The Problem When Insurance Companies Sue Each Other

Both Insurers Lose Because of Lack of Proof

It is probably a certainty that courts are not thrilled when dealing with a dispute brought by an insured. They often prefer to rule against the insurer in favor of the insured. However, when one insurer sues another, it is difficult for the court to determine which party to favor. The result, often, is to punt.

In Lexington Insurance Company v. Allstate Insurance Company, Supreme Court Of The State Of New York Appellate Division, Second Judicial Department, 2016-02222, 2017 NY Slip Op 05213(June 28, 2017) an excess insurer, Lexington, sued Allstate, a primary insurer, to recover damages for breach of an insurance contract and for declaratory relief.

The defendant, Allstate, appealed from an order of the trial court, the Supreme Court, Nassau County (Sher, J.), which denied its motion for summary judgment dismissing the complaint and for a declaration in its favor, and granted the plaintiff’s motion for summary judgment on the complaint and declaring that the plaintiff’s policy provided only excess insurance coverage for a loss and that the defendant’s policy provided primary insurance coverage for that loss.

FACTS

The plaintiff, Lexington Insurance Company, commenced this action against the defendant, Allstate Insurance Company. The plaintiff alleged that it issued an insurance policy to the holder of a home mortgage, and the defendant issued an insurance policy to the homeowner. The plaintiff paid its insured in response to a claim for benefits for damage to the home caused by a fire. Allstate refused to pay because its policy was cancelled before the loss.

ANALYSIS

Essentially, the plaintiff’s position was that the defendant would have covered this loss, as primary with respect to the plaintiff’s excess policy, had the defendant not improperly cancelled, and subsequently reinstated, the policy between the defendant and the homeowner.

Allstate moved for summary judgment dismissing the complaint and for a declaration in its favor. Lexington also moved for summary judgment on the complaint seeking a declaration that its policy provided only excess insurance coverage for the loss and that the defendant’s policy provided primary insurance coverage for that loss. The Supreme Court denied the Allstate’s motion and granted the Lexington’s motion. Allstate appealed.

“Indemnity is the right of a person who has been compelled to pay what another should have paid to require complete reimbursement. In the insurance context, the right to indemnity may arise, as in the case of contribution, either in the insurer’s own right or by way of subrogation to the right of its insured” (Couch on Insurance § 217:16 [3d ed]).

Where an excess insurer makes a payment which, as between it and the primary insurer, should have been paid by the latter, the excess insurer is entitled to recoup such payment by way of indemnity from the primary insurer.

If Allstate improperly cancelled and later reinstated the homeowner’s insurance policy, then it may be equitable for Allstatet to pay for the loss that would have been covered under its policy but for the improper cancellation.

Although,Lexington may be able to recover against the defendant on an equitable theory, Lexington has not shown, prima facie, that the policy between the defendant and the homeowner was improperly cancelled nor did Allstate prove that it had properly cancelled the policy issued to its insured.

As a result, Lexington failed to make a prima facie showing of entitlement to judgment as a matter of law by tendering sufficient evidence to eliminate all triable issues of fact. Likewise, Allstate, on its motion, failed to eliminate all triable issues of fact.

Thus, the Supreme Court properly denied the defendant’s motion, but should have denied the plaintiff’s motion. Both motions failed to prove the necessary elements of Lexington’s case nor the necessary elements of Allstate’s defense.

ZALMA OPINION

Insurance company lawyers know that when they file a motion for summary judgment they must produce evidence eliminating all issues of fact. Proving a valid cancellation should have been easy. A sworn declaration from the underwriter issuing the notice of cancellation and the documents involved that comply with state statutes. Failure to do so resulted in an appeal where both sides lost.

 

 

ZALMA-INS-CONSULT © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business. Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972 Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

 

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Insured Is Obligated to Read Policy

Failure to File Suit Promptly is Fatal to Claim

In the last fifty years I have asked hundreds of insured’s under oath whether they read their insurance policy and understood it. Only two answered “yes” and both of them lied. This is amazing to me since most insurance policies are written in “easy to read” or “Sesame Street” English. However, the failures continue, even when dealing with commercial policies issued to sophisticated insureds who defeat their claims because of the failure to read and understand the policies on which they are making a claim.

In Great Lakes Reinsurance (UK) v.  1600 Western Venture, LLC, Case No. 16 C 2145, United States District Court For The Northern District Of Illinois Eastern Division,  (June 13, 2017) Great Lakes Reinsurance (“Great Lakes”) filed a four-count Second Amended Complaint for Declaratory Judgment against Defendant 1600 Western Venture, LLC (“Western Venture”) in relation to the parties’ insurance coverage dispute pursuant to the Court’s diversity jurisdiction. Western Venture filed its Second Amended Answer, Defenses, and Counterclaim, which included the insurance dispute claims, a breach of contract claim, and a claim under the Illinois Consumer Fraud and Deceptive Business Practices Act (“ICFA”).

BACKGROUND

During the relevant time period, Great Lakes was an excess and surplus line insurance carrier that issued a property insurance policy to Western Venture. Western Venture is a limited liability company organized and existing under the laws of the State of Illinois with its primary place of business in Chicago, Illinois.

Great Lakes issued a property insurance policy to Western Venture, as a member of Commercial Industrial Building Owner’s Alliance (“CIBA”), bearing Policy Number B066479244A12 (the “Policy”). From December 5, 2010 through the present, Western Venture was and is a named insured under the Policy. Although Western Venture’s agents, employees, and maintenance personnel had unfettered access to the roofs of the Insured Premises, sometime in May 2015, Western Venture discovered that there was hail and wind damage on the roofs of the Insured Premises. On July 23, 2015, Western Venture reported the existence of hail damage at the Insured Premises to Great Lakes initiating Claim No. IP12-157 for the 2444 W. 16th Street structure (“2444 Claim”) and Claim No. IP12-158 for the 2443 W. 16th Street structure (“2443 Claim”).

Great Lakes issued reservation of rights letters and supplemental reservation of rights letters with respect to the 2444 Claim and the 2443 Claim. Western Venture, through Brian Flisk – Western Venture’s manager and agent – tendered Great Lakes its omnibus Sworn Statement in Proof of Loss for both the 2444 Claim and the 2443 Claim. It is undisputed that the date of loss for these claims was August 30, 2013.

ANALYSIS

Insurance Coverage Claims and Counterclaims

In its summary judgment motion, Great Lakes contends that Western Venture’s insurance coverage claims are barred by the twelve month suit limitation provision contained in the Policy based on the undisputed evidence that the sworn date of loss for both the 2444 and 2443 Claims was August 30, 2013, and that Western Venture failed to file a lawsuit by August 30, 2014.

Illinois law recognizes limitation periods as valid contractual provisions in insurance contracts and that compliance with the suit limitation provision of the policy is a condition precedent to recovery under a policy. Although Illinois law recognizes suit limitation periods as valid contractual provisions in insurance contracts, there are restrictions on such limitations provisions, including waiver, estoppel, and statutory provisions.

Waiver

Under Illinois law, it is well-established that insureds “bear the burden of knowing the contents of their insurance polices,” and that “[e]ven if they do not read the policy, they are deemed to know the information the policy contains.” Babiarz v. Stearns, 57 N.E.3d 639, 653 (1st Dist. 2016). In other words, the “insured cannot blame the insurance company for its failure to read the policy to discover the requirements for bringing suit.

It is not the duty of the insurer to inform the insured of his duties.” Foamcraft, Inc. v. First State Ins. Co., 238 Ill. App. 3d 791, 793-94 (1st Dist. 1992).

Estoppel

Western Venture argued that Great Lakes was estopped from enforcing the suit limitation provision based on Great Lakes’ conduct. More specifically, under Illinois law, estoppel is based upon an insurer’s conduct that misleads the insured to his detriment. Western Venture does not point to any evidence in the record raising a reasonable inference that Great Lakes lulled it into a false sense of security and encouraged it to delay filing a lawsuit. Instead, Western Venture relies on Brian Flisk’s affidavit, who testified that he did not remember any statements from Great Lakes that misled him and that no one ever told him that he did not need to file a lawsuit within a year. As a result, viewing the evidence and all reasonable inferences in Western Venture’s favor, Western Venture has not established its estoppel defense.

Because Western Venture’s insurance coverage claims are untimely, the Court granted Great Lakes’ summary judgment as to all counts in its Second Amended Complaint for Declaratory Judgment and all insurance coverage claims alleged in Western Venture’s Second Amended Counterclaim.

Breach of Contract Counterclaim

In Count V of the Second Amended Counterclaim, Western Venture alleges a breach of contract claim. Under Illinois law, a breach of contract claim has four elements: (1) the existence of a valid and enforceable contract; (2) plaintiff’s substantial performance; (3) defendant’s breach of contract; and (4) resultant damages. See Dual-Temp of Ill., Inc. v. Hench Control, Inc., 821 F.3d 866, 869 (7th Cir. 2016); Hess v. Bresney, 784 F.3d 1154, 1158-59 (7th Cir. 2015).

In its Second Amended Counterclaim, Western Venture alleges that it timely sought payment from Great Lakes for the hail and wind damage, and that Great Lakes refused to pay the damages in breach of the Policy. As discussed in detail above, Western Venture’s allegations are not supported by the evidence in the record, namely, that it timely sought payment for the loss under the Policy.

Moreover, Western Venture does not address its breach of contract claim in its legal memoranda, therefore, it has abandoned this claim. See Citizens for Appropriate Rural Roads v. Foxx, 815 F.3d 1068, 1078 (7th Cir. 2016); Steen v. Myers, 486 F.3d 1017, 1020 (7th Cir. 2007).

Based on the undisputed facts, Western Venture’s breach of contract claim is without merit. The Court granted Great Lakes’ summary judgment motion in this respect.

Western Venture failed to point to any circumstantial or direct evidence in the record regarding Great Lakes’ intent – in any context – let alone that Great Lakes intended to induce Western Venture’s reliance on its alleged failure to supply the entire Policy at issue in this lawsuit.

Finally, Western Venture’s argument does not square with Illinois insurance law, which places a burden on the insured to know its needs for coverage and the contents of its insurance policies.

Construing the evidence and all reasonable inferences in Western Venture’s favor, the Court granted Great Lakes’ summary judgment motion as to the ICFA claim.

ZALMA OPINION

Western Venture, took its time to attempt to prove its loss to its insurer, and ignore the private limitation of action provision in the policy. Since the evidence was clear that they did not file suit within a year – and since Illinois does not toll the running of the limitation provision as does California – the failure to act promptly and understand the limitations of the policy was fatal to the claims. Everyone presenting a claim must read and understand their policies or meet the same fate as Western Venture.

 

ZALMA-INS-CONSULT © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business. Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972 Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

 

 

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A Broad Exclusion Does Not Make Insurance Illusory

Chlorine Is a Pollutant

When a claim is denied based on a clear and unambiguous exclusion like the “Total Pollution Exclusion” the insured seeks coverage by claiming the policy was illusory and the exclusion should not be enforced or or that it did not meet the insured’s “reasonable expectations.” Of course, every insured who has never read an insurance policy, believe the policy should cover every possible loss.

That was the case in Atlantic Casualty Insurance Company v.  Edward Zymblosky, Edward Zymblosky, Jr., Edward Zymblosky, III And Gail Zymblosky; Boots & Hanks Towing & Wrecking; Boots & Hanks Towing & Wrecking Service; Books & Hanks, Inc.; Heidi Houser, Robert Houser, Dorothy Houser, Delbert Houser, Mary Ogden, Mary Irwin And Thomas Irwin, Individually And As Parents And Natural Guardians Of E.I., A Minor; Ben  Weitsman & Son, Inc., Ben Weitsman & Son Of Scranton, Llc; Ben Weitsman Of Scranton; Upstate Shredding, LLC, Upstate Shredding Disc., Inc., Appeal Of: Heidi Houser And Robert Houser; Dorothy Houser And Delbert Houser; Mary Ogden; Mary Irwin And Thomas Irwin, Individually And As Parents And Natural Guardians Of E.I., A Minor, J-A09018-17 No. 1167 MDA 2016, Superior Court Of Pennsylvania (JULY 17, 2017) where many people needed insurance to pay for their injuries tried to make Atlantic Casualty Insurance Company (Atlantic) pay for damages they never agreed to defend or indemnify.

Atlantic filed a declaratory judgment complaint pursuant to 42 Pa.C.S. § 7531, et. seq., against Appellants and other involved parties. In its declaratory judgment complaint, Atlantic asserted that it had no duty to defend or indemnify any party in the underlying action of Heidi Houser, et. al. v. Boots & Hanks Towing & Wrecking Service, et. al., No. 2013 CV 6433 (“The Underlying Action”).

FACTS

The Underlying Action was filed on May 16, 2014 by Appellants. The underlying defendants allegedly operated a scrap metal recycling facility pursuant to a lease with one or more of the Zymblosky Defendants. On November 28, 2011, the Weitsman Defendants engaged in an operation involving scrap metal and negligently caused chlorine gas to release from a cylinder/tank/vessel stored on the property, which, in turn, released the gas into the air and created a cloud of chlorine gas to form.  All [Appellants] claim they were exposed to the cloud of chlorine gas and as a result, suffered injuries.

Atlantic is involved in the Underlying Action because it issued an insurance policy (“the Policy”) for the salvage yard located on the property owned by the Zymblosky Defendants.  The Policy contained a “Total Pollution Exclusion Endorsement,” which excluded coverage for the event at issue in the Underlying Action. For this reason, Atlantic filed a Complaint on February 18, 2015, for Declaratory Judgment that it has no duty to defend or indemnify any party in the Underlying Action.

The trial court issued an order on June 15, 2016, granting Atlantic’s motion for summary judgment and entering judgment in favor of Atlantic.

ANALYSIS

The proper construction of an insurance policy is resolved as a matter of law to be decided by the court in a declaratory judgment action. Both the duty to defend and the duty to indemnify may be resolved in a declaratory judgment action.

It is well established that an insurer’s duties under an insurance policy are triggered by the language of the complaint against the insured. In determining whether an insurer’s duties are triggered, the factual allegations in the underlying complaint are taken as true and liberally construed in favor of the insured.

The obligation of an insurer to defend an action against the insured is fixed solely by the allegations in the underlying complaint. As long as a complaint alleges an injury which may be within the scope of the policy, the insurer must defend its insured until the claim is confined to a recovery the policy does not cover.

The particular cause of action that a complainant pleads is not determinative of whether coverage has been triggered. Instead it is necessary to look at the factual allegations contained in the complaint. If the court was to allow the manner in which the complainant frames the request for damages to control the coverage question, the court would permit insureds to circumvent exclusions that are clearly part of the policy of insurance. The insured would receive coverage neither party intended and for which the insured was not charged.

If an insurer does not have a duty to defend, it does not have a duty to indemnify. However, both duties flow from a determination that the complaint triggers coverage.

IS THE COVERAGE ILLUSORY?

Appellants argued that the total pollution exclusion contained within the insurance policy renders the coverage illusory and as such, is void against public policy. Appellants argue that the total pollution exclusion would bar almost all claims by the Zymbloskys due to the nature of their business, rendering the policy useless. According to Appellants, the entire nature of the Zymblosky’s business is to recycle, reclaim, and/or recondition materials.

Therefore, almost all foreseeable injury or property damage would have been caused in part by the movement of waste/scrap metal on the property and therefore be excluded from coverage pursuant to the total pollution exclusion. However, Appellants failed to present evidence demonstrating why chlorine gas should not be considered a pollutant or contaminant as defined by Atlantic’s policy. In fact, the only evidence presented to the court favors defining chlorine as a pollutant. It is undisputed that chlorine gas is a dangerous and potentially deadly chemical. For these reasons, the trial court found that chlorine gas is a potentially hazardous and toxic material. Therefore, chlorine is an irritant or contaminant constituting a pollutant under the Policy.

Generally, courts must give plain meaning to a clear and unambiguous contract provision unless to do so would be contrary to a clearly expressed public policy.

Insurance coverage is considered “illusory” where the insured purchases no effective protection. An insurance policy is not illusory if it provides coverage for some acts; it is not illusory simply because of a potentially wide exclusion. Coverage under an insurance policy is not illusory unless the policy would not pay benefits under any reasonably expected set of circumstances. Contracts are illusory when one party exploits the other; where the contracts are hopelessly or deceptively one-sided.

Atlantic has presented two such potential scenarios where the policy would provide coverage:

1)            where a customer or invitee suffered a slip and fall on the premises due to an irregular physical condition of the premise’s surface area due to poor maintenance; or

2)            where a customer or invitee was on the premises while the insured was doing demolition work on a vehicle and the customer or invitee was injured by such process.

Accordingly, the appellate court concluded that the total pollution exclusion would not bar “almost all claims” made under the policy. Even assuming, arguendo, that the pollution exclusion is a potentially wide exclusion, the coverage still is not illusory because it will provide coverage under other reasonably expected sets of circumstances. Thus, the exclusion does not render the coverage illusory in contravention of public policy. Appellants’ claim therefore fails.

The trial court concluded that the reasonable expectations doctrine is inapplicable and does not void the total pollution exclusion endorsement in the policy. Specifically, the trial court found that the broker’s alleged deception did not cause the Zymbloskys to reasonably believe that the injuries due to pollutant exposure were covered under the policy, as there was no ambiguity in the policy’s exclusion of coverage for bodily injury caused by a pollutant.

Accordingly the trial court’s decision was affirmed.

ZALMA OPINION

Insurance is a contract. It should be interpreted as written if clear and unambiguous. The absolute pollution exclusion clearly excluded coverage for injuries caused by the escape of a dangerous and deadly pollutant, Chlorine, used as a weapon in Syria and was obviously a pollutant that was excluded. The attempt to create coverage by claiming the policy was illusory was in my opinion contumacious.

ZALMA-INS-CONSULT © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business. Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972 Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

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Zalma’s Insurance Fraud Letter – July 15, 2017

 STOLI Fraudsters Can’t Get Back Premiums Paid

In the last 50 years that I have been in the business of insurance I have learned the one thing that is a certainty: the quality of insurance fraud perpetrators is almost non-existent. That means that it is so easy to steal from insurance companies that amateurs with no skills are jumping into the business of defrauding insurers. If the insurance industry learns enough about insurance fraud and defeats the claims of the amateurs the professional fraud perpetrators will go away and work easier crimes. If not, they will continue to bleed the insurance industry.

It has been my desire, for the last 21 years that I have published Zalma’s Insurance Fraud Letter to help in the effort to make insurance fraud more difficult for the perpetrators and reduce what fraud takes from the insurance industry. To help anyone interested to be an insurance professional I have created two courses that will make the student a certified insurance expert for Illumeo.com


 The Current Issue Contains the Following

  • STOLI Fraudsters Can’t Get Back Premiums Paid
  •  Certified Expert in Corporate Property Insurance and Certified Expert in Corporate Liability Insurance
  • Stupid & Vicious Attempt at Insurance Fraud Fails
  • Books by Barry Zalma
  • False Material Statement in EUO Sufficient to Deny Claims
  • Barry Zalma Speaks at Your Request
  • What is Insurance?
  • E-Books from Barry Zalma
  • How Big Is Insurance Fraud
  • The Zalma Insurance Claims Library
  • Wisdom
  • Barry Zalma
  • Good News From the Coalition Against Insurance Fraud
  • Health Insurance Fraud Convictions
  • Other Insurance Fraud Convictions
  • Insurance and the Lawyer
  • Books from the American Bar Association
  • Why Fraud Is Unfair

Consultant & Expert: Zalma Insurance Consultants

(ZIC) makes available Barry Zalma’s more than 50 years of practical insurance claims experience to serve those who are faced with an insurance claims or coverage dispute.  ZIC will assist its clients to resolve any insurance problem faced by lawyers representing insurers, lawyers representing policyholders, insurance claims management, insurance claims personnel, and those they seek to serve. The experience and skill of Mr. Zalma as a consultant and expert witness can make the difference before a jury, other trier of fact, or mediator.

Barry Zalma founded ZIC to help resolve every insurance claim problem faced by you or your clients. His experience and skill as a consultant and expert witness can make the difference before a jury or other trier of fact. For more than 48 years as a claims person and insurance coverage attorney, Barry Zalma has represented insurers, advised insurers on claims handling, interpreted coverages and testified as an insurance coverage, insurance bad faith, insurance claims handling and insurance fraud expert on behalf of insurers and policy holders’ suing insurers.

THE “ZALMA ON INSURANCE” BLOG

The most recent posts to the daily blog, Zalma on Insurance, are available at http://zalma.com/blog

Check in every day for a case digest at http://zalma.com/blog

Zalma’s Insurance 101

I have completed a video blog called that consist of 1022 three to four minute videos starting with “What is Insurance” and moving forward to insurance fraud investigations explaining the basics of insurance and insurance claims handling in a painless fashion that can be viewed every morning with the first cup of coffee at  Zalma’s Insurance 101.

Some of the 1,022 videos follow: If you start at Volume 1 at the bottom of the blog’s first page and view one or two videos a day you will have approximately 12 to 24 hours of training a year until you get to the last video.

The videoblog is adapted from my book, Insurance Claims: A Comprehensive Guide available at the Zalma Insurance Claims Library.

 New Blog: 

Insurance Law Commentary

You can see video commentary and read two serialized novels at http://zalma.com/insvideo. “Arson for Profit” and“Murder & Insurance Fraud Don’t Mix”

ZALMA-INS-CONSULT © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business. Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972 Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

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Duty to Defend Additional Insured

Additional Insured May Attempt To Create Coverage by a Cross Claim

Insurance is a risk transfer device. General contractors use that risk transfer device by requiring its subcontractors to cause the general contract to be named as an additional insured on the policy issued to the subcontractor reducing its need for insurance or the cost of insurance purchased to protect against its own exposures.

In Pekin Insurance Company v. Johnson-Downs Construction, Inc., an Illinois Corporation; Cincinnati Insurance Company, a Foreign Insurance Corporation; and Jeff Barnett, Appellate Court Of Illinois Third District, 2017 IL App (3d) 160601 (July 6, 2017) defendant Johnson-Downs Construction, Inc. (Johnson-Downs), entered into a construction contract with Art’s Landscaping, Inc. (Art’s).

Jeff Barnett, an Art’s employee, was injured at the site and sued Johnson-Downs for construction negligence. Pekin Insurance Company (Pekin) filed a declaratory judgment action in Will County circuit court claiming it did not have a duty to defend Johnson-Downs as an additional insured under Art’s insurance policy. Johnson-Downs filed a motion to stay the action pending the resolution of the underlying case, which the trial court granted.

FACTS

Defendant Johnson-Downs entered into a contract with Art’s, in which Art’s would perform work on the construction of an addition to the Riverside Hospital in Kankakee, Illinois. Section 13.4 of the contract stated that Art’s was required to name Johnson-Downs as an additional insured on its liability insurance policy. Art’s had an insurance policy through Pekin Insurance Company. The relevant portion of the policy regarding additional insured states:

“ADDITIONAL INSURED— OWNERS, LESSEES OR CONTRACTORS— WHEN REQUIRED IN  CONSTRUCTION AGREEMENT WITH YOU PRIMARY AND NONCONTRIBUTORY
This endorsement modifies insurance provided under the following:

“COMMERCIAL GENERAL LIABILITY COVERAGE PART

“1. Section II—Who Is An Insured is amended to include as an insured any person or organization for whom you are performing operations, when you and such person or organization have agreed in a written contract effective during the policy period stated on the Declarations Page (hereinafter referred to as the ‘Policy Period’) and executed prior to the ‘bodily injury’ or ‘property damage’ for which coverage is sought, that you must add that person or organization as an additional insured on a policy of liability insurance (hereinafter referred to as the ‘Additional Insured’). The Additional Insured is covered only with respect to vicarious liability for ‘bodily injury’ or ‘property damage’ imputed from You to the Additional Insured as a proximate result of your ongoing operations performed for that Additional Insured during the Policy Period.” (Emphasis added.)

Barnett filed a suit against Johnson-Downs alleging construction negligence and premises liability. At the time, Johnson-Downs was the only named defendant. Cincinnati Insurance Company, Johnson-Downs’s insurer, tendered the complaint to Pekin for a defense and indemnification. Since May 2013, Pekin has defended Johnson-Downs under its reservation of rights.

ANALYSIS

A circuit court may grant a motion to stay as part of its inherent authority to control the disposition of cases before it. Cullinan v. Fehrenbacher, 2012 IL App (3d) 120005, ¶ 10.

Specifically, any determination of ultimate facts upon which liability or recovery might be found in an underlying case is precluded from review by an appellate court.

In Johnson-Downs’s motion to stay, it requested that the trial court stay Pekin’s declaratory judgment action because Pekin’s count II allegation presents an issue of ultimate fact critical to the underlying case. Count II claims that Pekin does not owe a duty to defend Johnson-Downs because the insurance policy states that an additional insured is only covered for vicarious liability claims and the underlying complaint lacks such allegations.

Since this can be decided without examining the extent of Johnson-Downs’s supervisory control over Art’s alleged negligent acts and, ultimately, determining whether Johnson-Downs is in fact vicariously liable. The appellate court found that the trial court abused its discretion in granting the motion to stay and the declaratory judgment action can proceed to resolution prior to the conclusion of the underlying suit.

THIRD-PARTY COMPLAINT

Pekin argues that Johnson-Downs’s third-party complaint against Barnett cannot be considered by the trial court in its determination because the complaint was prepared by a putative additional insured seeking coverage under the policy in violation of case law.

A trial court may consider evidence beyond the underlying complaint, including a third-party complaint. However, there are exceptions that prohibit the review of third-party complaints. A putative additional insured could not reference his third-party complaint as a way to bolster coverage under the insurance policy. National Fire Insurance of Hartford v. Walsh Construction Co., 392 Ill. App. 3d 312, 322 (2009).

Johnson-Downs, the putative additional insured and the author of the third-party complaint, is requesting the trial court to consider its own complaint in the trial court’s determination of Pekin’s duty to defend. Pekin contended that Johnson-Downs cannot present its own complaint to bolster its position that a claim of vicarious liability is present in the underlying case. After review the appellate court instructed the trial court not to consider Johnson-Downs’s third-party complaint in its determination of Pekin’s duty to defend.

AMENDED COMPLAINT

Pekin argues that Barnett’s amended complaint was a transparent attempt to plead into coverage and, therefore, should not be considered in the trial court’s determination. In Illinois, a pleading is not a transparent attempt to plead into coverage when the facts support a cause of action.

In this case, the amended complaint alleges that Art’s failure to maintain equipment and working conditions resulted in Barnett’s injuries and that Johnson-Downs, as the general contractor, exercised control over Art’s such that Johnson-Downs was liable for Art’s negligent acts and omissions.

The insurance policy covers claims of vicarious liability imputed to Johnson-Downs as a proximate result of Art’s acts or omissions in its performance for Johnson-Downs. We believe the factual allegations in the amended complaint state a vicarious liability claim that falls within the coverage of the insurance policy, and therefore, Barnett’s amended complaint was not an improper or unsupported attempt to plead into coverage. Moreover, the facts supporting the amended claim were present in an undifferentiated form in Barnett’s original complaint. Accordingly, the appellate court instructed the trial court that it may consider Barnett’s amended complaint in its duty to defend determination.

ZALMA OPINION

The additional insured tried to bring coverage by filing a cross-claim alleging vicarious liability. That failed because it was blatantly a pleading into coverage. However, the actions of the plaintiff in the underlying case – attempting to increase its ability to recover damages by drawing in additional coverage – amended its complaint to allege facts that expressed vicarious liability and bring the Pekin policy into coverage. The trial court has its instructions and will consider the underlying plaintiff’s pleadings that will potentially require Pekin to continue to defend and indemnify Johnson-Downs as an additional insured.

 

 

ZALMA-INS-CONSULT © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business. Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972 Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

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Professional Services Exclusion

Insurer v. Insurer

It is seldom wise for one insurer to sue another over a coverage issue since the decision – whether successful or nor – can set a precedent that is not favorable to the plaintiff. This is the second post where the professional services exclusion came into play and, had it been read by the plaintiff, might have avoided the lawsuit in its entirety.

In Energy Insurance Mutual Limited V. Ace American Insurance
Company, A140656, Court of Appeal of the State of California First Appellate District Division Four (July 11, 2017) the unfavorable decision made clear the application of a “professional services” endorsement in California and cost the two litigating insurers a great deal of money in legal services that should probably have been resolved by a negotiated settlement between the insurers.

