The Duty to Select Type and Amount of Insurance Belongs to the Insured

Insurance Agent Only Required to Provide Insurance Ordered

Unless they take on a fiduciary obligation an insurance agent or broker is only required to provide the insurance it was asked to acquire. The agent or broker need not – unless paid for such a special service – advise the insured about the type or amount of coverage the insured needed. This is usually not a problem until the insured has a loss that was not covered by the policy it ordered so it sues the broker for not compelling the insured to buy the insurance it needed in the event of a loss.

In Advanced Radiographics, Inc. v. Colony Insurance Company, Et Al., 17-144, State Of Louisiana Court Of Appeal, Third Circuit (October 4, 2017) Advanced Radiographics attempted to force an insurance agent to pay for a loss not covered by the policy it acquired for the insured.

FACTS

The court of appeal was faced with a dispute over coverage after Plaintiff’s property was damaged by fire. Following the loss, Plaintiff submitted a claim to its insurer, who denied the claim. Plaintiff sued the insurance brokerage, and the broker, through whom it had purchased the insurance, for breach of fiduciary duty as agent.

Plaintiff, Advanced Radiographics, Inc. (“ARI”), who is in the business of storing medical records for health care providers in Lafayette, Louisiana, has ten locations eight of which are used to store medicals records. ARI purchased a commercial package policy that included both a general liability (“GL”) coverage part and a property insurance coverage part, from Colony Insurance Company (“Colony”). The GL coverage extended to all ten of ARI’s locations, including the warehouse, whereas the property coverage (which was limited to coverage for contents and business interruption/extra expense), extended only to ARI’s corporate office.

In November of 2014, a vehicle crashed into ARI’s warehouse, resulting in a fire. Following the loss, ARI submitted a claim to Colony, which Colony denied. As a result of Colony’s refusal to pay the claim, ARI filed suit against Colony. ARI also sued Brown and Brown of Baton Rouge, LLC, (“Brown & Brown”), and (now former) Brown & Brown insurance broker, Kellie Stein (“Stein”), the insurance brokerage (and broker) through whom ARI purchased the Colony Policy.

 

DISCUSSION OF THE MERITS

Exceptions of no cause of action present legal questions and are decided as if the appellate court is the trial court.

A cause of action, when used in the context of the peremptory exception, is defined as the operative facts that give rise to the plaintiff’s right to judicially assert the action against the defendant. The function of the peremptory exception of no cause of action is to test the legal sufficiency of the petition, which is done by determining whether the law affords a remedy on the facts alleged in the pleading. No evidence may be introduced to support or controvert an exception of no cause of action. Consequently, the court reviews the petition and accepts well-pleaded allegations of fact as true. The issue at the trial of the exception is whether, on the face of the petition, the plaintiff is legally entitled to the relief sought.

Louisiana has chosen a system of fact pleading. Therefore, it is not necessary for a plaintiff to plead the theory of his case in the petition. However, the mere conclusions of the plaintiff unsupported by facts does not set forth a cause of action.

Where there is an agreement to procure insurance, the Louisiana Supreme Court, in Isidore Newman Sch. v. J. Everett Eaves, Inc., 09-2161, pp. 6-7 (La. 7/6/10), 42 So.3d 352, 356-57) stated: “An insurance agent who undertakes to procure insurance for another owes an obligation to his client to use reasonable diligence in attempting to place the insurance requested and to notify the client promptly if he has failed to obtain the requested insurance. The client may recover from the agent the loss he sustains as a result of the agent’s failure to procure the desired coverage if the actions of the agent warranted an assumption by the client that he was properly insured in the amount of the desired coverage.”

An insurance agent has a duty of “reasonable diligence” to advise the client, but this duty has not been expanded to include the obligation to advise whether the client has procured the correct amount or type of insurance coverage. It is the insured’s responsibility to request the type of insurance coverage, and the amount of coverage needed. It is not the agent’s obligation to spontaneously or affirmatively identify the scope or the amount of insurance coverage the client needs.

Even if all of the allegations in the suit are taken as true, at no point does ARI allege that it requested certain insurance which Stein and/or Brown & Brown failed to procure. The supreme court of Louisiana has been clear in its direction that relying on an insurance broker/agent for advice and being disappointed by that advice is not a breach of the duty of “reasonable diligence” owed by an insurance agent/broker to a client.

The allegations in ARI’s petition attempt to impose a duty upon Stein and Brown & Brown to identify the type and amount of insurance coverage ARI needed for their property failed because Louisiana does not impose this duty upon the insurance agent or broker but, instead, upon the insured.

ZALMA OPINION

The insured in this case refused to accept responsibility for its error. It failed to order the coverage needed to protect the insurer for losses caused by the fire. The agent and the agency did what was required of it – it acquired the policy that was ordered and nothing more – and that coverage did not provide the coverage needed. This is a lesson to all businesses: hire an insurance consultant, risk manager or the like who can advise you what insurance is needed. Only rely on the agent or broker if they take on the responsibility to advise the coverages needed in writing.

 

© 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  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 50 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 Occurrence – No Fortuity – No Coverage for Defense or Indemnity

Lack of the Potential for a Covered Claim Defeats Bad Faith Suit

The ability to allege and prove a right to a defense under a liability insurance policy is usually fairly simple. All that is required of the insured is to prove that there is a potential for coverage for the allegations of the suit against the insured. Much to the surprise of most insureds, not every lawsuit raises a potential of coverage regardless of the wisdom and creativity of the insured’s lawyer.

In WAWGD, Inc. dba Foresight Sports v. Sentinel Insurance Company, Case No.: 16-cv-2917-CAB-BGS, United States District Court Southern District Of California, (September 29, 2017) Plaintiff WAWGD, Inc. d/b/a Foresight Sports (“Foresight”) asked the court to compel liability insurance coverage in connection with a third party complaint seeking defense and indemnification by the defendants in a patent infringement lawsuit filed against them.

BACKGROUND

In 2015, Max Out Golf, LLC (“Max Out”) filed a lawsuit in federal court in Texas against Roger Dunn, Inc., and GWNE, Inc. (together, “Dunn/GWNE”) alleging that Dunn/GWNE had infringed two of Max Out’s patents.

Max Out alleged that Dunn/GWNE’s “infringing activity has directly and proximately caused damage to Plaintiff Max Out Golf, including loss of profits from sales and/or licensing revenues it would have made but for the infringements.”

Dunn/GWNE filed a third-party complaint (“TPC”) against Foresight.The TPC alleged that Dunn/GWNE were bringing it “based on Foresight’s warranty of non-infringement and duty to indemnify [Dunn/GWNE] for Max Out Golf’s infringement claims under the applicable Commercial Code provisions.”

THE POLICY

Foresight sued its insurer seeking insurance coverage and bad faith damages contending that Sentinel has a duty to defend and indemnify Foresight in connection with Dunn/GWNE’s TPC pursuant to a Business Owners Policy (the “Policy”) Sentinel issued to Foresight.

The Policy also contains a breach of contract exclusion.

CALIFORNIA LAW ON THE INTERPRETATION OF INSURANCE POLICIES

Neither party disputes that California law governs this insurance coverage dispute. Under California law, the interpretation of an insurance policy is a question of law to be answered by the court. Interpretation of insurance contracts raise questions of law and thus are particularly amenable to summary judgment. The court must look first to the language of the contract in order to ascertain its plain meaning or the meaning a layperson would ordinarily attach to it.

However, if the terms are ambiguous [i.e., susceptible of more than one reasonable interpretation], courts interpret them to protect the objectively reasonable expectations of the insured. If the policy is ambiguous because it is reasonably susceptible to more than one interpretation, the ambiguity is construed in favor of coverage.

Because the duty to defend arises whenever a claim may potentially lead to indemnity and if there is no duty to defend, then there is also no duty to indemnify. The insured need only show that the underlying claim may fall within policy coverage; the insurer must prove it cannot.

DISCUSSION

To establish the existence of a duty to defend under the Policy Foresight has the burden of establishing the TPC alleges facts that potentially could lead to a covered claim.

Property Damage

The TPC does not allege that Dunn/GWNE suffered any property damage. The TPC simply asserts contractual indemnity claims, and the only damage it alleges is whatever Dunn/GWNE is ordered to pay Max Out on its patent infringement claims, along with its other costs and fees associated with Max Out’s lawsuit.

There is no allegation in the TPC that Foresight’s alleged express or implied agreement to indemnify Dunn/GWNE for patent infringement claims actually caused any damage to, or loss of use of, the Foresight products Dunn/GWNE had purchased. Rather, Dunn/GWNE seeks damages from Foresight for economic harm due to Max Out’s patent infringement claims and Foresight’s failure to indemnify Dunn/GWNE therefor. These economic injuries do no constitute property damage triggering coverage under the Policy.

The TPC, contrary to Foresight’s argument, does not allege loss of use of the Foresight products or seek any damages for any loss of use of the Foresight products (or any other property for that matter); it only seeks defense and indemnification from Foresight.

Foresight is not entitled to justify an argument for coverage based on speculation about claims that have not been alleged or asserted. For a duty to defend to exist, the actual allegations in the TPC itself must actually create the potential for coverage. Otherwise, every complaint ever filed would create a duty to defend because it is always possible that the complaint could be amended to create the potential for coverage.

Occurrence

Moreover, even if the injury for which Dunn/GWNE sought recovery from Foresight in the TPC constituted “property damage,” such property damage was not caused by an “occurrence.” An accident or occurrence is never present when the insured performs a deliberate act unless some additional, unexpected, independent, and unforeseen happening occurs that produces the damage.  Here, any injury was caused by Foresight’s manufacture and sale of products to Dunn/GWNE and alleged breach of its warranty to Dunn/GWNE that the products Foresight sold do not infringe any patents and alleged agreement to indemnify Dunn/GWNE for infringement claims.

Foresight’s manufacture and sale of the products were deliberate and intentional acts, and there was no additional, unexpected, independent, and unforeseen happenings that caused the infringement alleged by Max Out or the indemnity obligation. The court concluded that the conduct giving rise to the underlying action against Foresight was not an “accident” nor an “occurence” within the coverage provision. Because there is no potential basis for coverage, there is no duty to defend.

Intellectual Property Exclusion

Having found that there is no potential for coverage based on the insuring agreement, the Court need not consider any policy exclusions.

The policy language is clear and explicit and is, therefore, dispositive. More specifically, this exclusion clearly and unambiguously communicates that:

(1)  personal and advertising injury arising out of any actual or alleged infringement or violation of any intellectual property right is excluded from the policy;

(2) a [patent] is considered intellectual property; and

(3) any injury or damage alleged in a suit that also alleges an infringement or violation of an intellectual property right is also excluded.

The exclusion is valid and enforceable. Accordingly, the intellectual property exclusion is another reason why Sentinel did not have a duty to defend Foresight.

While an insurer’s duty to defend is broad in scope proper coverage analysis begins by considering whether the policy’s insuring agreements create coverage for the disputed claim. If coverage exists, then the court considers whether any exclusions apply. If coverage does not exist, the inquiry ends. The exclusions are no longer part of the analysis because they cannot expand the basic coverage granted in the insuring agreement. The rule is no different for exceptions to exclusions.

Because the TPC did not allege any facts that created the potential for a covered claim, Sentinel had no duty to defend Foresight from Dunn/GWNE’s claims or to indemnify Foresight for its settlement of those claims.

In addition, because Sentinel did not breach any coverage obligation, it did not breach the implied covenant of good faith and fair dealing.

ZALMA OPINION

No insurance policy covers every possible loss. Insurance, by definition, only exists if the loss claimed is contingent or unknown. An intentional act, like the manufacture and sale of a product that infringes on another’s patent, coupled with a promise to indemnify any suit for infringement, is an intentional act that can never be insured against. This wasn’t even a good try. It was a waste of time and money.

© 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  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 50 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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Restoration of Ill Gotten Gains Not Insurable – Fraud Doesn’t Pay

Neither an Intentional Nor a Criminal Act is Fortuitous

From the first insurance coverage issued on a clay tablet in ancient Sumeria every insurance claim required a fortuitous loss – one that is either contingent or unknown at the time of the loss. People who are insured prefer to be paid regardless of their conduct and when an insurer refuses to pay will invariably sue.

In Philadelphia Indemnity Insurance Company, a foreign corporation v. Sabal Insurance Group, Inc., a foreign corporation and Ian Marshall Norris, Case No. 16-62168-Civ-COOKE/TORRES, United States District Court Southern District Of Florida (September 28, 2017) the USDC for the Southern District of Florida was asked to compel an insurer to provide indemnity to an insured who settled a claim with the State of Florida for money taken by the insured by fraud. The parties disputed whether a Stipulated Settlement Agreement between Defendants and the State of Florida stemming from an alleged grand theft is covered under the insurance policy Defendants have with Plaintiff.

