguously limits the UM coverage under the Camry and Cycle policies to the $25,000 per person minimum required by the MVFRL. Therefore, American Family argued that stacked UM coverage is limited to a maximum total of $150,000 per person (i.e., $100,000 of UM coverage from the Sequoia Policy and $25,000 apiece from the Camry and Cycle policies).

The purpose of UM coverage is to take the place of the liability coverage the insured would have received had he or she been involved in an accident with an insured motorist. Under the MVFRL, an automobile liability insurance policy must provide UM coverage “for the protection of persons insured thereunder who are legally entitled to recover damages from owners or operators of uninsured motor vehicles because of bodily injury, sickness or disease, including death, resulting therefrom.” [§ 379.203.1.] Public policy flowing from this statutory requirement requires that multiple uninsured motorist coverages must be allowed to be stacked.

The minimum-financial-responsibility clause in each policy provides UM coverage of $25,000. Policyholders are informed that coverage will be provided up to the statutory minimum, here $25,000 per person, if the insured is injured while occupying a vehicle he or she owns but is not covered by the same policy covering the vehicle involved in the accident.

The mere presence of an exclusion does not render an insurance policy ambiguous. The appellate court is required to consider the entire policy and not just isolated provisions and it, eventually did so and ruled in favor of the insurer. The appellate court is compelled to enforce unambiguous policy language as written. Consistent with case precedent interpreting similar and even identical owned-vehicle exclusion clauses, the court concluded that the owned-vehicle exclusion is unambiguous and enforceable when considered within the context of the policy.

The insured should receive the statutory minimum UM coverage required by the MVFRL on each vehicle owned by the insured, but not involved in the accident. The Court of Appeal concluded that the trial court misapplied the law in ruling that the owned-vehicle exclusion was ambiguous and unenforceable.

The trial court’s judgment granting summary judgment to Jones was reversed, and the cause is remanded with directions that the trial court enter judgment in favor of American Family consistent with the relief sought in American Family’s motion for summary judgment and consistent with our ruling today.

ZALMA OPINION

RTFP – Read the Full Policy – is required in the interpretation of any insurance policy. The Missouri Court of Appeal did just that and was required to follow statute and precedent to apply the limits as called for by the policies, the UM/UIM statutes and state law to limit the insured to the policy limit on the vehicle she was driving at the time of the accident and the statutory – $25,000 – limit on the other vehicles whose policies she wished to stack onto the primary UM/UIM coverage.

 


© 2021 – Barry Zalma

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

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

 

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