BACKGROUND

The insurance coverage dispute arose from a massive explosion that occurred when an unmarked petroleum pipeline was struck by an excavator. Numerous lawsuits were filed against a range of defendants, including the pipeline owner and the staffing agency providing personnel to the pipeline. After settling the lawsuits against the pipeline owner, an excess insurer for the pipeline sought to recover defense costs and settlement payments from the staffing agency’s insurer. The staffing agency’s excess insurance policy excluded damages arising from professional services.

Kinder Morgan, Inc., together with its affiliated companies (Kinder Morgan), owns and operates thousands of miles of oil and gas pipelines. Comforce Corporation (Comforce) is a staffing company that supplies businesses with temporary employees in a variety of contexts. Comforce has been providing employees to Kinder Morgan entities since the late 1980s. ACE American Insurance Company (ACE) insured Comforce under a primary commercial general liability (CGL) policy with a limit of $1 million per occurrence. ACE also issued Comforce a stand-alone “Commercial Umbrella Liability Policy” (the umbrella policy) with a $25 million limit per occurrence. The umbrella policy contained a professional services exclusion regarding claims arising out of the provision or failure to provide “services of a professional nature.”

In keeping with their long-standing business relationship, Kinder Morgan hired two temporary employees through Comforce to work as construction inspectors on a large water supply line project being constructed for the East Bay Municipal Utility District (EBMUD) in Walnut Creek. Kinder Morgan selected and trained the inspectors. Though not required, an ideal inspector would have had a minimum of 10 years of experience in petrochemicals and/or a bachelor’s degree in mechanical, civil, or electrical engineering.

On November 9, 2004, an excavator operated by Mountain Cascade, Inc. (MCI), EDMUD’s contractor at the Walnut Creek project, punctured a high-pressured petroleum line owned by Kinder Morgan. Gasoline was released into the pipe trench and was ignited by the welding activities of Matamoros Pipelines, Inc., a subcontractor working for MCI. The resulting explosion and fire killed five employees and seriously injured four other employees. Extensive property damage also occurred.

Cal/OSHA issued two “Serious Willful” citations to Kinder Morgan due to the failure of its employees to mark the location of the petroleum pipeline prior to the excavation activities to install the water line. Cal/OSHA also determined that Kinder Morgan “employees were aware that an unsafe condition existed and failed to assure that the utility was clearly marked which would have resulted in its relocation or other appropriate measures to safeguard employees.”

Numerous wrongful death and personal injury lawsuits were filed. The underlying lawsuits largely alleged that the pipeline rupture was caused by the negligence of the parties, including Kinder Morgan and Comforce, in failing to identify and mark the location of the Kinder Morgan pipeline, and by failing to properly supervise contractors who were working near the pipeline.

Each of the underlying lawsuits against Kinder Morgan was settled prior to trial. When the AEGIS policy limit was exhausted through payments of defense costs and settlements, EIM agreed to pay more than $30 million to reimburse Kinder Morgan for the settlements resolving the underlying lawsuits.

THE COVERAGE DISPUTE

EIM commenced this action against ACE on March 16, 2011, seeking full reimbursement of the payments it made to Kinder Morgan under its excess policy, up to the full $25 million limit of Comforce’s umbrella policy with ACE.

The trial court granted ACE’s motion on the grounds that the claims in the underlying litigation fell within the ambit of the professional services exclusion, which the court found was set forth in “clear” policy language.

DISCUSSION

“Interpretation of an insurance policy is primarily a judicial function. When the trial court’s interpretation did not depend upon conflicting extrinsic evidence, the reviewing court makes its own independent determination of the policy’s meaning.” (Armstrong World Industries, Inc. v. Aetna Casualty & Surety Co. (1996) 45 Cal.App.4th 1, 35-36 (Armstrong).) ” ‘ “While insurance contracts have special features, they are still contracts to which the ordinary rules of contractual interpretation apply.” Words in an insurance policy are to be interpreted as a layperson would interpret them, in their ordinary and popular sense. Whether policy language is ambiguous is a question of law.

THE PROFESSIONAL SERVICES EXCLUSION
EIM contends that the professional liability exclusion in ACE’s policy is “ill-defined” and should not be enforced. The policy exclusion is contained in an endorsement entitled “Professional Liability Exclusion,” which states that it “modifies insurance provided” under the commercial umbrella liability policy. The exclusion specifies: “This insurance does not apply to any liability arising out of the providing or failing to provide any services of a professional nature.” The policy does not further define professional liability or “services of a professional nature.”

Although California courts have defined “professional services” as those arising out of a vocation, calling, occupation, or employment involving specialized knowledge, labor, or skill, EIM argues that application of the professional services exclusion has generally been limited to ear-piercers and plumbers who sought coverage outside of the general liability context.

The activities involved in owning and operating a pipeline, including mapping and marking underground installations are clearly analogous to other skilled services that have been held to be “professional services.”  Construction inspectors were required to have specialized knowledge in various facets of pipeline construction, including understanding and interpreting construction maps, drawings, and blueprints; ideal training would have included a minimum of 10 years of experience in petrochemicals, and/or a bachelor’s degree in mechanical, civil, or electrical engineering. The tasks assigned to construction inspectors and line riders reflect the professional nature of the services they were expected to render.

The failure to mark the pipeline squarely falls within the ambit of the professional services exclusion. Nevertheless, EIM asserts that the professional services exclusion does not apply.

Although exclusions are generally construed narrowly the underlying personal injury and wrongful death actions theoretically raise some claims that do not arise out of Comforce’s and Kinder Morgan’s provision of or failure to provide professional services. However, where allegations in a complaint are inseparably intertwined with noncovered conduct, there is no coverage even where the nature of a particular claim appears to be covered. Ultimately, it is the nature of the conduct that governs whether an exclusion applies. Thus, although the underlying cases also allege ordinary negligent acts and other causes of action, the gravamen of the actions is that Comforce and Kinder Morgan failed to mark the pipeline, the very thing they were required to perform at the site. It is Comforce’s and Kinder Morgan’s failure to render professional services that comprises the basis of the underlying lawsuits.

There is evidence that both the named insured (Comforce) and the additional insured (Kinder Morgan) were tasked with providing professional services in connection with the pipeline. In the underlying litigation, both Kinder Morgan and Comforce are alleged to have failed to locate and mark the pipeline. Further, it is undisputed that Kinder Morgan trained and supervised the inspectors it hired through Comforce. Moreover, it is undisputed that OSHA cited Kinder Morgan for “serious willful” violations of the California Code of Regulations as a result of the failure of its employees to locate and mark the underground pipeline.

In sum, the basic occurrence that caused the injuries (failure to mark the pipeline) was excluded from coverage by the CGL umbrella policy, and Kinder Morgan cannot obtain coverage.

THE PROFESSIONAL SERVICES EXCLUSION DOES NOT RENDER COVERAGE ILLUSORY

When all else failed EIM asserted the trial court failed to narrowly interpret the professional services exclusion and its broad interpretation withdrew so much of the basic coverage that it rendered the policy illusory.

The policy was not an errors and omissions policy, insuring against professional malpractice. Rather, Comforce’s policy was a business liability policy, which provided coverage for accidental occurrences involving ordinary negligence, not for professional negligence.

Since the professional liability exclusion did not withdraw virtually all of the coverage extended by the insuring agreement that defined Comforce’s business liability coverage the exclusion needed to be applied.

ZALMA OPINION

This lawsuit is an example of one insurer – that clearly provided coverage for claims against its insured for bodily injury and property damage – tried to lay off that coverage to another insurer: ACE. It failed because the ACE policy had a professional services exclusion that eliminated ACE’s obligation to defend or indemnify its insured. The entire action and appeal could have been avoided if EIM had simply read the exclusion as it would had it been in its policy.

 

ZALMA-INS-CONSULT © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business. Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972 Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

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Professional Services Exclusion Applies

When You Sleep With Dogs You Will Get Fleas

Scott Rothstein created a Ponzi Scheme through his law firm. He used the services of Gibraltar Private Bank and Trust Company to fund the scheme. When the Ponzi Scheme was discovered multiple criminal and civil actions ensued. Gibraltar, as part of a settlement, assigned its rights to sue its insurers to bankruptcy trustees. Apparently, before suing the insurers, the trustees did not seek the advice of an insurance coverage expert.

For many years I have advised against taking such an assignment until the proposed assignees determine from an expert that the assignment is one of a viable case and determine the assets of the assignor who could pay the damages claimed without seeking insurance money. If it was a good case against the insurers one would expect the insured, the bank, to bring the suit on their own.

In Herbert Stettin, Trustee, Robert C. Furr, Trustee, Michael I. Goldberg, not individually, but as Chapter 11 Trustee of the estate of the debtor, Rothstein Rosenfeldt Alder, P.a., Bayon Income Fund, LP., et al., v. National Union Fire Insurance Company of Pittsburgh, Pa, Twin City Fire Insurance Company, Aon Risk Services Inc. of Massachusetts, et al., No. 15-14716, United States Court of Appeals for the Eleventh Circuit, (July 5, 2017) the Eleventh Circuit  dealt with a demand the bank and its officers made for defense and indemnity to the suits brought by victims of the Ponzi Scheme.

FACTS

This appeal arose is another remnant of the Ponzi scheme orchestrated by Scott Rothstein through his law firm, Rothstein Rosenfeldt Adler. See, e.g., S.E.C. v. Levin, 849 F.3d 995 (11th Cir. 2017); Coquina Invs. v. TD Bank, N.A., 760 F.3d 1300 (11th Cir. 2014); In re Rothstein, Rosenfeldt, Adler, P.A., 717 F.3d 1205 (11th Cir. 2013).

The appeal arises out of litigation based on the alleged conduct of certain executives of Gibraltar Private Bank and Trust Company, at which RRA maintained accounts. Gibraltar and some of its executives were named as defendants in numerous suits seeking to recover for losses caused by Mr. Rothstein’s scheme. The bank and its officers requested that their insurance carriers, National Union Fire Insurance Company of Pittsburgh and Twin City Fire Insurance Company, extend coverage under Gibraltar’s executive and organization liability insurance policies towards a joint settlement of the claims.

When National Union and Twin City denied coverage, Gibraltar and its executives began settlement discussions without the insurance companies. The parties eventually reached a settlement, which included Gibraltar and the executives assigning their policy rights to the bankruptcy trustees of RRA and of other entities that lost money in the Ponzi scheme.

After the assignment, the trustees again unsuccessfully demanded coverage. The trustees then filed suit, asserting breach of contract and bad faith claims. National Union and Twin City moved to dismiss the action, arguing that coverage was barred by a “professional services exclusion” found in each of the policies. The district court agreed, and granted the insurers’ motions. The trustees now appeal.

THE POLICY

The National Union policy is the primary policy, while the Twin City policy is an excess policy that follows the primary policy’s relevant provisions. The terms of the policies are relatively straightforward. The policies provide for coverage for “the Loss of any Insured Person arising from a Claim made against such Insured Person for any Wrongful Act of such Insured Person, except when and to the extent the Organization has indemnified such an Insured Person.”

The policies also exempt “professional services” from coverage. The professional services exclusion reads as follows: “The Insurer shall not be liable to make any payment for Loss in connection with any Claim made against any Insured alleging, arising out of, based upon, or attributable to the Organization’s or any Insured’s performance of or failure to perform professional services for others, or any act(s), error(s) or omission(s) relating thereto.”

TRIAL COURT DECISION

The district court reasoned that the plain language of the exclusion barred coverage because some of the insured executives at Gibraltar provided professional banking services directly to RRA. A plain reading of the Professional Services Exclusion demonstrates that it bars coverage for any Claim made against any Insured arising out of any Insured’s performance or failure to perform professional services for others.

The trustees asked the Eleventh Circuit to reverse the trial court. They contended that the exclusion should be read severally, and therefore barring coverage only as to the claims against those insured executives who directly provided professional services to RRA. Under their reading, the district court erred because claims against executives who were merely responsible for internal managerial banking functions, like complying with federal reporting regulations, are not exempt from coverage.

ANALYSIS

The Eleventh Circuit concluded that the district court properly observed that the phrase any insured unambiguously expresses a contractual intent to create joint obligations. The phrase “any insured,” generally makes the obligations under an insurance provision “jointly rather than severally held” and unambiguously expresses a contractual intent to create joint obligations and to prohibit recovery by an innocent co-insured.

Understanding that the phrase “any insured” must be read in context, the Eleventh Circuit concluded that the district court correctly interpreted the exclusionary language. Here the professional services exclusion twice uses the phrase “any insured,” once in referring to the claim made and once in referring to the professional services rendered. And that evinces an intent to create joint obligations.

The insurance policies issued by National Union and Twin City do not contain a severability clause. That difference in policy language is fatal to the trustees’ argument and the trial court decision was affirmed.

ZALMA OPINION

The bankers laid down with Scott Rothstein and participated in his fraudulent scheme. They were sued and, recognizing their potential liability to the victims of Rothstein’s criminal scheme, settled with the trustees of the victims and, as consideration for the settlement, gave the Trustees an assignment that was unenforceable. The bank made a great deal and instead of money received a benefit by giving the trustees a worthless assignment of a claim against insurers.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business. Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972 Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

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To Save $34 Policy Rescinded

There is No Good Reason to Misrepresent Facts To Insurer

When an insurer evaluates the potential risks faced by an insured it needs to know the properties where the insureds live and, if they have more than one home, the identity and location of each home. Insurance premiums are calculated based upon the risks of loss that the insurer is assuming.

In Mount Vernon Fire Insurance Company v. Jack L. Gabelhausen, Jr., and the Estate of Judith Gabelhausen, United States District Court for the District of Montana, Missoula Division, CV 16-91-M-DLC (July 10, 2017) the USDC for the District of Montana was asked to require an umbrella insurer to defend the insured while the insurer sought to rescind the policy because the insured failed to advise the insurer of its residence where the accident that resulted in a suit occurred.

BACKGROUND

On March 7, 2014, Jeff Wycoff (“Wycoff”) was allegedly catastrophically injured when he fell 25 feet off the edge of an infinity swimming pool at a house on the island of St. Thomas, in the United States Virgin Islands. The home was owned, in part, by Respondents Jack L. Gabelhausen, Jr., and his wife, Judith Gabelhausen1 (collectively, “the Gabelhausens”). At the time, the Gabelhausens were renting the St. Thomas property to a third-party for a wedding.

On October 20, 2015, Wycoff filed suit against the Gabelhausens, as well as the co-owner of the St. Thomas property, Jim Schueler (“Schueler”), in the District Court of the Virgin Islands, Division of St. Thomas and St. John. The complaint in that case alleges that the St. Thomas property was maintained in a dangerous condition by the Gabelhausens and Schueler, and Wycoff was injured as a result.

The Gabelhausens had a $1 million primary policy with Guardian. In addition to the Guardian policy, the Gabelhausens had also purchased an insurance policy for personal umbrella liability coverage (the “umbrella policy”) with Petitioner Mount Vernon Fire Insurance Company (“Mount Vernon”). This umbrella policy was effective from January 29, 2014, through January 29, 2015, and provided $5,000,000 in personal umbrella liability coverage.

From January 2007 to January 2014, the Umbrella policy premiums were actuarially based on the insurance company’s understanding that the Gabelhausens only owned two homes. It is undisputed that prior to the 2014 policy period, the Gabelhausens provided no notice that they were partial owners of the St. Thomas property.

In light of Wycoff’s accident and the subsequent civil suit, Mount Vernon filed a petition for declaratory relief pursuant to 28 U.S.C. § 2201(a). This petition requests rescission of the umbrella policy due to Respondents’ alleged misrepresentations concerning their ownership of the St. Thomas property.

ANALYSIS

The parties have put forth multiple arguments in support of their cross-motions for summary judgment. Mount Vernon contends that the umbrella policy should be rescinded based on material misrepresentations by the Gabelhausens concerning the number of residences they owned.

Mount Vernon also asks requests that the Court rescind the policy due to the Gabelhausens’ failure to inform the company about the St. Thomas property. Thus, even if the Gabelhausens were absolved of liability in the underlying Wycoff litigation, and the issue of coverage for the accident became moot, Mount Vernon’s rescission claim would continue in this case.

RESCISSION

Rescission of an insurance contract is permitted pursuant to Montana Code Annotated (“MCA”) § 33-15-403. Steinback v. Bankers Life and Cas. Co., 15 P.3d 872, 874 (Mont. 2000) (Montana Supreme Court affirmed district court’s ruling that insurance company was entitled to rescind policy pursuant to MCA § 33-15-403). Subsection 403(2) provides that: “Misrepresentations, omissions, concealment of facts, and incorrect statements do not prevent a recovery under the policy or contract unless: ¶ (a) fraudulent; ¶ (b) material either to the acceptance of the risk or to the hazard assumed by the insurer; or ¶ (c) the insurer in good faith would either not have issued the policy or contract or would not have issued a policy or contract in as large an amount or at the same premium or rate or would not have provided coverage with respect to the hazard resulting in the loss if the true facts had been made known to the insurer as required either by the application for the policy or contract or otherwise.”

Mount Vernon asserts that rescission of the umbrella policy is warranted under MCA § 33-15-403(2)(c), because in good faith, it would not have issued the umbrella policy at the same premium if the Gabelhausens would have disclosed their ownership interest in the St. Thomas property as required by the application for the policy and the policy itself.

In support of its argument, Mount Vernon submitted an affidavit from Brian Hogan (“Hogan”), Vice President-Product Team Personal Lines for United States Liability Insurance Group (“USLI”). Mount Vernon is an underwriting company owned by USLI. Hogan averred that the Gabelhausens did not provide notice of the St. Thomas property until after the March 2014 accident. The policy premiums from January 2007 to January 2015 did not take into account the Gabelhausens’ ownership interest in the St. Thomas property. Hogan averred that had Mount Vernon known about the St. Thomas residence, “it would have charged [Mr.] Gabelhausen an additional premium of $34 to reflect the underwriting risk of owning” the St. Thomas property.

MATERIALITY AND GOOD FAITH

An omission or misrepresentation may be material if, had the truth been known, the reasonable and prudent insurer would not have issued the policy or would have issued it at a higher premium. The Gabelhausens’ failure to disclose the St. Thomas property was a material omission if, had Mount Vernon known about the property, it would have issued the umbrella policy at a higher premium.

The Gabelhausens have failed to put forth any competing evidence that Mount Vernon would not have charged a higher premium for the umbrella policy had it known about the St. Thomas property. Hogan’s clearly testified that the addition of the St. Thomas property would have warranted and resulted in an increased premium.

AMBIGUITY OF THE TERM “RESIDENCE”

The Gabelhausens also contend that rescission of the umbrella policy is precluded because the term residence is ambiguous. However, if the language of the policy is clear and explicit, a court may not rewrite it and must enforce the policy as written. Courts will not distort contractual language to create an ambiguity where none exists.

The Court agreed with the Gabelhausens that the policy renewal forms do not define “residence.” However, the policy itself clearly provides a definition for “Residence,” and this definition precludes the Gabelhausens’ secondary argument that a reasonable consumer of insurance would be confused by the term “residence.” A reasonable consumer of insurance who believes that three residences are listed under an umbrella policy would take note of the fact that only two residences are listed. It is just as unreasonable to expect coverage for three homes when only two are clearly listed

The court concluded that Mount Vernon is entitled to rescind the umbrella policy.

ZALMA OPINION

Whenever an insured applies for insurance he or she is required by the covenant of good faith and fair dealing to honestly respond to all inquiries asked by the insurer and advise the insurer of material facts so that it can adequately charge a premium appropriate to the risks the insurer is asked to take. In this case, the failure to advise the insurer of a residence saved the insured $34 in premium and cost them up to $5 million in coverage.

 

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

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Fraud is a Defense & a Crime

False Material Statement in EUO Sufficient to Deny Claim

In the last 50 years of my work in insurance the inadequacy of insurance fraud perpetrators seems to grow. That, as inadequate and incompetent they are in committing fraud the latest group of fraudsters have the unmitigated chutzpah to file suit for breach of contract and bad faith when their criminal conduct is established.

In John Cordell Young, Jr. v. Progressive Casualty Insurance Company, Case: 1:16-CV-01198-DWM, United States District Court for the Eastern District of California, (June 6, 2017) the USDC was faced with a motion for summary judgment filed by the insurer seeking a judgment that it owed nothing because of the fraud attempted by the insureds.

FACTS

On Monday, November 10, 2014, Young provided notice to Progressive of the theft of his 1961 GMC “diesel pusher” motor home. Law enforcement recovered the motor home from a canal where it had been submerged that same day. The motor home was missing its license plates and its Vehicle Identification Number tag. The steering wheel had been tied to keep the motor home driving straight, and a pole had been wedged against the accelerator. The motor home was insured under a Progressive California Motor Home Policy (the “Policy”). The Policy included comprehensive coverage with agreed value of $63,000 and a zero deductible.

Progressive assigned the investigation of the claim to its Special Investigation Unit (SIU) and, as part of its investigation, Progressive obtained cell phone records from phones belonging to Young, his wife, Anna Young, and his son, John Young III (“Young III”). These records showed that on November 10, 2014, at 4:03 a.m., the cell phone belonging to Young III was used near the cell phone tower that was the closest to the canal where the motor home was recovered.

Both Young and Young III participated in Examinations Under Oath (EUO) administered by Progressive as part of its investigation into Young’s theft claim. Young stated he believed his son’s cell phone was in the vicinity of the canal because it had been inadvertently left for the weekend in a truck belonging Young’s customer, Ed Amaral. However, Young III testified that he did not have any reason to believe he did not have his phone during that time, and also that he could not think of anyone else who would have made calls from his cell phone during that time. Subsequent analysis of cell phone records revealed that John Young III’s cell phone was being used on November 7, 8, 9, and 10 in Modesto California, and near Plaintiff’s home in Ceres, California.

On July 9, 2015, Progressive denied coverage for the claim on the grounds that Young made material misrepresentations during the investigation of the reported theft claim. Young filed suit against Progressive on July 13, 2016, alleging breach of contract and of the covenant of good faith and fair dealing, and requesting declaratory relief.

ANALYSIS

Progressive argues summary judgment is appropriate because (1) Young made a material misrepresentation regarding the theft claim, voiding coverage under the Policy and negating Young’s breach of contract claim; and (2) under California law, where there is no breach of the insurance contract there can be no claim for insurance bad faith.

Breach of Contract Claim

Young claims Progressive breached the insurance contract by failing to pay him for a loss covered under the Policy. Progressive argued that Young cannot prove his breach of contract claim because he knowingly misrepresented a material fact in the course of presenting his theft claim to Progressive, namely that he lied to Progressive about his son’s cell phone being in Ed Amaral’s truck during the time the motor home was sunk in the canal.

Under California law, if, during an insurance claim, an insured knowingly misrepresents material facts intending to deceive the insurer, coverage is voided. Cummings v. Fire Ins. Exchange, 202 Cal. App. 3d 1407, 1418-19 (1988). A misrepresentation is material if it “concerns a subject reasonably relevant to the insured’s investigation, and if a reasonable insurer would attach importance to the fact misrepresented.”(emphasis omitted). “[T]he intent to defraud the insurer is necessarily implied when the misrepresentation is material and the insured willfuly makes it with knowledge of its falsity.”

The undisputed facts showed that Young knowingly made a false statement. Additionally, the false statement was material. Whether Young III was in the vicinity of the sunken motor home at the time of its theft is directly relevant to establishing that the motor home had indeed been stolen or if it had been intentionally sunk by its owner. A reasonable insurer would attach significant importance to that fact in evaluating whether coverage was appropriate.

Because the undisputed facts show Young misrepresented a material fact during his insurance claim, coverage under the Policy was voided, and because coverage was voided, Young cannot succeed on a claim for breach of contract. The Policy explicitly provided for this possibility:

“We may deny coverage for an accident or loss if you or a person seeking coverage has concealed or misrepresented any material fact or circumstance or engaged in fraudulent conduct, in connection with the presentation or settlement of a claim.”

Summary judgment is therefore appropriate on the breach of contract claim.

INSURANCE BAD FAITH CLAIM (GOOD FAITH AND FAIR DEALING)

Under California law, a covenant of good faith and fair dealing is implied in every contract, including insurance policies. Maslo v. Ameriprise Auto & Home Ins., 227 Cal. App. 4th 626, 633 (2014).

To establish a breach of the implied covenant of good faith and fair dealing under California law, a plaintiff must show that (1) benefits due under the policy were withheld, and (2) the reason for withholding those benefits was unreasonable or without proper cause. An insurer denying or delaying the payment of policy benefits due to the existence of a genuine dispute with its insured as to the existence of coverage liability or the amount of the insured’s coverage claim is not liable in bad faith even though it might be liable for breach of contract.

Young’s material misrepresentation of the location of the cell phone voided coverage. Because no coverage was due under the Policy, Young’s bad faith claim cannot succeed. In addition, even assuming coverage was triggered, Progressive did not act in bad faith in denying it. Progressive initiated an investigation into the claim on being contacted by law enforcement. The circumstances of the motor home’s disappearance and subsequent recovery indicated it may have been sunk in the canal in attempt to commit insurance fraud.

Declaratory Judgment Claim

Even were coverage due, Progressive acted reasonably in thoroughly and promptly investigating the claim. Finally, Progressive’s request for oral argument is mooted by Young’s failure to oppose the motion.

ZALMA OPINION

Either father or son Young lied to their insurer at an examination under oath about the location of Young III at the time the motorhome was intentionally driven into a canal. Progressive, by its SIU, conducted a thorough investigation and determined that one or both members of the Young family lied and rightfully denied the claim for misrepresentation, concealment or fraud. Since the USDC judge found they acted fraudulently I can only wonder why he did not refer the Youngs to the Department of Justice for prosecution.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

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Demand Requires Prompt Report to E&O Insurer

“As Soon as Practical” is Not Nine Months

Errors and omissions (E&O) policies are usually “claims made” or “claims made and reported” policies. As a result, the insured is compelled to report any claim made against it promptly upon receiving a claim and in no event after the expiration of the policy period in which the claim was made.

In James River Insurance Company v. Timcal, Inc.,  and Fidelity National Property & Casualty Insurance Company, Appellate Court of Illinois First District Second Division, 2017 IL App (1st) 162116, No. 1-16-2116, (June 30, 2017) was asked to compel coverage even though evidence established that the first report of a claim came nine months after the loss.

In July 2012, TimCal, Inc., an insurance agent affiliated with Geico Direct Representatives, received from Fidelity National Property & Casualty Insurance Company a letter, charging TimCal with breach of its duties as an insurance agent and informing TimCal that Fidelity would seek to recover damages.

TimCal did not inform its professional liability insurer, James River Insurance Company, about the claim until April 2013. James River filed a complaint against TimCal and Fidelity, seeking a judgment declaring that it had no duty to defend or indemnify TimCal because TimCal failed to provide timely notice of Fidelity’s claim to James River. The circuit court granted James River’s motion for summary judgment.

BACKGROUND

In 2011, James River issued a professional liability insurance policy to Geico Direct Representatives. Under the policy, James River promised to provide coverage when an insurance agent affiliated with Geico Direct made an error in selling an insurance policy, and the error harmed either the insurance purchaser or the insurance seller.

In December 2011, TimCal arranged the sale to Dwayne Swimley of homeowner’s insurance from Fidelity. On April 5, 2012, a fire severely damaged Swimley’s home. Fidelity paid Swimley’s claim. Fidelity sent to TimCal a letter dated July 9, 2012, saying: The Swimley residence was constructed as a single family residence and was subsequently remodeled so that the second floor contained a separate apartment, complete with kitchen.  At the time he applied for insurance through TimCal, Swimley had 4 tenants or roomers residing at the insured premises. Fidelity accused TimCal of failing to properly  ensure that the proper information was collected for the application. Fidelity further stated that had it known that the residence actually contained two separate living units and four tenants, it would not have extended coverage for the residence. Fidelity further stated that it was damaged in the amount it will be required to pay Swimley for his claim for damages to the residence, which is presently reserved at $576,500.00. Finally, it demanded that TimCal report the loss to its E&O insurer.

In October 2013, James River sued TimCal and Fidelity, asking the court to enter a judgment declaring that James River had no duty to defend or indemnify TimCal in the anticipated lawsuit from Fidelity, due to lack of timely notice.

The circuit court agreed with James River’s assertion that the policy provided no coverage because TimCal failed to notify James River of the claim during the October 1, 2011, to October 1, 2012, policy period, and that the renewal policy, which covered October 1, 2012, to October 1, 2013, provided no coverage because TimCal knew of the claim by July 9, 2012, before the policy period began. The circuit court granted James River’s motion for summary judgment.