BACKGROUND

Plaintiff issued to Defendants a Private Company Protection Plus Liability Policy (“Policy”), which included Directors and Officers (“D&O”) liability insurance that was effective at the time of this action.

The Policy covered certain losses from claims made against Defendants for wrongful acts. A “D&O Wrongful Act” included an “act, error, omission, misstatement, misleading statement, neglect, or breach of duty committed or attempted by” either Defendant. “[A] criminal proceeding commenced by the return of an indictment” counted as a “Claim,” and a “Loss” included “Damages” and “Defense Costs.” “Damages” were defined as “any monetary judgment . . . or monetary settlement, including the punitive, exemplary or multiple portion of any judgment (to the extent such damage is insurable under law . . .),” while “Defense Costs” encompassed most “reasonable and necessary legal fees and expenses incurred in the defense of a Claim . . . .”

The policy barred payments “arising out of, based upon or attributable to” Defendants for either “gaining any profit, remuneration or advantage to which [Defendants] were not legally entitled,” or “any dishonest or fraudulent act or omission or any criminal act or omission by [Defendants].” These exclusions only applied, however, “if a final and non-appealable judgment or adjudication establishes the Insured committed such act or omission.”  The Policy also did not consider “criminal or civil fines or penalties imposed by law” a covered “Loss,” nor did “Loss” include matters deemed uninsurable under the law.

The State of Florida (“State”) charged Defendants with five counts of grand theft related to alleged overcharging of the Miami-Dade Aviation Department (“MDAD”) for worker’s compensation and general liability insurance that MDAD pays on behalf of Quality Aircraft Services (“QAS”), its baggage handler. Defendants allegedly fraudulently obtained over $416,000.00, though the amount of fraud purportedly within the statute of limitations was $180,807.87.

By February 2016, Defendants entered into a Stipulated Settlement Agreement with the State, where the State agreed to nolle prose [where the prosecutor in a criminal prosecution undertakes not to continue the action or prosecution] all charges and Defendants agreed to pay a “settlement sum” of $303,807.97.

This sum consisted of a “Payment” to the MDAD for $183,807.87; a “Donation” to a victims’ assistance fund for $100,000.00; and “Costs of Investigation” payable to the MDAD for $20,000.00.  Further, Defendants agreed to pay for an independent monitor, to institute an internal training program, and to refrain from engaging with MDAD for a period of time. The state court ratified the agreement in February 23, 2016.

Plaintiff issued a reservation of rights at three different times before the Stipulated Settlement Agreement. Plaintiff’s last reservation of rights letter in January 2015 stated that the “alleged miscalculations as to your client’s revenues insurance costs are within the definition of D&O Wrongful Acts,” and that it would “advance fees and reasonable/necessary expenses incurred in the defense of this matter.” The letter also cautioned “the fact that certain provisions have been excerpted here does not mean that all portions of the policy are not important,” and that the “reservation of rights is intended for your information and guidance and is based on the materials presented to date. [Plaintiff] fully reserves all its rights under the policy . . . .”  At one point, Plaintiff advised defendant’s defense counsel that the Policy would not cover payments of any “restitutionary amount” Defendants made to the State.

DISCUSSION

Florida law mandates that courts interpret insurance contracts under their plain meaning, without need for extrinsic evidence. Florida courts start with the plain language of the policy, as bargained for by the parties. . . . Policy terms are given their plain and ordinary meaning and read in light of the skill and experience of ordinary people. A court must construe every insurance contract according to the entirety of its terms and conditions.

The Policy Language

Both exclusionary provisions state that they “only apply if a final and non-appealable judgment or adjudication establishes the [Defendants] committed such act or omission.” While the language is clear that the exclusions do not apply without a judgment or adjudication, it is equally clear that the exclusions do not apply if there is not first a covered “Loss.” The language of the Policy is clear and consistent with Florida law: the exclusions do not come into play unless the Stipulated Settlement Agreement constitutes a “Loss.”

The Stipulated Settlement Agreement is not a covered “Loss”

As a matter of law, “Loss” does not include the “restoration of ill-gotten gains.” It is axiomatic in the insurance industry that one should not be able to insure against one’s own intentional misconduct. The return of money received through a violation of law, even if the actions of the recipient were innocent, constitutes a restitutionary payment, not a “loss.” It is immaterial whether the defendant committed fraud.

The payments in the Stipulated Settlement Agreement are clearly restitutionary in nature. The case was initiated via a subpoena, followed by an information charging five counts of grand theft against both Defendants. Payments made to resolve this claim can only be said to disgorge Defendants of property to which they were allegedly not legally entitled.

The court concluded that the payments made in the settlement are restitutionary in nature.

The court concluded that there is no ambiguity in the Policy and the payments Defendants agreed to pay as part of the Stipulated Settlement Agreement are restitutionary in nature regardless of whether there is an admission of guilt or a final adjudication.

CONCLUSION

Plaintiff established that its Policy did not apply to the Stipulated Settlement Agreement. No genuine issue of material fact exists regarding the Policy. Plaintiff is not obliged to indemnify Defendants for the Stipulated Settlement Agreement. Accordingly, summary judgment in favor of Plaintiff is appropriate.

ZALMA OPINION

It is contumacious conduct to bring a suit seeking payment from an insurer of money obtained by theft and paid back to the state of Florida to stop a criminal prosecution. The loss here was not fortuitous, it was an lost as a result of an intentional criminal act. The suit should have been dismiss as frivolous regardless of the cases the defendants cited indicating a potential for coverage.

 

© 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  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 50 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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Who Pays Black Lung Victim When His Employer and Its Insurer are Insolvent?

Guaranty Fund Is More Responsible than the Federal Black Lung Trust Fund

Island Fork Construction v. Jimmy Bowling; Director, Office Of Workers’
Compensation Programs, No. 16-4319, United States Court Of Appeals For The Sixth Circuit (September 29, 2017)

Jimmy Bowling worked as a coal miner for almost 30 years. There is no dispute that he is eligible for benefits under the Black Lung Benefits Act. The question is who should pay the benefits to this disabled miner given that the responsible mine operator and the company that insured that operator are both insolvent. Two options exist — the federal Trust Fund and the Kentucky Insurance Guaranty Association (KIGA). The administrative law judge (ALJ) and Benefits Review Board (Board) both concluded that KIGA should provide benefits.

BACKGROUND

Bowling worked as a coal miner for over 29 years. He spent most of that time as a foreman and substantially all of his work was underground. Bowling’s last job was working for Island Fork Construction in a Kentucky mine where he moved belt lines, took out steel track, and produced coal. The parties do not dispute the facts underlying Bowling’s claims or his eligibility for benefits.

In 2002, Bowling filed a claim for benefits under the Black Lung Benefits Act. An Administrative Law Judge (ALJ) denied the claim in 2005, finding that Bowling was totally disabled, but that he had failed to establish that he had pneumoconiosis (black lung), or that pneumoconiosis caused his total disability. In 2010, Bowling filed the current claim for benefits. During the time intervening between these claims, a provision of the Affordable Care Act amended the Black Lung Benefits Act to reinstate a rebuttable presumption that claimants with respiratory disabilities and 15 years or more of underground coal-mining work experienced those disabilities as a result of pneumoconiosis. Bowling sought benefits pursuant to this presumption.

In April 2011, the District Director issued a Proposed Decision and Order that awarded Bowling benefits. Island Fork requested de novo review by an ALJ.

At the hearing before the ALJ in December 2014, counsel informed the ALJ that both Island Fork and its insurer, Frontier Insurance, were insolvent. Frontier declared insolvency in November 2012, after the Proposed Decision and Order had been issued. Once the claim reaches the ALJ stage, there is no mechanism to designate a different responsible operator.

The Trust Fund was created by the Black Lung Benefits Act and provides benefits when there are no responsible operators available, including when an operator is deemed at the ALJ stage not to be financially capable of paying benefits. KIGA is a nonprofit body created by the Kentucky Insurance Guaranty Association Act (Guaranty Act) to provide benefits when a member insurance company is insolvent. KIGA argued that the exceptions to the Guaranty Act apply and the benefits should instead be provided by the Trust Fund.

After briefing, the ALJ decided that Island Fork was still the responsible operator because benefits could be paid by KIGA. Island Fork “as insured by” KIGA, and represented by common counsel, petitioned for review of the ALJ Decision and Order by the Board.

DISCUSSION

KIGA did not have a direct interest in the claim until Frontier became insolvent, which was after the District Director issued a Proposed Decision and Order and the claim file had been sent to the ALJ. At that time, KIGA filed a letter that stated: “all of [Frontier’s] claims have been turned over to KIGA.”

KIGA also indicated that it “had received a notification letter advising of potential liability as a result of the insolvent carrier. In response, KIGA made an entry of appearance and defended the case while it investigated whether Claimant was eligible for assistance under the Kentucky guarantees law.” At the hearing before the ALJ, counsel stated that she was making an appearance “on behalf of Island Fork Construction which was previously insured by Frontier Insurance Company which is now insolvent so my client in fact at this point is KIGA.”

The Guaranty Act that created KIGA excludes “[o]cean marine insurance” and “[a]ny insurance provided, written, or reinsured, or guaranteed by any government or governmental agencies.” Ky. Rev. Stat. § 304.36-030(1)(f),(h).

KIGA argues that insurance for black lung benefits should be considered “[o]cean marine insurance” based on the broad definition for that term used in the Guaranty Act. “Ocean marine insurance” is defined as “any form of insurance . . . that insures against maritime perils or risks and other related perils or risks, that are usually insured against by traditional marine insurance such as hull and machinery, marine builders risk, and marine protection and indemnity.” Ky. Rev. Stat. § 304.36-050(10). It was obvious to the court that an underground coal mine had no relevance to “ocean marine” insurance since it was not even near an ocean let alone an operation dealing with an ocean or marine activities.

The committee that created the model law on which the Guaranty Act was based intended for the provision to exclude flood and crop insurance that are covered by government guaranty programs. These federal programs do involve formal arrangements between insurance companies and the government. The Black Lung Benefits Act instead seeks to require private mine operators to pay benefits to the maximum extent feasible. It only provides for the Trust Fund to assume liability when there is no operator who is liable for the payment of such benefits.

The Trust Fund has not “guaranteed” the Black Lung Benefits Act coverage under Kentucky law. The KIGA exception for claims “guaranteed by . . . governmental agencies” therefore does not apply.

CONCLUSION

Since the court had personal jurisdiction over KIGA and address the merits of its claims. The exclusions in the Guaranty Act do not apply because the Black Lung Benefits Act coverage in this case is not “ocean marine insurance” nor is it “guaranteed by . . . governmental agencies.” KIGA, therefore is liable for coverage issued by Frontier, the now-insolvent insurer.

ZALMA OPINION

The Black Lung Benefits Act requires private mine operators to pay benefits to the maximum extent feasible. It only provides a Trust Fund to assume liability when there is no operator who is liable for the payment of such benefits. The operator purchased insurance to protect it from that exposure and the insurer contributed to the KIGA fund to protect its insureds in the event of its insolvency. Since an underground coal mine had no relevance to “ocean marine” insurance, not being near an ocean, let alone an operation dealing with an ocean or marine activities, and  since KIGA is guaranteed and funded by insurers, not a governmental agency, KIGA was responsible for the loss.

© 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  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 50 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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Why Pennsylvania Made it Easier to Prove Insurer Bad Faith

No Need to Prove Ill-Will or Self-Interest to Prove Bad Faith

Since its creation as a tort in the 1950’s and 1960’s the tort of bad faith required proof the the insurer will do nothing which will injure the right of the insured to receive the benefits
of the agreement. The basic definition of the tort of bad faith just looks to the actions of the insurer in dealing with an insured without any further evidence that the injury caused to the insured was due to an act of bad faith.

The Supreme Court of Pennsylvania, Western District, found that neither self-interest nor ill will is necessary to a finding of bad faith. In so doing, in Matthew Rancosky, Administrator DBN of The Estate Of Leann Rancosky And Matthew Rancosky, Executor Of The Estate Of Martin L. Rancosky v. Washington National Insurance Company, As Successor By Merger To Conseco Health Insurance Company, Formerly Known As Capital American Life Insurance Company, J-27-2017, No. 28 WAP 2016, Supreme Court Of Pennsylvania Western District (September 28, 2017) made it easier for a plaintiff to sue an insurer for bad faith by removing an earlier requirement that there must be proof of ill-will or self-interest.

Justice Wecht of that court wrote a concurring opinion, to the majority opinion of the Supreme Court of Pennsylvania, Western District, joining the Majority Opinion in full while explaining why it is important in Pennsylvania to eliminate the need for a plaintiff to prove self-interest or ill-will to establish a case of bad faith.

PROOF OF BAD FAITH

As a matter of statutory interpretation, the Majority demonstrated astutely that “proof of the insurer’s subjective motive of self-interest or ill-will, while perhaps probative of the previous tests of bad faith, is not a necessary prerequisite to succeeding in a bad faith claim. If the plaintiff can prove that the insurer acted to deprive the insured of the benefits of the policy to which the insured was entitled, should be sufficient to prove the tort.

It bears emphasizing that “self-interest” and “ill will” are not part of Section 8371 as enacted by the General Assembly. This is unsurprising, inasmuch as such strains of overt malfeasance often will be lacking and, in any event, will seldom be susceptible to establishment by competent proof of record. That is to say, with apologies to the drafters of the 1990 edition of Black’s Law Dictionary, those terms not only are non-mandatory under Pennsylvania’s bad faith statute; they generally are analytically unhelpful as well.

Justice Wecht pointed out that many species of bad faith may flourish notwithstanding the absence of either “self-interest” or “ill will.” For example, he explained that:

  • Shoddy claims-handling,
  • lack of diligence,
  • non-responsiveness,
  • haphazard investigation,
  • unreasonable denials, and the like

are sufficient to prove that the insurer acted in bad faith since all can come within the statutory definition of bad faith while nonetheless falling short of the “self-interest”/”ill will” threshold.

“Ill will” suggests an unduly personal or vindictive motive, something that is (and indubitably should be) exceptionally rare.

In the universe of bad faith insurance claims, “ill will” is more often than not a red herring. It is a waste of court time to deal with an unnecessary and useless item of evidence. “Self-interest” suggests that an adjuster or other claims-handler perceives some personal financial benefit that will follow from denial of a claim, something that, while plausible in theory, certainly is far from universal in bad faith cases.

In any event, these terms cannot be permitted to devour the definition of bad faith as a whole. Knowing or reckless claims-handling leading to objectively unreasonable denial of benefits, if proven by clear and convincing evidence, embodies the principle that a patent absence of good faith is tantamount to the presence of bad faith.

Unless the Pennsylvania General Assembly intervenes to supersede the Majority’s understanding of the legislative will, this is the rule that our courts must apply.

ZALMA OPINION

I have no love for the tort of bad faith. I personally believe it is a breach of the ancient division between contract and tort. In most cases the insurance adjuster deals fairly and in good faith with the insureds with whom the adjuster comes in contact. He or she receives no personal financial benefit other than the salary agreed to before a claim was filed. Adjusters are hired to fulfill the promises made by the insurance policy. When the adjuster fails the insured has the right to seek contract damages.

Making it easier to sue insurers for bad faith will cure no ills other than to increase the earnings of the plaintiffs’ lawyers. However, if there must be a tort of bad faith, then the rule stated by Pennsylvania is appropriate since neither ill will nor self interest are required to determine whether the insurer did something to prevent the insured from receiving the benefits of the policy.

 

© 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  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 50 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 – October 1, 2017

Zalma’s Insurance Fraud Letter

Barry Zalma, Inc.

The Essential Resource For The Insurance Fraud Professional

Thirty eight years ago today I left the world of the employed and became an entrepreneur by opening my own law firm that was incorporated shortly thereafter as Barry Zalma, Inc. When I opened for business on October 1, 1979, I had no clients other than my sister, and no certainty that I would have any in the future.
21 years ago I started Zalma’s Insurance Fraud Letter. I hope you find this issue interesting and useful.

Zalma’s Insurance Fraud Letter, Volume 21, No. 19

  • October 1, 1979 – October 1, 2017 – Another Anniversary
  • Become a Certified Expert in Corporate Property Insurance and a Certified Expert in Corporate Liability Insurance
  • If you do the Crime You Must Do the Time
  • California Workers’ Comp Division Suspends 6 Medical Providers for Fraud
  • It’s Not Nice to Lie to Your Insurer
  • DOJ Announces Hurricane Fraud Units In Effect
  • The Zalma Insurance Claims Library
  • Good News From the Coalition Against Insurance Fraud
  • Health Insurance Fraud Convictions
  • Other Insurance Fraud Convictions

 Zalma on Insurance – A Blog

The most recent posts to the daily blog, Zalma on Insurance, are available 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.

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

 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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20 Years after Notice of Claim Violates Notice Condition

Service Of a Lawsuit Requires Prompt Notice to Liability Insurer

The reason insurance companies put a notice requirement in a liability insurance policy is to protect the insurer against stale claims and fraud. Everyone who has ever run a business that has liability insurance know, or should know, that notice of a claim or a potential claim, must report the claim to the insurer so it can investigate and defend the claim. No insured likes the requirement and will attempt to explain a late report.

In J. Peter McPartlon v. Continental Casualty Company; Continental Casualty Company v. J. Peter McPartlon, 1:15-cv-299 (GLS/CFH), 1:15-cv-1520 (GLS/CFH), United States District Court Northern District Of New York (September 26, 2017) an insured did not report a potential suit, a threatened suit and an actual suit within one to five years. The Insured, McParton, sued because the insurer refused coverage seeking damages for an alleged breach of an insurance contract.

His insurer Continental Casualty Company (CCC) defended the claim for damages and a declaratory judgment ordering CCC to indemnify and defend him against claims in an underlying state court personal injury lawsuit. McPartlon also alleges that CCC acted in bad faith.

CCC, thereafter, commenced a related action seeking a declaration that it has no duty to indemnify or defend McPartlon in a separate but related underlying state court personal injury lawsuit.

BACKGROUND

McPartlon has owned numerous rental properties in the City of Albany and the greater Capital District area, including 72 Park Avenue, Albany, New York, which is the property at issue. McPartlon operated his rental property business under various business organizations. By approximately 2005, McPartlon had delegated the day-to-day business operations to his son, Michael McPartlon, and he consented to be bound by his son’s deposition testimony in the actions before this court.

CCC issued insurance policies to McPartlon on his rental properties that were in effect during relevant times.

CCC’s insurance policies place a duty on McPartlon to notify CCC in the event of an “occurrence” or “suit” against him “as soon as practicable.” Under the policy, an “occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

Following a 1993 environmental investigation at 72 Park Avenue, Albany, New York, the Albany County Department of Health (DOH) notified Donna Witko of Parkland Management that “an elevated blood lead level has been verified in a child.”

The affected child was Rashiek Haynes, who is the plaintiff in one of the underlying state court lawsuits. Rashiek Haynes is a sibling of Nakira Haynes, the plaintiff in the other underlying state court lawsuit. McPartlon did not disclose the results of this investigation to CCC until approximately August 2015.

On or about July 24, 2013, McPartlon was served in the underlying state court lawsuit commenced by Nakira Haynes. Among other things, Nakira Haynes alleged that McPartlon was negligent in failing to abate lead paint hazards, which caused her injuries.

McPartlon did not notify CCC about the underlying lawsuit until June 17, 2014 by letter from his corporate counsel addressed to “CNA Insurance.” As a result of McPartlon’s untimely notice, CCC denied coverage as to Nakira Haynes’ underlying state court lawsuit.

After service of Nakira Haynes’ lawsuit, McPartlon’s son, Michael, realized that he had not kept the pertinent insurance policies. In order to identify his then-unknown insurance carrier, Michael testified that a “week or two” after being served: (1) he searched McPartlon’s property for boxes labeled “do not destroy,” which would likely contain the oldest corporate documents; (2) he contacted a former business colleague and Witko; (3) he telephoned three out of five of his insurance brokers; and (4) McPartlon searched his personal records. All attempts were unsuccessful.

Ultimately, by June 2014, Michael remembered that another family business had insurance through CNA, an affiliate of CCC, and this prompted his letter tendering a claim to CCC about the underlying Nakira Haynes state court lawsuit.

Rashiek Haynes filed suit against McPartlon in December 2014 for personal injuries related to lead exposure.

Because of the 1994 DOH report in or around August 2015, CCC sought a declaration that it has no duty to indemnify or defend McPartlon in Rashiek Haynes’ lawsuit since waiting 20 years after notice to McParlton was not reporting as soon as practicable.

DISCUSSION
Nakira Haynes’ Underlying State Court Lawsuit

CCC argued that it does not have a duty to defend or indemnify McPartlon in the underlying state court lawsuit brought by Nakira Haynes because he failed to provide timely notice of the 1994 DOH report, which is an “occurrence” under the policy. CCC also argued that McPartlon failed to provide timely notice of Nakira Haynes’ lawsuit itself. Specifically, CCC contends that McPartlon’s failure to provide notice of the 1994 DOH report for approximately twenty years or of Nakira Haynes’ lawsuit for almost eleven months bars his insurance coverage as to that suit. Additionally, CCC asserts that McPartlon has failed to satisfy his burden that his untimely notice was justified or excused.

An insurance contract stating that the insured must notify the insurer of an occurrence or claim “as soon as practicable” requires that notice be provided within a reasonable time under the circumstances. Failure to give timely notice vitiates the contract as a matter of law.

An insured has a duty to give notice when he or she “could glean a reasonable possibility of the policy’s involvement” based on “the information available relative to the accident.” Paramount Ins. Co. v. Rosedale Gardens, Inc., 293 A.D.2d 235, 239-40 (1st Dep’t 2002). Although a delay may be excused in some circumstances, the insured bears the burden of proof.

McPartlon argued that the 1994 DOH report did not specifically identify information that would put him on notice of a potential claim. Contrary to the claim, the 1994 DOH report specifically identified a minor with an elevated blood lead level who resided at the apartment and conditions that violated Public Health Law. Further, the report required that repairs to remedy the violations be completed within fourteen days or “legal action w[ould] be initiated by [DOH].”

Undoubtedly, the 1994 DOH report allowed McPartlon to “glean a reasonable possibility of the [insurance] policy’s involvement.” Paramount Ins. Co., supra. Accordingly, the 1994 DOH report was an “occurrence” under the policy, which would trigger McPartlon’s notice requirements to CCC.

Furthermore, McPartlon failed to satisfy his burden to present a question of fact regarding whether his late notice was justified. All of these excuses rest on the premise that an insurer bears the burden of an insured’s own negligence in maintaining his records and, therefore, fail as a matter of law. Indeed, it is the responsibility of the insured, not the insurance company, to keep track of which carriers have provided it with liability insurance.

At no point before his tender letter did McPartlon consult counsel or an insurance broker.  McPartlon failed to raise a question of fact that he made reasonably diligent efforts to ascertain whether coverage existed.
Rashiek Haynes’ Underlying State Court Lawsuit

As with Nakira Haynes’ lawsuit, CCC contended that it does not have a duty to defend or indemnify McPartlon in the underlying state court lawsuit brought by Rashiek Haynes because McPartlon failed to provide timely notice of the 1994 DOH report, which is an “occurrence” under the policy.
BAD FAITH

McPartlon claims that CCC acted in bad faith in denying coverage as to the underlying state court lawsuit brought by Nakira Haynes. CCC argues that McPartlon’s bad faith claim fails as a matter of law because there is no cognizable claim for the denial of insurance in New York where an insurer has an arguable basis to disclaim coverage. McPartlon cited no evidence that CCC lacked an arguable basis to disclaim coverage or otherwise acted in bad faith.

CCC had a basis to deny coverage regarding Nakira Haynes’ underlying lawsuit because McPartlon failed to provide timely notice of the suit. CCC also had a basis to deny coverage based on McPartlon’s failure to provide timely notice of an “occurrence.”

The court concluded that CCC is entitled to summary judgment on McPartlon’s bad faith claim.

ZALMA OPINION

The suit brought by the McParlton’s was obviously inadequate verging on silly. Expecting a defense almost 20 years after notice is clearly in breach of the notice condition requiring notice as soon as practicable nor is waiting a year after being served with a suit in compliance with the “as soon as practicable” notice requirement. A person, like McParlton, who sits on his rights loses them. There was no need for the insurer to show prejudice since a 20 year delay makes the fact of prejudice obvious.

© 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  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 50 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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He Who Represents Himself in Court Has a Fool For a Client

Facts Stating a Cause of Action Required to Stay in Court

Normally, I digest reported decisions to make them easier to digest. Today, in Harold Greene v. USAA Casualty Ins. Co., et al., Civil No. JKB-17-1854, United States District Court For The District Of Maryland, (September 25, 2017) I post the entire case because it is clear, brief, and cogent.