ANALYSIS

Fidelity argues on appeal that a material issue of fact remains as to when TimCal first reported the claim to James River and that both of James River’s policies include ambiguities that make summary judgment improper.

First Notice

James River supported its motion for summary judgment with two affidavits from James River employees, who explained their responsibilities in connection with TimCal’s claim. They averred that James River first received notice of Fidelity’s claim against TimCal on April 3, 2013. Fidelity admitted in its answer to the complaint that it had no evidence to either affirm or deny James River’s allegation that it first received notice of Fidelity’s claim against TimCal on April 3, 2013.

The James River policies define a claim as “a written demand for monetary damages.” Fidelity argues that we should not consider the letter of July 9, 2012, a claim because Fidelity did not demand a specific dollar amount of compensation ignoring that the letter sought whatever amount they would pay and advised TimCal of the amount it had reserved for the fire claim.

Our research uncovered one case interpreting a policy with the language used here. In Precis, Inc. v. Federal Insurance Co., 184 F. App’x 439 (5th Cir. 2006), the claimant, Kirk, sent a letter to Precis in December 2002, demanding compensation for damages that resulted from Precis’s alleged misconduct. Kirk said that the damages exceeded $1.5 million. The policy from Federal covering Precis defined a “claim” as “a written demand for monetary damages.” Precis, 184 F. App’x at 441. The Precis court said, “[t]he fact that Kirk does not propose a specific amount for settlement does not mean that the letter is not a demand for money.”

In the letter of July 9, 2012, Fidelity demanded payment of monetary damages, even though it did not specify a settlement amount or its total damages. The term “Claim” in the policies James River issued to Geico applies unambiguously to the letter Fidelity sent on July 9, 2012.

Timely Notice

Fidelity finds ambiguity in the policies’ requirement that TimCal had an obligation to provide notice of the claim during the policy period in which it received the claim. Both policies cover damages payable for claims “first made against the ‘Insured’ and reported to us in writing during the ‘Policy Period’.” The policies expressly define “Policy Period” as “the period of time shown in the Declarations.”

There is no ambiguity in the application of the terms of the policies to the claims here. Fidelity sent a written claim against TimCal to TimCal on July 9, 2012, within the policy period of the first policy, and TimCal did not report the claim to James River until April 3, 2013, long after the end of the policy period.

TimCal, by clear evidence, failed to report the claim to James River during the policy period in which Fidelity made the claim. Therefore, neither of the policies James River issued to Geico provides coverage for the claim.

The court noted that, apart from the failure to report the claim during the policy period in which Fidelity made the claim, TimCal also failed to report the claim “as soon as practicable, but in no event later than 60 days after the end of the ‘Policy Period’ of any ‘Claim’ made against you,” as the policies required.

Because TimCal failed to report the claim “as soon as practicable,” James River had no duty to defend or indemnify TimCal for the claim.

The letter Fidelity sent to TimCal in July 2012 unambiguously qualifies as a claim within the meaning of James River’s insurance policy. Because TimCal did not notify James River of the claim until April 2013, neither the 2011-12 policy nor the 2012-13 policy provides coverage for the claim.

ZALMA OPINION

An insurance agent, like TimCal, must be considered a professional who can read and understand an insurance policy. When the insured received a claim from Fidelity it, as an insurance professional, should have known it was obligated – as the demand letter stated – immediately report the loss to the E&O insurer. It did not. It ignored its obligation, and did not report the claim until after the policy expired and was replaced with a new policy, nine months after the loss.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

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Additional Insured May Not Recover for its Sole Negligence

Named Insured Must Be Liable for Additional Insured to Get Coverage

The purpose of additional insured coverage is to apportion risks. By hiring a subcontractor, a general contractor exposes itself to liability risks, including vicarious responsibility for its subcontractor’s negligence and additional insured endorsements represent a way to apportion contractually these risks. The rationale is to make the party with the most control over the risk responsible for suffering the financial loss should it fail to prevent the loss. Regardless of the intent facts control and not every additional insured endorsement provides coverage for the additional insured.

In The Burlington Insurance Company v. NYC Transit Authority, et al., Court of Appeals of New York, 2017 NY Slip Op 04384 (June 6, 2017) the Burlington Insurance Company (Burlington), issued an insurance policy to non-party Breaking Solutions, Inc. (BSI) listing as additional insureds defendants, the New York City Transit Authority (NYCTA) and MTA New York City Transit (MTA).

Burlington denied coverage to NYCTA and MTA on the grounds that defendants were not additional insureds within the meaning of the policy because NYCTA was solely responsible for the accident that caused the injury.

The Court of Appeal (the highest New York court) was asked to determine whether its interpretation of the policy requires that the additional insured language of the policy provides coverage where the named insured is not negligent.

FACTS

NYCTA contracted with BSI to provide equipment and personnel and for BSI to perform tunnel excavation work on a New York City subway construction project. To comply with NYCTA’s insurance requirements, BSI purchased commercial general liability insurance from Burlington with an endorsement that listed NYCTA, MTA, and New York City (City) as “additional insureds.” As specified by NYCTA, BSI agreed to use language in the endorsement adopted from the latest form issued by a trade organization known as the Insurance Services Office (ISO), and which provides, in relevant part, that NYCTA, MTA, and the City are additional insureds “only with respect to liability for ‘bodily injury’, ‘property damage’ or ‘personal and advertising injury’ caused, in whole or in part, by: ¶ 1. Your acts or omissions; or ¶ 2. The acts or omissions of those acting on your behalf.”

During the coverage period, an NYCTA employee fell off an elevated platform as he tried to avoid an explosion after a BSI machine touched a live electrical cable buried in concrete at the excavation site. The employee and his spouse brought an action against the City and BSI in federal court, asserting Labor Law claims, negligence, and loss of consortium (Kenny v City of N.Y., 2011 WL 4460598 [ED NY, Sept. 26, 2011]).

Pursuant to BSI’s policy, the City tendered its defense in the federal action to Burlington, which Burlington accepted subject to a reservation of rights based on the City’s qualification as an additional insured. Burlington withdrew its reservation, however, after receiving NYCTA’s letter to BSI that it would not make payments under the contract unless Burlington agreed to provide coverage for the City’s defense and indemnification without reservation.

NYCTA tendered its defense of the claims to Burlington, also as an additional insured under the BSI policy. Burlington accepted the defense, subject to the same reservation that NYCTA qualify as an additional insured under the policy endorsement. NYCTA did not demand, and Burlington did not submit, a withdrawal of this reservation.

Discovery in the employee’s federal lawsuit revealed that NYCTA failed to identify, mark, or protect the electric cable, and that it also failed to turn off the cable power. Documents further established that the BSI machine operator could not have known about the location of the cable or the fact that it was electrified. For example, in two internal memoranda, “NYCTA acknowledged its sole responsibility for the accident.”(emphasis added)

The district court dismissed the employee’s claims against BSI with prejudice, and the City’s third-party claims against NYCTA without prejudice. Burlington thereafter settled the lawsuit for $950,000 and paid the City’s defense costs.

Burlington then sued in state court after disclaiming coverage for NYCTA and MTA. Initially, Burlington sought a declaratory judgment that it did not owe NYCTA and MTA coverage as additional insureds under BSI’s policy. After settling the employee’s action against the City, Burlington moved to amend its complaint to add a claim for contractual indemnification as the City’s subrogee under the lease with NYCTA.

The trial court granted Burlington’s motion for summary judgment, concluding that NYCTA and MTA were not additional insureds because the policy limited liability to instances where BSI, as the named insured, was negligent. The court also granted Burlington’s motion to amend the complaint, finding that the anti-subrogation rule did not bar Burlington’s claim as the City’s subrogee. Burlington then moved for partial summary judgment on its contractual indemnification claim against NYCTA, which the court granted and subsequently entered judgment for Burlington for the $950,000 settlement amount, along with prejudgment interest, fees, and costs.

The Appellate Division reversed, denying plaintiff’s motions for summary judgment and to amend the complaint, and granting defendants’ cross motion for summary judgment on the first cause of action to the extent of declaring that defendants were entitled to coverage as additional insureds under the Burlington policy.

THE POLICY

The policy states, in relevant part, that an entity is “an additional insured only with respect to liability for ‘bodily injury’ caused, in whole or in part, by [BSI’s] acts or omissions.” It is well established in New York law that “but for” causation, or causation in fact, is the cause without which the event could not have occurred”.

The term refers to a link in the chain leading to an outcome, and in the abstract does no more than state the obvious. However, not all “but for” causes result in liability and most causes can be ignored in tort litigation. In contrast, “proximate cause” refers to a “legal cause” to which the Court has assigned liability

The Burlington policy endorsement states that the injury must be “caused, in whole or in part” by BSI. These words require proximate causation since “but for” causation cannot be partial.

ANALYSIS

NYCTA and MTA argue that the language “in whole or in part” was necessary in order to make clear that the parties did not mean “solely caused by.” Without the additional language, they contend, the endorsement would provide NYCTA and MTA coverage only if BSI’s acts or omissions were solely responsible for the loss. The Court of Appeal found the argument unpersuasive because the phrases “caused, in whole or in part, by” and “solely caused by” are not synonymous, either by their plain meaning or legal meaning.

It is enough that the parties used words that convey the legal doctrine of proximate causation. The fact that the parties could have used different language to communicate that legal concept is not fatal to Burlington’s argument. Giving the words chosen by the parties their plain and ordinary meaning, the endorsement describes proximate cause.
The language: “caused, in whole or in part” as used in the endorsement, requires the insured to be the proximate cause of the injury giving rise to liability, not merely the “but for” cause.

The policy language compelled the court to interpret “caused, in whole or in part” to mean more than “but for” causation. That interpretation, coupled with the endorsement’s application to acts or omissions that result in liability, supports the conclusion that proximate cause is required here.

To extend coverage to the additional insureds under the circumstances of this case may frustrate the clear risk allocation purpose of obtaining additional insured insurance in the first place but coverage for an additional insured is typically limited to liability arising out of the named insured’s work or operations and additional insured status does not provide coverage to an additional insured for the additional insured’s own work or operations. To do so would allow NYCTA to compel a subcontractor to pay for injuries to its employee which NYCTA proximately caused — an outcome not intended by the parties and contrary to the plain language of the endorsement.

The Court of Appeal concluded that the Appellate Division erroneously interpreted this policy language as extending coverage broadly to any injury causally linked to named insured, and wrongly concluded that an additional insured may collect for an injury caused solely by its own negligence, even where the named insured bears no legal fault for the underlying harm.

ZALMA OPINION

Insurance is a risk transfer device. Construction contracts contain various risk transfer devices like indemnity agreements and requirements that a subcontractor make the general contractor or owner as an “additional insured” on the subcontractor’s policy. This is not a perfect risk transfer since the ISO additional insured endorsement makes it clear that the named insured must be a cause of the injury. When the additional insured is solely responsible for an injury it cannot obtain defense or indemnity from the insurer that made it an additional insured and needs, for such a situation, to buy its own insurance to transfer the risk for its sole negligence to its insurer.

 

 

 

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

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Posted in Zalma on Insurance | Comments Off on Additional Insured May Not Recover for its Sole Negligence

Insured Can’t Change a Crack Into a Collapse

Substantial Impairment of structural Integrity Is Not A Collapse

Insurance companies need to define essential terms to avoid litigation over the meaning of a key coverage issue. Because Mid-Century failed to define the word “collapse” in Tustin Field Gas & Food, Inc., v. Mid-Century Insurance Company, B268850,
Court of Appeal of the State of California Second Appellate District, (July 3, 2017) it was sued. It defeated the claim at trial only to have the insured appeal asking the California Court of Appeal to decide when a building or part of a building “collapsed” if that term is left undefined in an insurance policy?

The gas station owner in this case demanded that its insurance company pay for the repair of an underground storage tank when the fiberglass sheath of one of its underground gasoline storage tanks split after resting on a rock for 16 years.

On cross-motions for summary judgment and/or adjudication, the trial court ruled that this was not a collapse as a matter of law.

FACTS

Tustin Field Gas & Food, Inc. (plaintiff) owns a gas station and minimart in Palm Springs, California. The station stores the gas dispensed by its pumps in two underground 15,000-gallon tanks. The tanks are located approximately 30 feet from the minimart, and are buried beneath a six or seven inch concrete slab and five or six feet of dirt. The tanks themselves are cylinders approximately 30 feet long and nine feet in diameter, and are double-walled: They have an inner wall made of steel, wrapped in a synthetic honeycomb, and then sheathed with an outer wall made of “fragile” fiberglass. The tanks are connected to the pumps through pipes carrying the fuel and are connected to the minimart with electrical conduit.

When these tanks were originally placed underground in 1997, the installer did not follow the tank manufacturer’s instructions to bury them in pea gravel or crushed rock. Instead, the installer just dug a hole, placed the tanks into that hole, and then covered them with “native soil” containing rocks, boulders, chunks of asphalt, rusted pipes, and other debris. The first tank, referred to as Underground Storage Tank-1 or “UST-1,” was set atop a boulder with a nine-inch diameter as well as atop pockets of air.

In September 2013, plaintiff conducted its annual test of UST-1’s integrity and learned that its fiberglass sheath was no longer intact. This was the first time either tank had failed a test in the 16 years since the tanks were installed. The tanks were excavated. The fiberglass sheath on the underside of UST-1 had a long, narrow crack that partially touched the nine-inch boulder, which had itself cracked in two. UST-1’s inner steel wall was still intact, and UST-1’s outer fiberglass sheath had not lost its cylindrical shape. There was no “imminent danger” that UST-1’s inner steel wall would be crushed inward. Plaintiff paid to have UST-1’s fiberglass sheath patched.

THE POLICY

At the time of the testing, plaintiff had an insurance policy (the Policy) covering property damage with defendant Mid-Century Insurance Company (defendant). Plaintiff presented a claim for the cost of excavating and repairing UST-1.

The Coverage section of the Policy (Section A) provides that defendant “will pay for direct physical loss of or damage to Covered Property at the premises . . . caused by or resulting from any Covered Cause of Loss.”

In its Exclusions section the Policy provides that defendant “will not pay for loss or damage caused directly or indirectly by any of the following. . . . regardless of any other cause or event that contributes concurrently or in any sequence to the loss,” and goes on to specify, in pertinent part, “Collapse, except as provided in the Additional Coverage for Collapse”. The policy provided that this subsection also specifies that “Collapse does not include settling, cracking, shrinkage, bulging or expansion.”

THE TRIAL COURT DECISION

In a letter, defendant denied plaintiff’s demand for coverage on the ground that “it does not appear that the efficient proximate cause [of that damage] is Collapse.”

The trial court concluded that there was no Covered Cause of Loss because there had been no “collapse.” Specifically, the trial court ruled that plaintiff had to show an “actual” collapse of UST-1. The trial court went on to conclude that there was no evidence of an actual collapse of UST-1 because “plaintiff ha[d] failed to submit evidence that UST-1 suffered a complete change in structure and lost its distinctive character as an [underground storage tank.]”

Plaintiff had shown, at most, that UST-1 was no longer usable under pertinent laws because its outer sheath had been breached, but the court ruled that a mere “impairment of [UST-1’s] structural integrity” did not constitute an “actual collapse.”

Because plaintiff was not entitled to benefits under the Policy, the court concluded that all three of plaintiff’s claims failed as a matter of law.

After the trial court issued its formal order granting summary judgment and entered judgment, plaintiff timely filed a notice of appeal.

DISCUSSION

Plaintiff argues that the trial court erred in granting summary judgment to defendant. All three of plaintiff’s claims: for breach of contract, bad faith denial of insurance, and declaratory relief, rest on the common element that plaintiff show it is entitled to coverage under the Policy. Breach is an element of a breach of contract action. Without coverage there can be no liability for bad faith on the part of the insurer.

Whether plaintiff is entitled to coverage under the Policy turns initially on two questions:

(1) What does the Policy mean by the term collapse?; and

(2) Has plaintiff raised a triable issue of fact as to whether the damage to UST-1 was caused by a collapse, once that term is defined?

The first question required the court to interpret the Policy. Although insurance contracts have special features, they are still contracts to which the ordinary rules of contractual interpretation apply. Those rules direct courts to ascertain the mutual intention of the parties at the time the contract is formed.

The second question requires the court to ascertain whether the evidence produced in the summary judgment proceeding would allow a reasonable trier of fact to find the underlying fact of collapse, once properly defined in favor of plaintiff under the applicable standard of proof.

ANALYSIS

Plaintiff’s entitlement to coverage under the Policy turns on whether plaintiff can show that (1) UST-1 suffered “direct physical loss or damage . . . caused by collapse”; and (2) that collapse was “caused by” (a) “[h]idden decay,” (b) the “[w]eight of people or personal property,” or (c) the “[u]se of defective material or methods in construction” “if the collapse occurs after construction” and was “caused in part” by either (a) or (b). This is plaintiff’s burden because Section A.3. of the Policy excludes any collapse from coverage, but Section A.5.d. countermands that exclusion to the extent of the exception outlined above. Consequently, the threshold question is what the Policy means by the term collapse.

Although the definition of collapse in insurance policies varies across the country, when a policy excludes from coverage “settling,” “cracking,” “shrinkage,” or “expansion,” the policy will not cover a collapse—whether actual or imminent—based solely on a substantial impairment of structural integrity”; to do otherwise would negate the exclusionary clause for settling and the like. Mere settling, cracking, shrinkage, bulging or expansion is not enough.

Because the Policy excludes “settling” and the like, a “substantial impairment of structural integrity” is not a “collapse” as a matter of law.

Plaintiff’s argument rests on the proposition that if a structure is not usable, it has collapsed. The Policy is not ambiguous and applies the fact that strict construction in favor of the insured does not mean strained construction.

Plaintiff further asserts that public policy favors a broader definition of collapse. If collapse is interpreted narrowly to require a more complete collapse of an underground storage tank, plaintiff reasons, insured parties like plaintiff would have little incentive to repair lesser damage to their tanks, which could result in interim damage to the environment. Putting aside for the moment that this argument overlooks the fact that state environmental authorities would likely step in to prevent this interim environmental damage (as they did here) the insured’s dispute is not “material” because no matter how it is resolved, the damage to UST-1 is the same and amounts at most to a “substantial impairment of [its] structural integrity” and is not, under the facts, a “collapse.”

ZALMA OPINION

Collapse requires – even when it is not defined – more than an impairment of structural integrity. It requires more than settling or cracking.

 

 

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

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A Lie to Insurer to Save Premium is Criminal

Reasonable Expectations Must Be Reasonable

Although the common law in the United States continues to acknowledge that the covenant of good faith and fair dealing devolves equally on the insured as it does on the insurer, people continue to refuse to act fairly and in good faith to their insurers.

In Rob K. Construction & Company, Plaintiff–Appellant, v. Rutgers Casualty Insurance Company, and American European Insurance Group, Inc., Merchants Insurance Group, Rutgers Enhanced Insurance Company, and United International Insurance Company, Superior Court of New Jersey, Appellate Division, Merchants Insurance Group, Rutgers Enhanced Insurance Company, and United International Insurance Company (6/27/17) the appellate division was faced with a claim by an insured who developed what he claimed to be his “reasonable expectations of coverage” which expectations were different than the clear and unambiguous wording of the policy. 

FACTS

Plaintiff Rob K. Construction & Co., a general contractor, appealed from a trial judge’s involuntary dismissal of its complaint at the end of plaintiff’s case. Plaintiff’s complaint alleged that defendant American European Insurance Group (AEIG), through its related entity defendant Rutgers Casualty Insurance Company (Rutgers), wrongfully denied coverage for a claim made by an employee of one of plaintiff’s subcontractors.

The claim arose when the employee was injured at a job site that was under plaintiff’s supervision. Plaintiff alleged the claim was covered by the commercial general liability policy defendants issued to plaintiff. The trial judge, relying upon the policy’s express language and representations made by plaintiff in its application for insurance, determined that defendants properly denied coverage.

 Plaintiff was formed in 2004 by its principal, Robert Krakowiak, an assistant portfolio manager at a financial institution, to perform maintenance on portfolio properties held by a coworker. During the ensuing years, the nature of plaintiff’s business expanded to include home renovations and, ultimately, new construction. Beginning in 2008, plaintiff started to build homes in New York “worth more than $500,000.” Plaintiff served as the general contractor for these new construction projects, working with clients to develop the architectural plan and hiring subcontractors to perform the work. 

Plaintiff applied for general liability insurance in early 2006 and falsely represented to its agent and defendants that plaintiff had one employee, did not hire subcontractors, and only performed remodeling work as compared to structural work. Krakowiak understood that this information impacted the type of coverage plaintiff required. Based on that information, Rutgers issued a general liability policy to plaintiff. The premium for the policy at the time of the subject claim was $1,352.00. According to a representative from AEIG, had plaintiff purchased insurance coverage for general contractors the premium would be “at least tenfold” more expensive.

 Plaintiff renewed the policy from year to year without ever informing defendants of any change in plaintiff’s operations. For example, on March 4, 2009, plaintiff submitted a policy holder report to defendants that stated plaintiff was engaged in interior remodeling, with annual sales of $30,000, which Krakowiak acknowledged was “a grossly under-estimated statement of … net sales.”

 The policy that defendants issued each year contained an exclusion entitled “Exclusion of Injury to Employees, Contractors and Employees of Contractors.” The exclusion provided: “This insurance does not apply to:¶ ….¶ II. ‘bodily injury’; to any contractor or any ‘employee’ of any contractor arising out of or in the course of the rendering or performing services of any kind or nature whatsoever by such contractor or ‘employee’ of such contractor for which any insured may become liable in any capacity[.]” 

Krakowiak testified at trial that he understood a claim made by an injured employee of a subcontractor would be excluded from coverage, although he admitted that he did not read the policy “carefully enough.”

 The underlying claim occurred in June 2011, when an employee of plaintiff’s plumbing sub-contractor was allegedly injured at one of plaintiff’s job sites. The injured worker sued plaintiff in New York. Plaintiff gave notice of the claim to defendants, who denied coverage, citing, among other bases, the exclusion for employees of contractors cited above. Defendants’ denial of coverage resulted in plaintiff suing the insurer.

Plaintiff’s complaint was tried before a jury. At the end of the plaintiff’s case, defendants moved for dismissal. Plaintiff opposed the motion, arguing that the evidence established that it had a reasonable expectation of coverage.

TRIAL JUDGE RULING

The trial judge granted the motion and placed his reasons on the record. The judge rejected plaintiff’s contention that it had a reasonable expectation of coverage, as Krakowiak did not read the policy, nor offer any proof that “anything in the policy caused him to believe he had coverage for bodily injury claims made by [a subcontractor’s] employees at the work site,” or that defendants had led him to believe as much. The judge also pointed out that plaintiff never advised defendants that it was operating a business that included the participation of subcontractors and their employees. Rather, the application supported the conclusion that Krakowiak “was [running] a one man operation.” Based on the applications that the plaintiff sent in where it denied having any subcontractors and stated its gross sales were $30,000, there’s nothing inconsistent. There’s nothing even in the application that would entitle the plaintiff to say its reasonable expectations were not fulfilled by the exclusion. The exclusion was consistent with its own application.

The judge concluded: “Simply put, there was no coverage for injuries sustained by a worker on the job site. …. [Therefore], there is nothing to go to a jury. So the plaintiff’s case is dismissed in its entirety.”

ANALYSIS

On appeal, plaintiff contends that the judge misapplied the standard for consideration of a motion filed pursuant to Rule 4:37–2(b) and that he failed to strictly construe the disputed exclusion against defendants.

A motion for involuntary dismissal is premised on the ground that upon the facts and upon the law the non-moving party has shown no right to relief.” If a court, accepting as true all the evidence which supports the position of the party defending against the motion and according him the benefit of all inferences which can reasonably and legitimately be deduced therefrom, finds that reasonable minds could differ, then the motion must be denied.’

Applying the standards of insurance policy interpretation, the appellate court found that plaintiff’s arguments were without merit to warrant discussion in a written opinion. It simply affirmed the trial judge for the reasons expressed by the trial judge in his oral decision.

Even applying the liberal principles favoring the insured that guided the appellate court’s review of coverage interpretation disputes. Coverage provisions are to be read broadly, exclusions are to be read narrowly, potential ambiguities must be resolved in favor of the insured, and the policy is to be read in a manner that fulfills the insured’s reasonable expectations.

Plaintiff offered no evidence that the policy’s exclusion was contrary to its reasonable expectations. In any event, the exclusion was specific, plain, clear, prominent, and not contrary to public policy.

 ZALMA OPINION

The insured lied when he applied for the insurance and continued to lie about his business at each renewal. He did not read the policy. He had no basis for his claim of reasonable expectations other than the fact that he was sued for a situation where there was no intent to cover the risk. The lie was sufficient, under the equitable remedy of rescission to defeat the claim. The trial judge should have reported the insured to the local prosecutor since he attempted insurance fraud by suing the insurer.

 

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

 

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Zalma’s Insurance Fraud Letter – July 1, 2017

A Tool to Defeat Fraud:  Fortuity Required

In the last 50 years that I have been in the business of insurance I have learned the one thing that is a certainty: the quality of insurance fraud perpetrators is almost non-existent. That means that it is so easy to steal from insurance companies that amateurs with no skills are jumping into the business of defrauding insurers. If the insurance industry learns enough about insurance fraud and defeats the claims of the amateurs the professional fraud perpetrators will go away and work easier crimes. If not, they will continue to bleed the insurance industry. It has been my desire, for the last 21 years that I have published
Zalma’s Insurance Fraud Letter
to help in the effort to make insurance fraud more difficult for the perpetrators and reduce what fraud takes from the insurance industry. To help anyone interested to be an insurance professional I have created two courses for Illumeo.com.

In order to help train insurance professionals I have created the Certified Expert in Corporate Property Insurance and the Certified Expert in Corporate Liability Insurance programs for Illumeo.com.
It is a comprehensive program enabling insurance professionals to become Certified Experts in Corporate Property Insurance.
The programs provide a complete course of study providing education and training to allow insurance professionals, after completing the individual classes, to become Certified Expert in Corporate Property Insurance and/or a Certified Expert in Corporate Liability Insurance. The programs cover everything an employee, an officer, or a director of a corporation needs to know about the acquisition of proper insurance and to how insurers deal with claims.
Major topics of study include, but are not limited to: the importance of insurance; how to acquire insurance and understand an insurance policy; the methods used by insurers to investigate claims; the various types of insurance that corporations need; the duties and obligations of a public adjuster; and how to present a claim that will be paid.  When you go to http://www.illumeo.com simply type “zalma” in the search bar and you will find all courses I have written for Illumeo.com.

 The Current Issue Contains the Following

  • Fortuity Required
  •  Certified Expert in Corporate Property Insurance and Certified Expert in Corporate Liability Insurance
  • Interviewing For Fraud Investigators
  • Books by Barry Zalma
  • UK Government Pledges Crackdown on ‘Fraudulent Whiplash Claims
  • Barry Zalma Speaks at Your Request
  • Rescission by Breach of Warranty
  • E-Books from Barry Zalma
  • Ethics for Independent Insurance Adjusters
  • The Zalma Insurance Claims Library
  • Wisdom
  • Barry Zalma
  • Good News From the Coalition Against Insurance Fraud
  • Health Insurance Fraud Convictions
  • Other Insurance Fraud Convictions
  • Books from the American Bar Association
  • Zalma’s Insurance Fraud Letter
  • The Legend

The most recent posts to the daily blog, Zalma on Insurance, are available at http://zalma.com/blog.

Check in every day for a case summary at http://zalma.com/blog:

 


 Zalma’s Insurance 101

I have completed a video blog called that consist of 1022 three to four minute videos starting with “What is Insurance” and moving forward to insurance fraud investigations explaining the basics of insurance and insurance claims handling in a painless fashion that can be viewed every morning with the first cup of coffee at  Zalma’s Insurance 101.

Some of the 1,022 videos follow: If you start at Volume 1 at the bottom of the blog’s first page and view one or two videos a day you will have approximately 12 to 24 hours of training a year until you get to the last video.

The videoblog is adapted from my book, Insurance Claims: A Comprehensive Guide available at the Zalma Insurance Claims Library.

 New Blog:

Insurance Law Commentary

 You can see video commentary and read two serialized novels at http://zalma.com/insvideo.