Plaintiff Harold Greene filed suit pro se on May 19, 2017, in the District Court of Maryland against USAA Casualty Insurance Company (“USAA”), Thomas E. Price, M.D., Secretary of the United States Department of Health and Human Services, and the Centers for Medicare and Medicaid Services (the latter two Defendants referred to collectively as “the Government”). The stated causes of action were contract, replevin, and bad faith insurance claim. Greene alluded to “extortionate government subrogation” and wanted “pain and suffering settlement . . . funds” from USAA to be paid into the court’s registry “to protect MEDICARE.”

The Government removed the case to this Court because of its jurisdiction over cases against federal agencies. Subsequently, USAA moved to dismiss the complaint for failure to state a claim, to which Greene filed his response in which he complained that USAA had “low balled” his car damage claim.

The Court granted the motion to dismiss and concurrently dismissed sua sponte the complaint against the Government; the Court concluded that, even after liberally interpreting Greene’s complaint, it was unable to discern a viable cause of action in the case. Consequently, the case was dismissed for failure to state a claim.

Now pending before the Court is Greene’s motion for reconsideration, which complains the “court’s ruling was improvidently based upon its construing an interpleader petition as a ‘complaint’ asserting ‘claims.'” What Greene filed is, in fact, appropriately construed as a complaint since it is so labeled, since it purports to assert causes of action of contract, replevin, and bad faith insurance claim, and since it asks the court to award damages. However, it fails to include sufficient factual content to permit an inference of wrongdoing by either USAA or the Government.

Accordingly, IT IS HEREBY ORDERED that Greene’s motion for reconsideration is GRANTED, that the Court has reconsidered its ruling, and that the Court AFFIRMS its dismissal of this case for failure to state a claim for relief. The Clerk SHALL SEND a copy of this memorandum and order to Plaintiff.

DATED this 25th day of September, 2017.

BY THE COURT:

James K. Bredar

United States District Judge

ZALMA OPINION

Pro se plaintiffs take up the time of US Courts by filing documents that, like this case, make no sense, allege no appropriate facts sufficient to state a cause of action and mix oranges with pomegranates. The plaintiff included a claim on his damaged auto with a suit against the Secretary of Health and Human Services about the failure of Social Security. Since it made no sense and failed to state any cause of action it was dismissed.

 

 

© 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  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 50 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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Bankruptcy is Not a Cure of Mortgagor’s Failure to Pay Insurance Premiums

Never Lie to a Judge

Mortgages invariably require the property owner to buy, and name as loss payee, the mortgagee. When premiums are not paid and a policy is cancelled the mortgagee has the right to force place insurance to protect its security, and if not paid for by the mortgagor, foreclose on the property. Bankruptcy puts a hold on the foreclosure until the court rules.

In In Re: John Harrison Scott, Debtor, John Harrison Scott v. Nationstar Mortgage, LLC, CASE NO. 15-33611-BJH-13, Adversary No. 16-3106-BJH, United States Bankruptcy Court For The Northern District Of Texas Fort Worth Division, (September 22, 2017) trial was held in Bankruptcy Court to resolve a dispute over foreclosure for failure to insure.

FACTUAL BACKGROUND

Plaintiff and his current non-debtor spouse (together, “Borrowers“) took out a home equity loan from Lender secured by the Property in the amount of $183,200.00.

The Note required Borrowers to make monthly payments of $1,188.23 on the first day of each month beginning May 2005. If Borrowers failed to pay the full amount of each monthly payment on or within fifteen days of the monthly due date, Borrowers would become obligated to pay a late charge.

When Defendant began to act as servicer for Lender in December 2013, Borrowers were in default under the Loan Documents because of a prior late payment.

Insurance Escrow Disputes

The Security Instrument requires Borrowers to keep the Property insured against loss. If Borrowers fail to maintain the required insurance coverage on the Property, the Security Instrument permits Lender to establish an escrow account and to obtain force-placed insurance coverage for the Property, at Borrowers’ expense (and such costs constitute additional debt under the Loan Documents). Plaintiff’s principal disputes with Lender and Defendant can be traced to the lapse of insurance coverage on the Property due to Borrowers’ failure to pay insurance premiums to their insurance company MetLife.

Plaintiff’s testimony and the documentary evidence demonstrate that Borrowers’ insurance on the Property lapsed or was cancelled on at least two occasions between August 2012 and April 2013.

As a result of the lapse of insurance coverage on the Property, Defendant mailed a letter on March 29, 2014 to Borrowers at the Property address, notifying Borrowers that (a) Defendant’s records indicated Property insurance had expired; (b) Defendant planned to buy force-placed Property insurance at Borrowers’ expense; (c) Borrowers were to immediately provide proof of insurance; and (d) if Borrowers did not provide proof of insurance, Defendant would establish an escrow account for the Note and obtain force-placed insurance coverage on the Property.

As a result of Borrowers’ failure to respond to multiple letters, Defendant obtained force-placed insurance for the Property and notified Plaintiff of the force-placed insurance.  Defendant included a “TEXAS NOTICE OF PLACEMENT OF INSURANCE” with the letter stating, in part, that the insurance premium of $3,073.87 “will be charged to your escrow account. If you do not have an escrow account, one will be established for you or you will be billed directly for the insurance premium paid by us.”

According to Plaintiff, his insurance broker allegedly told him that the homeowners policy had not actually lapsed, but the court concluded “incredibly, his insurance broker allegedly told Plaintiff to take out a second insurance policy on the Property ‘to be safe.'”

Plaintiff’s testimony about the Borrowers’ alleged timely payments to MetLife (without providing any documentary evidence to corroborate Plaintiff’s testimony); Borrowers’ alleged nonreceipt of Defendant’s letters; and Plaintiff’s alleged conversations with his insurance broker was, in the words of the court: “not believable or credible and was contradicted by credible documentary evidence.”

Plaintiff’s testimony that he did not realize the escrow account was being closed was inconsistent and contrary to the documentary evidence, which calls into question the reliability and credibility of Plaintiff’s testimony.

As of the Petition Date, Borrowers were at least seven months in arrears on their payments.

The Court found that (a) Defendant was entitled under the Loan Documents to hold and “suspend” payments received from Borrowers until Defendant received sufficient funds to apply to a full monthly payment due under the Note; (b) Defendant was entitled to require Borrowers to pay the Escrow Items under the Loan Documents; (c) Defendant gave proper written notice that it would require Borrowers to pay the Escrow Items; and (d) Defendant did nothing improper with respect to its filed proof of claim.

Chapter 13 Bankruptcy

Plaintiff filed his Chapter 13 petition with this Court on September 1, 2015, preventing Defendant from foreclosing on the Property. Defendant—on behalf of Lender—filed a proof of claim in the bankruptcy case on November 20, 2015, asserting a secured claim of $166,248.05, including arrearages as of the Petition Date of $14,361.03. The Confirmation Order provided that the Trustee’s Recommendation Concerning Claims (“TRCC“) would be binding on all parties concerning allowance and treatment of claims in the absence of an objection.

On March 18, 2016, the Trustee filed his TRCC, which had a proposed claim amount for Lender of $166,248.05, to be paid directly to Lender by Plaintiff with only the proposed arrearages of $14,361.03 to be paid through the Trustee. No one objected to the TRCC.

Adversary Proceeding

Plaintiff testified on his own behalf. Plaintiff initially came across as very credible, but as he testified, his testimony contradicted the documentary evidence on several key issues and ultimately was not credible or persuasive. The witnesses’ respective credibility was critical to the Court in rendering its alternative ruling on the merits.

LEGAL ANALYSIS

Res judicata may be raised by the court where both actions were brought in courts of the same district. Second, res judicata may be applied when all relevant data and legal records are before the court and the demands of comity, continuity in the law, and essential justice mandate judicial invocation of res judicata.

A bankruptcy judgment bars a subsequent suit when (a) both cases involve the same parties; (b) the prior judgment was rendered by a court of competent jurisdiction; (c) the prior decision was a final judgment on the merits; and (d) the same cause of action is at issue in both cases.

Because the Court raised res judicata on its own, and because all of the elements of res judicata are present, Plaintiff’s claims against Defendant are barred.

Plaintiff’s claims are barred by res judicata because such claims should have been, but were not, raised in connection with the TRCC Order that allowed Defendant’s claim. Even if the Court were to reach the merits of Plaintiff’s claims, they fail for the reasons set forth above.

ZALMA OPINION

Insurance protecting the mortgagee’s interest in property is important to the mortgagee. State law allows it to force place insurance – at the mortgagor’s expense – if the mortgagor fails to maintain insurance and add the cost to the mortgage. The Mortgagor was in arrears on both the mortgage payments and payments for insurance and the mortgagee properly foreclosed. Testifying falsely to the Bankruptcy Court simply added to the mortgagor’s problems and caused a loss.

 

© 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  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 50 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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It’s Not Nice to Lie to Your Insurer

A Livery Vehicle is not an “Automobile” for No Fault Insurance Purposes

When an insured, operating a livery and taxi service obtains an insurance policy covering one of its vehicles as a private passenger vehicle knowing that its application for insurance was false found itself without insurance of any kind. The lies, even insuring the property in the name of a person who neither owned nor operated the vehicle was egregious and fraudulent.

In 21ST Century Insurance Company, individually, and as attorney in fact for Myriam Ledee, v. Felipe Express; Felipe Sanchez Jr.; Felipe Sanchez Sr.; Edward Santana; Perfecto Hernandez; Lucia Hernandez; and Milton Saeteros; et al., Civil Action No. 15-7075 (FLW) (DEA), United States District Court District Of New Jersey (September 22, 2017) the USDA was asked to declare the policy void and not compel the insurer to pay innocent passengers under New Jersey’s Deemer statute.

FACTS

Following an automobile accident on the New Jersey turnpike, Plaintiff 21st Century Centennial Insurance Company (“21st Century” or “Plaintiff”) initiated this action (the “21st Century case”) against various defendants. The present dispute centers on 21st Century’s claims against Felipe Sanchez, Sr., Felipe Sanchez, Jr., and Felipe Express (collectively, the “Felipe Defendants”) for insurance fraud under the Insurance Fraud Prevention Act (“IFPA”), N.J.S.A. 17:33A-1 et seq. and common law fraud, as well as its claim seeking a declaration that 21st Century has no coverage obligations under a policy of insurance that it issued to Myriam Ledee.

The relevant 21st Century policy of insurance (the “Policy” or “21st Century Policy”) lists Myriam Ledee, an Ohio resident and the ex-wife of Felipe Sanchez, Jr., as the named insured. Defendants Felipe Sanchez, Sr. and Felipe Sanchez, Jr. are the owners of Felipe Express, a transportation company that operates out of Silver Springs, Maryland. Felipe Express provides transportation and taxi services, for a fee, to members of the public between the Washington, D.C. and New York City areas, including New Jersey.

The underlying facts concerning the accident are undisputed. On March 6, 2015, Defendant Edward Santana, an employee of Felipe Express, was driving the Van on the southbound side of the New Jersey Turnpike, during the course of his employment, when he collided with a vehicle driven by a representative of the New Jersey Turnpike Authority. Perfecto Hernandez and Lucia Hernandez were passengers in the Van at the time of the accident. Lucia alleges that she sustained personal injuries, requiring medical treatment, as a result of the accident.

Ledee testified that she did not submit an application for the Policy, did not give anyone, including Felipe Express, Felipe Sanchez, Jr., and Felipe Sanchez, Sr., permission to obtain the Policy in her name, and was not aware that the Policy had been applied for or obtained prior to the accident.

According to the testimony of Diana Yeager, an underwriting staff consultant for 21st Century, 21st Century conducted business in New Jersey during the relevant policy period, including the date of the subject accident. Yeager testified that during all relevant periods, 21st Century did not issue commercial policies, including policies covering taxis, buses, or delivery vehicles.

The 21st Century policy specifically excluded coverage for liability arising out of the use of a vehicle for commercial purposes.

DISCUSSION

The Court found that default judgment is appropriate against the Felipe Defendants on all counts, because Plaintiff has established a prima facie case for relief.

The New Jersey Legislature enacted the IFPA to “confront aggressively the problem of insurance fraud in New Jersey.” N.J.S.A. 17:33A-2. The Legislature added the crime of “insurance fraud” in 2003, as part of a “a comprehensive set of solutions to the automobile insurance availability and affordability challenges facing insurers, consumers and regulators in New Jersey.”

Unlike common law fraud, proof of fraud under the IFPA does not require proof of reliance on a false statement or resultant damages. “The applicable burden of proof to prove a violation of the IFPA is a preponderance of the evidence.” Certain Underwriters at Lloyd’s of London v. Alesi, 843 F. Supp. 2d 517, 530 (D.N.J. 2011).

The unchallenged facts in this case demonstrate that the Felipe Defendants knowingly made false representations to 21st Century in order to obtain the Policy. In that regard, it is undisputed that the Felipe Defendants submitted an online application to 21st Century for a personal insurance policy in the name of Myriam Ledee, knowing that that policy procured would be used to cover the Van. In his deposition, Felipe Sanchez, Jr. admitted wrongdoing in procuring a personal policy in the name of Ledee, despite knowing that the Policy would be used for commercial purposes to insure the Van.

Because 21st Century has been prejudiced by the Felipe Defendants’ failure to defend this action, and no facts suggest that the Felipe Defendants would have a meritorious defense against the common law fraud claim. Accordingly, the Court finds that default judgment against the Felipe Defendants as to liability for common law fraud is appropriate.

RESCISSION

Within the field of insurance, rescission has long been recognized as an available and necessary remedy to combat fraudulent behavior by an insured.

Here, the Felipe Defendants made material and fraudulent misrepresentations by applying for a personal policy of insurance using the identity of Ledee. By failing to disclose their true identities, the Felipe Defendants deprived 21st Century of the opportunity to examine the driving histories and other relevant records of the Felipe Defendants.  Under New Jersey law, the Court found that 21st Century is entitled to rescind the Policy as it pertains to the Felipe Defendants, precluding the Felipe Defendants from seeking any coverage as insureds.

21ST CENTURY’S COVERAGE OBLIGATIONS FOR THE PASSENGERS

Notwithstanding the Court’s entry of judgment against the Felipe Defendants, and declaration that the Policy is void ab initio, the Court must determine whether 21st Century has any coverage obligations to the Passengers, who were innocent third-party victims in the accident. In that regard, as discussed in greater detail below, it is well-established under New Jersey law that innocent third-party victims of automobile accidents can, under certain circumstances, recover benefits under a policy that is declared void ab initio on the basis of fraud by the named insured.

By 1985, New Jersey was confronted with a growing number of cases where New Jersey residents were injured in accidents caused by out-of-state drivers whose insurance coverage was less than New Jersey’s statutory requirements. The New Jersey Legislature enacted N.J.S.A. 17:28-1.4, commonly referred to as the “deemer statute,” as part of the state’s no fault insurance plan. If the Van qualifies as an “automobile,” New Jersey’s policy of compensating innocent third-party victims of automobile accidents would require 21st Century to provide the Passengers with the minimum statutory insurance requirements set forth in the deemer statute.

The deemer statute provides, in pertinent part, that automobile insurers, such as 21st Century, who issue policies outside of New Jersey, but are authorized to issue automobile insurance policies within the state, “shall include in each policy coverage to satisfy at least the liability insurance requirements of [the No Fault Act] . . . , whenever the automobile . . . insured under the policy is used or operated in this State.” N.J.S.A. 17:28-1.4. The deemer statute incorporates the following definition of “automobile,” requires it to be a “private passenger automobile of a private passenger or station wagon type that is owned or hired and is neither used as a public or livery conveyance…”

Because the Van was used as a public or livery conveyance, and customarily used in the occupation, profession or business of the insured, the Court found that the Van does not constitute an “automobile,” regardless of whether it falls under the first or second vehicle classification set forth in N.J.S.A. 39:6A-2.

At time of the accident, Santana was employed as a driver for Felipe Express, and the Van was customarily used as a transportation vehicle for Felipe Express. Because the Van was customarily used in the occupation, business, or profession of Santana, it does not qualify as an automobile under the deemer statute. Because the deemer statute only applies policies covering “automobiles,” the Court’s finding that the Van is not an automobile is fatal to the Passengers’ attempt to seek coverage under the deemer statute.

The Court concluded that it could not extend the deemer statute and to cover the innocent Passengers and that they are not entitled to coverage despite their status as innocent third-party victims of the accident, because the deemer statute is not triggered where the vehicle in question is not an “automobile.”

ZALMA OPINION

Although it is sad that the innocent passengers are unable to collect from 21st Century Insurance to compel the insurer to pay when it was the victim of fraud would have been unconscionable. The owners and operators of the vehicle will be held responsible and required to use its assets to pay for the injuries suffered by the innocent victims of the accident.

 

© 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  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 50 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 Jury is not Allowed to Speculate About Damages

When Seeking Coverage Of A Settlement Of Covered and Not Covered Losses the Insured Must Prove Allocation

When an insured seeks coverage for a multi-lawsuit settlement where one plaintiffs action is covered by the policy and the other is not, it is the duty of the insured to prove the allocation between covered and not covered losses. Failure to do so can, and in UnitedHealth Group Incorporated, a Minnesota corporation v. Executive Risk Specialty Insurance Company; First Specialty Insurance Corporation; Starr Excess Liability Insurance International Limited; National Union Fire Insurance Company of Pittsburgh, PA, No. 15-1076, United States Court of Appeals For the Eighth Circuit (September 7, 2017) did, cost the insured covereage.

FACTS

UnitedHealth Group sued several insurers in the District of Minnesota, seeking indemnity and defense costs for underlying litigation settlements under its professional liability excess insurance policies. UnitedHealth appeals the district court’s grant of summary judgment in favor of four insurance companies.

UnitedHealth reached a single lump-sum settlement for the two actions together. There was potential insurance coverage for claims in one lawsuit but not for claims brought in the other. A dispute then arose over how to allocate the settlement amount between the covered and non-covered claims.

UnitedHealth settled the the various lawsuits resolving the AMA and Malchow suits for $350 million. The settlement agreement did not state how the $350 million was to be allocated between the AMA plaintiffs and Malchow plaintiffs.

The AMA and Malchow plaintiffs moved to be certified as a settlement class before Judge McKenna in New York. The court reviewed the settlement agreement and held a seven-day evidentiary hearing to determine whether the settlement was fair and reasonable. In October 2010, Judge McKenna certified the settlement class, approved the $350 million settlement, and dismissed the AMA suit. Following the court’s approval, and in accordance with the settlement agreement, the Malchow plaintiffs stipulated to the dismissal of the Malchow suit in New Jersey.

After signing the settlement agreement, UnitedHealth filed an amended complaint in this ongoing lawsuit in the District of Minnesota against its professional liability excess insurers. UnitedHealth sought damages for the insurers’ failure to indemnify it for the costs to defend and the $350 million gross settlement.

After several years of litigation, four excess insurers remain in this action: Executive Risk Specialty Insurance Company, First Specialty Insurance Corporation, Starr Excess Liability Insurance International Limited, and National Union Fire Insurance Company (collectively, the “Insurers”). Executive Risk holds the first excess insurance policy relevant to this appeal; coverage attaches at $95 million in damages. The others provide coverage at higher levels of damages.

The Insurers moved for partial summary judgment.  The trial court ruled that UnitedHealth had the burden to allocate the settlement between the potentially covered AMA claims and the non-covered Malchow claims.

The trial court ruled that UnitedHealth failed to meet its burden to present sufficient evidence to support an allocation between the potentially covered AMA claims and the non-covered Malchow claims. The court also ruled that the Insurers were entitled to summary judgment on UnitedHealth’s claim for defense costs in the AMA suit.

ANALYSIS

UnitedHealth argues that it had no duty to allocate between the covered and non-covered claims under the plain language of its insurance policies. Second, it argues that under Minnesota law, it had no burden to allocate between the covered and non-covered claims and it was required to show only that it suffered a loss that would trigger coverage.

The company contends that under the Antitrust Endorsement of the policy issued by the primary insurance carrier Lexington, which it asserts is incorporated into the excess insurance policies, UnitedHealth is entitled to coverage for the entire $350 million settlement so long as the settlement included covered antitrust claims. The trial court determined that this argument was untimely and meritless. In its amended complaint, UnitedHealth sought indemnity for only the “portion” of the $350 million settlement attributable to the AMA suit. Its claim that it can recover the entire $350 million, including the amount attributable to the Malchow suit, was not timely advanced and was ignored by the appellate court.

The AMA suit qualifies for coverage under the Antitrust Endorsement. The Endorsement provides that notwithstanding any other provisions of the policy, the Insurers must pay for UnitedHealth’s “claims that directly or indirectly result from or are related to, a Wrongful Act consisting or allegedly consisting in whole or in part of anti-trust, price fixing or restraint of trade activities.” But the Malchow claim was separate from the AMA claim, so the Endorsement generates coverage only for the AMA claim.

The excess insurance policies provide coverage described in the Endorsement only insofar as the coverage would not conflict with a provision of the excess policies. And it is undisputed that the excess policies did not cover the Malchow claims, because the defendant in Malchow, a predecessor-in-interest of UnitedHealth, was never an insured under those policies. UnitedHealth is therefore not entitled to the portion of the settlement that is allocated to the Malchow lawsuit.

Under Minnesota law, the initial burden is on the insured to prove prima facie coverage of a third-party claim under a liability insurance policy. If the insured meets its burden of establishing coverage of the claim, the burden shifts to the insurer to prove the applicability of an exclusion under the policy as an affirmative defense. Although this general burden-shifting scheme is clearly established, the Minnesota Supreme Court has not squarely addressed who bears the burden to allocate between covered and non-covered insurance claims.

The appellate court concluded it is not enough under Minnesota law for UnitedHealth to show simply that its $350 million settlement included a covered claim of an unspecified amount. UnitedHealth bears the burden to allocate the settlement between the potentially covered AMA suit and the non-covered Malchow suit with enough specificity to permit a reasoned judgment about liability.

To prove allocation, parties can present testimony from attorneys involved in the underlying lawsuits, evidence from those lawsuits, expert testimony evaluating the lawsuits, a review of the underlying transcripts, or other admissible evidence. To survive summary judgment, an insured need not prove allocation with precision, but it must present a non-speculative basis to allocate a settlement between covered and non-covered claims. The district court concluded that UnitedHealth failed to provide non-speculative evidence to allocate the $350 million settlement between the potentially covered AMA suit and non-covered Malchow suit.

The allocation inquiry examines how a reasonable party in UnitedHealth’s position would have valued the covered and non-covered claims. In evaluating the claims, the appellate court looked to what the parties knew at the time of settlement. In determining what claims were settled, it is appropriate to consider the circumstances and events leading up to the settlement. Events and circumstances happening after settlement are relevant only insofar as they inform how a reasonable party would have valued and allocated the claims at the time of settlement.

A jury may not base its damages award on speculation. The evidence presented by UnitedHealth fails to give a jury more than a speculative basis on which to allocate the $350 million settlement between the AMA and Malchow suits.

These were complex lawsuits involving different claims and legal theories. Allocation required either contemporaneous evidence of valuation or expert testimony on relative value to provide a reasonable foundation for a jury’s decision. Without more evidence about the relative value of the claims, a reasonable jury could only speculate as to how the settlement should be allocated.

UnitedHealth made strategic decisions to invoke attorney-client privilege and work-product protection to avoid presenting evidence from its own representatives about contemporaneous valuations of the settlement. UnitedHealth had an opportunity to raise its objection to the district court’s summary-judgment procedure before it stipulated to the entry of final judgment.

ZALMA OPINION

Hoist on its own petard, UnitedHealth refused to present the evidence it had that wold allow a jury to hear sufficient evidence about how the $350 million settlement should be allocated. To do so they needed the testimony of their lawyers and experts not a blatant demand for the full settlement without providing evidence. As a result they lost the right to hold the excess insurers.

 

 

 

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Insured v. Insured Exclusion Defeats Claim

Again an Assignment of Claim Is a Loser

When will litigants learn that it is not always profitable to take an assignment from tortfeasors. If the tortfeasor has sufficient assets to pay a judgment there is no reason to enter into a deal with the tortfeasor to get a chance at obtaining punitive damages from an insurer. Giving up a bird in hand for millions in the bush is a fools errand.

That lesson as learned by the plaintiffs in Intelligent Digital Systems, LLC, Russ & Russ Pc Defined Benefit Pension Plan, Jay Edmond Russ, all individually and as assignees of Jack Jacobs, Robert Moe, Michael Ryan and Martin cFeely, and Jason Gonzalez, Plaintiffs-Appellants v. Beazley Insurance Company, Inc., United States Court Of Appeals For The Second Circuit, 16-3548-cv, (September 19, 2017).