“Arson for Profit” and“Murder & Insurance Fraud Don’t Mix”
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An Assault and Battery Is an Intentional Tort

Pleading Can’t Change A Battery Into Negligence

Insurance companies don’t want to insure a bar against assault and battery because of the frequency of barroom fights causing injuries to patrons or employees of the bar. Some courts fall prey to the claim of a plaintiff that the assault or battery was negligence, insurers like the plaintiff, Catlin Specialty Insurance Group v. RFB, INC. d/b/a Max & Henry’s a/k/a Henry’s Sports Bar, Frank Clyburn, and Jess Bess, United States District Court, D. South Carolina, 2017 WL 2493125, Civil Action No. 2:16-3135-RMG, (06/08/17) by providing the coverage with a very small limit.

BACKGROUND

Defendant Jesse Bass alleges that on December 6, 2012, Cedrick Price, a bouncer at a bar owned by Defendant Frank Clyburn and Defendant RFB, Inc. (together, “Henry’s”), struck him with force sufficient to knock him unconscious and to inflict serious brain injury. Mr. Bass filed a federal lawsuit seeking damages. In that matter, claims against Elite Security have settled and Mr. Price is in default. Regarding Henry’s, Mr. Bass asserts a claim of negligence, alleging Henry’s breached its duty to exercise reasonable car in the hiring, supervision, and retention of Elite Security.

THE INSURANCE COVERAGE

Plaintiff Catlin Specialty Insurance Group issued a commercial general liability (“CGL”) policy to Henry’s that was in effect at the time of the incident. Catlin is defending Henry’s in the underlying lawsuit, subject to a reservation of rights. The policy limit is $1 million per occurrence. The policy, however, has an Assault and Battery Endorsement that sets a sub-limit of $25,000 per occurrence.

DISCUSSION

Catlin sued seeking a declaration that the Assault and Battery Endorsement applies to Mr. Bass’ claim against Henry’s. The underlying litigation has been stayed pending resolution of the present action.

The sole question before the Court is whether the CGL policy’s assault and battery sublimit applies to the December 6, 2012 incident in which Mr. Bass was injured. The sublimit applies to claims for bodily injury arising from an assault and battery or out of any act or omission in connection with the prevention, suppression, or failure to protect or suppress such acts including the failure to warn, train, or supervise, whether caused by or at the instigation or direction of the insured, his employees, patrons, or other person.

In South Carolina, an assault is conduct that places another in reasonable fear of bodily harm,” and a battery is “the actual infliction of any unlawful, unauthorized violence on the person of another. Mr. Bass alleges he was struck in the head, knocking him unconscious by Mr. Price. There is no genuine dispute that Mr. Bass’s alleges his injuries arise from an assault and battery.

Mr. Bass sued Henry’s for negligence, not the intentional torts of assault and battery.

The court recognized that alleging negligence in a case where a patron was battered is a common pleading practice. Since insurers who insure bars are reluctant to insure the bar against liability for barroom fights or for the actions of bouncers.Plaintiffs often attempt to plead into coverage by asserting negligence — attempts federal and state courts routinely reject.

Although the injuries may have been caused by the negligent acts of the defendant, that does not necessarily mean that they did not arise out of an assault and/or battery. Plaintiffs cannot mischaracterize intentional acts as negligence claims in order to avoid the exclusions contained within the insurance policy. Even if Henry’s was negligent, and even if that negligence proximately caused Mr. Bass’s injuries, Mr. Bass’s injury nonetheless arises out of a battery. Mr. Bass cannot avoid a policy sublimit by mischaracterizing Mr. Price’s admittedly intentional act as negligence.

If a sublimit for injuries arising from an assault and battery does not apply to punching a man in the head intentionally during a fight at a bar, then it is difficult to imagine when it would ever apply. Mr. Bass argued that “assault and battery” is ambiguous because the insurance policy does not define those terms. That argument is without merit. The terms assault and battery are well defined under South Carolina law and Mr. Bass apparently agrees with Catlin about the definition of those terms.

Mr. Bass also argued that there is a question of disputed material fact about whether Mr. Bass’s injuries arose from a battery. If Mr. Bass alleges Mr. Price acted in a lawful, legally authorized manner when he struck Mr. Bass, then he breached no duty owed Mr. Bass and neither Mr. Price nor his employer is liable for the resulting injury to Mr. Bass. If Mr. Bass does not allege Mr. Price acted lawfully, then there is no factual dispute.

Moreover, in the underlying litigation Mr. Bass has alleged Mr. Price acted unlawfully. alleging Mr. Price’s actions were “done with reckless disregard for Plaintiff’s rights”. Mr. Bass is estopped from arguing the opposite position in this coverage litigation.

Henry’s argues that summary judgment should be denied because it was not “adequately notified” of the assault and battery sublimit. Henry’s does not argue that it did not have actual notice of the policy limitation. Rather, Henry’s argues it was not “notified” that an assault and battery limitation on coverage could apply to claims arising from an assault and battery even if those claims are artfully pleaded as negligence. That argument is, of course, without merit.

The Court, following the law, granted Plaintiff’s motion for summary judgment and concluded that under the assault and battery endorsement of commercial general liability policy Plaintiff Catlin Specialty Insurance Company is not obligated to indemnify Defendant RFB, Inc. and Defendant Frank Clyburn for any amount above $25,000 with respect to the claims in Bass v. RFB, Inc., et al., Civ. No. 2:15-2410-RMG.

ZALMA OPINION

It seems injured plaintiffs need to try to make an assault and battery into a negligence action to gain the defendants insurance coverage that what was neither sought, provided nor available. The injured person should be pleased that the bar purchased a policy from Caitlin that provides $25,000 worth of coverage for a battery.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

 

 

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Insurance and Bankruptcy Fraud Go Together Like a Horse and Carriage

Insurance Claims Prove Insureds Committed Bankruptcy Fraud

Every investigation of a major fire loss should include questions concerning bankruptcy filings by the insured and review of bankruptcy court filings. In United States Of America v. Roscoe Benton, III and Desi Najuana Benton, United States Court of Appeals, Sixth Circuit, Case Nos. 16-1774, 2017 WL 2772174 (6/26/17) State Farm failed to investigate the Benton’s bankruptcy filing and failed to even confirm ownership of the real and personal property only to erroneously pay out $400,088.72.

The United States, upset about the failure of the Bentons to report their assets honestly to the court arrested Roscoe Benton, III, and his wife Desi Najuana Benton and after a jury  trial on charges of bankruptcy fraud and mail fraud each were found guilty of some but not all of the charged offenses.

The Bentons resorted to bankruptcy protection when they were unable to keep up with their residential rent payments. In late 2009, the owner of the house they were renting took action in state court to evict the Bentons for nonpayment of rent. In a judgment dated December 3, 2009, the Bentons were found to owe $12,635 in past due rent and costs and, barring payment in full by December 14, 2009, they would be ordered to vacate the home.

In response, the Bentons petitioned for relief under Chapter 13 of the Bankruptcy Code. The filing stayed the impending eviction. The bankruptcy court approved the Bentons’ Chapter 13 Plan on June 10, 2010. It required the Bentons to pay the bankruptcy trustee $1,834 per month over the course of sixty months. The trustee would then, among other things, pay the $1,100 monthly rental amount to Carey, plus $110 per month to make up the arrears.

Less than a month after confirmation of their bankruptcy plan, the Bentons applied for homeowner’s insurance on the house they were continuing to rent from Paul Carey. The State Farm homeowner’s insurance policy became effective July 16, 2010, affording coverage for replacement value of the home in the amount of $267,000 and personal property coverage in the amount of $200,250.

On May 16, 2011, the Grand Blanc house on Jamestown Place was severely damaged by fire. Within two months, State Farm had paid the Bentons $184,726 for damage to the dwelling and the policy limit of $200,250 for loss of personal property. On August 8, 2011, the Bentons used the insurance proceeds to purchase a house in Desi’s name at 5260 Fairway Trail in Grand Blanc for $180,574 in cash.

They did not use the insurance proceeds to make good on the payments owed to the bankruptcy trustee.  As a consequence of these actions the Bentons were indicted in the Eastern District of Michigan on four counts of bankruptcy fraud and one count of mail fraud. They also concealed from the bankruptcy court that the house and its contents had actually been destroyed by fire, for which they had received at least $373,426.72 in insurance payments. Count five charged them with falsely representing in a bankruptcy filing that they were making monthly rent payments of $550 at a time when they were living in a Grand Blanc house they had purchased with cash and were not actually making any rent payments.

Defendants were sentenced on May 5, 2016. Roscoe Benton was sentenced to a prison term of 48 months on each convicted offense, to be served concurrently, and was ordered to pay restitution to State Farm in the amount of $400,088.72. Desi Benton was sentenced to a prison term of 24 months on each convicted offense, to be served concurrently. She too was ordered to pay restitution in the amount of $400,088.72. The court ordered the two defendants’ prison sentences to be served consecutively to each other: Desi’s sentence to be served first, and Roscoe’s to commence upon Desi’s release. The staggering of the sentences was designed to allow one of the two defendants to remain in the family household caring for Roscoe Benton’s infirm mother, who was living with them.

PROSECUTORIAL MISCONDUCT

The indictment did not include any charges or even any allegation of insurance fraud by arson against either defendant. No evidence presented at trial touched on the cause of the Jamestown Place fire, much less that it was caused by arson. This, however, did not hinder counsel for the government, the Bentons contend, from repeatedly and gratuitously alluding during trial to “things could that could burn up in a house fire.” The references were claimed by the Bentons to have been part of a deliberate scheme to plant the seed in the jurors’ minds that the house fire had been started intentionally.

To prevail on a claim of prosecutorial misconduct, it is not enough for the Bentons to show that the prosecutor’s comments were improper; they must establish that the comments so infected the trial with unfairness as to make the resulting conviction a denial of due process. No objection was made during trial concerning the prosecutors statements.

A conviction should be reversed under plain-error review only in exceptional circumstances, such that the trial judge would be deemed derelict in having countenanced the unobjected-to misconduct. The Bentons’ prosecutorial misconduct claim came up woefully short. The prosecutor advised the jury that the defendants told the bankruptcy court that they only had personal property that could burn in a fire was worth $1750 when a year after the bankruptcy court had approved the Bentons’ plan, counsel continued, the house they were renting and its contents were destroyed by fire. Following the house fire, counsel explained that the Bentons submitted an insurance claim for damage to their household goods and that claim was that those goods were worth $277,000 in round numbers. Now, they had told the bankruptcy court that their household goods were worth $1,750. They tell State Farm, it was on the order of two hundred times that money. Counsel’s characterization of personal property in the household goods category as “everything that could burn up in a fire,” far from being “improper,” appears to have been entirely appropriate, given the facts of the case.

The prosecutor also explained to the jury the concept of “insurable interest” when he said: “You cannot take out insurance on a neighbor’s house and hope that they are going to burn the house down. Because you don’t have any insurable interest in their house. If their house burns down, you haven’t lost anything. That’s the concept of insurable interest. You can’t get insurance on somebody else’s property.”

The fact that each of the questioned comments, as the Bentons concede, had a legitimate purpose in the trial. Even if it was not strictly necessary for the prosecution to use the characterizations it did, the comments were not clearly improper.

The trial court acknowledged Desi Benton’s argument based on the second element that there was no evidence that she “knowingly made or caused” the materially false or fraudulent representation contained in the August 12, 2011 filing. But the court recognized that the August 12 filing was part of a larger scheme to defraud in which, the evidence showed, “the Bentons were working together, that they were cooperating with one another as a team.”

Among other things suggesting Desi Benton’s involvement, as the district court noted, was the Bentons’ October 17, 2011 bankruptcy court filing.

ZALMA OPINION

Bankruptcy filings are made under oath. Insurance claims are resolved by a sworn statement in proof of loss. If State Farm examined the Benton’s Under Oath and determined that they had sworn to the court than their personal property was worth $1750 they would never have paid them about $200,000. If they learned that the Benton’s did not own the real property they probably would never have issued a homeowners policy. The Bentons intent was obvious: they would defraud the bankruptcy court and State Farm. They belong in jail and will serve the time ordered. State Farm will have a difficult time getting the money ordered as restitution.

 

 

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

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Insurable Interest Is Not Enough To Get Coverage

For Coverage to Exist Under a Homeowners Policy You Must Be an Insured and Have an Insurable Interest

For reasons unknown to me many people believe a homeowners policy insures the property. It does not. A homeowners policy only insures specific people who qualify as insureds against certain risks of loss to the property. A person named as an insured who has no insurable interest cannot recover for a loss. A person with an insurable interest cannot recover unless named as an insured or who is an insured by the terms, conditions and definitions of a policy.

In Vaughn v. Stillwater Property & Casualty Insurance Co., Superior Court of Delaware, Not Reported in A.3d, 2017 WL 2709750 (June 23, 2017) the Superior Court of Delaware was faced with a claim from a person with an insurable interest in property who was not named as an insured nor did he fit within the definition “insured” but asked to be provided coverage because it was only fair that the insurer be prohibited from denying him indemnity.

ISSUES

The plaintiff, a homeowner whose residence and personal property were damaged in a fire, yet, on the date of the fire, the plaintiff was divorced from the named insured and she no longer resided in the home. The insurance company denied coverage for damage to the plaintiffs’ personal property because he was neither a named insured nor a relative of the named insured on the date of loss. This case presents two core issues:

First, what is the relevant date for determining coverage under an insurance policy: the effective date of the policy or the date of loss?

Second, if the date of loss is the determinative date, is the policy amendment retroactive to the date of loss?

BACKGROUND

On December 17, 2009, the plaintiff, John Vaughn, jointly purchased 1803 Belfield Avenue, Wilmington, Delaware (the “Property”) with non-party Samantha Brocklesby (“Ms. Brocklesby”). Both the plaintiff and Ms. Brocklesby were named on the deed and in the mortgage documents associated with the purchase of the Property. Only Ms. Brocklesby filled out an application for homeowner’s insurance and was the only named insured under the homeowner’s insurance policy issued for the Property (the “Policy”).

The Policy was annually renewed. The premium payments for the Policy were escrowed through the mortgage company and paid by Vaughn or Ms. Brocklesby as part of their mortgage.

Although Ms. Brocklesby was the only named insured on the Policy until August 29, 2014, the Policy covered certain others who resided with her. Specifically, the Policy defined “Insured” included residents of her household who were her relatives. The Policy also defined “You” and “Your” as “the ‘named insured’ shown in the Declarations and: (1) The spouse; or (2) a Party who, with the ‘named insured’, has entered into a civil union recognized under Delaware law; If a resident of the same household.” While they were married and living together Vaughn was an “insured.”

On July 22, 2013 they formally divorced on March 6, 2014. Two months later, Vaughn and Ms. Brocklesby’s agreement regarding the division of assets was entered by the Family Court as an order of that Court (the “Ancillary Order”).  As part of the property division the property was awarded to Vaughn as soon as he took Brocklesby’s name off the mortgage and a new deed issued.  It also provided that once Ms. Brocklesby moves from the home Vaughn shall be solely responsible for all expenses for the home.

On August 3, 2014 (the “Date of Loss”), a fire occurred on the Property, damaging both the residence and Vaughn’s personal property. On the Date of Loss, Ms. Brocklesby was not living in the Property, and she and Vaughn were divorced.

Stillwater covered the damage to the residence but refused Vaughn’s claim for damage to his personal property and his expenses for alternate living arrangements, concluding he was not an insured on the Date of Loss. Three weeks after the Date of Loss, Vaughn contacted the servicing agent for the Policy, who submitted a “policy change update” adding Vaughn as a named insured. The amended declaration page (the “Amended Declaration”) issued after the policy change, lists both Vaughn and Ms. Brocklesby as named insureds.

Vaughn then sued Stillwater alleging claims for breach of contract and bad faith.

ANALYSIS

It is undisputed that Vaughn was an “Insured” under the Policy on its effective date, December 17, 2013. On that date, Vaughn and Ms. Brocklesby legally were married and residing in the same household. Eight months later, however, on the Date of Loss, Vaughn did not meet the definition of “Insured,” because he was neither named as an insured, not Ms. Brocklesby’s spouse nor a relative residing in her household.

Vaughn, although acknowledging the insurable interest of the parties to an insurance contract is determined by the facts existing at the time of the loss, argues he had an insurable interest in the Property because he was a mortgagee, co-owner, and resident of the Property.

Precedent provides that the date of loss is the determinative date for purposes of defining the scope of coverage under an insurance policy. This rule is both logical and fair, because it relies on the circumstances existing on the date of loss, without unnecessarily including people who, due to changed circumstances, no longer meet the conditions for coverage, while including those who did not meet the conditions for coverage on the effective date but do as of the date of loss.

Although Vaughn was not a named insured, the spouse of the named insured, or otherwise an “Insured” within the definitions of the Policy, he argued, however, that he was added as a named insured shortly thereafter and that amendment was retroactive to the Date of Loss. However, the Amended Declaration, which added him as a named insured was not effective until August 29, 2014, some three weeks after the Date of Loss.

On its face, the Amended Declaration provides that the amendment added a “spouse,” that is, Vaughn, and that the change was effective August 29, 2014. Put simply, the only reasonable interpretation of this one-page document is that Vaughn was added as a named insured effective on that date. Nothing on the face of the Amended Declaration indicates it is retroactive; the effective date unambiguously indicates the amendment was prospective.

Finally, Vaughn argued it would be unfair and inequitable to interpret the Policy in a manner that excludes him from coverage because he alone paid all the mortgage payments, including the escrowed Policy premiums, and the oversight in omitting him as a named insured was unintentional and unknown to him until after the Date of Loss. Vaughn argues, in essence, that Stillwater should not be permitted to accept the Policy premiums but exclude him from coverage.

This argument failed to persuade the court.

Although there is a mechanism under Delaware law to reform a contract for error, Vaughn did not assert that claim. Even if principles of fairness were relevant to issues before the Court, Vaughn failed to show any evidence that Stillwater was aware of the error, but remained silent, or otherwise acted inequitably to exclude Vaughn from coverage.

ZALMA OPINION

A first party property policy of insurance is a contract of personal indemnity and does not insure property. This case, like Russell v. Williams, 58 Cal. 2d 487, 374 P.2d 827, 24 Cal. Rptr. 859 (Cal.10/04/1962)  established that an insurable interest is not sufficient to recover on a policy unless the person is insured by the policy. A fire insurance policy is a personal indemnity contract.

 

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

 

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Insured v. Insured Exclusion Applies

Court Must Enforce an Exclusion that is Neither Ambiguous, Convoluted Nor Opaque

Insurers are entitled to write a policy wording that an insured is willing to accept. For decades liability insurance policies have included an insured v. insured exclusion. The original purpose for the exclusion was to avoid cases where insureds colluded with each other to defraud an insurer. That collusion between insureds was a risk insurers were not willing to take nor were insurers willing to leave in their liability insurance policies a moral hazard that might tempt an insured to collude to use insurance for a purpose not intended. As a result the insured v. insured exclusion was born.

In Abboud v. National Union Fire Insurance Company of Pittsburgh, Superior Court of New Jersey, Appellate Division PA, — A.3d —-, 2017 WL 2665133 (June 21, 2017) the Appellate Division was asked to make the exclusion unenforceable.

THE EXCLUSION

Generally speaking, an “insured v. insured” exclusion bars coverage for claims by one insured director or officer against another. Plaintiff Michael Abboud sought indemnity and a defense in connection with counterclaims made against him by fellow officers of Monarch Medical PET Services, LLC (Monarch). Defendant National Union Fire Insurance Company of Pittsburgh, Pa., eventually denied coverage based on the insured vs. insured exclusion. Abboud filed a declaratory judgment action against National Union, which ended in summary judgment dismissal and the an appeal.

FACTS

Abboud sued Monarch; four of its members and managers — Patrick Collins, Andrew Kreamer Rooke, Sr., Gary Moyers and William McCue; and a non-member officer, Andrew Kreamer Rooke, Jr. (collectively, “the defendants”). Abboud was a forty-percent owner of Monarch, which operates and leases PET/CT equipment.  Aboud sought reinstatement, salary and other employment benefits; an injunction restraining the defendants from interfering with his access to the premises, its computers and its employees; as well as attorneys’ fees and expenses.

All the defendants in Abboud’s underlying lawsuit sought and obtained an acknowledgement of partial coverage from National Union, subject to a reservation of rights, under the Employment Practices Liability (EPL) section of Monarch’s multi-coverage policy, which also included a D & O liability section.

By contrast, Abboud did not notify National Union of the counterclaims against him until November 20, 2013, when his attorney gave “notice of claims covered” under the D & O section of the policy. The attorney asserted the notice was late because Monarch and National Union had delayed responding to his requests for information about coverage. National Union did not respond to the notice.

National Union denied its policy provided indemnity or defense costs coverage for the counterclaims against Abboud. In granting the motion, Judge Katie A. Gummer found that the insured vs. insured exclusion plainly barred Abboud’s claim for coverage.

ANALYSIS

The movant is entitled to summary judgment if the record shows there is no genuine issue as to any material fact challenged and the moving party is entitled to a judgment or order as a matter of law. Applying the rules of construction of contracts, if the plain language of the policy is unambiguous, we will not engage in a strained construction to support the imposition of liability or write a better policy for the insured than the one purchased.

Looking to the policy language which the court concluded plainly and unambiguously bars coverage because the counterclaims against Abboud fall within its insured vs. insured exclusion. The insured vs. insured exclusion is one of several exclusions in the D & O section for which the insurer “shall not be liable to make any payment for Loss in connection with any Claim made against the Insured.” The exclusion disallows claims depending on which party raises them; specifically, it excludes any claim which is brought by or on behalf of a Company or Individual Insured, other than an Employee of the Company.

There is nothing ambiguous, convoluted, or opaque about this exclusion when interpreted in accord with the definitional provisions. The exclusion disallows coverage when the claim is raised by either an executive of the company (i.e., an “Individual Insured” who is not an “Employee”) or the company itself. Its application here is equally clear. The claims raised against Abboud were brought by Monarch and five of its executives (whose status within the company Abboud does not contest). Therefore, the court concluded that the insured vs. insured exclusion bars his claims.

Abboud seeks to avoid the plain import of the exclusion on two grounds. First, he contends it violates his reasonable expectations. Second, he contends the exclusion applies only in cases of collusion between the individual insureds, about which there remains an issue of fact.

New Jersey courts have recognized the importance of construing contracts of insurance to reflect the reasonable expectations of the insured in the face of ambiguous language and phrasing, and in exceptional circumstances, when the literal meaning of the policy is plain.

The “reasonable expectations” doctrine applies to policy forms that have the characteristics of an adhesion contract. Courts are more inclined to apply the doctrine in cases of personal lines of insurance obtained by an unsophisticated consumer.  Courts may vindicate the insured’s reasonable expectations over the policy’s literal meaning if the text appears overly technical or contains hidden pitfalls, cannot be understood without employing subtle or legalistic distinctions, is obscured by fine print, or requires strenuous study to comprehend.

The expectations of coverage must be real. In assessing whether the expectations are objectively reasonable, a court will consider communications regarding the coverage between the insured or its broker and the insurer or its agent that relate to the insured’s expectations. Applying rules of interpretation the appellate court was unable to discern a basis to set aside the insured vs. insured exclusion based on Abboud’s alleged expectations of coverage. The policy provides commercial insurance to a presumably sophisticated consumer. The record is devoid of competent evidence of Abboud’s expectations of coverage or proof that such expectations would be objectively reasonable, given that D & O insurance typically covers liability for third-party claims and enforcement of the exclusion nonetheless leaves broad D & O coverage. In sum, the policy’s plain language need not be tailored to conform to Abboud’s alleged expectations.

The appellate court also rejected Abboud’s contention that proof of collusion is a prerequisite to applying the insured vs. insured exclusion. Although the specific formulation of this exclusion may vary from policy to policy, its purpose was not simply to bar collusive claims — as Abboud implies. Instead, it was intended to exclude coverage both of collusive suits — such as suits in which a corporation sues its officers or directors in an effort to recoup the consequences of their business mistakes, thus turning liability insurance into business-loss insurance — and of suits arising out of those particularly bitter disputes that erupt when members of a corporate, as of a personal, family have a falling out and fall to quarreling.

The argument that collusion must be proved “confuses a rule with its rationale. It is clear from the face of Abboud’s verified complaint, and the counterclaims, that what we was presented to the New Jersey courts, is one of those particularly bitter disputes that erupt when members of a corporate family have a falling out.

Guided by the rules of construction that place dispositive weight on the plain language of a provision that is neither ambiguous, convoluted nor opaque, the court rejected Abboud’s proposed gloss on the insured vs. insured exclusion’s plain language.

ZALMA COMMENTS

On this, my 75th birthday I wish to thank everyone who reads this blog, everyone who I have represented as a consultant or as a lawyer, and remind you that although I am 75-Years-Old I am still working 8 hours a day writing about insurance, insurance coverage and working as a consultant and expert witness for anyone who has a need for assistance with an insurance dispute.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

 

 

 

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Insurance Is Different From Indemnity

Trial Court Erred When It Ruled on Insurance Issue Without Policy in Evidence

When attempt to reassign the risks of loss contracting parties often require the vendor to indemnify the contracting party and simultaneously make the contracting party an additional insured on the vendor’s liability insurance policies. Often the parties fail to recognize the difference between indemnity and insurance since indemnity agreements are fact based while interpretation of an insurance contract require interpretation of the contract wording.

In International Marine, L.L.C.; International Offshore Services, L.L.C., Tesla Offshore, L.L.C., Intervenor v. Integrity Fisheries, Incorporated; Sea Eagle Fisheries, Incorporated, National Security Fire And Casualty Company; Atlantic Specialty Insurance Company; One Beacon Insurance Company; New York Marine And General Insurance Company, United States Court of Appeals, Fifth Circuit 2017 WL 2664595, No. 16-30456 (June 21, 2017) International Marine, L.L.C., International Offshore Services, L.L.C. (collectively “International”), and Tesla Offshore, L.L.C. (“Tesla”), appealed the district court’s grant of summary judgment dismissing their indemnity and insurance claims.

BACKGROUND

This case involves an allision (the striking of a vessel against a fixed object) in the Gulf of Mexico causing significant damage to a submerged mooring line for the M/V NAUTILUS (the “NAUTILUS”), a mobile offshore drilling unit used by Shell Offshore, Inc. (“Shell”), to conduct drilling operations. The principal dispute before the Fifth Circuit concerned whether third parties are contractually obligated to pay for that damage.

Tesla, an offshore survey company, was tasked with performing an archaeological sonar survey in the Gulf of Mexico. To perform this survey, Tesla required two vessels: a larger vessel, called the “tow vessel,” and a smaller vessel, called the “chase vessel.” Tesla contracted with International to provide and operate the tow vessel, called the M/V INTERNATIONAL THUNDER (the “THUNDER”). As to the chase vessel, Tesla initially contracted with Integrity Fishers, Inc. (“Integrity”), but after Integrity’s vessel developed mechanical issues, Integrity substituted a different chase vessel owned and operated by Sea Eagle Fisheries, Inc. (“Sea Eagle”), called the F/V LADY JOANNA (the “JOANNA”).

The precipitating incident for this litigation was an allision between the towfish cable and a submerged mooring line for the NAUTILUS. The THUNDER and the JOANNA temporarily went off the grid toward the south until the towfish was repaired and redeployed, at which point the THUNDER turned north, back toward the grid, followed by the JOANNA. The party chief testified that about thirty to forty-five minutes after being warned of the proximity of the THUNDER the towfish cable allided with the mooring line of the NAUTILUS.

Shell, which was using the NAUTILUS for drilling operations when the allision occurred, sued Tesla and International for negligence. In the Shell v. Tesla negligence litigation, a jury awarded damages to Shell and determined that Tesla was 75% at fault and International was 25% at fault. Tesla and International claim they are entitled to indemnity from Integrity and Sea Eagle because the allision related to the operation of the JOANNA. Tesla and International additionally claim that they are entitled to insurance coverage because they were added as additional insureds on Integrity’s and Sea Eagle’s insurance policies with Atlantic Specialty Insurance Company/One Beacon Insurance Company (“One Beacon”) and New York Marine & General Insurance Company (“NY MAGIC”).

The contractual relationships between Tesla, Integrity, and Sea Eagle were set out in two master service agreements (“MSAs”). Article 9 provides, in relevant part, that the indemnitors (here, Integrity or Sea Eagle) are liable to Tesla and its contractors for damage to third party property “arising out of or related in any way to the operation of any vessel owned … by [Integrity or Sea Eagle] … to perform work under this agreement except to the extent such loss, harm, infringement, destruction, or damages is caused by [Tesla’s or its contractor’s] gross negligence or willful misconduct.” This obligation is owed “regardless of cause including who may be at fault or otherwise responsible under any contract, statute, rule or theory of law.” Article 11 requires, in relevant part, that Sea Eagle and Integrity provide insurance coverage for “third party claims arising out of or connected with the performance of Service hereunder,” and name Tesla and its contractors as additional insureds. The insurance obligations purchased under the MSAs were required to be “independent of the indemnity obligations contained in the contract/agreement and [to] apply regardless of whether the indemnity provisions contained in the contract/agreement are enforceable.”

The district court granted Integrity’s and Sea Eagle’s motions and denied Tesla’s and International’s motions, concluding that “Shell’s claims for damages based on the M/V NAUTILUS incident did not arise out of, and are not related to, the operation of the F/V LADY JOANNA.” Furthermore, because it found that there was no indemnity obligation, the district court also concluded that the insurers did not have any obligations to Tesla or International, and it dismissed all claims against the insurers. Tesla and International timely appealed.

DISCUSSION

Indemnity Claims

Under federal maritime law, an indemnity contract covers losses within the contemplation of the parties but not those which are neither expressly within its terms nor of such a character that it can be reasonably inferred that the parties intended to include them within the indemnity coverage. Though broad, however, such an undertaking is not limitless. When one party’s negligent contractual performance causes third party property damage independent of the alleged indemnitor’s contractual performance, indemnity is usually not required absent a clear indication that the parties agreed to such an unusual undertaking.

Tesla and International’s negligence, as well as the resulting damage to the NAUTILUS, was independent of the operation of the JOANNA. The MSAs are clear that the NAUTILUS’s damage must relate to or arise out of the operation of the JOANNA before an indemnity obligation arises. The JOANNA’s “involvement in such an effort — [the sonar survey] — did not cause the accident and did not contribute to [Tesla’s and International’s] decision to dr[ive] the [towfish] across [the NAUTILUS’s mooring line].

Indemnity is not owed merely because Tesla and International were negligent during the survey, in the absence of the requisite connection to the JOANNA’s operation. JOANNA’s operation carrying out the joint sonar survey and in position over the towfish at the time of the allision, was indisputably a successful operation and had no bearing on the decision to redeploy the towfish near the NAUTILUS and cross the NAUTILUS’s mooring line.

Indemnity agreements containing language such as “arising out of” should be read broadly. It is only when the alleged indemnitor’s contractual performance is completely independent of another party’s negligent act that caused damage that the Fifth Circuit will apply a limitation to the general rule.

Insurance Claims

The district court concluded that because the indemnity claims failed, the insurance claims also failed. Although similarities in the contractual obligations for indemnity and insurance under the MSAs may suggest that indemnity and insurance claims rise and fall together in this litigation, such a parallel is not always the case. The scope of insurance coverage is determined by the language of the insurance policy obtained, which may yield a different result than the indemnity provision in the original contract.

For reasons known only to the litigants none of the insurance policies were in the record nor is there any other evidence from which the policy language can be definitively discerned. Summary judgment cannot be granted on the insurance claims without first reviewing the insurance policies and determining their scope. It is possible that Tesla and International were added as additional insureds on a policy that provides more coverage than that set forth in the MSAs.

On the record given to the Fifth Circuit it was unable to make that determination. As a result it affirmed the summary judgment dismissing the indemnity claims, and vacated the dismissal of the insurance claims so the District Court can take evidence about insurance to resolve the issues at trial.

ZALMA OPINION

The indemnitors successfully avoided the obligation under their contract to indemnify the plaintiffs. The District Court wrongfully tied the obligation to indemnify with the obligation to provide insurance. Since the insurers may have owed a duty to defend Tesla and Sea Eagle if they failed to defend or indemnify the additional insureds, depending on the wording of the insurance contract, that will be established with evidence presented at the trial court.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

 

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Ninth Circuit Establishes that Unprotected Sex is an Intentional Act

No Potential for Coverage

For liability insurance to provide defense or indemnity to an insured the event causing the injury must be contingent or unknown to the insured. For that reason insurance may not provided defense or indemnity to an insured who causes an injury by intentional conduct.

In Travelers Commercial Insurance Company v. Jennifer A., USCA, 9th Circuit, 2017 WL 2684120, No. 15-15841,  (6/21/17) the Ninth Circuit was faced with an insurance coverage dispute between a claimant, Appellant, and an insurer, Travelers, which provided a homeowners’ liability insurance policy to the insured, third-party Jeffrey W. Jeffrey who allegedly had contemporaneous, unprotected sex with multiple partners, thereby placing Appellant in fear of contracting HIV and hepatitis.

Jeffrey’s policy provided a duty to defend or indemnify claims for bodily injury caused by an “occurrence,” which is defined as “an accident.” The issues are whether Jeffrey’s conduct triggers a duty to indemnify or defend Jeffrey, and whether an alleged ambiguity affirmative defense precluded judgment on the pleadings.

Jeffrey’s acts of unprotected sex with other women, the conduct for which liability was imposed, were deliberate acts and therefore were not accidents within the meaning of the policy. As such, the Ninth Circuit appropriately found that Travelers had no duty to indemnify Jeffrey under the homeowners’ insurance policy.

Additionally, since the duty to defend is broader than the duty to indemnify, the Ninth Circuit found that because the facts, as pleaded in Appellant’s complaint, create no potential for coverage, “there is no duty to defend.” [Uhrich v. State Farm Fire & Cas. Co., 135 Cal. Rptr. 2d 131, 137 (Ct. App. 2003) (quoting Quan v. Truck Ins. Exch., 79 Cal. Rptr. 2d 134, 138 (Ct. App. 1998)).]

Therefore, the Ninth Circuit also concluded that Travelers had no duty to defend Jeffrey against Appellant’s lawsuit because the allegations did not raise any possibility of coverage.

Finally, Appellant’s ambiguity defense is a defense that challenges the prima facie case put forward by Travelers in its complaint for declaratory judgment.   Because contractual ambiguity is a question of law for the court to decide, and because the term “accident” is not ambiguous under California law, the district court appropriately granted judgment on the pleadings.

ZALMA OPINION

The Ninth Circuit, in a concise opinion, concluded that unprotected sex is intentional and, therefore, not a contingent or unknown event. Since the conduct was intentional and the injuries claimed were intentional and, therefore, not insurable.

 

 

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

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Summary Judgment for Insurers Are Difficult

Louisiana Court Refuses to Read Policy as Written

Insurance policies are written – by statute – in “easy to read” or “Sesame Street” English that allows a court to interpret the language in a manner different from that intended by the insurer. In Advanced Radiographics, Inc. v. Colony Insurance Company, Court of Appeal of Louisiana, 2017-243, 2017 WL 2665923 (La.App. 3 Cir. 6/21/17) the Court of Appeal agreed with the trial court’s conclusion that there was an issue of fact relating to the risk of loss to warehouse structures it refused to insure although it did agree to insure the risk of loss causing injury to persons or property of third parties at the warehouse locations.

FACTS

This matter arises out of several policies of insurance issued to Advanced Radiographics, Inc. (ARI) by Colony through its broker and agent, Brown & Brown of Baton Rouge, LLC (Brown). ARI is a medical records storage company with a corporate office located at 856-B Ridge Road, Duson, Louisiana, and eight warehouse locations. On November 24, 2014, the warehouse located at 862 Ridge Road (the Ridge Road Warehouse) was damaged when a vehicle crashed into it and caused a large fire.

ARI sought to recover damages under policy number MP4114640-0 (the Policy) issued by Colony. The Policy provides commercial general liability (CGL) coverage and commercial property coverage. Colony denied coverage and alleged that although the CGL coverage extended to nine properties (including the Ridge Road Warehouse), the commercial property coverage extended only to the corporate office.

ARI sued Colony. Colony, as a result of discovery, obtained evidence that it believed “eliminated any possible fact issue.” This evidence consisted of a sworn affidavit from Stein that the commercial property coverage ARI requested and purchased, throughout the history of the Policy renewals from 2010 to 2014, extended to only one location – ARI’s Corporate Office at 856-B Ridge Road, and did not include the Warehouse at issue located at 862 Ridge Road. Stein further testified that ARI never requested that Brown procure property insurance coverage for any of its warehouses. Colony asserts that Stein’s affidavit testimony constitutes an admission by ARI since she was ARI’s agent.

ARI opposed the motion on the grounds that ARI’s “extra-contractual” documents were not admissible to explain the terms of the contract and were irrelevant to the interpretation of the Colony policy at issue.

SUPERVISORY RELIEF

Since denial of a motion for summary judgment is not appealable the insurer sought a supervisory writ. Appellate courts generally will not exercise such jurisdiction unless an error in the trial court’s ruling will cause the petitioner irreparable injury or an ordinary appeal does not afford an adequate remedy.

After an opportunity for adequate discovery, a motion for summary judgment shall be granted if the motion, memorandum, and supporting documents show that there is no genuine issue as to material fact and that the mover is entitled to judgment as a matter of law.

Summary judgment declaring a lack of coverage under an insurance policy may not be rendered unless there is no reasonable interpretation of the Policy, when applied to the undisputed material facts shown by the evidence supporting the motion, under which coverage could be afforded. Colony asserts two assignments of error: (1) the trial court refused to enforce the Policy as written; and (2) the trial court did not identify the issues of fact on which it based the denial of the motion for summary judgment.

The declarations page of the Policy’s commercial property coverage clearly only lists 356 B Ridge Road under description of premises. Furthermore, Stein, who was assigned ARI’s account by Brown, testified in her affidavit that the application submitted by ARI in May of 2014, listed nine buildings in the CGL section but only the corporate office in the property insurance section.

The warehouse at issue was listed as location 9. In the email thread between Stein and Jabaley (who was employed by Burns-Wilcox and provided other insurance coverage to ARI), Jabaley notes that Colony “won’t write property for warehouses,” and Stein responds that most of the locations of ARI “don’t have property coverage.”

In denying Colony’s original motion for summary judgment, the trial court stated: “The Court finds that the record, especially the attached Declarations pages, and correspondences (i.e., email and letters) among the parties as to coverage and the type of coverage, including the location(s) of coverage, does present factual questions regarding policy coverage prior to, and at the time of[,] the damage claimed.”

The Court of Appeal found that the endorsement created a genuine issue of material fact regarding whether the Policy coverage extended to the warehouse location.

ZALMA OPINION

The trial and appellate court refused to acknowledge the clear and unambiguous language of the declarations page and the testimony of those who acquired the policy that Colony will not write property insurance for warehouses and, rather, decided that there was an issue of fact whether the Colony insured against the risk of loss of the warehouses for which no premium was paid. Hopefully, when the case goes to trial, the trier of fact will apply the facts and law.

 

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

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Fraud Conviction Upheld

Scheme to Defraud Homeowners and Lenders Fails

Fraud is rampant in the United States. People create schemes to defraud individuals and corporations because it is fairly easy, exceptionally profitable, and seldom prosecuted.

When prosecuted successfully the defendant – attempting to avoid prison – will appeal claiming multiple errors by the trial court and the prosecution. The attempts usually fail, as they did in United States Of America v. Avalon Betts–Gaston, United States Court of Appeals, Seventh Circuit, 2017 WL 2641120, No. 16-2034 (6/20/17).

Avalon Betts-Gaston was convicted at trial on two counts of wire fraud and, of course, appealed her conviction.

FACTUAL BACKGROUND

Avalon Betts-Gaston and co-defendant Dimona Ross formed a company that operated a scheme to defraud homeowners and mortgage lenders. Betts-Gaston and Ross found homeowners facing foreclosure and convinced them to participate in what the defendants said was a program to help them keep their homes. Betts-Gaston had the homeowners sign documents that deeded their homes to a trust the defendants controlled. Ross then arranged for straw buyers to obtain mortgages to buy the homes. Working with Betts-Gaston, she filled out loan applications that inflated the buyers’ incomes and misrepresented the purpose of the purchases. Once a sale was completed, the buyer deeded the property back to the defendants’ trust. When the dust on these transactions settled, the defendants had both the mortgage proceeds and title to the properties. The homeowners initially still lived in the homes but no longer had title to them or equity in them. At least two homeowners were eventually evicted.

Betts-Gaston and Ross were indicted for this scheme in 2011. Ross pled guilty and agreed to cooperate with the government. Betts-Gaston proceeded to a jury trial at which the government presented evidence of the Howard, Ravengate, and Trumbull transactions. She was convicted on both counts. A fourth transaction, called the Hermosa transaction, was introduced at sentencing. Betts-Gaston was ultimately sentenced to a fifty-seven month term in prison.

CHALLENGES TO THE CONVICTIONS

Brady v. Maryland, 373 U.S. 83 (1963), “requires the government to disclose evidence materially favorable to the accused,” including evidence that tends to impeach a government witness. Such impeachment evidence often includes plea agreements between cooperating witnesses and the government.

In this case, the government had a written plea agreement with Dimona Ross, who testified against Betts-Gaston. It gave that agreement to defense counsel, and Ross testified to its terms at trial. The plea agreement indicated that Ross could not be sentenced to a term of probation.  Nothing was hidden from the defendant nor was a deviation from the agreement after the conviction change the information available to the defendant.

The Seventh Circuit found the government could not have suppressed it, as required for a Brady violation and there was no Brady error.

Betts-Gaston contended that the inquiries were insufficient for two reasons. First, she says the court should have asked all potential jurors about the burden of proof and presumption of innocence. The district court’s refusal to question potential jurors during voir dire on the issues of burden of proof and the presumption of innocence did not deprive defendants of a fair trial.

To show a violation of the wire fraud statute, the government had to prove that Betts-Gaston’s scheme to defraud employed material falsehoods or omissions. A falsehood is material if it has a natural tendency to influence, or is capable of influencing, the decision of the person(s) to whom it is addressed. Betts-Gaston contested that element at trial, arguing that the mortgage applications were not materially false because the lenders did not care about the information the applications requested, such as the borrower’s income.

Legitimate services case law in this and other circuits suggests that the dividing line between legitimate and illegitimate services has not been clearly defined. But a common thread in those cases is that services are legitimate when the victim agreed to pay for them. By contrast, in United States v. Crosgrove, 637 F.3d 646, 665–66 (6th Cir. 2011), the loss caused by defendant’s fraudulent sale of insurance coverage was not calculated since he, in fact, provided insurance. The victims were sold insurance coverage and would not have paid anything had they known the coverage was fraudulent.

Betts-Gaston wanted to convince the jury that the lenders involved here routinely behaved unreasonably—that, as a matter of policy, they ignored information that a reasonable lender would consider, like the borrower’s income. A false statement is material if it objectively had a tendency to influence, or was capable of influencing, a lender to approve a loan.

Her argument assumes that the jury must have considered each iteration of her scheme to defraud in isolation from the others. Not so. The same people, performing the same roles in connection with the same company during the same time period, found another homeowner struggling with his mortgage. The jury could reasonably have inferred from that evidence that Betts-Gaston procured that homeowner’s cooperation by the same method testified to in the Ravengate and Trumbull transactions: false statements.

Betts-Gaston’s own testimony also indicated that she made false statements to the Howard homeowner. In her telling, the homeowners her company served were not being deprived of all rights to their homes: they would become beneficiaries of the trust that held the property. But she also testified that the Howard property was never put into the trust.

The Seventh Circuit refuses to reward defendants “for success in baiting the judge,” and it allows reasonable latitude for normal human sensitivity in responding to such provocation. Judges, while expected to possess more than the average amount of self-restraint, are still only human.  Defense counsel’s minor complaints were not convincing especially since defense counsel attempted to bait the judge into a temperamental response that she could later trot out as offensive conduct.

Some of the conduct complained of reflects preferences common among trial judges, such as the reluctance to use sidebar conferences, the requests to show the jury documents, and the dislike of long-pending cases and of being thanked for rulings.

The court’s comments in this case were few and (with the exception of the facial expression, which the jury was immediately instructed to ignore) not directed against the defendant. The jury may have inferred (correctly) that the court believed defense counsel was behaving inappropriately. The Seventh Circuit concluded that she was.

OBSTRUCTION OF JUSTICE

Finally, the district court adjusted Betts-Gaston’s guideline offense level because it found that she obstructed justice by testifying falsely at trial.

Nor did the court err in crediting Ross’s testimony. She described Betts-Gaston as actively involved with her father’s loan application, acting as a go-between to adjust his reported income and the purpose of the purchase until he qualified for the loan. In Ross’s account, Betts-Gaston proposed reporting that the property would be her father’s primary residence, but Ross refused to use such a blatant falsehood.

Betts-Gaston then said to say it would be his secondary residence, and Ross agreed to that. That testimony supports the district court’s application of the obstruction of justice enhancement.

ZALMA OPINION

A fraud perpetrator as wrongful as was Betts-Gaston deserves the serious sentence she actually received. Similar fraud schemes have succeeded and included insurance fraud by burning or vandalizing the homes and paying of the mortgages with insurance proceeds. The government stepped in to charge the fraudsters before the insurance fraud potential was stopped before it was born.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

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Equity Trumps Law in Rhode Island

Court Changes Clear and Unambiguous Language of Policy to Provide Benefits

Judges are often kind people intent on providing an equitable result for the injured litigants because they feel – when faced with a dispute between an injured person and an insurance company – that the insurance company can better withstand the expense than the injured person. In doing so they forget that it is the obligation of a court to rule on the law not on their feelings about what is equitable.

In Hudson v. GEICO Insurance Agency, Inc., Supreme Court of Rhode Island, — A.3d —-, 2017 WL 2622777 (June 16, 2017) the plaintiff, Amberleigh Hudson (plaintiff), appealed from a Superior Court judgment in favor of the defendant, GEICO Insurance Agency, Inc., d/b/a GEICO General Insurance Company (defendant or GEICO), in this underinsured motorist (UM) insurance case.

FACTS

In the early morning hours of February 11, 2012, plaintiff and her then-boyfriend, Gregory Hurst (Hurst). Hurst was driving his Saab, which was insured by defendant (the GEICO policy), and plaintiff was a passenger. Hurst pulled into the parking lot and parked the vehicle with a plan to then exit the vehicle and go into the Amazing Super Store. When they heard the sound of a crash, signifying an automobile collision, on nearby Allens Avenue.

The couple exited the Saab, crossed the parking lot of the Amazing Super Store, and the two southbound lanes of Allens Avenue in order to reach the nearby accident scene. While Hurst called 9–1–1, plaintiff went to the rear of the vehicles to retrieve the license plate numbers. While looking down at a license plate, plaintiff heard somebody yell “car.” A third vehicle, traveling north on Allens Avenue, then struck the accident vehicles, adjacent to where plaintiff was standing. She was injured as a result of this impact.

The plaintiff settled a claim against the operator of the vehicle that hit her; however, she has alleged that this did not fully compensate her for her injuries. Consequently, plaintiff filed a claim with defendant seeking relief through Hurst’s GEICO policy that insured the Saab. The GEICO policy afforded protection to passengers “occupying” the insured vehicle at the time of the accident. The policy defined “occupying” as “in, upon entering into or alighting from [the vehicle].” The defendant denied plaintiff’s claim, on the ground that she was not “occupying” the insured vehicle at the time of her injuries.

THE ISSUE

Whether, in light of a state statute, a Good Samaritan who was injured while rendering roadside aid may be considered to be “occupying” an insured motor vehicle for purposes of UM coverage under that vehicle’s insurance policy.

ANALYSIS

Plaintiff contended that the rendering of reasonable assistance as a Good Samaritan, constitutes an “essential transaction” for purposes of UM coverage. The statute provides that “Any person at the scene of an emergency who knows that another person is exposed to, or has suffered, grave physical harm shall, to the extent that he or she can do so without danger or peril to himself or herself or to others, give reasonable assistance to the exposed person.  * * *.”

GEICO contended that a Good Samaritan can only be “occupying” an insured vehicle if each of the elements required are met.

THE GEICO POLICY

In Rhode Island, the approach that controls the interpretation of an insurance policy can be classified as either inclusive or exclusive, based on whether the policy clause at issue includes a person other than the named insured within the coverage afforded or seeks to exclude the named insured from the coverage. Specifically, the Supreme Court recognized the “general principle favoring broad coverage” as the cornerstone for the analysis.

When examining an insurance policy, the court will not depart from the literal language of the policy absent a finding that the policy is ambiguous, with the salutary purpose underlying UM provisions, which is to indemnify an insured motorist for loss when recovery from the uninsured tortfeasor is unavailable.

Plaintiff, a passenger and person other than the named insured, seeks to be included within the protection afforded under Hurst’s GEICO policy. Accordingly, the court concluded it was obligated to read the terms of the GEICO policy broadly to determine whether, at the time of her injuries, plaintiff was “occupying” the insured Saab.

OCCUPANCY

The Supreme Court determined that a strict adherence to the policy wording is in stark contrast to the general purpose to extend coverage broadly – that is, to provide coverage that is not included within the insuring agreement.

First, the plaintiff must show a causal relation or connection between the injury and the use of the insured vehicle. The plaintiff must show that there is some “nexus” between the insured motor vehicle and the claimant’s injuries.  The facts showed the Supreme Court a sufficient nexus between the insured motor vehicle and plaintiff’s injuries, in that plaintiff was inside the insured vehicle when she heard the collision and exited the vehicle in order to offer assistance at the nearby scene.  In the Supreme Court’s opinion, these facts establish a nexus between the insured motor vehicle and plaintiff’s injuries sufficient to successfully meet the first requirement.

Second, the trial court established that the plaintiff was in a reasonably close geographic proximity to the insured vehicle sufficient to provide coverage even though she traveled across a parking lot and crossed a highway to render aid.

The Supreme Court was satisfied that plaintiff’s departure from the insured vehicle was incident to a temporary interruption in an otherwise unfinished excursion into the Amazing Super Store and that, upon completion of the occurrence causing the interruption, plaintiff intended to resume her journey. It is undisputed that plaintiff exited the insured vehicle for the purpose of rendering aid to the victims of a motor vehicle collision in close proximity, and for no other purpose.

Fourth, the individual must be engaged in a transaction essential to the use of the vehicle at the time of his or her injuries and a willingness to render aid at the scene of a motor vehicle collision as a Good Samaritan, is inherently part of the use of a motor vehicle in this state. A Good Samaritan is unable to ignore the sight of a perilously stranded motorist and thus, held that a rescue effort to assist an occupant of another vehicle is a transaction essential to the use of the rescuer’s vehicle.

The “public policy of encouraging citizens to save others from life threatening situations dictates that Good Samaritans should be protected. Certainly, the law of this state recognizes the value of encouraging the reasonable efforts of Good Samaritans protects them from injuries they cause to others.

The facts unquestionably illustrate that plaintiff exited the vehicle to render aid to the victims of the collision on Allens Avenue. Therefore, by leaving the insured vehicle in order to administer rescue efforts, plaintiff was engaged in a transaction essential to the use of the insured vehicle sufficient to satisfy the fourth requirement.

The plaintiff, who was injured while rendering roadside aid as a Good Samaritan, was occupying the insured Saab for purposes of UM coverage. Therefore, the Supreme Court concluded that the plaintiff is entitled to recover under the terms of the GEICO policy.

ZALMA OPINION

The Chief Justice dissented because, when Ms. Hudson heard the crash and was alerted to the collision, her presence inside the insured vehicle was merely incidental to the events that followed. Clearly, Ms. Hudson’s actions were commendable.As laudable as it is to provide her coverage, to do so requires an unreasonable expansion of the policy language. Regardless of the plaintiff’s praiseworthy deed in coming to the aid of a person in distress,  a court should not be at liberty to create bad law to cover good persons. By the Supreme Court doing so it rights one wrong, the plaintiff’s injury, while creating another, holding GEICO responsible even when the law said otherwise. A court should never rewrite the policy wording agreed to by the insurer and the insured.

 

 

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

 

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Guaranty Association’s Attempt to Overcome Exclusive Remedy Fails

Exclusive Remedy Applies to Guaranty Association

The exclusive remedy rule is the most firmly entrenched doctrine in workers’ compensation law. An employer who maintains workers’ compensation insurance for the benefits of its employees may not be sued by the employee for tort damages since those damages replaced by the workers’ compensation benefits promised by the state’s workers’ compensation law.

In Asurion Services, LLC v. Montana Insurance Guaranty Association, Supreme Court of Montana, 2017 MT 140,  2017 WL 2558455, DA 16-0581 (June 13, 2017) the defendant Montana Insurance Guaranty Association (MIGA) sought indemnity from the employer of benefits it paid when Asurion’s insurer became insolvent and MIGA took over the claim. It appealed the August 29, 2016 order denying its motion for summary judgment by the First Judicial District Court, Lewis and Clark County.

THE ISSUE

Whether the District Court erred by granting summary judgment to Asurion and denying summary judgment to MIGA based on the exclusivity provision of the Montana Workers’ Compensation Act.

FACTUAL BACKGROUND

Christy Harris is a former employee of National Electronics Warranty, LLC—now known as Asurion Services, LLC (Asurion) — at its customer service facility in Great Falls was injured while employed by Asurion. Harris filed industrial injury claims for two different incidents, occurring on May 5, 2002, and September 4, 2002. Asurion was insured by Lumbermens Mutual Casualty Company (Lumbermens) as a Plan 2 employer under Montana’s Workers’ Compensation Act (WCA). Lumbermens accepted and adjusted Harris’s workers’ compensation claims until it was declared insolvent in May 2013. When Lumbermens went into liquidation, the MIGA assumed handling of Harris’s claims pursuant to the Montana Insurance Guaranty Association Act (Guaranty Act).

In February 2015, MIGA notified Asurion that it was seeking recovery of benefits paid on Harris’s claims pursuant to, which provides, in pertinent part: “(2) The association has the right to recover from the following persons the amount of any “covered claim” paid on behalf of the person pursuant to this part: ¶ (a) any insured whose net worth, on December 31 of the year preceding the date the insurer becomes an insolvent insurer, exceeds $50 million and whose liability obligations to other persons are satisfied in whole or in part by payments made under this part[.]”

The District Court concluded that the statute did not afford MIGA relief because the WCA protects the employer by providing an exclusive remedy that frees the employer from potential liability claims by an employee. The District Court held that because Asurion met its obligation to obtain workers’ compensation insurance, it has no payment obligations to Harris; therefore, MIGA cannot base a claim for recovery.

The District Court concluded, with clarity and common sense: “[I]t would be illogical to conclude that an employer, protected from liability and removed from the benefits distribution process by law, is suddenly liable for all the payments made by MIGA because the insurer became insolvent.”

DISCUSSION

The WCA applies to all employers and employees. Asurion elected to be bound by the provisions of the WCA Plan 2, which provides for coverage through a licensed private insurance company.

As noted by the District Court, the Montana Constitution likewise provides for the nonliability of an insured employer: “Courts of justice shall be open to every person, and speedy remedy afforded for every injury of person, property, or character. No person shall be deprived of this full legal redress for injury incurred in employment for which another person may be liable except as to fellow employees and his immediate employer who hired him if such immediate employer provides coverage under the Workmen’s Compensation Laws of this state.” Mont. Const. art. II, § 16 (emphasis added). Other than a basic duty to cooperate and assist its insurer, an employer insured under either Plan 2 or 3 has no role in the adjusting of its employee’s workers’ compensation claim.

Montana’s Guaranty Act provides that when an insurer becomes insolvent and enters into liquidation, MIGA assumes most, if not all, of the insolvent insurers’ financial obligations on first-party and third-party claims. This statutory obligation includes workers’ compensation claims.

Although the parties advance some ancillary arguments, the fundamental conflict in this case is between the exclusivity provision of the WCA, as set forth in § 39-71-411, MCA, and Article II, Section 16 of the Montana Constitution which insulate an insured employer from liability for an injured employee’s workers’ compensation claim, and § 33-10-114(2)(a), MCA, which would ordinarily allow MIGA to seek reimbursement from an insolvent insurer’s insured whose net worth exceeds $50 million.

The WCA provides an exclusive remedy that protects the employer from liability claims by employees and third parties if the employer has met its obligation to obtain workers’ compensation insurance. Insured employers are “not subject to any liability whatever … for any claims for contribution or indemnity asserted by a third person ….”

Asurion met its WCA obligation as a Plan 2 employer by securing coverage from Lumbermens. As such, it enjoys the protection of the exclusivity provisions of the WCA, and is not subject to any claims for contribution or indemnity asserted by MIGA.

The Supreme Court was unpersuaded by MIGA’s arguments that, upon Lumbermens’ insolvency, Asurion effectively became an “uninsured employer,” and was no longer compliant with the WCA. Harris’s claims were made and accepted by Lumbermens in 2002, before Lumbermens’ insolvency. Lumbermens’ subsequent insolvency did not render Asurion an “uninsured employer” as MIGA contends.