Intelligent Digital Systems, LLC (“IDS”), Russ & Russ PC Defined Benefit Pension Plan (the “Plan”), and Jay Edmond Russ, all individually and as assignees of insured individuals Jack Jacobs, Robert Moe, Michael Ryan, Martin McFeely, and Jason Gonzalez, appealed from the district court’s judgment dismissing the amended complaint and resolving this insurance action in favor of Beazley Insurance Company, Inc. (“Beazley”).

The primary issue is Beazley’s disclaimer of coverage for Russ’s claims against the insured directors of Visual Management Systems, Inc. (“VMS”).

BACKGROUND

Russ is a New York attorney who founded IDS, a technology company in the digital recording industry. Directly and indirectly (through another wholly-owned company), Russ is the sole officer of IDS. He is also the fiduciary of the Plan.

IDS agreed to sell its assets to non-party VMS, a company, now dissolved, in the video technology business. VMS agreed to pay IDS $1.5 million over time and issued a promissory note to that effect, and it agreed also to add Russ to its Board of Directors and to hire him as a consultant.

The VMS Board of Directors met and, after a motion was made and seconded, approved the transaction and Russ’s appointment, conditioned upon completion of the transaction. The transaction closed and VMS’s general counsel confirmed to Russ that Russ would be a director as of its May 2008 meeting. Russ participated in three board meetings and was paid for his services as a board member.

Beazley provided insurance coverage to VMS under a directors and officers liability insurance policy (the “Policy”). The Policy provides that “[t]he Insurer shall pay on behalf of the Directors and Officers all Loss which is not indemnified by the Company resulting from any Claim first made against the Directors and Officers during the Policy Period for a Wrongful Act.” The Policy defines “Directors and Officers” to include “all persons who were, now are, or shall be duly elected or appointed directors.” Section III(F) of the Policy contains what the parties refer to as an “insured v. insured exclusion,” which excludes coverage for “any Claim . . . by, on behalf of, or at the direction of any of the Insureds, except and to the extent such Claim . . . is employment-related and brought by or on behalf of any of the Directors and Officers.”

The Policy defines “Insureds” as “the Directors and Officers and the Company.”

Russ later announced that he was resigning from the board and might sue VMS for payments owed under the promissory note. Plaintiffs initiated an action against VMS and the other five directors in March 2009.

Beazley denied VMS coverage under the Policy and cited the insured v. insured exclusion. The litigating parties settled the action, with four directors agreeing to pay a total of $75,000, all five directors agreeing to the entry of judgments against them in amounts exceeding $2 million, plaintiffs agreeing to “unconditionally forbear collection” of the judgments against the five directors, and all five directors assigning their rights under the Policy to plaintiffs.

Plaintiffs sued Beazley and sought indemnification for the unpaid amounts of the judgments. After trial the jury found that Russ had been duly elected or appointed within the meaning of the Policy. Final judgment was entered in Beazley’s favor.

DISCUSSION

Two principal issues are presented:

(1)           whether the insured v. insured clause applies to this case, and

(2)           assuming it does, whether Russ was duly elected or appointed a director.

Under New York law, which the parties agree applies to the Policy, “insurance policies are interpreted according to general rules of contract interpretation.” This initial interpretation of the contract and whether its terms are ambiguous are questions of law for the court and so the appellate court must review the district court’s interpretation of the contract and its terms as if heard for the first time. The court must interpret the contract to give effect to the intent of the parties as expressed in the clear language of the contract and give words and phrases in the contract their plain meaning.

By limiting the trial to the issue of whether Russ was duly elected or appointed, the district court essentially ruled as a matter of law that the insured v. insured clause applied to this case, rejecting plaintiffs’ contention that at a minimum there was ambiguity in the clause and that the exclusion could be read as applying only to claims brought by directors in their capacities as directors.

The insured v. insured exclusion, on its face, exempts from coverage “any” claim brought by, on behalf of, or at the direction of an insured director, unless the claim is employment-related. The exclusion is not limited to claims brought by an insured in his “capacity” as a director. On its face, the exclusion applies to all claims (except employment-related claims) regardless of whether the director brings the claims in an individual or fiduciary capacity. Moreover, the employment-related exception to the exclusion applies only to claims brought by employees – not by consultants, like Russ. Indeed, his consultant’s agreement specified that he was an independent contractor and not an employee.

Accordingly, plaintiffs’ challenge to the application of the insured v. insured exclusion to Russ’s claims fails on the merits.

Assuming the insured v. insured clause applies, the court needed to determine whether Russ was “duly elected or appointed” as a director within the meaning of the Policy. While this question was put to the jury and the jury resolved it against plaintiffs, plaintiffs argue in essence that summary judgment should have been granted in their favor.

The Second Circuit’s review indicated that no ambiguity exists in the Policy. The plain meaning of the phrase “duly elected or appointed” in the Policy’s definition of “Directors and Officers” is that directors must be duly selected, by vote or appointment, in accordance with proper procedures.

Under Nevada law, which the parties agree applies to the bylaws, whether a contract is ambiguous is a question of law that the court may decide on summary judgment. While the bylaws provide that the number of directors was to be determined by the Board “from time to time,” the bylaws do not specify that a formal vote was needed to set or change the number.

By voting unanimously to appoint Russ as its sixth director, the board implicitly – if not explicitly – “determined,” that it would increase its membership to six. Contrary to plaintiffs’ suggestion, the bylaws reference to “newly-created directorships resulting from any increase in the authorized number of directors,” does not explicitly require more formal action by the board.

All of the parties treated Russ as a duly elected or appointed director accordingly the Second Circuit affirmed the judgment of the district court.

ZALMA OPINION

Greed may be good on Wall Street but it has no place in insurance litigation. The policy in this case was clear and unambiguous. The case against the corporation and other directors may have been good since they agreed to large judgments in favor of the plaintiffs as long as the plaintiffs agreed to not collect on those judgments from anyone other than the insurer. Since the insurer owed nothing the tortfeasors walked free from the exposure and the plaintiffs gained nothing giving up their right to collect from the tortfeasors. Greed took away good judgment.

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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Serial Insurance Criminal Ineffectively Tries to Avoid Waiver of Rights

Insurance Criminal Stays in Jail for Five Years

If nothing else, insurance criminal have chutzpah – unmitigated gall – when it comes to their sentences for fraud. When the jury was deliberating whether to convict or acquit Chellyn Jones, she agreed with the trial judge to waive her right to a jury trial on her prior convictions only to complain, when the jury convicted her, of the enhanced sentence imposed because of her multiple prior convictions.

In The People v. Chellyn Jones, D071746, Court Of Appeal, Fourth Appellate District Division One State Of California, (September 18, 2017) the California Court of Appeal was asked to change her sentence.

FACTS

A jury convicted Chellyn Jones of multiple counts of insurance fraud (Ins. Code, § 1871.4, subd. (a)(1); counts 3-8, 11-20) and grand theft (Pen. Code, § 487, subd. (a); count 21). Jones waived a jury trial and admitted she had served three prior prison terms (Pen. Code, §§ 667.5, subd. (b), 668) and suffered a prior strike conviction (Pen. Code, §§ 667, subds. (b)-(i), 1170.12 and 668). She thereafter pleaded guilty to failing to appear at her sentencing hearing (Pen. Code, § 1320, subd. (b)), and admitted an allegation that she had committed the crime while out on bail (Pen. Code, § 12022.1, subd. (b)). On Jones’s motion the trial court struck her strike prior conviction. It exercised its discretion to also strike her prior prison terms and the on-bail enhancement. The court sentenced Jones to a five-year prison term on count 3, concurrent three-year midterms on counts 4 through 8 and 11 through 20, and concurrent two-year terms on count 21 as well as on her failure to appear conviction.

Jones contends that the trial court failed to fully advise her of her rights; that while the court advised her of her right to a jury trial on the alleged prior convictions, it failed to advise her of her constitutional rights against self-incrimination and confrontation before she admitted the priors. She maintains that her jury trial waiver after the court’s perfunctory advisement at sentencing does not establish she was aware of or understood her other rights with respect to her prior convictions, and there was no evidence her counsel discussed all of these constitutional rights with her, rendering her admissions invalid.

Jones’s jury trial took place over the course of nine days in October 2015. After the jury commenced its deliberations, the court brought up the subject of bifurcating Jones’s prior convictions, and defense counsel advised the court that Jones would admit to the priors. The court then obtained Jones’s waiver of a jury trial.

DISCUSSION

Before accepting a criminal defendant’s admission of a prior conviction, a trial court must advise the defendant of the right to a jury trial on the prior, the right to remain silent, and the right to confront adverse witnesses. A proper advisement and defendant’s waiver of  the right to a jury trial on the priors, in the record establish that the defendant’s admission of the prior conviction was voluntary and intelligent.

A court’s failure to give explicit advisements or obtain the defendant’s waiver is not reversible per se. Instead, the test for reversal is whether the record affirmatively shows that [the admission] is voluntary and intelligent under the totality of the circumstances. In making the decision the appellate court looks to whether the defendant’s previous experience in the criminal justice system demonstrates his or her knowledge and sophistication regarding the legal rights. Thus, where, as here, the transcript does not reveal complete advisements and waivers, the appellate court is required to go beyond the courtroom colloquy to assess the defendant’s claim of error and examine the record of the entire proceeding to determine whether the defendant’s admission of the prior conviction was intelligent and voluntary.

Jones concedes that the appellate court must apply the totality of the circumstances test since this was not a so-called “silent record” case.

Under the circumstances of this case precedent requires that the appellate court affirm the judgment. Immediately after Jones’s trial concluded and the jury was sent out to deliberate, the court advised her of her right to jury trial on her prior convictions, and Jones explicitly waived that right. She had just completed a multi-day trial in which her counsel confronted and cross-examined witnesses, and she chose not to testify or present evidence. Jones had suffered multiple prior convictions, and at least one of them alleged to be a prison prior — a 2005 conviction for identity theft — was the result of a guilty plea, at which she would have received the same warning she claimed she did not get at this trial.

Given these circumstances Jones knew she did not have to admit the prior convictions but could have had a jury or court trial, had just participated in a jury trial where she had confronted witnesses and remained silent, and had experience in pleading guilty in the past, namely, the very conviction that she was admitting.

The fact she waived her jury trial right, even after having just completed a lengthy trial, does not establish she was aware of or understood her other rights with respect to her prior convictions.

The appellate court was required, by precedent, to examine the circumstances of Jones’s experience in the criminal justice system, including Jones’s prior guilty plea, that she in fact understood the nature of her rights.

Accordingly, though trial courts are required to give full advisements and obtain express waivers of all such rights  under the totality of the circumstances in this case, Jones voluntarily and intelligently admitted her prior convictions despite being advised of and having waived only her right to jury trial.

ZALMA OPINION

“Chutzpah” is best defined by the example of a person who murders his parents and then pleads for mercy because he is an orphan. In this case, Jones, a serial criminal who has been convicted of multiple crimes, has pleaded guilty to a crime, and has spent much time in court rooms, and who committed an additional crime while out on bail, could not convince the court she was deceived when asked to waive her right to a jury trial about prior convictions she knew the state would have no problem proving. She wasted the court’s time and will serve five years.

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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L’Shana Tova

Happy new year to all who practice Judaism.

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Charging Fraud Without Sufficient Evidence Is Fatal to the Charge

Inadequate Evidence Requires Fraud Charges to be Dismissed

I wrote an article at http://zalma.com/blog/its-sinful-to-defraud-church-mutual/ that I called “It’s Sinful to defraud Church Mutual” where, in my digest of the case where I opined:

Church Mutual has done something that should be emulated by all insurers faced with a false and fraudulent claim – act proactively to take the profit out of the fraud. It should be obvious to the court that a public adjuster taking 25% contingency fee would, even if the claim is paid in full, would make it impossible for the church to perform the needed repairs unless they inflated the claim excessively. They tried and failed. They should be held to pay for all damages incurred by Church Mutual and the local prosecutors should take note of the criminal aspects of the claims presented by the public adjusters and lawyers.

If the lawyers and adjusters had – as Church Mutual alleged – committed fraud my opinion was correct. Church Mutual, however, was unable to prove what it alleged against the defendants. Church Mutual appealed its loss and has now lost again at the Third Circuit Court of Appeal now available as a non precedential case.

My opinion that attempts at fraud should be fought vigorously remains the same but that, before doing so it must have evidence sufficient to prove the case. When the evidence is not there it is counter-productive to assert fraud and a waste of legal and court time.

Attorney Joseph Zenstein wrote to me and provided a copy of the decision of the Third Circuit stating:

The reason I am sending the opinions to you is because I would hope that by writing your article that you would be interested in the outcome of the case.  I also believe when someone is writing an article and placing it online for all the world to see, it is important to get the other side of the story before assigning guilt and condemnation.  Further, I do not believe in making assumptions that a church and an insurance company were defrauded and demonizing public adjusters and lawyers, without knowledge of all the facts.