CONCLUSION

The exclusive remedy rule is the benefit employers receive from the quid pro quo compromise when they provide workers’ compensation insurance coverage. Asurion provided workers’ compensation coverage in this case, exactly as the WCA required. To deprive Asurion of the benefit of the exclusive remedy by requiring it to reimburse MIGA for the benefits paid to Harris, despite Asurion’s full compliance with the WCA, would strike at one of the very foundations of the workers’ compensation system.

ZALMA OPINION

The state of Montana promised employers in its state that if it provided workers’ compensation insurance to protect its employees it would be safe from any liability if an employee was injured. MIGA tried to get reimbursement from the employer and get around the exclusive remedy doctrine. A statute allowing reimbursement that defeats a constitutional right should never occur. The Supreme Court, over a single justice’s dissent, upheld the priority of the exclusive remedy.

 

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

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Ignorance, Sloth, and Stupidity Defeats Suit Against Agent

Statute of Limitations Begins to Run When Policy Delivered

People who are insured receive from their broker or agent and insurer when a policy is issued. The insured, although dealing with an agent who has a fiduciary duty to the insured, still must read the policy and determine what coverages were provided. The insured should not be able to claim his ignorance and failure to read the policy protects him and allows him to sue his agent and insurer for not providing the insurance he wanted.

In RVP, LLC v. Advantage Insurance Services, Inc., Appellate Court of Illinois, — N.E.3d —-, 1602762017 IL App (3d) 160276 (6/14/17) the appellate court was called upon to determine whether the statute of limitations applies as of the date of delivery of the policy that advised the insured of reduced limits and reverse the finding of the trial court in favor of the agent and insurer.

FACTS

Plaintiffs sued, alleging negligence and breach of contract counts against their insurance broker agencies, Advantage Insurance Services, Inc. (Advantage) and Commercial Insurance Group, Inc. (CIG), and their insurance agent, Tom Roule. Plaintiffs alleged defendants were negligent and in breach of contract for failing to procure sufficient insurance coverage, resulting in plaintiffs being unable to recover insurance proceeds for property that was destroyed in a fire.

Plaintiff, RVP, owned real property in Kankakee, Illinois. In 2007, plaintiff, River Valley Recycling, began operating a recycling facility out of a portion of RVP’s building. Mark Fill was a member of RVP and the Chief Financial Officer (CFO) of River Valley Recycling. Fill was responsible for the procurement and for the management of insurance issues for plaintiffs.

Travelers Policy

On March 1, 2008, Roule procured a policy for RVP from Travelers Casualty Insurance Company (Travelers policy) for “building[s] 1 and 2,” at the Kankakee facilty, with coverage limits of $3,000,000 and $600,000, respectively. On April 21, 2008, a “Change Endorsement” was issued, revising the limits to $1,500,000 for the one building and $1,500,000 for the other, with blanket limits so that $3,000,000 of coverage that applied to either or both of the buildings. On April 1, 2009, the policy was renewed with the limits increased to $1,545,000 for each building, with blanket coverage also provided. Travelers non-renewed.

Universal Policy

In July of 2008, the Universal policy was renewed some time prior to July 1, 2009. On July 1, 2009, River Valley Recycling was given notice that the Universal policy was being canceled effective August 1, 2009.

Erie Policies

Fill instructed Roule to find the same or similar coverage as plaintiffs had under the canceled Travelers policy. Roule had a copy of the Travelers policy so he knew all the information.

It was Fill’s custom to certify insurance applications without seeing all the pages. Fill  relied on Roule to obtain coverage that he had requested.

Erie issued an insurance policy (Erie property policy) based on Fill’s application. The declaration page of the Erie property policy specified that the coverage limits for business personal property was $75,000. The Erie property policy was subsequently renewed on two occasions—on August 1, 2010, and August 1, 2011—with the declaration page showing that the coverage limit was $75,000.

The policy did not provide blanket coverage. The Erie buildings policy was renewed the following year on February 1, 2011.

Plaintiffs’ Losses

On September 2, 2011, a fire occurred on the plaintiffs’ Kankakee properties, destroying the buildings and the contents therein. Erie only paid the coverage limit of $1,545,000 on the single building and Erie only paid the “functional replacement” cost of $437,800 on the other property. River Valley Recycling claimed that it sustained $1,028,977 in loss of business income but was only paid $40,173 for the loss of three pieces of equipment.

Complaint

Plaintiffs sued alleging negligence and breach of contract counts against defendants for failing to obtain the amount of coverage Fill had requested.  Plaintiffs alleged that, after the fire, they learned that their insurance coverage was not sufficient to cover the loss of the Kankakee facilities, fixtures, permanently attached machinery and equipment, other equipment, supplies, tools, and inventory and alleged that defendants had “breached their contract to procure sufficient insurance for the [p]laintiffs.”

Motion for Summary Judgment

Through discovery, it was determined that the Erie policies were delivered directly to Fill at the RVP/River Valley Recycling offices, but Fill was unsure of the exact date that he received the policies. Fill acknowledged that he received the policies more than two years before filing suit.

The trial court granted the motion for summary judgment, finding that the plaintiffs knew or should have known of the policy limits and whether those limits contained sufficient coverage when plaintiffs received the policies.

ANALYSIS

The two-year statute of limitations governs the plaintiffs’ claims regarding defendants’ negligent procurement and breach of contract in this case. The Illinois statute provides that all causes of action by an insured against his insurance producer, registered firm, or limited insurance representative concerning the sale, placement, procurement, renewal cancellation of, or failure to procure any policy of insurance shall be brought within two years of the date the cause of action accrues.

Under the discovery rule, the limitations period does not begin to run until the plaintiff knows or reasonably should have known of its injury and that it was wrongly caused.  At the point the injured person knows or should have known that his or her injury was “wrongly caused,” the injured person possesses sufficient information concerning his injury and the cause of his injury to put a reasonable person on notice to make additional inquiries.  A cause of action accrues at the time a party should be charged with knowledge of his or her injury and that it was wrongfully caused. Although generally a question of fact, judgment may be entered as a matter of law when the undisputed facts lead to only one conclusion.

Plaintiffs applied for and received $1,545,000 and $545,000 of coverage on the two buildings and $75,000 of coverage for business property. Plaintiffs received copies of the policies reflecting those coverage limits. Although plaintiffs argue there was no evidence of their actual knowledge of the policy limits, they should have reasonably known of the policy limits upon receiving the policies or the renewals of the policies, both of which indicated the coverage limits.

Failure to Read Policy

During discovery, it was determined that plaintiffs received the policies prior to the policies’ renewal periods, and the complaint was filed two years after that time. The evidence also showed that the policies indicated the coverage limits on the declaration pages and there was no indication or allegations that the amounts of the coverage limits were ambiguous. As such, plaintiffs should have known of the policy limits upon receiving the policies.

The court did not reach the issue of whether plaintiffs’ failure to read the policy was an absolute bar to recovery or was merely some evidence of contributory negligence because it did not reach the merits of the case.

Instead, for statute of limitations purposes, the court found it necessary to determine when the plaintiffs should be charged with knowledge of the deficient coverage limits. Based upon the facts of this case, plaintiffs should have known of the deficient coverage limits upon receiving the policies where there was no claim of an ambiguity in the declaration of the coverage limits.

Claim Barred by the Statute of Limitation

Where the plaintiffs applied for certain policy coverage limits, received a policy reflecting those coverage limits, and renewed that policy multiple times, the court held that the insured should have known of the coverage limits upon receipt of the policies, which included declaration pages that specified the coverage limits.

Plaintiffs argue that their failure to read the policies was not applicable because the defendants’ fiduciary duty trumped the plaintiffs negligence in failing to read or establish that the coverages they obtained were what they ordered. The issue of whether a party was negligent or contributory negligent go to the merits of plaintiffs’ claims.

Regardless, for the purpose of determining when the plaintiffs’ claims accrued, the court found plaintiffs knew or should have known of the coverage limits upon receiving the policies and, as a result, their claims were barred by the statute of limitations.

ZALMA OPINION

Ignorance, sloth, and stupidity by an insured is not enough to allow the insured to claim that its fiduciary, the agent, breached its duty to get the insurance the insured wanted even though it received the policies and should have seen the limits were not appropriate when they were delivered. The plaintiffs had no excuse for failing to protect themselves. They hurt themselves and failed to sue promptly.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

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Zalma’s Insurance Fraud Letter – June 15, 2017

The Phantom Moose
&
Insurance Fraud

In the last 49 years that I have been in the business of insurance I have learned the one thing that is a certainty: the quality of insurance fraud perpetrators is almost non-existent. That means that it is so easy to steal from insurance companies that amateurs with no skills are jumping into the business of defrauding insurers. If the insurance industry learns enough about insurance fraud and defeats the claims of the amateurs the professional fraud perpetrators will go away and work easier crimes. If not, they will continue to bleed the insurance industry. It has been my desire, for the last 20 years

Zalma’s Insurance Fraud Letter
has been published, to help in the effort to make insurance fraud more difficult for the perpetrators and reduce what fraud takes from the insurance industry.

Certified Expert in Corporate Property and Corporate Liability Insurance

In order to help train insurance professionals I have created the Certified Expert in Corporate Property Insurance and the Certified Expert in Corporate Liability Insurance programs for Illumeo.com.

It is a comprehensive program enabling insurance professionals to become Certified Experts in Corporate Property Insurance.

The programs provide a complete course of study providing education and training to allow insurance professionals, after completing the individual classes, to become Certified Expert in Corporate Property Insurance and/or a Certified Expert in Corporate Liability Insurance. The programs cover everything an employee, an officer, or a director of a corporation needs to know about the acquisition of proper insurance and to how insurers deal with claims.

Major topics of study include, but are not limited to: the importance of insurance; how to acquire insurance and understand an insurance policy; the methods used by insurers to investigate claims; the various types of insurance that corporations need; the duties and obligations of a public adjuster; and how to present a claim that will be paid.  When you go to http://www.illumeo.com simply type “zalma” in the search bar and you will find all courses I have written for Illumeo.com.


 The Current Issue Contains the Following

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Insurance Brokerage Expert Must State More than His Personal Opinion

Insurance Broker Obligated to Advise Not Force Insured to Buy Coverage

Insurance brokers transact insurance with, but not on behalf of, and insurer. They represent their client, as a prospective insured, to obtain the insurance ordered and to advise the insured of the insurance needed.

In Satec, Inc. and Satec, LLC, Inc., The Hanover Insurance Group, Inc., v. Patrick Spina, Superior Court of New Jersey, Appellate Division, 2017 WL 2458133, Docket No. A-5103-14T4 (6/7/17) Satec, Inc. and Satec, LLC (collectively, Satec), appealed from the trial court order granting summary judgment in favor of defendants Grinspec Insurance Agency, Inc. d/b/a Centric Insurance Agency and Lee Nestel (collectively, Centric) and The Hanover Insurance Group, Inc. and Citizens Insurance Company of America (collectively, Hanover). The negligence and professional malpractice action arose from damage sustained to Satec’s real and personal property as a result of Hurricane Irene.

Satec is a distributor of electricity measurement meters. In 2003, Satec acquired a warehouse and business offices in Union County, New Jersey (the property). In 2007, Satec sought the counsel and advice of Centric, an independent insurance brokerage agency, relative to its desire to insure the property. As part of Nestel’s presentation to Satec, he provided Gordillo with a letter dated April 20, 2007, which contained an insurance proposal from Hanover, the underwriter of the insurance policy. In the letter, Nestel noted that Satec should review the proposal regarding coverage limits and exclusions: “Please review the entire proposal carefully with particular attention to the property limits on the proposal and advise me if you would like to increase coverage. Please also review the [r]ecommendations section following this letter. The [r]ecommendations section lists insurance coverage NOT included in this proposal. Please advise if you would like us to pursue a quotation for insurance coverage not included in this proposal.”

Satec ultimately purchased several policies from Centric, including the Business Owners Policy (BOP), which was underwritten by Citizens, a subsidiary of Hanover. The BOP excluded “(g) Water, (1) Flood, surface water, … overflow of any body of water, or spray from any of these, all whether or not driven by wind (including storm surge); …. (4) Water under the ground surface pressing on, or flowing or seeping through: (a) Foundations, walls, floors or paved surfaces; (b) Basements, whether paved or not; or (c) Doors, windows or other openings. (5) Waterborne material carried or otherwise moved by any of the water referred to in paragraph 1., 3. or 4., or material carried or otherwise moved by mudslide or mudflow.”

Satec renewed the policy annually. Centric sent Satec written correspondence advising about the upcoming renewal and/or new policy options. On August 28, 2011, the property was flooded due to Hurricane Irene, which resulted in property damage to the building in an alleged amount of $2.3 million. Satec filed a claim seeking coverage from Hanover. Upon receipt of the claim, Hanover conducted an investigation, wherein it determined that the flooding and consequential damage was occasioned by an overflow from the Rahway River, an incident not covered, as specifically excluded, by the BOP.

Satec sued Centric, Nestel, Hanover and Citizens. Satec alleged breach of contract, negligence and professional malpractice, among other claims. Following discovery, defendants moved for summary judgment. The court granted summary judgment in favor of defendants in an eleven-page written decision.

ANALYSIS

Summary judgment should be granted only if the record demonstrates there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law. If no genuine issue of material fact exists, the inquiry then turns to whether the trial court correctly interpreted the law. In this matter, Satec claims that there were matters in dispute and sufficient evidence in the discovery record to demonstrate Centric was professionally negligent in breaching its duty to procure adequate insurance to meet its needs, namely flood insurance.

An insurance broker owes a duty to his principal to exercise diligence in obtaining coverage in the area his principal seeks to be protected. Insurance intermediaries in this State must act in a fiduciary capacity to the client because of the increasing complexity of the insurance industry and the specialized knowledge required to understand all of its intricacies.  An insurance producer acts in a fiduciary capacity in the conduct of his or her insurance business.  The fiduciary relationship gives rise to a duty owed by the broker to the client to exercise good faith and reasonable skill in advising insureds.

The scope of an insurance broker’s obligations to a prospective insured requires insurance brokers:

(1)           to procure the insurance;

(2)           to secure a policy that is neither void nor materially deficient; and

(3)           to provide the coverage he or she undertook to supply. However, the duty of a broker or agent is not unlimited.

Inadequate Expert

In support of its claim of malpractice, Satec retained Stanley Hladik as its expert. In furtherance of his retention, Hladik produced a written report in which he opined that, based upon deviation from accepted standards, Centric negligently failed to procure flood insurance on behalf of Satec. Centric sought to bar Hladik’s testimony by motion, which was granted. The judge held that Satec’s liability expert should be excluded as having produced a “net opinion.” Without its expert’s testimony Satec could not prove as a matter of law its negligence and malpractice claims.

If an expert cannot offer objective support for his or her opinions, but testifies only to a view about a standard that is personal, it fails because it is a mere net opinion.

The trial judge concluded concerning the expert that throughout his report, Hladik states what he believes to be the standard of care for insurance brokers in New Jersey. Hladik merely stated that in “New Jersey, the standard of care for a broker includes making sure that the client (insured) understands exactly what types of insurance they need and is available.” These statements were made without any qualifying explanations, nor were they supported by any written document, supporting case law, or other objective custom accepted by the insurance producer community. Instead, Hladik’s report offers opinions that are personal to him.

Hladik presented no authority supporting his opinion. Nowhere in Hladik’s report or testimony does he identify the source of the standard of care enunciated, including decisional law, by which to measure plaintiff’s claimed deficiencies or to determine whether there was a breach of duty owed defendant.

Satec further contends the court erred in finding that, without an expert, it could not demonstrate Nestel breached his duty to advise Satec as to the need for flood insurance. Contrary to Satec’s assertions, given the discrete factual scenario presented herein, we hold that it is not “common knowledge” whether Centric’s actions constituted a deviation from the accepted standard of care of a New Jersey insurance producer. A jury should not be allowed to speculate without the aid of expert testimony in an area where laypersons could not be expected to have sufficient knowledge or experience.

The actions of the broker were not, by application of respondiat superior, negligence of the insurer it represented.

Applying governing principles, the appellate court was not persuaded by Satec’s argument that Hanover should be held vicariously liable for the alleged negligent actions of Centric. Imputation will not apply when the broker is evaluating a client’s needs and making recommendations accordingly. Satec’s arguments are directed at Centric’s failure to advise it regarding its need for flood insurance for the property. As such the actions of Centric may not be imputed to Hanover. The judgment of the trial court was affirmed.

ZALMA OPINION

Insurance brokers, even when given the New Jersey statement that they are fiduciaries to the person for whom they obtain insurance, are only required to advise the insured not force the insured to buy the insurance they need. The broker advised the insured that the policy they acquired did not include flood insurance and offered to find flood insurance if the insured required it. The insured did not require or seek flood insurance. The broker was not negligent nor was the insurer negligent in denying the claim for a loss clearly excluded.ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

 

 

 

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Posted in Zalma on Insurance | Comments Off on Insurance Brokerage Expert Must State More than His Personal Opinion

What is a Motor Vehicle Accident?

To Recover PIP Cover There Must be an Auto Accident

When a person becomes ill, parks his car, and falls out of it onto the pavement, is he operating the vehicle for personal injury protection (PIP) no fault insurance coverage purposes? In Kelly Ramm and Lisa Ramm v. Farmers Insurance Company Of Washington, Court of Appeals of Washington, 2017 WL 2451502,No. 34542-4-III (6/6/17) the Washington Court of Appeals was asked to resolve the issue.

FACTS

Kelly Ramm was driving with his son on Trent Avenue in Spokane, Washington when he began to feel nauseous. Believing he was going to be sick, Mr. Ramm turned his vehicle from Trent to a side street and then pulled over toward the side of the road. The vehicle was placed in park but the keys remained in the ignition with the engine running. Mr. Ramm then unbuckled his seatbelt and leaned out the driver’s door to vomit onto the road. He passed out and fell forward onto the pavement, striking his head and suffering significant injuries. After falling and while still unconscious, Mr. Ramm began bleeding profusely. His head and upper body fell outside the vehicle but his legs and feet remained inside near the pedals for the accelerator and brakes. Mr. Ramm’s son provided some basic first aid and drove his father to the emergency room.

The Ramms accumulated medical bills in excess of $10,000 for treatment of Mr. Ramm’s injuries. Mr. Ramm submitted a PIP claim under his personal automobile policy with Farmers. The insurance policy agreement affords that Farmers “will provide the benefits described [in the policy] for bodily injury to each Insured person caused by a motor vehicle accident.” (emphasis in original).

Farmers responded to Mr. Ramm’s PIP claim by denying coverage for the incident. It took the position that a motor vehicle accident only occurs when the covered motor vehicle is being operated as a motor vehicle and a motor vehicle is not being operated as a motor vehicle when parked. Farmers reasoned that since Mr. Ramm sustained his injuries by falling from a parked vehicle, the events leading to those injuries could not be considered a motor vehicle accident and he was not entitled to PIP coverage.

The Ramms sued Farmers alleging breach of contract for failure to pay PIP benefits and moved for partial summary judgment on the breach of contract claim. Farmers filed a cross motion for summary judgment, and the trial judge granted Farmers’ cross motion, denied the Ramms’ motion, and dismissed the breach of contract claim.

ANALYSIS

At issue here is whether Mr. Ramm’s injuries were caused by a “motor vehicle accident,” as contemplated by the insurance policy. The term motor vehicle accident unambiguously refers to an incident where one or more vehicles come in forceful contact with another vehicle or a person, causing physical injury. A motor vehicle accident occurs when a motor vehicle is being operated as a motor vehicle.

In Washington, a motor vehicle is being operated as a motor vehicle when it is being driven or when it is stopped while being driven. For example, if a tree limb were to fall on the motor vehicle while a person was driving or had stopped while driving, that would constitute a ‘motor vehicle accident.’ On the other hand, a motor vehicle is not being operated as a motor vehicle when parked.

Mr. Ramm’s injuries were not caused by forceful contact with a vehicle. The forceful contact was with the pavement. A reasonable construction of the term “motor vehicle accident” simply does not encompass this unfortunate incident.

Mr. Ramm’s car was not stopped at a traffic signal. He was not taking any action to ensure the car remained motionless. Instead, Mr. Ramm’s vehicle was pulled to a side road and the transmission was placed in park.

It is irrelevant that Mr. Ramm did not intend to have his vehicle remain in park for very long. That is not the test. The test is what was happening at the moment of the incident. Because Mr. Ramm was in no sense operating his vehicle at the time the injuries were sustained, the incident did not qualify for PIP coverage.

ZALMA OPINION

There is no question Mr. Ramm was injured. However, it is also clear, that Mr. Ramm was not involved in a motor vehicle accident. He got sick and fell to the pavement. To recover on a PIP policy there must be a motor vehicle accident. Since there was none the court agreed appropriately with Farmers and rejected the claim of Mr. Ramm.

 

 

 

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

 

 

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Insured’s Lose Default by Incompetent Proof

Default Judgment Reversed Because Plaintiff Failed to Admit Policy

When an insurance company is served with a suit and fails to respond the plaintiff insured will normally win an enforceable judgment. All they need do is prove the existence of the policy, that there was a claim, and the amount of the claim. Since there is no defendant in court and no evidence permitted after the plaintiff’s case, the plaintiff invariably wins.

In Ware v. Foremost Insurance Company, Court of Appeal of Louisiana, First Circuit — So.3d —-, 2016-1481 (La.App. 1 Cir.) 2017 WL 2399351 (6/2/17) the Wares sued Foremost who failed to respond. They put on a case before a trial court and received a judgment even though they did  not admit a copy of their policy to the court.

FACTS

The trial court rendered a default judgment in favor of plaintiffs, Travis and Janis Ware, and against defendant, Foremost Insurance Company, in the amount of $30,821.80. Foremost appealed arguing that the default judgment should be declared a nullity because no proof of service exists. In the alternative, Foremost argues that the trial court erred in confirming the default judgment because the Wares did not present evidence sufficient to establish their prima facie case.

The Wares contend that in April 2015, during a spring thunderstorm, wind and hail caused significant damage to their home in Denham Springs, Louisiana. After the thunderstorm, the Wares contacted Foremost, their alleged homeowner’s insurer, to request that the damage to their home be inspected. Foremost, on more than one occasion, inspected the Wares’ home but denied coverage for their damages. Subsequently, the Wares retained an adjuster who inspected their home and determined that the cause of the damage to their home was wind and/or hail. The Wares forwarded the report of the independent adjuster to Foremost and again requested coverage, which Foremost denied.

Thereafter, on April 7, 2016, the Wares filed a petition for damages against Foremost, seeking payment for damages their home sustained during the thunderstorm. Additionally, the Wares contended that Foremost’s denial of coverage was a breach of good faith and fair dealing and they sought statutory penalties as provided by the statute.

On May 19, 2016, the trial court noted that all legal delays had elapsed since service of citation and the petition on Foremost, and ordered a minute entry reflecting a preliminary default. On May 26, 2016, the matter came before the trial court, and after a hearing, the trial court signed a final default judgment in favor of the Wares and against Foremost in the amount of $30,821.80 in damages and penalties.

LAW AND ANALYSIS

Initially, Foremost contended that the default judgment should be declared a nullity because no proof of service exists in the record. Additionally, in the transcript of the default confirmation hearing, the Wares’ attorney stated that Foremost was served on April 20, 2016, at its registered address for service of process through the Secretary of State, and the trial court’s clerk verified that no answer or opposition had been filed. The appellate court received proof that personal service was made on Foremost on April 20, 2016 by a sheriff’s deputy for the Parish of East Baton Rouge. Thus, the appellate court found that Foremost’s contention that no evidence of service exists is meritless.

Foremost also maintained that the trial court erred in confirming the default judgment against it because the Wares failed to introduce the alleged insurance policy between the Wares and Foremost into evidence.

Confirmation of the default is similar to a trial at which the defendant is absent. The plaintiff must present admissible and competent evidence that establishes a prima facie case, proving both the existence and the validity of the claim. Inadmissible evidence may not support a default judgment even though it was not objected to because the defendant was not present.

There is a presumption that a default judgment is supported by sufficient evidence, but this presumption may be rebutted by the record upon which the judgment is rendered.

To prevail in a suit based on coverage under an insurance policy, the prima facie proof required includes introduction of the insurance policy into evidence. The insurance contract is an essential element of a plaintiff’s prima facie case against an insurance company for purposes of confirming a default judgment.  A jurisprudential exception to this rule is that when the plaintiff requests admissions of contractual coverage or production of the policy and the defendant fails to comply, the defendant’s failure to comply may be construed as supplying the missing proof.

The Wares’ suit was based on coverage under an insurance policy, thus the prima facie proof required in this case includes introduction of the insurance policy into evidence. While the Wares testified regarding the insurance policy and stated the policy number, the Wares did not introduce the insurance policy into evidence, nor did they file a request for admissions.

Because the Wares did not provide an essential element of their prima facie case against Foremost, the trial court erred in granting a default judgment in favor of the Wares against Foremost.

ZALMA OPINION

This case is evidence of lazy lawyering. The failure to admit the policy in a trial is sufficient to defeat any suit. The case goes back to the trial court who may not allow the insurer to file an answer or defend. Since proof of service was established another default prove-up can go forward and the plaintiffs may prove the policy. If the trial court allows an answer to be filed the case will go forward like any other case. The insurer should have responded to the complaint and the plaintiffs should have proved the existence of the policy. I predict settlement.

 

 

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

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Insurers Do The Right Thing to Protect Insured

Who’s on First?

Prudent insurers who dispute which is responsible for an insured’s loss must apply the covenant of good faith and fair dealing owed to the insured. To do so they resolve the tort claim against their mutual insured by splitting the cost. Then, after the insured is protected, they litigate which is responsible to indemnify the insured in a declaratory relief action.

In Star Insurance Company v. Progressive Specialty Insurance Company, United States District Court, M.D. Alabama Case No. 2:15-cv-884-DAB (06/07/2017) the USDC in Alabama was asked to deter who owed what to whom after a tort action was resolved. 

Star Insurance Company (“Star”) and Progressive Specialty Insurance Company (“Progressive”) each seek reimbursement of monies paid in settlement of underlying litigation against their mutual insured, Gilow Wood, Inc. (“Gilow Wood”), for Gilow Wood’s liability arising from an automobile accident.

BACKGROUND AND FACTS

Gilow Wood was incorporated in Alabama in 1995. Although Gilow Wood was originally incorporated with a third party, at all times material to this matter, Gilow Wood was exclusively owned and operated by Charles R. Owens, Sr., and Charles R. Owens, Jr.  “Gilow Wood is a timber dealership,” in the business of negotiating the sale of timber from landowners to various mills, and contracting with pulpwood haulers to do the actual harvesting and hauling of the timber.

CR Owens Pulpwood, Inc., (“Owens Pulpwood”) is a timber harvesting and hauling corporation owned by Charles R. Owens, Sr., and Charles R. Owens, Jr.  All the timber harvesting brokered by Gilow Wood is contracted to Owens Pulpwood for harvesting and hauling, but Owens Pulpwood occasionally hauls for other companies.  Owens Pulpwood employs a number of workers for its hauling crew, including Larry Savage, a pulpwood truck driver.

Star issued a Commercial General Liability policy (“the Star policy”) to Gilow Wood which was in force at the time of the underlying accident. The Star policy included an exclusion of coverage for “Aircraft, Auto or Watercraft.”

The Star policy further provided that, “No person or organization is an insured with respect to the conduct of any current or past partnership, joint venture or limited liability company that is not shown as a Named Insured in the Declarations.” Neither Owens Pulpwood nor Savage are shown as Named Insureds in the Declarations of the Star policy.

Progressive issued a commercial auto policy (“the Progressive policy”) to Gilow Wood which was in force at the time of the underlying accident. The Progressive policy specifically provides, under the Employer’s Non-Ownership Liability endorsement, that: “This includes autos owned by your employees, partners (if you are a partnership), members (if you are a limited liability company), or members of their households, but only while such autos are used in your business or your personal affairs.” The Progressive policy further provides that, “The insurance provided by this endorsement does not apply to bodily injury or property damage arising out of the ownership, maintenance or use of any non-owned auto in the conduct of any partnership or joint venture of which you are a partner or member which is not shown as the named insured on the Declarations Page.”

On September 17, 2013, Savage was driving a pulpwood truck and trailer owned by Owens Pulpwood to a timber harvesting site in Butler County, Alabama, when the truck and trailer collided with a car being driven by Delores Smith Johnson, causing her death. The estate of Mrs. Johnson sued Owens Pulpwood and Savage, and later added Gilow Wood as a defendant.

The underlying lawsuit was settled in 2015, in which “Star and Progressive each paid $500,000 in settlement of the claims against Gilow Wood.” On November 25, 2015, Star sued in federal court seeking a declaratory judgment “that the Star Policy does not afford insurance coverage in connection with the Underlyling Lawsuit” and “that Progressive is obligated to reimburse Star for the amount it paid in settlement of the Underlying Lawsuit.”

The truck and trailer involved in the underlying accident were owned, operated, and maintained by Owens Pulpwood. Gilow Wood does not own any trucks, trailers, or other equipment for hauling timber, and does not have a Department of Transportation number. Owens Pulpwood and Gilow Wood share the same office building.  The two companies maintain separate bank accounts, maintain separate insurance polices, and file separate tax returns. Owens Pulpwood and Gilow Wood were incorporated separately at different times, and neither company engages in the type of business performed by the other.

DISCUSSION

The material facts of this case are undisputed, and both parties have moved for summary judgment on those same facts for their respective claims and counterclaims. The parties have each argued that the insurance coverage their respective companies issued to Gilow Wood is not triggered, is excluded, or at best excess, and that the other policy’s coverage is triggered and primary. At oral argument, the parties each recognized and argued that the resolution of this matter hinges on whether Savage was a dual employee of Owens Pulpwood and Gilow Wood.

Viewing the facts in the light most favorable to Progressive as the nonmoving party to Star’s motion for summary judgment, Owens testified that he alone direct the employees of Owens Pulpwood, including Savage and that Savage confirmed Owens alone directed him.

The undisputed facts did not indicate that Savage was an employee of Gilow Wood such that the “non-owned auto” endorsement in the Progressive policy would be triggered and provide coverage for the accident.

Under Alabama law, the test for determining whether a person is an agent or employee of another, rather than an independent contractor with that other person, is whether that other person has reserved the right of control over the means and method by which the person’s work will be performed, whether or not the right of control is actually exercised.

It is undisputed that the two businesses had the same two owners and on rare occasions, the owners informally loaned money from one of their businesses to the other. However, the remainder of the evidence, especially as it relates to the employment of Savage, indicates that Owens, Sr., and Owens, Jr., maintained and operated the two businesses for two distinct purposes, including the retention of employees for only one of those businesses, Owens Pulpwood.

Savage testified that his only employment duty was driving the pulpwood truck. Savage did not assist with the cutting of the timber, and he was never engaged in searching for or purchasing timber.  Savage’s pre-employment paperwork indicated he was working for Owens Pulpwood, and his paychecks were all drawn on the Owens Pulpwood bank account and bore the Owens Pulpwood company name. Savage was not even aware of the owner of the property from which he was to haul lumber on the day of the accident.  In short, the undisputed evidence indicates that Savage was an employee of Owens Pulpwood but no evidence indicating that Gilow Wood employed Savage or otherwise reserved the right of control over the means and method by which the [Savage’s] work will be performed.

Specifically, the Star policy states that it applies to “‘bodily injury’ or ‘property damage’ … caused by an ‘occurrence’ that takes place in the ‘coverage territory’ … during the policy period…” There is no dispute that the accident was an occurrence involving property damage and bodily injury in the coverage territory during the coverage period specified by the Star policy.

The underlying claims for negligence and wantonness brought directly against Gilow Wood were covered under the Star policy but excluded by the Progressive policy.

ZALMA OPINION

The two insurers did the right thing – they shared the cost of the settlement and then asked the USDC to resolved the dispute. The fact that two corporations are owned by the same people does not make the employees of each employees of the other. Since Gilow Wood had no right to control or direct the work of the driver Star’s claim that he was also an employee failed and they are obligated to repay the $500,000 paid by Progressive, plus interest. Had they conducted a thorough investigation and understood the facts they would have paid the entire settlement and not wasted money suing Progressive.

 

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

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Waiver of UM/UIM Coverage Can be Performed by Co-Insured

Waiver by One Named Insured is Binding on all Named Insureds

Pundits have properly claimed that if a person wants something done right he must do it himself. When a person delegates the purchase of insurance to another he or she must be bound by what the person to whom the purchase of insurance was delegated did. In State Farm Mutual Automobile Insurance Company v. Johnson, Supreme Court of Colorado, — P.3d —-, 2017 WL 2417764 (June 5, 2017) the Supreme Court of Colorado was faced with a question of statutory interpretation dealing with the actions of a person waiving the UM/UIM coverage in accordance with the state statutes.

Consistent with his prior practices, the respondent, Brian K. Johnson, tasked a friend with purchasing automobile insurance for the new car that he and the friend had purchased together. The friend did so, and in the course of that transaction, she chose to reject uninsured/underinsured motorist (UM/UIM) coverage on the new car. After an accident in that car with an underinsured motorist, Johnson contended that his friend’s rejection of UM/UIM coverage was not binding on him. A division of the court of appeals ultimately agreed with him and this case now presents two questions for the Colorado Supreme Court’s consideration:

ISSUES

  1. does the UM/UIM statute require each named insured to reject such coverage, or is one named insured’s rejection binding on all?
  2. Did the legislature, by enacting the statute abrogate the common law agency principles of implied authority and apparent authority?

FACTS

Johnson was living with his friend when the two decided to buy a car together. Although Johnson was to be the primary driver, the car was purchased, financed, and titled in both his and the friend’s names.

For about six months, an insurance policy owned by Johnson and his estranged wife covered the new car.  His friend suggested that she insure the car through the petitioner, State Farm Mutual Automobile Insurance Company, from whom she had purchased insurance for her primary car and with whom she had had a long and good business relationship. Consistent with his prior practice of deferring insurance matters to his estranged wife, Johnson agreed to defer to his friend concerning the present insurance matter.

Johnson’s friend then contacted State Farm and explained that she wanted the same coverage on the new car as she had on her primary car. A State Farm employee responded that the friend’s current policy included $100,000 in UM/UIM coverage, which extended to everyone who lived in her household (including, at the time, Johnson), regardless of which car he or she was driving. To add UM/UIM coverage for the new car the amount of $200,000, but that the friend would have to pay a separate premium for the additional coverage. The friend ultimately signed a form rejecting UM/UIM coverage on the new car and received from State Farm a policy that did not include such coverage.

Approximately one month later, Johnson was driving the new car when he was hit by an underinsured driver and sustained serious injuries. Johnson was not at fault, and he made a demand on State Farm for the $100,000 in UM/UIM benefits.  Johnson subsequently sued State Farm, among others, and sought the additional UM/UIM benefits.

State Farm moved for summary judgment, arguing that Johnson’s friend was authorized to reject — and did, in fact, reject — UM/UIM coverage on the new car. In ruling on this motion, the district court considered the statute and that Johnson’s friend could reject such coverage on behalf of both of them or whether, as Johnson contended, the statute required each named insured (i.e., both Johnson and his friend) to reject such coverage. The trial court entered judgment in State Farm’s favor.

ANALYSIS

According to the division the statute clearly and unambiguously requires that each person listed as the named insured must expressly waive UM/UIM coverage.  Thus, the division opined, a named insured acting as an agent for another can waive UM/UIM coverage for the other only with the express actual authority to do so. Common law principles of implied authority and apparent authority do not apply.

Here, the legislature mandated the offer of UM/UIM coverage does not mention the common law—much less expressly abrogate any part of it.  The Supreme Court concluded that the legislature did not abrogate the common law agency principles of implied actual authority and apparent authority, and thus, they remain in effect in the context of UM/UIM coverage rejections.

AUTHORITY TO WAIVE UM/UIM COVERAGE

The common law of agency attributes the legal consequences of one person’s action to another person on three distinct bases, two of which are pertinent here: apparent authority and actual authority. An agent can make his principal responsible for his actions if he is acting pursuant to either actual or apparent authority, regardless of whether the principal has knowledge of the agent’s conduct.

An agent acts with actual authority when, at the time of taking action that has legal consequences for the principal, the agent reasonably believes, in accordance with the principal’s manifestations to the agent, that the principal wishes the agent so to act. Actual authority thus incorporates concepts of both express and implied authority. Express authority exists when the principal directly states that the agent may perform a particular act on the principal’s behalf. Johnson did not give his friend express authority to waive UM/UIM coverage.

Implied authority, in turn, embraces the authority to perform acts that are incidental to, or are necessary, usual, and proper to accomplish or perform, the main authority expressly delegated to the agent. Implied authority is express authority circumstantially proved.

Here, the district court found, with ample record support, that after Johnson was unable to procure insurance for the new car on his own, he delegated to his friend the responsibility to purchase insurance for that car. This delegation was in keeping with Johnson’s prior practice of deferring insurance matters to his estranged wife.

In our view, the foregoing facts establish that Johnson’s friend had implied authority to reject UM/UIM coverage on Johnson’s behalf and that she properly did so. Although Johnson did not specifically instruct his friend to reject (or not to reject) UM/UIM coverage for the new car, that decision was necessary, usual, and proper to the purchase of insurance, which he expressly authorized her to undertake.

The Supreme Court’s decision today is fully consistent with  what has been called “the growing trend” that a rejection of UM/UIM coverage or a selection of lower limits of UM/UIM limits by one named insured is binding on all named insureds and all additional insureds, rendering it unnecessary for insurers to obtain additional rejections or waivers from all named insureds and all potential additional insureds.

The Supreme Court concluded that Johnson’s friend had the authority to reject UM/UIM coverage on his behalf. In light of the Supreme Court’s conclusion, the Supreme Court decided it need not consider the meaning of “the named insured” because, even if Johnson and the division below were correct that this provision requires the assent of each named insured, the court concluded that this requirement was satisfied here.

Specifically, the legal consequences of a rejection of UM/UIM coverage by Johnson’s agent (here, his friend) are attributable to Johnson himself. As a result, whatever “the named insured” may mean, it has no bearing on the outcome of the present case.

ZALMA OPINION

No one expects to be injured in an automobile accident. Because of certainty that they are immortal and experienced drivers of automobiles, they limit their available coverage. When their immortality is proven wrong and they are injured they then, as Mr. Johnson did here, try to get the coverages they did not purchase. When Johnson gave his friend the authority to buy insurance on their jointly owned vehicle, he gave up any right to change what the friend did. If he wanted UM/UIM coverage he could have bought it.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

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Another Reason to Do Away With Bad Faith Suits

Cashing Settlement Check Defeats Bad Faith Suit

Almost every insurance claim is resolved by settlement. The few that are not resolved become lawsuits. Almost every lawsuit is settled and become judgments. When there is a dispute over payment bad faith suits are filed. In Arthur Deal v. Farm Bureau Casualty…, Court of Appeal of Louisiana, 2017 WL 23993572016-1647 (La.App. 1 Cir. 6/2/17) two years after a settlement was reached and paid – but not cashed – the plaintiff asked for a new check which was delivered to him and cashed 33 days after the request.

To punish the insurer for taking 33 days to reissue a check that could have been cashed two years before, the plaintiff sued the insurer for the three day delay.

FACTS

Arthur Deal appealed a judgment in favor of the defendant, Louisiana Farm Bureau Casualty Insurance Company (“Farm Bureau”), sustaining Farm Bureau’s peremptory exception raising the objection of res judicata and dismissing the plaintiff’s petition for damages, penalties, and attorney fees against Farm Bureau for its alleged bad faith in connection with the settlement of the plaintiff’s underlying personal injury claims.

In 2012 the plaintiff was involved in an automobile accident with Billie Fortenberry. As a result of that accident, the plaintiff filed suit seeking damages from Mr. Fortenberry; Mr. Fortenberry’s liability insurer, Farm Bureau; and the plaintiff’s uninsured/underinsured motorist (“UM”) insurer, State Farm Mutual Automobile Insurance Company (“State Farm”). The plaintiff subsequently settled his claims with both Farm Bureau and State Farm. In connection with the settlement of his claims, the plaintiff agreed to dismiss his claims and a judgment of dismissal, which dismissed the action “in its entirety, with prejudice” was signed in 2015. This judgment contained no reservation of any rights against Farm Bureau or any other party.

In regards to Farm Bureau, the plaintiff settled for the insured’s policy limits of $25,000.00. Farm Bureau originally issued a check for $25,000.00 to the plaintiff and his attorney which check was “In Full Payment for ANY AND ALL CLAIMS” arising from the accident with Mr. Fortenberry. However, this check was not negotiated by the plaintiff or his attorney.  Subsequently, the plaintiff hired a new attorney. Almost two years after Farm Bureau issued the original check, on September 23, 2015, the plaintiff’s new attorney sent a letter to Farm Bureau, which provided, in its entirety, as follows: “I am ever so pleased to advise that we have settled the case with State Farm based on [the] payment of your policy limits. As your old check is probably stale and the check is not cashed, do you want us to use the old check how long would it take you to reissue a new one? [sic]”

In response to this letter, Farm Bureau requested that the old check be returned, stating that upon receipt, it would issue a new check to the plaintiff and his new attorney. The plaintiff forwarded the old check to Farm Bureau and subsequently Farm Bureau issued a new check to the plaintiff and his new attorney for $25,000.00, which check was “In Full Payment for ANY AND ALL CLAIMS” arising from the April 27, 2012 accident with Mr. Fortenberry. This check was negotiated by the plaintiff and his attorney.

The plaintiff filed a petition for damages against Farm Bureau alleging that the replacement check was not delivered within the 30 days required by statute. Essentially, the delay was the basis for the suit, and the plaintiff claimed that the thirty-day delay for paying a settlement agreement commenced to run with the letter from the plaintiff’s attorney to Farm Bureau, and thus, Farm Bureau’s payment thirty-three days later on October 26, 2015, was untimely and rendered Farm Bureau liable for penalties and attorney fees under Louisiana statutes.

Farm Bureau maintained that the claims made in the instant suit were extinguished. From this September 20, 2016 judgment, the plaintiff now appeals, challenging the trial court’s ruling on the objection of res judicata.

LAW AND DISCUSSION

In Louisiana, except as otherwise provided by law, a valid and final judgment is conclusive between the same parties, except on appeal or other direct review.

Additionally, the trial court correctly noted that “a valid compromise may form the basis of a plea of res judicata.” The trial court also noted that the negotiation of a settlement check “alone is sufficient to establish the requirements of a valid compromise agreement.” The the trial court concluded that any potential claims for bad faith that the plaintiff had in connection with the settlement of his underlying suit were barred by res judicata.

 The court of appeal found no error in the trial court’s judgment.  The plaintiff’s claim for damages, penalties, and attorney fees against Farm Bureau arose from the settlement of claims related to the April 27, 2012 automobile accident.

Any claim the plaintiff may have had against Farm Bureau for its purported bad faith or its failure to pay settlement within 30 days of the September 23, 2015 letter was compromised when the plaintiff and his attorney negotiated the October 26, 2015 check for $25,000.00 that was “In Full Payment for ANY AND ALL CLAIMS” arising from the April 27, 2012 accident with Mr. Fortenberry. Therefore, the plaintiff’s claim is barred by res judicata.

ZALMA OPINION

This crazy lawsuit is the type of abuse of the tort of bad faith suits that caused me to write that it is still time to put a stake through the heart of the tort of bad faith here.  This is an abuse of the reason for bad faith cases by suing for a delay in presenting a replacement check that the plaintiff intentionally failed to cash only to seek damages for what it claimed was a three day delay by the insurer rather than its own error.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

 

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You Only Get What You Pay For

Trial Court May Not Torture Policy Language to Compel Payment of More than Is Owed

People buy a multi-car auto policy to save money on premium. In such a situation the Uninsured Motorist/Underinsured Motorist (UM/UIM) coverages apply to each injured person and are not intended to stack coverage for both policies when the policy clearly states stacking is not available.

In Government Employees Insurance Company v. Steve Sayre, as Administrator of the Estate of Robert Sayre, Supreme Court of Appeals of West Virginia, 2017 WL 2417112, No. 16-0750 (May 31, 2017) it was contended that West Virginia statutes, that do not forbid the inclusion and application of an anti-stacking provision in an automobile insurance policy, where a single insurance policy is issued by a single insurer and contains an UIM endorsement even though the policy covers two or more vehicles.

The petitioner, Government Employees Insurance Company (“GEICO”), appealed from the order of the Circuit Court of Jackson County granting summary judgment to the respondent, Steve Sayre, in connection with determining the amount of underinsured motorist insurance (“UIM”) that is owed by GEICO to Mr. Sayre. Finding an ambiguity in the GEICO policy language, the trial court ruled that, because there were two underinsured motorists involved in this case, the UIM coverage was triggered separately by each of those motorists.

FACTUAL AND PROCEDURAL BACKGROUND

The decedent, Robert Keith Sayre, died from injuries sustained in a car accident in Jackson County. At the time of the accident, the decedent was a guest passenger in a vehicle operated by Richard Ryan Smith. A second vehicle was involved in the accident, which was operated by Kurtis Barnett. The accident was determined to be proximately caused by the independent negligence of both drivers of the two vehicles.

GEICO filed the underlying declaratory judgment action to resolve the issue of UIM coverage. Both GEICO and Mr. Sayre filed motions for summary judgment on the issue of whether the respondent was entitled to an additional $20,000 of UIM insurance coverage rather than the $20,000 policy limits that GEICO had already tendered.

DISCUSSION

Because this case revolves around the interpretation of the UIM endorsement language, the analysis is necessarily controlled by the policy language. Where the provisions of an insurance policy contract are clear and unambiguous they are not subject to judicial construction or interpretation, but full effect will be given to the plain meaning intended. UIM coverage comes into play “only after the limits of liability under any applicable liability policies or bonds have been exhausted by payment of judgments or settlements.”

The dispute presented concerns the meaning of the section of the Underinsured Motorists Amendment that sets forth “LIMITS OF LIABILITY.” That section provides, in pertinent part, the following conditions: “Regardless of the number of autos or trailers to which this policy applies: ¶ 1. The Underinsured Motorists Bodily Injury Liability limit for “each person” less any liability coverage available to the insured from the tortfeasor or tortfeasors is the maximum we will pay for damages for bodily injury, including all derivative claims and any claim for damages for care and loss of services, to one person in one accident; … ¶ 4. When coverage is afforded to two or more autos, the limits of liability shall apply separately to each auto as stated in the Declarations.”

Beginning with this Court’s decision in Shamblin v. Nationwide Mutual Insurance Company, 175 W.Va. 337, 332 S.E.2d 639 (1985), the validity of anti-stacking language in an insurance policy has been settled. The statute does not forbid the inclusion and application of an anti-stacking provision in an automobile insurance policy where a single insurance policy is issued by a single insurer and contains an underinsured endorsement even though the policy covers two or more vehicles. “Under the terms of such a policy, the insured is not entitled to stack the coverages of the multiple vehicles and may only recover up to the policy limits set forth in the single policy endorsement.” [emphasis in the original]

Anti-stacking language in an automobile insurance policy is valid and enforceable as to uninsured and underinsured motorist coverage where the insured purchases a single insurance policy to cover two or more vehicles and receives a multi-car discount on the total policy premium.  There is no dispute that the GEICO policy purchased by Mr. Sayre contained a multi-car premium discount and, as a result, accepted the anti-stacking language.

Of critical import is the language prominently set forth in the introductory language to the Limits on Liability of the UIM endorsement that applies to each condition–“regardless of the number of vehicles subject to this policy”–which is then followed by the unmistakable limiting of the amount of UIM liability to the UIM “per person” limit of $20,000 as the “maximum we will pay for bodily injury.” This language states in no uncertain terms that the “per person” limit of UIM coverage is the maximum amount of UIM coverage available in this circumstance.

The trial court reasoned that there was nothing in the GEICO policy “which prevents each of the two underinsured motorists from activating a per person limit on separate insured motor vehicles.” What constitutes effective limiting language and the language included in the GEICO policy is consistent with prior cases in which we have upheld similar limiting language for anti-stacking purposes. The circuit court, in awarding the respondent an additional $20,000 of UIM coverage, tortured the language of the policy and granted Mr. Sayre benefits for which he had neither contracted or paid.

In choosing to purchase a singular insurance policy from GEICO to insure his two vehicles, Mr. Sayre purchased just one UIM amendment to be added to his policy. He did not purchase two UIM amendments with two separate sets of liability limits from GEICO. Thus, when the circuit court doubled his UIM coverage from the $20,000 “per person” limit that he paid for, it improperly awarded him $20,000 more UIM coverage than he had purchased.

An insured, such as Mr. Sayre, who purchases a multi-car insurance policy that contains enforceable anti-stacking language is only entitled to recover up to the policy limits set forth in the single policy endorsement. Accordingly, an insured is not entitled to stack underinsured motorist coverage for every vehicle covered by a single policy where the insured received a multi-car premium discount and the policy contains language expressly limiting the insurer’s liability regardless of the number of vehicles insured under the policy.

ZALMA OPINION

When an insured seeks to save money on premium he or she is counting on a belief that the insurance coverage will not be needed. Sayre bought inexpensive UM/UIM insurance with minimum limits that had language limiting coverage to a single accident applying a single limit. Just because he was killed by the negligence of two underinsured motorists does not change the single limit he purchased.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

 

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Court’s Mercy Results in New Crime

Mercy Reversed: Ten Years for Insurance Fraud

Courts often grant mercy to insurance fraud criminals only to have their mercy slap the judge in the face. In Shearer v. State, Court of Appeals of Texas, Not Reported in S.W.3d, 2017 WL 1455412 (04/20/2017), when Ms. Shearer pleaded guilty to insurance fraud the trial judge deferred adjudication of guilt, placed her on four years’ community supervision, and assessed a $1000 fine. In exchange for the light sentence Shearer found herself back in court when the State later moved to proceed with adjudication of guilt, alleging that she violated the terms of her community supervision by committing a new offense, theft from an elderly person.

FACTS

The testimony at trial revealed that Shearer’s mother-in-law, Judy Kissinger (Judy), discovered that someone had transferred $2000 from her savings account without permission. Judy called her son Jeff Kissinger (Jeff) to tell him about this. Jeff then called Shearer, who told him she had taken the money from Judy’s account, but had hoped to return it before Judy noticed that it was missing. Next, Shearer called Judy and told her that there had merely been a banking error discovered by the bank. Shearer then told her husband, J.D. Kissinger (J.D.), that the missing money was a banking error caused (rather than discovered) by the bank, but later admitted to J.D. that she had transferred the money from Judy’s account. Shearer then gave J.D. $2000 in cash and asked him to give it to his mother. He did.

ANALYSIS

Shearer committed theft if she “unlawfully appropriate[d] property with intent to deprive the owner of property.” Appropriation of property is unlawful if the property is taken without the owner’s effective consent.

Shearer contends J.D. “co-owned” the account with his mother. Thus, she argues, as J.D.’s wife, she could have transferred the funds on his behalf. Shearer also suggests that J.D.’s ownership of the account raised a presumption that Shearer herself owned and had access to the funds as community property.

But no witness testified that J.D. owned the account, and no evidence was introduced from the bank to indicate J.D. co-owned it. J.D. agreed he “had access to” it, but his mother had never asked him to move money from the account, and he had never done so. The evidence establishes only that J.D. was a signatory on the account his mother owned. Therefore, the prosecution established by a preponderance of the evidence that Shearer’s transfer of funds was from Judy’s account and was made without her effective consent.

Shearer also contends that she intended only to borrow the $2000, and that the prosecution failed to prove she intended to deprive Judy of the funds. The fact that the deprivation later became temporary does not automatically mean that there was no intent to deprive permanently or for so long as to satisfy the statutory definition.  Shearer’s intent to deprive Judy of the transferred funds was established from Shearer’s words and actions.

The record contains no evidence indicating that Shearer intended only to borrow the funds. Instead, the record shows that Shearer gave a series of conflicting explanations for what she did, and how she did it. Nor does the record show that Shearer made any attempt to return the missing money to Judy before she was confronted about its being missing. The record shows that, at the time Shearer made the transfers, she kept the money and did not tell anyone what she had done. The judge could have been persuaded by a preponderance of the evidence that Shearer’s intention at the time she transferred the funds was to deprive Judy of the money permanently.

Sufficient evidence supports the trial judge’s finding that Shearer committed theft. Accordingly, the judge did not abuse his discretion in revoking Shearer’s community supervision and adjudicating her guilty of the original offense of insurance fraud.

ZALMA OPINION

It is about time that a state court revokes mercy for insurance fraud when the defendant, like Ms. Shearer, breaches the terms of her probation. In fact, she didn’t just breach the conditions of her probation, she stole money from her mother-in-law and then gave various untrue excuses for her crime. Prosecutors and the courts must enforce probation conditions – even if not as extreme as theft – so that people are deterred from committing insurance fraud rather encouraged by awarding probation to the criminal. Well done Texas.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

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The Phantom Moose & Insurance Fraud

Lie to Your Insurance Company & Go to Jail

Some people try to save money by only buying comprehensive coverage and eliminating collision coverage from their auto policy. By so doing the premium, as well as the available coverage is eliminated. In Massachusetts, when a single vehicle accident strikes a wall and damages a vehicle there is coverage under the collision coverage but not the comprehensive coverage. However, if the insured hits an animal and then hits a wall the damage is covered under the comprehensive coverage.

In Commonwealth v. Bryan Driscoll, Appeals Court of Massachusetts, — N.E.3d —-, 91 Mass.App.Ct. 474, No. 15-P-1689 (May 9, 2017) Driscoll claimed he hit a moose or a Bison near metropolitan Boston and made claim under comprehensive coverage because he did not have collision coverage.

He was convicted of insurance fraud after a trial by jury and appealed the conviction.

BACKGROUND

On August 30, 2012, the defendant obtained compulsory and comprehensive insurance coverage from Commerce Insurance Company (Commerce) on his 2001 Ford Explorer. At 4:00 A.M. on November 11, 2012, Boston police Officer Joseph Galvin responded to a report of a motor vehicle accident on Allandale Road in the Jamaica Plain section of Boston. Allandale Road is a winding, country road sparsely populated with buildings. Upon arriving at the scene, Officer Galvin found a black 2001 Ford Explorer abandoned on the sidewalk. It appeared that the vehicle had crashed into a stone wall and sustained damage “all over it.”

The defendant filed a “single-vehicle accident” report with Commerce. Joshua Tucker, a claims adjuster with Commerce, explained that a “single-vehicle accident” or “single-vehicle collision” refers to a situation in which a vehicle is damaged and no other vehicles are involved, such as when a vehicle slides on ice and strikes a snowbank. In such a case, an insured with “collision” coverage would be compensated by Commerce to cover the loss. A person with only “comprehensive” coverage would not be entitled to recover for his loss in such a case.

The defendant claimed in his motor vehicle accident report that he hit a “Bison or Moose” on Allandale Road, which caused him to swerve into a stone wall. The defendant reported that the “[a]nimal got up and ran away.” No animal was found at the scene. In addition, no hair, fur, or blood was found during the inspection of the defendant’s vehicle. At the time of the accident, Allandale Farm did not have any bison, moose, or buffalo. They did have two large Scottish Highland steers, but they did not go missing on the day of the collision. Also, these animals were examined by a veterinarian who found no evidence that they had been injured. An accident reconstruction expert examined the defendant’s vehicle and opined that there was no evidence of an animal strike, and that the event had not occurred in the way described by the defendant.

DISCUSSION

 The defendant argues that the judge erred by admitting the accident report and his coverage selections page under the business records exception to the hearsay rule, and allowing Commerce’s adjuster, Tucker, and the defendant’s insurance agent, Todd Sullivan, to testify to the contents of the defendant’s insurance application and policy in violation of the “best evidence rule.”

Business Records Exception

There was evidence that would permit the jury to find that an agent of Sullivan’s insurance agency, through which the defendant purchased his insurance, filled out the coverage selections page based on information provided by the defendant, and then transmitted it to Commerce, which in turn relied on the coverage selections page in initiating the inquiry that led to the criminal prosecution of the defendant.

The agent’s testimony served to authenticate the copy of the coverage selections page that was admitted at trial and that the agent qualified as a keeper of the records, and that his testimony supplied the necessary foundation for the document to be admitted as a business record. The agent’s testimony also served to authenticate the coverage selections page and made up for the absence of an original of the affidavit he prepared.

Motor Vehicle Insurance Fraud

To find a defendant guilty the Commonwealth must present evidence proving beyond a reasonable doubt that

  • the defendant, in connection with a claim under a motor vehicle insurance policy issued by an insurer,
  • with the intent to injure, defraud, or deceive such insurer,
  • did knowingly present to it, or aid or abet in or procure the presentation to it,
  • a notice, statement, or proof of loss,
  • knowing that such notice, statement, or proof of loss contained a false or fraudulent statement or representation, and
  • of any fact or thing material to such claim.