It was not my intent to assume anything, especially that public adjusters and attorneys were fraudsters. If the evidence existed the perpetrators should be punished. If not, the lawyers who brought the case should be concerned that they did not well serve their client by not presenting sufficient evidence to prove their allegations.

As Mr. Zenstein pointed out to me asking that I review the Third Circuit’s decision:

I understand your article was based on the facts as set forth in the Complaint drafted by the insurance company’s attorney, but most of the facts were wrong, including the allegation that the church was an unwitting participant in presenting its claims and that it had no idea of the claims being presented on its behalf.  Some critical facts that the insurance company chose to ignore and misrepresent in its complaint (that you relied upon) was that the church and its personal legal counsel, directly hired my firm, signed a written fee agreement with my firm, reviewed and verified both complaints in the underlying actions prior to filing, and provided written direction to my firm to file them.  Up until the church retaining my firm, we had no involvement with the underlying claims.  Ultimately, the insurance company could not produce one single fact that the lawyer defendants committed fraud or conspired to commit fraud.  For these reasons and many others, the insurance company’s case against my firm, myself and another lawyer here, was doomed from the start.

When I digest cases I rely on the facts alleged and reported in the opinion. I had no intention to misrepresent anything.

The Third Circuit concluded:

Church Mutual had alleged that the defendants “acted in concert with the common purpose of submitting fraudulent claims.” (App. 88 ¶ 137.) Church Mutual also asserted that the defendants “acted maliciously with the intent of injuring” the company. (App. 89 ¶ 139.) As the District Court noted, the evidence upon which Church Mutual primarily relied was the close business relationships between the defendants. The defendants served as referral sources and worked together on prior unrelated insurance actions. The lawyers were also previously tenants of the adjusters and the lawyers and adjusters employed the same people at different times. Finally, the parties were financially intertwined, with payments exchanged informally on a case by case basis.

We agree with the District Court, however, that, in the absence of other evidence of concerted action and malice, summary judgment was appropriate. Accordingly, we will affirm the District Court’s summary judgment ruling on the civil conspiracy claim.

Clearly, a mere association of the parties working in the same area is not sufficient to support a case for fraud.

I thank attorney Zenstein for allowing me to report on the final decision and the reason for the loss – a lack of evidence.

ZALMA OPINION

As I have said in various publications it is inappropriate to accuse a person of fraud without first obtaining sufficient evidence to prove beyond a preponderance that the person accused committed fraud.

 

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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If you do the Crime You Must Do the Time

Once Convicted Criminals Refuse to Accept the Sentence Rendered

People who conspire to distribute the deadly opiods with physicians who defraud insurers, Medicare and Medicaid, are vicious and responsible for many over dose deaths of those to whom the opiods are provided. When convicted and sentenced the convicted criminals try to avoid the sentence.

In United States Of America v. Rickie Horvath, United States District Court District Of New Jersey, Criminal No. 15-0400 (ES), (September 13, 2017) the USDC, New Jersey, refused to fall for the attempt.

BACKGROUND

Defendant Rickie Horvath moved for bail pending appeal. The Government opposes Mr. Horvath’s Motion. The Court declined to hold oral argument.

Horvath is a 56-year-old man suffering from multiple health impairments, including a severe heart condition. On May 25, 2016, Mr. Horvath pleaded guilty to conspiring and agreeing with others to distribute oxycodone (“Plea Agreement”). At the time of his plea agreement, Mr. Horvath was imprisoned as a state prisoner in connection with theft and insurance-fraud charges unrelated to the federal matter. Mr. Horvath was released from state prison on July 8, 2016, and immediately transferred into federal custody.

Mr. Horvath requested release from federal prison due to his deteriorating health condition.

The Court evemtia;;u sentenced Mr. Horvath after granting him bail for four months. In doing so, the Court adopted Mr. Horvath’s Presentence Report (“PSR”) without changes. Based on calculations in the pre-sentence report, Mr. Horvath faced an advisory guidelines sentencing range of 46 to 57 months’ imprisonment.

At the sentencing hearing, Mr. Horvath moved for a downward departure due to his medical condition and his prior confinement in Union County Jail. The Court granted a downward variance and sentenced Mr. Horvath to 41 months’ imprisonment. The Court analyzed the factors on the record at length.

On August 26, 2017, Mr. Horvath received a notice to surrender to the Bureau of Prisons (“BOP”) at Butner Low FCI in Butner, North Carolina, on September 5, 2017. On August 28, 2017, Mr. Horvath requested that this Court stay his surrender for thirty days to allow him to continue to recuperate from his heart surgery and so that his anticipated application for bail pending appeal may be argued and considered by the Court.

DISCUSSION

Congress enacted the Bail Reform Act of 1984 to create a presumption in favor of post-conviction detention. Under this statute, a defendant must establish:

(1)           that [he or she] is not likely to flee or pose a danger to the safety of any other person or the community if released;

(2)           that the appeal is not for purpose of delay;

(3)           that the appeal raises a substantial question of law or fact; and

(4)           that if that substantial question is determined favorably to the defendant on appeal, that decision is likely to result in reversal or an order for a new trial of all counts on which imprisonment has been imposed.

In addition, a defendant convicted of an offense within the Controlled Substances Act punishable by more than 10 years must clearly show that there are exceptional reasons why such person’s detention would not be appropriate.

Relevant here, under the third prong’s substantial-question analysis, a court must determine that the question raised on appeal is a substantial one, that is, it must find that the significant question at issue is one which is either novel, which has not been decided by controlling precedent, or which is fairly doubtful. To that end, a defendant must demonstrate that the issues are debatable among jurists of reason; that a court could resolve the issues in a different manner; or that the questions are adequate to deserve encouragement to proceed further.

Because a defendant must demonstrate that the appeal raises a substantial question of law or fact, the district court must look to the applicable standard of review when assessing the third prong.

The abuse-of-discretion standard applies to both the procedural and substantive reasonableness inquiries. Furthermore

ANALYSIS

Mr. Horvath raises the following allegedly substantial question on appeal: “whether a sentence of 41 months, a significantly longer term than any prior sentence experienced by the defendant, without adjustment for all time already served while suffering from the advanced stages of congestive heart failure and while financially unable to post a $75,000.00 bail, is excessive and fundamentally unfair.” Mr. Horvath argues that his sentence is excessive because it constitutes a “substantial increase in punishment for a low-level drug offense similar to any offense previously committed by Mr. Horvath.” In particular, he points out that each of his “prior periods of detention for low-level state offenses is less than the time served already for the present offense (18-months combined in the Union County Jail and Essex County Correctional Center).”

Mr. Horvath also argues that his medical history and characteristics warrant a substantially reduced sentence.

The Court concluded that Mr. Horvath has not met his burden of demonstrating a substantial question of law or fact. As an initial matter, Mr. Horvath does not contend that his allegedly substantial question is novel; rather, he argues that his 41-month sentence is a “fairly debatable sentence ripe for appellate review.” The Court disagreed.

Although nearly all of Mr. Horvath’s arguments concern the substantive reasonableness of his sentence, he also contends that the Court committed procedural error. As the Government correctly notes, Mr. Horvath does not explain how the Court gave “undue weight” to the Sentencing Guidelines.

Without more, Mr. Horvath has failed to show that this issue—whether the district court committed procedural error constituting an abuse of discretion—is “fairly debatable.”

Mr. Horvath primarily argues that his 41-month sentence, in light of his deteriorating medical condition and prior incarceration, is “excessive and unfair.” This argument, as the Government observes, goes to whether the Court’s sentencing decision was substantively reasonable. Thus, Mr. Horvath must show that it is “fairly debatable” that the Court abused its discretion and imposed a sentence that no reasonable sentencing court would have imposed on him for the reasons the Court provided at the sentencing hearing.

The Court thoroughly considered and discussed his arguments over the course of two and a half hours. Moreover, the Court granted Mr. Horvath a downward variance and sentenced him below the advisory guideline range. The Court also advised Mr. Horvath that it balanced his sentence against the sentences imposed on other members of the conspiracy.

Because Mr. Horvath cannot satisfy the four factors required by the statute the Court must deny his Motion.

ZALMA OPINION

Mr. Horvath was an evil man. He stole from insurers, Medicare and Medicaid to provide dangerous drugs to addicts under the guise of medical treatment, was possibly responsible for the death of many users, was convicted of multiple state and federal crimes, and now seeks mercy and a minimal sentence because he is sick. He did the crime. He asked to court to keep him from serving the time. The USDC refused to buy his argument. He must do the time.

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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It Pays to Write a Clear & Unambiguous Policy

No Insurance Policy Covers Every Possible Eventuality

Everyone who buys insurance wants it to cover every possible eventuality where a suit may be brought against it. Of course, that belief is as accurate as the claim that Elvis lives as an old man in Las Vegas.

In Aaron Ambulance Medical Transportation, Inc., and Joseph Thomas, v. Certain Underwriters At Lloyd’s, London (erroneously sued herein as “Hiscox Insurance”), United States District Court District Of New Jersey, Action No. 16-cv-04564 (CLW), (September 14, 2017) Aaron Ambulance attempted to obtain defense and indemnity from its professional liability insurer for actions that had nothing to do with the the professional services of the ambulance company and that was clearly and unambiguously excluded.

BACKGROUND

Plaintiffs were sued in relation to alleged sexual harassment and discrimination. The plaintiff in the underlying action was employed by Plaintiffs from August 2013 to May 2014 as a receptionist and administrative assistant, after which time she “was forced to resign” because “she was subjected to continuous sexual harassment and abuse at the Hackensack and Lyndhurst office by” Plaintiffs herein. She also alleges that “sexually offensive conduct and remarks were made to ridicule and to humiliate [her] and to cause her infliction of emotional distress.” The plaintiff in the underlying action thereby asserted numerous counts concerning or claiming, inter alia, “sexual harassment and discrimination[,]” “verbal and physical assaults and batteries and offensive physical contact[,]” “intentional and/or negligent infliction of emotional distress[,]” a “hostile work environment[,]” and constructive discharge.

The defendant refused to defend since it stated there was no coverage for the claim and/or that such coverage as might otherwise be available is precluded by operation of the terms and provisions of the Policy.

Defendant moved for judgment on the pleadings, arguing that because Plaintiffs purchased a professional services liability policy that covers claims arising from the performance of ambulance services, there is no coverage for suits concerning sexual harassment in the workplace. In opposition, Plaintiffs cite the separately-purchased Endorsement 7 as providing the basis for coverage of the underlying action and otherwise maintain that the language of Endorsement 7 created a reasonable expectation of coverage and that it creates ambiguity such that it should be construed in Plaintiffs’ favor.

THE POLICY

The insuring agreement provides: “Underwriters will pay on behalf of the Insured all Damages and Claim Expenses in excess of the Deductible and subject to the applicable Limit of Liability that the Insured becomes legally obligated to pay as a result of any covered Claim …”

The Policy sets forth certain exclusions: “This Policy does not apply to any Claim: * * * E. based upon or arising out of any sexual misconduct, sexual abuse, and/or child abuse; * * * I. brought by one Insured or Affiliate against another Insured or Affiliate[.]”

And, of particular import here, Endorsement 7 provides coverage for sexual harassment while acting in its professional capacity.

DISCUSSION

Basic Rules of Contract Interpretation

Since the parties concur that New Jersey law governed the Motion, a few well-established principles inform the Court’s analysis. First, the scope of an insurance contract’s coverage is a question of law properly decided by the Court. The Court accordingly compares the allegations in the complaint with the language of the insurance policy and the Court is guided by the plain language of the policy such that, if the terms are clear then they are given their plain, ordinary meaning. Importantly, the Court should interpret the policy as written and avoid writing a better insurance policy than the one purchased. When there is ambiguity in an insurance contract, courts interpret the contract to comport with the reasonable expectations of the insured, even if a close reading of the written text reveals a contrary meaning. And a genuine ambiguity only exists where the phrasing of the policy is so confusing that an average policyholder cannot make out the boundaries of coverage.

ANALYSIS

The Court understood Plaintiffs’ concern for clarity in reading the Policy, particularly regarding the role of endorsements in modifying the main body of the Policy. However, the court concluded that a plain reading of the Policy supports the interpretation offered by Defendants.