Here, the testimony provided sufficient evidence from which the jury could find that all six elements were proved.

First, Tucker’s and Sullivan’s testimony established that the defendant made a claim under his insurance policy for the incident on Allandale Road.

Second, a jury could reasonably infer from the evidence that the defendant intended to fit the incident under his policy by stating that he first struck an animal before swerving his vehicle into the wall.

Third, no evidence was found suggesting that an animal was involved in the incident; in fact, there was evidence negating that proposition.

Fourth, based on the evidence, the jury could find that the defendant made the accident report and presented it to Commerce, thus satisfying the third and fourth elements.

Fifth, from the evidence regarding the differences between comprehensive and collision coverage, the jury could reasonably infer that the defendant knew he would not be covered if he said he had hit a wall without first hitting an animal.

Since the jury could infer the final element, materiality, from the unusual nature of the accident, which involved striking a large animal, such as a “Bison or Moose,” so close in proximity to urban Boston, in addition to the testimony proving the other elements.

That evidence suggests that the cause of the accident was material to the defendant’s claim. Ultimately, the jury could have inferred that the defendant knowingly concocted a story that would bring his accident under the coverage of an insurance policy that otherwise did not cover a single-vehicle accident, and did so by stating that he first hit an animal before hitting a wall, which caused severe damage to his vehicle.

ZALMA OPINION

Although the defendant was creative trying to get coverage under his comprehensive coverage by claiming he hit a moose or a bison, his scheme failed and resulted in his conviction. When a person tries to deceive an insurer it helps to have a reasonable lie by including evidence of striking an animal. The evidence did not exist and his conviction was affirmed.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

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Zalma’s Insurance Fraud Letter – June 1, 2017

DOJ Intervenes in Whistleblower Suit Against UnitedHealth for $1 Billion

In the last 49 years that I have been in the business of insurance I have learned the one thing that is a certainty: the quality of insurance fraud perpetrators is almost non-existent. That means that it is so easy to steal from insurance companies that amateurs with no skills are jumping into the business of defrauding insurers. If the insurance industry learns enough about insurance fraud and defeats the claims of the amateurs the professional fraud perpetrators will go away and work easier crimes. If not, they will continue to bleed the insurance industry. It has been my desire, for the last 20 years Zalma’s Insurance Fraud Letter has been published, to help in the effort to make insurance fraud more difficult for the perpetrators and reduce what fraud takes from the insurance industry.

In order to help train insurance professionals I have created the Certified Expert in Corporate Property Insurance program for  Illumeo.com.

It is a comprehensive program enabling insurance professionals to become Certified Experts in Corporate Property Insurance.
The program is a complete course of study providing education and training to allow insurance professionals, after completing the individual classes, to become a Certified Expert in Corporate Property Insurance. The program covers everything an employee, an officer, or a director of a corporation needs to know about the need to get the proper insurance and to resolve any claim presented by the corporation to the insurer.
Major topics of study include, but are not limited to: the importance of insurance; how to acquire insurance and understand an insurance policy; the methods used by insurers to investigate claims, including first-party property claims; the various types of insurance that corporations need; the duties and obligations of a public adjuster; and how to present a claim that will be paid. In addition, shortly Illumeo will publish a Certified Expert in Corporate Liability Insurance Program.

 The Current Issue Contains the Following

  • DOJ Intervenes in Whistleblower Suit Against UnitedHealth for $1 Billion Inn
  •  Illumeo Continuing Education
  • Lover Scorned Admits to Aiding Insurance Fraud
  • Books by Barry Zalma
  • California Insurance Commissioner Announced on May 23, 2017 That W.R. BerkleyCorporation Entities Have Agreed to a $12 Million Settlement.
  • Barry Zalma Speaks at Your Request
  • E-Books from Barry Zalma
  • The Zalma Insurance Claims Library
  • Wisdom
  • Barry Zalma
  • Good News From the Coalition Against Insurance Fraud
  • Health Insurance Fraud Convictions
  • Zalma Insurance Consultants Provides the Following Services to its Clients
  • Other Insurance Fraud Convictions
  • Books from the American Bar Association
  • Zalma’s Insurance Fraud Letter
  • The Legend

 Zalma’s Insurance 101

I have completed a video blog called Zalma’s Insurance 101 that consist of 1022 three to four minute videos starting with “What is Insurance” and moving forward to insurance fraud investigations explaining the basics of insurance and insurance claims handling in a painless fashion that can be viewed every morning with the first cup of coffee at  Zalma’s Insurance 101.

Some of the 1,022 videos follow: If you start at Volume 1 at the bottom of the blog’s first page and view one or two videos a day you will have approximately 12 to 24 hours of training a year until you get to the last video.

 You can see video commentary and read two serialized novels at http://zalma.com/insvideo. “Arson for Profit” and “Murder & Insurance Fraud Don’t Mix”

  © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

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Lawyer Sanctioned for Helping Insured’s Fraud

Lawyer’s Lack of Competence Assists in Client’s Fraud Costs at His Expense

Every lawyer is required to investigate the propriety of a lawsuit he or she files for a client and to litigate with the opponent fairly and in good faith. When the lawyer acts to assist a client to commit insurance fraud can, and should be, sanctioned by the court. It is improper for a lawyer to assist a client in the client’s attempt to defraud an insurer.

In Danubis Group, LLC v. Landmark American Insurance Company, United States Court of Appeals, Eleventh Circuit 2017 WL 1371383,  — Fed.Appx. —- (April 17, 2017), the Eleventh Circuit found that following dismissal of commercial tenant’s litigation against insurance company as sanction for litigation misconduct, the United States District Court for the Middle District of Florida, imposed monetary sanctions on tenant’s attorney for gross dereliction of his duties and for recklessly becoming an agent of his client’s insurance fraud scheme.

Attorney Kevin Ambler appealed the district court’s imposition of sanctions against him for misconduct related to discovery and his pre-trial investigation of facts in the complaint.

BACKGROUND

The short version of this case is that Ambler appeals the district court’s imposition of monetary sanctions for gross dereliction of his duties and for recklessly becoming an agent of his client’s insurance fraud scheme. The more detailed version notes that Ambler appeared at the status conference and apologized for his lack of responsiveness and violation of the court order, explaining that personal issues prevented him from responding to Landmark’s discovery requests.

The magistrate judge determined that although Danubis and Ambler were “dilatory in prosecuting this action,” they had not abandoned it. The magistrate judge concluded however that because Danubis had acted in bad faith, sanctions were warranted. The magistrate judge cautioned that “failure to comply with the terms of this Order may result in the imposition of sanctions, which may include the striking of pleadings and dismissal of the claim.”

The Magistrate judge, with clear annoyance, wrote that  “[T]he Court admonishes Plaintiff’s counsel for conduct that is below the standard of practitioners in this Court. … If counsel is repeatedly too busy to timely respond to discovery, meet required deadlines, or communicate with opposing counsel, he is too busy. Counsel is cautioned that further derelictions of duty in this matter will result in appropriate, and unpleasant, consequences.”

Notwithstanding the magistrate judge’s clear warning, things only got worse.

Landmark’s Motion to Dismiss

The day before the scheduled discovery conference, Landmark filed a motion to dismiss Danubis’s complaint for “Fabrication of Evidence, Fraud Upon the Court, Egregious Discovery Practices, and For Violation of the Court’s Discovery Order.”  Most importantly, the motion explained that Landmark had tracked down Metzger, who provided Landmark with a new affidavit indicating that his 2010 affidavit was false. Metzger further claimed he never took possession of the property or obtained keys to it, and declared that his signature on the 2010 affidavit was a forgery.

The Ruling

The magistrate judge found that the 2010 Metzger affidavit was a sham and that although Metzger and MacKizer had viewed the property, there was no lease, and no money was ever placed into escrow to secure a lease. The magistrate judge found that to the extent Radulovic claimed there was an oral five year lease agreement between Danubis and Metzger, “the uncontradicted evidence [was] that Metzger was never charged for (and did not pay) ‘rent’ and never paid a dime for utilities, deposits, insurance or other indicia of tenancy.”

This being the case, the magistrate judge found that in 2009 “Radulovic colluded with Metzger in an attempt to convert their potential business relationship into an existing lease and convince the insurance company that there was a claim for loss of rent. When Radulovic did not cooperate with a ‘kickback,’ Metzger recanted.” In essence, the magistrate judge found that Radulovic teamed up with Metzger to defraud Landmark into paying out an insurance claim for non-existent lost rent.

The magistrate judge determined that in pursuing this litigation on Danubis’s behalf, Ambler became an unwitting agent in Radulovic and Metzger’s scheme.The magistrate judge assessed various bases for sanctioning Ambler.

  • The magistrate judge concluded that Ambler violated Rule 11 of the Federal Rules of Civil Procedure by filing a false complaint.
  • Although the magistrate judge found that Ambler was unaware that he was filing a false complaint, the magistrate judge found that: “Ambler did not care whether the allegations were true or not.
  • The record shows that [Ambler] did not perform even the most perfunctory of investigations prior to filing his Complaint.
  • He did not speak to Mr. MacKizer or Mr. Metzger, despite making affirmative allegations about their connection to the Property;
  • He did not review the Public Adjuster’s file or his own client’s files (as they were first “discovered” well into the litigation); and,
  • Indeed, he did not even obtain his client’s review of the Complaint before it was filed.”

Ultimately, the magistrate judge concluded that Danubis’s and Ambler’s behavior throughout the course of the litigation warranted dismissal of Danubis’s complaint. The magistrate judge further determined that monetary sanctions against Danubis and Ambler were appropriate and instructed Landmark to file a motion identifying the specific costs and fees it sought. The district court adopted the magistrate judge’s report and recommendation after Ambler and Danubis failed to timely object.

The magistrate judge determined that Landmark was entitled only to costs, attorneys’ fees, and expenses associated with the motion to dismiss and the numerous motions to compel Landmark filed earlier in the litigation. The magistrate judge also decided that Landmark was entitled to reasonable costs and attorneys’ fees it incurred from August 28, 2014 forward.

DISCUSSION

Ambler made no effort to amend the complaint once the case was removed to federal court, and in fact he continuously defended the complaint, as initially filed, until Landmark filed its motion to dismiss for fraud. The district court did not err in imposing Rule 11 sanctions.

When imposing sanctions pursuant to the court’s inherent power a district court must consider the sanctionee’s ability to pay the monetary award. A court abuses its discretion by imposing joint and several liability without considering whether each person or entity being sanctioned individually had the ability to pay the sanction.

Therefore, on remand, the district court should reconsider its decision about fees and costs and take into consideration Ambler’s ability to pay.

CONCLUSION

  1. attorney had sufficient notice that he could be subject to sanctions;
  2. district court was not precluded from imposing monetary sanctions because complaint was filed in state court;
  3. district court sufficiently explained rejection of expert’s testimony;
  4. district court’s error in determining reasonable hourly rate was invited error; and
  5. district court abused its discretion in holding attorney and client jointly and severally liable under Florida’s offer of judgment statute.

For the foregoing reasons, the Eleventh Circuit held that the district did not err in imposing monetary sanctions against Ambler.

ZALMA OPINION

Insurance fraud is a serious crime. No lawyer should do anything to assist a client to pursue attempts to defraud an insurer. In this case the court found that the lawyer – innocently or stupidly – assisted his clients in their attempt to defraud. His lack of competence and dilatory tactics caused the court to dismiss the suit and assess sanctions against the lawyer and his clients. Had he done minimal investigation he would never have filed the suit nor would he allow false affidavits to be filed with the court. If he was not stupid his conduct and that of his clients was criminal.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

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Court Rewrites Fire Policy

Insurer Punished For Following Advice of California Supreme Court

It is axiomatic that an insurer has the unquestioned right to select those whom it will insure and to agree with an insured about the terms and conditions of a policy of insurance. States, like California enact standard policy wording that an insurer must use with regard to fire but allows the insurer the flexibility to reach agreement with an  insured as to the terms of the policy. It is also axiomatic that an insured is obligated to deal fairly and in good faith with its insurer. When an insurance applicant misrepresents the fair market value of a dwelling when the policy is issued it should be void from its inception and the court should ignore statutory requirements that modify the terms of the policy.

In California Fair Plan Association v. Marlene Garnes, Court of Appeal, California, 2017 WL 2303165, A143190(5/26/2017) the California Court of Appeal took the clear and unambiguous language of a policy that defined Actual Cash Value (ACV) as Fair Market Value (FMV) as directed by the California Supreme Court. Regardless, the Court of Appeal found that the clear language of the policy was modified by California Statutes and, therefore, did not mean what it said.

FACTS

In 2011, Marlene Garnes’s family home in Richmond, California was seriously damaged by a kitchen fire. She had purchased a fire insurance policy for the property, with a policy limit of $425,000 (the Policy), from California FAIR Plan Association (FAIR), California’s insurer of last resort. The dispute in this case and the issue on appeal is how much coverage Garnes is entitled to under the Policy. She claims she should receive the amount it will cost her to repair the house, less an amount for depreciation, the net amount of which the parties agree would be $320,549. FAIR contends the Policy, and the Insurance Code, allow it to pay her the lesser of that amount or the fair market value of the house, which at the time of the fire was $75,000. The answer to this question depends on interpretation of various provisions of the insurance code and the meaning of the phrases “total loss to the structure,” “partial loss to the structure” and “actual cash value”.

In October 2011, Garnes’s home in the Iron Triangle neighborhood in Richmond was damaged by a fire. She submitted a claim to her insurer, FAIR, seeking indemnity for the costs required to repair her home, less depreciation. FAIR declined to pay the amount she requested and instead paid her the $75,000 it determined represented the fair market value of her property in 2011. FAIR alleged it had issued Garnes a policy that covered the damage to her home, that the cost to repair and rebuild the home was estimated to be more than $350,000 and that the home’s fair market value in its undamaged condition before the fire was $75,000.

DISCUSSION

The facts here are not in dispute. The cost to repair the damage, including necessary lead and asbestos abatement, was $362,670. Subtracting depreciation, the public adjuster submitted a claim to FAIR on Garnes’s behalf for $320,549. FAIR obtained an appraisal to determine the fair market value of the home in its undamaged condition just prior to the fire, which was determined to be $75,000.

Further, it is an “actual cash value” or “ACV” policy. In a section entitled “CONDITIONS,” the Policy contains a paragraph entitled “Loss Settlement,” which states in relevant part that FAIR will pay the following amounts for losses to Garnes’s dwelling: “(1) Total Loss: If the greater of the cost either to reconstruct or replace the damaged part of the property exceeds the actual cash value before the loss of all covered property … , we will pay such actual cash value. [¶] (2) Partial Loss: In the cases of losses that are not described in (1) above, we will pay the least of the following amounts: [¶] (a) The lower of the cost either to reconstruct or replace the damaged part of the property, less a reasonable amount for depreciation; or [¶] (b) The actual cash value before the loss of the damaged property.” The Policy defines “actual cash value” of property to mean “its fair market value.”

FAIR argues that Garnes and the Commissioner’s interpretation of section 2051, subdivision (b) would lead to absurd results because, if she had suffered a total loss, her recovery would have been limited to fair market value, whereas the partial loss she in fact sustained does not so limit her recovery. We disagree. It is conceivable the Legislature intended for homeowners whose houses were not entirely destroyed to have the option of repairing their homes and remaining in the homes and neighborhoods they had chosen (and, for some homeowners, such as Garnes, in the neighborhoods and homes they had grown up in).

In other words, in comparing the two types of coverage with respect to a partial loss, an ACV policy pays the costs to repair “minus a deduction for physical depreciation” up to the limits of the policy, whereas a replacement cost policy pays the cost to repair “without a deduction for physical depreciation” up to the limits of the policy, and for Extended and Guaranteed replacement cost coverage, beyond the limits of the policy. For total losses, ACV pays the fair market value of the dwelling at the time of loss, whereas replacement coverage pays for replacement costs up to, or beyond, the limits of the policy. The court concluded that a home that is not totally reduced to ash is not a total loss and the insurer must pay replacement cost less physical depreciation although the cost to repair less depreciation is $280,000 more than the total FMV of the home.

MORAL HAZARD

FAIR argued that Garnes interpretation would create a “moral hazard.” It posits that “[s]ince a partial loss may easily exceed the actual cash value (FMV) of the property, an insured could purchase an old, run-down property, over-insure it and hope for a convenient fire that would not totally destroy the property.” Further, “[i]f Garnes’ interpretation were to be adopted, an insured would have every incentive to make a claim for the cost of repairs, then sell the property as a teardown and pocket the balance.”

The “hazard” FAIR describes is, to be generous, overstated. The idea that individuals would purchase a “run-down” property and then “hope for a convenient fire that would not totally destroy the property” is at best speculative. Further, if FAIR means to suggest an owner might bring about such a fire intentionally, such “moral hazard” could be rectified by the insurer’s invocation of the intentional acts exclusion of section 533 to deny coverage. Regardless, FAIR’s argument amounts to an attack on the policy underlying the standard form fire insurance policy as adopted by the Legislature. To the extent FAIR thinks it ought to be revised, it is a matter for the Legislature, not this court.

Because section 2051 represents an implied coverage requirement which is to be read into all open ACV fire insurance policies, the standard form fire insurance policy is properly read as incorporating the measures of indemnity it sets forth. Further, as the Commissioner points out, its Regulation 2695.9, subdivision (f)(1) explicitly incorporates section 2051 into the standard form policy. The regulation states: “Under a policy, subject to California Insurance Code Section 2071, where the insurer is required to pay the expense of repairing, rebuilding or replacing the property destroyed or damaged with other of like kind and quality, the measure of recovery is determined by the actual cash value of the damaged and destroyed property, as set forth in California Insurance Code Section 2051.” (Cal. Code Regs., tit. 10, § 2695.9, subd. (f)(1).)

Finally, section 2070 requires “[a]ll fire policies” to be on the standard form or provide coverage for fire losses that is “substantially equivalent to or more favorable to the insured than that contained in such standard form fire insurance policy.” (§ 2070.) The Policy, insofar as it purports to cap indemnity for partial losses at fair market value, or to treat a loss that does not destroy the structure as a “total loss,” is not “substantially equivalent to or more favorable to” Garnes than the standard form policy, read to incorporate the provisions of section 2051. The Policy, to that extent, is unenforceable, and we must treat it as if its indemnity terms conformed to section 2051.

In short, the court concluded that the Policy must be applied in accordance with the Insurance Code rather than by its own terms.

ZALMA OPINION

The California Court of Appeal, in a unanimous decision, took the clear language of the policy that ACV means FMV, that the FMV was only $75,000 on a dwelling insured for $425,000 or $350,000 more than its ACV creates an obvious Moral Hazard and, by the decision, allows the insured to increase the value of her home at the expense of her insurer. Where FAIR went wrong was in limiting its declaratory relief actions to ACV. It should have considered rescission because the dwelling was over-insured and the insured misrepresented its FMV or ACV when the policy was required.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

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Business Pursuits Exclusion Effective

Homeowners Policy Does Not Cover Liability Arising From Business

The liability coverages provided by a homeowners policy are extensive and effectively provides defense and indemnity to a homeowner from suits seeking damages from the insured. Of course, a homeowners policy does not insure against every possible risk. Like all insurance policies the homeowners policy excludes certain risks of loss the insurer is unwilling to insure. One of those risks is a business risk since business risks are different than the risks usual to a home.

In Vincent Nguyen v. Arbella Insurance Group., Appeals Court of Massachusetts,  — N.E.3d —-, 2017 WL 2257570 (May 23, 2017) a Massachusetts appellate court was called upon to determine whether a business risk exclusion applied to a suit against a fellow employee was or was not a business risk.

FACTS

The plaintiff, Vincent Nguyen, having been sued in Federal court on various tort, civil rights, and other theories by a former fellow employee of the Newton police department, requested that the defendant, Arbella Insurance Group (Arbella), as issuer of his homeowner’s insurance policy, provide him a defense. After Arbella declined, citing the policy’s “business pursuits” exclusion, Nguyen sued Arbella seeking a declaration that Arbella was obligated to provide him a defense. Arbella successfully moved for summary judgment and Nguyen appealed.

In the underlying Federal action, the plaintiff, Jeanne Sweeney Mooney, alleged that at all relevant times she was an employee of the Newton police department and most recently worked as the executive administrator for the chief of police. The defendants were the city of Newton, its mayor in his official capacity, and the then-chief of police, a police lieutenant, and Nguyen (a civilian employee in the chief’s office), all in their individual capacities.

Mooney alleged that the chief, the lieutenant, and Nguyen conspired to coerce her into accepting additional duties in violation of a union contract, as retaliation for Mooney’s objecting to both the potential contract violation and the chief’s improperly obtaining an “exceptional service” pay raise. She also alleged that the chief and Nguyen, in order to obtain leverage over Mooney, conspired to stage a false “I-Team Investigation” by a television station regarding her use of her break time; the ruse relied on photographs that Nguyen took, during working hours, of Mooney outside the police station and of Mooney’s truck outside her home, thus allegedly violating her privacy rights. She further alleged that the chief, the lieutenant, and Nguyen conspired to stage a purported theft of police department funds and to falsely name her as the thief in order to have her terminated, in retaliation for her reporting to others the chief’s alleged wrongdoing. As a result, she alleged, she was placed on administrative leave, and was criminally charged with and tried for the theft, only to be acquitted. Based on these factual allegations, Mooney’s Federal action asserted thirteen claims, ten of which named Nguyen as a defendant along with the chief and, in some instances, the lieutenant and others.

THE POLICY

Nguyen’s homeowner’s policy excluded “[Injury a]rising out of or in connection with a ‘business’ engaged in by an ‘insured.’ This exclusion applies but is not limited to an act or omission, regardless of its nature or circumstance, involving a service or duty rendered, promised, owed, or implied to be provided because of the nature of the ‘business.”’

The policy’s definitions section states that “’[b]usiness’ includes trade, profession or occupation.”

ANALYSIS

In reviewing the judge’s determination that the business pursuits exclusion applies to Mooney’s claims against Nguyen, the court considered the record in the light most favorable to Nguyen as the nonmoving party.

It is the insurer who bears the burden of proving the applicability of an exclusion. Exclusionary clauses must be strictly construed against the insurer so as not to defeat any intended coverage or diminish the protection purchased by the insured.

The terms ‘arising out of’ and ‘in connection with’ are not to be construed narrowly but are read expansively. “Arising out of” is ordinarily held to mean “originating from, growing out of, flowing from, incident to or having connection with.” “In connection with” is ordinarily held to have even a broader meaning than “arising out of” and is defined as related to, linked to, or associated with.

Reflecting the expansive construction given these terms, the courts have held that the business pursuits exclusion applied to a variety of claims based on insureds’ actions that did not necessarily serve the interests of their business or employer. All of Mooney’s claims against Nguyen alleged injuries “[a]rising out of or in connection with [Nguyen’s] ‘business,”’ which the policy defines as including his “trade, profession or occupation.” Nguyen’s occupation was as a clerical worker in the office of the chief of police; Mooney was his fellow employee in that office; all of the actions assertedly taken by Nguyen were, allegedly, a part of various conspiracies with the chief and in many instances a police lieutenant; and the conspiracies were all allegedly aimed at coercing or retaliating against Mooney in connection with her on-the-job conduct. Nothing in the complaint alleges any conduct by Nguyen that is unconnected to his work at the police department.

Nguyen’s employment with the police department easily satisfies a legal test that requires both “continuity” — that is, the activity in question must be one in which the insured regularly engages as a means of livelihood; and “profit motive” — that is, the purpose of the activity must be to obtain monetary gain.”

The appellate court rejected Nguyen’s argument that, because some of his alleged actions (such as photographing Mooney or reporting criminal conduct) were arguably outside the scope of his employment, they did not arise out of or in connection with that employment for purposes of the business pursuits exclusion. Nor can Nguyen avoid the conclusion by his claim that he may have photographed or videotaped Mooney during his lunch break, while on his own personal time, the exclusion applies. The matters cited by Nguyen only reinforce the connection between his conduct and his occupation.

ZALMA OPINION

Exclusions are important tools to limit the exposure to risk the insurer is willing to take. No one, except insurers, like them. Everyone wants an insurance policy that covers everything and excludes nothing.  It would be wonderful for the insured but it would not be insurance. Here, the insured tried to turn a homeowners policy into a commercial general liability policy. He failed because the policy contained a clear and unambiguous exclusion.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

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No Excuse for Not Reporting Loss as Soon as Practicable

Waiting Until You Lose a Suit to Report the Loss to the Insurer Breaches Material Condition

Claims made and reported policies require prompt reporting within the policy period. When an insured is sued, the prudent insurer will immediately report the loss to the insurer. There should simply be no excuse for waiting six months to tell the insurer. When an insured waits to report and has no excuse for the delay nor an explanation why the insured did not fulfill a condition precedent will lose its right to defense or indemnity.

In Food Market Merchandising, Inc. v. Scottsdale Indemnity Company, United States Court of Appeals, Eighth Circuit, 2017 WL 2271363, No. 16-3427 (March 9, 2017) Food Market Merchandising, Inc. sued Scottsdale Indemnity Company for coverage under a Business and Management Indemnity Policy.

The district court granted Scottsdale’s motion because timely notice is a condition precedent to payment under the Policy, Scottsdale’s duty to defend/indemnify was never triggered, and Scottsdale is entitled to judgment as a matter of law.”

FACTS

The policy covers “only claims first made against the insured during the policy period … and reported to the insurer pursuant to the terms of the relevant coverage section.” The “Notification” provision of the coverage section at issue states: “The Insureds shall, as a condition precedent to their rights to payment under this Coverage Section only, give Insurer written notice of any Claim as soon as practicable, but in no event later than sixty (60) days after the end of the Policy Period.” (emphasis added)

In January 2014, former employee Robert Spinner sued Food Market, seeking unpaid commissions. In June, a court granted partial summary judgment for Spinner, awarding twice the unpaid commissions and attorney’s fees. It did not reduce the award to judgment. (The parties settled two years later).

In August 2014—during the policy period—Food Market notified Scottsdale of the Spinner lawsuit. It sought defense and indemnification under the “Employee Insuring” provision of the Employment Practices coverage that provided: “Insurer shall pay the Loss of the Insureds which the Insureds have become legally obligated to pay by reason of an Employment Practices Claim first made against the Insureds during the Policy Period …  for an Employment Practices Wrongful Act taking place prior to the end of the Policy Period.”

In June 2015, Food Market sued Scottsdale for coverage, asserting claims for breach of contract, breach of the covenant of good faith and fair dealing, and declaratory judgment. A week later, Scottsdale formally denied coverage, stating Food Market’s notice was untimely and its claim outside the policy’s scope.

ANALYSIS

Food Market believes its notice was timely because it had a “claims-made” policy and gave notice within the claims period. Here, the policy did not require notice to be given during the policy period, but instead only required that notice be given as soon as practicable, but in no event later than sixty (60) days after the end of the Policy Period.

Food Market contends the district court erred in finding no genuine issue of material fact about the timeliness of notice. Generally, whether the notice was given as soon as practicable is a fact-dependent question for a jury to determine. A court may grant summary judgment, however, when there is no genuine issue of material fact.

Food Market presented no evidence that providing notice over seven months after Spinner sued was “as soon as practicable.”

Whether the delay prejudiced Scottsdale, a showing both parties admit is not required where, as here, notice is a condition precedent to coverage, is irrelevant.

The Eighth Circuit concluded that the district court properly found no genuine issue of material fact about the timeliness of notice.

Food Market asserted the policy’s notification provision was ambiguous. Whether the phrase “as soon as practicable” is ambiguous regarding timely notice for an original claim requires the court to accept Food Market’s interpretation that ignores the phrase “as soon as practicable.”

As the district court concluded, Food Market’s interpretation of the condition precedent—requiring notice only within 60 days of the policy’s expiration — renders the phrase “as soon as practicable” meaningless. Therefor the district court properly found the policy unambiguous and that Food Market failed to report the loss to Scottsdale as soon as practicable and provided no explanation for the failure to fulfill the condition precedent.

ZALMA OPINION

Insurance policies are contracts where people make promises to their insurer. A condition precedent is a promise made by the insured to the insurer that if the insured wants defense or indemnity from the insurer it must report a loss “as soon as practicable.” It did not. Rather, the insured waited seven months to report the loss. It is impossible to believe seven months was as soon as practicable, especially when the insured defends the suit and loses a summary judgment motion before it reports the loss to the insurer.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s three new e-books  were recently added and are available at http://www.zalma.com/zalmabooks.html

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/zalma,  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

 

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