When read in conjunction, the Insuring Agreement, Exclusions, and Definitions clearly demonstrate the following: the Policy insured Plaintiffs as well as their former employee, the plaintiff in the underlying action. In addition, the Policy covered wrongful acts committed in the performance of professional services, with coverage excluded for such acts as sexual misconduct, discrimination, bodily injury (including mental anguish and emotional distress), and those claims arising between insureds. Thus, because the underlying action presents claims brought by one insured against another premised upon sexual assault, discrimination, emotional distress, and wrongful termination, the Policy plainly disclaims the coverage sought by Plaintiffs.

Moreover, there is no basis in the Policy terms to conclude that the actions alleged in the underlying complaint occurred in the performance of emergency/non-emergency services as an ambulance. Rather, the underlying events allegedly occurred between employees in company offices.

On this point, the Court endorsed Defendant’s distinction that the Policy is one that provides professional liability insurance, as opposed to employment practices liability insurance, and that the underlying allegations do not arise out of the rendering of professional services. New Jersey law distinguishes professional liability policies from other policies because, for example, professional services that entail specialized learning specific to a profession are distinguishable from business or commercial activities such as billing practices.

Critically, insofar as Endorsement 7 deletes the exclusion of claims arising out of “sexual misconduct, sexual abuse, and/or child abuse,” there is no language to negate the other clear disclaimers of coverage because the terms of Endorsement 7 make clear only that Absent express reference to other provisions of the Policy, the Court was disinclined to construe the Policy as expansively as Plaintiffs suggest.

It would be a generous interpretation indeed to read Endorsement 7 to expand coverage beyond professional services and into the realm of sexual harassment and discrimination—all without using or defining such terms or referring to related definitions, declarations, or exclusions.

A plain reading, rather, recognizes that the Policy says what it means through well-defined and consistently-employed terms. Such a reading also supports the conclusion that, as Defendant persuasively argues, sexual misconduct is insured against not in the sense of sexual harassment or in the context of an office environment, but simply in rendering professional ambulatory services—a situation not raised by the allegations of the underlying complaint.

Plaintiffs availed themselves of an insurance broker to insure a commercial enterprise and secured insurance coverage for clearly-defined circumstances. Plaintiffs did not secure coverage for every eventuality, however, as the Policy unambiguously excludes coverage for claims presented in the underlying complaint.

ZALMA OPINON

Employment liability insurance is available in the marketplace. A professional liability policy clearly provides insurance for breach of the professional obligation of an ambulance service. It doesn’t apply to sexual harassment of an employee in the company’s offices. The ambulance company decided not to buy that coverage and by its suit attempted to change a professional policy into something the insurer did not agree to insure.

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 – September 15, 2017

 Zalma’s Insurance Fraud Letter

Volume 21, No. 18

Evil Incarnate – Stealing Life Insurance Proceeds from Beneficiaries of the Elderly

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. It is so easy to steal from insurance companies that amateurs with no skills are jumping into the business of defrauding insurers. Catastrophes, like Hurricane Harvey and Hurricane Irma will draw amateur and professional fraudsters who are seeking to peel off some of the $300 billion that will be needed to rebuild Houston and Florida. People suffering catastrophic losses will work with the fraudsters to take as much as possible from the insurance industry and FEMA.

If the insurance industry and FEMA learn 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.

 The Current Issue Contains the Following

  • Evil Incarnate – Stealing Life Insurance Proceeds from Beneficiaries of the Elderly
  • Insurance Fraud
  • Prosecutors Immune From Suit for Charging Police Officers With Fraud
  • Hard Fraud vs. Soft Fraud
  • Hard Fraud
  • Claims in a Catastrophe
  • Good News From the Coalition Against Insurance Fraud
  • Health Insurance Fraud Convictions
  • Other Insurance Fraud Convictions
  • Books from the American Bar Association
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Nothing is Certain or Immutable in the Law

Depriving Criminal Defendant of Fifth Amendment Right Not Subject to Insurance

The U.S. Constitution prohibits requiring a person to testify against himself. When a person is deprived of his Fifth Amendment rights and is, as a result, wrongfully convicted, he may sue the entity that deprived him of that right.

In Westport Insurance Corporation v.  City Of Waukegan, Lucian Tessman, Donald Meadie, Fernando Shipley, Howard Pratt, Richard Davis, Phllip Stevenson, Terry House, Robert Repp, Burton Setterlund, Estate Of Dennis Cobb, and Juan A. Rivera, Jr., United States District Court For The Northern District Of Illinois Eastern Division, Case No. 14-cv-419 (September 13, 2017) the City of Waukegan sought insurance protection against the suit brought by the wrongfully convicted person.

The insurer refused and Westport Insurance Corporation (“Westport”) sued the City of Waukegan, Lucian Tessman, Donald Meadie, Fernando Shipley, Howard Pratt, Richard Davis, Phillip Stevenson, Terry House, Robert Repp, Burton Setterlund (collectively, the “Waukegan Defendants” or “Waukegan”), and Juan A. Rivera, Jr. (“Rivera”), seeking a declaratory judgment that it has no obligation to provide coverage under two insurance policies issued to the City of Waukegan.

Judge Darrah, the judge to whom this case was previously assigned, ruled in 2014 that Rivera’s lawsuit against Waukegan—in particular, his claim that Waukegan violated his Fifth Amendment self-incrimination rights pursuant to 42 U.S.C. § 1983 by using a coerced confession against him at his second trial in 1998—triggered Westport’s duty to defend stemming from the 1998 policy Westport issued to Waukegan.

DISCUSSION

Westport moved judge Alonzo, who replaced Judge Darrah to reconsider Judge Darrah’s trigger ruling in light of a subsequent case of the Illinois Appellate Court, Indian Harbor Insurance Co. v. City of Waukegan, 33 N.E.3d 613 (Ill. App. Ct. 2015). On reconsideration, this Court reaffirmed Judge Darrah’s trigger ruling, concluding that recent Illinois cases such as Indian Harbor addressing trigger of coverage in the context of malicious prosecution claims or prosecutorial due process claims do not necessarily control this case.

The Court reasoned that the “essence” of a § 1983 claim for violation of Fifth Amendment self-incrimination rights, or the conduct that essentially causes the “injury,” in the language of the policy, is courtroom use of the coerced confession, which occurs at a different time from the essential tortious acts underlying malicious prosecution or Brady claims, and therefore triggers insurance coverage at a different time.

The parties have now filed cross-motions for summary judgment. After full briefing on the motions, Westport alerted this Court to a new Illinois Appellate Court decision that Westport argues is controlling. St. Paul Fire & Marine Insurance Co. v. City of Waukegan, 2017 IL App (2d) 160381, ¶¶ 44-48 another case, like this one and Indian Harbor, concerning the proper trigger of coverage for Rivera’s lawsuit against Waukegan.

In its most recent filing, Westport argues that based on this new authority, this Court must abandon Judge Darrah’s reasoning and the reasoning this Court employed in its reconsideration ruling, and instead apply the Illinois Appellate Court’s decision in St. Paul, which would require this Court to hold that Westport owes no duty to defend or indemnify Waukegan for Rivera’s lawsuit.

ANALYSIS

The Court agreed with Westport. Illinois law governs this insurance coverage dispute. The Court is bound to follow a decision of the Illinois Appellate Court on an issue of Illinois law in the absence of any strong, direct indication that the Illinois Supreme Court would not.

In this case, there is no “persuasive data” in other decisions of Illinois courts that might induce this Court to conclude that the Illinois Supreme Court would not follow St. Paul. Cf. Acuity v. Lenny Szarek, Inc., 128 F. Supp. 3d 1053, 1061 (N.D. Ill. 2015). As far as this Court is aware, St. Paul is the only Illinois decision to directly address trigger of coverage for a Fifth Amendment self-incrimination clause civil rights claim. It did so in a case that involved coverage for the exact same claim of the exact same underlying action that also underlies this case, under circumstances that were essentially indistinguishable.

Waukegan’s proposed rationale is foreclosed by County of McLean v. States Self-Insurers Risk Retention Group, Inc., 33 N.E.3d 1012 (Ill. App. Ct. 2015), in which the policy used the term “offense” rather than “wrongful act,” but the Illinois Appellate Court nevertheless followed the Indian Harbor decision in holding that coverage for a malicious prosecution claim is triggered at the time the malicious prosecution was initiated, not at the time the tort accrues.

The Illinois Appellate Court has held that the misconduct that led to Rivera’s conviction in 1992 is the essential cause of the injury arising out of the violation of his Fifth Amendment self-incrimination rights. Westport’s motion for summary judgment was granted and Waukegan’s motion for summary judgment was denied. Westport does not owe reimbursement to Waukegan for any portion of its defense costs incurred in Rivera’s underlying lawsuit, and Westport does not have a duty to indemnify Waukegan for its settlement of Rivera’s underlying lawsuit.

In order to avoid any confusion that may arise from the inconsistency of today’s ruling and Judge Darrah’s trigger ruling, and in light of the fact that Waukegan has had an opportunity to address the impact of the Illinois Appellate Court’s decision in St. Paul, the Court vacates Judge Darrah’s order to the extent that it declared that Westport had a duty to defend Waukegan in Rivera’s lawsuit.

ZALMA OPINION

The acts of the city were contumacious and in contempt of the U.S. Constitution by forcing a person to confess a crime and deprive him of his Fifth Amendment Rights. It is the type of even that was not fortuitous and, therefore, no coverage. Judge Alonzo, based on recent Illinois decisions, changed the decision made by Judge Darrah and proved that nothing is certain or immutable in the 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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Catastrophe Claims

Claims In A Catastrophe

© 2008 Barry Zalma
ClaimSchool, Inc.

In 2008 I wrote this article to help those faced with catastrophic losses. I reprint it here because of Hurricane Harvey and Irma in hopes it will help those victims of the catastrophes deal with their claims.

Presenting a Claim

If your house was damaged or destroyed by the fire, windstorm, or flood as a result of state declared catastrophes and you had a fire, homeowners, flood insurance, tenant’s homeowners or condominium policy you will be dealing with an insurance adjuster. You should recognize that dealing with an insurance adjuster in a catastrophe is usually fairly easy because of the number of claims the adjuster is required to deal within a short time.

Insurers will be in a very generous mood. They will be seeking good publicity by taking care of victims of the catastrophe quickly and fairly. To make the claims process go easily the insured person must understand that both the insured and the adjuster have duties when damage-caused by fire, windstorm, flood or other insured perils are discovered. The following list outlines the most important of these duties:

  1. You should be sure there is no unnecessary delay in reporting the fact of the discovery of damage to your insurer as a claim.
  2. You and the adjuster should establish that there is no unnecessary delay in responding to any fire, firefighting, flood or water-related cause of loss where “mold” may result as a natural result of water, warmth, and existence of mold spores in all building.
  3. You may be asked to sign a non-waiver agreement.
  4. You may receive a reservation of rights letter advising you of your duties under the policy, the conditions that apply or might apply, and the exclusions that may apply to the facts of the loss.
  5. You, as the insured, should readily, and without objection, sign the non-waiver agreement or accept the reservation of rights as an expression of the status quo.
  6. The adjuster should remind you, as part of the reservation of rights letter and explanation of the duties of the insured, to preserve and protect the damaged property and to mitigate the loss with due diligence and dispatch.
  7. You can request from the adjuster the identity of respected, competent, and professional contractors experienced in fire reconstruction or the drying out of buildings and the prevention or restriction of further loss including mold growth.
  8. You should follow up regularly with the adjuster to ensure that he or she is meeting contractual obligations since a catastrophe often makes communications difficult.
  9. If you have failed to protect the property from further loss, the adjuster must remind you, in writing, of your failure and how that could effect your claim.
  10. The adjuster should consider advance payments to avoid any unnecessary difficulties so that you and your family will have a place to live while your house is being rebuilt.
  1. You can expect an advance of $10,000 to $20,000 if your house is destroyed to carry you over
    1. Even if your house was not damaged you are entitled to additional living expense payments if you were ordered out of your house by the state government, federal government
    2. Homeland Security, or the local fire department.
    3. Remember that additional living expense coverage does not pay all of your post loss expenses, only those over and above your normal expenses.

Insurance claims require personal attention to detail by the insured. You and the adjuster must meet in person. If the claim is to be resolved expeditiously and fairly, both you and the adjuster should work to establish a personal relationship and to resolve, if coverage is available, the problems caused by the damage to the dwelling or business structure.

Once the rights, obligations, and duties of the insured and the insurer have been stated, and the initial investigation is complete, the insurer is obligated to conduct a prompt analysis of the policy wording and the law to determine whether coverage exists for the damage claimed. Once the investigation is complete and the decision made, it is the adjuster’s obligation to advise you, promptly and in detail, of the decision of the insurer. If coverage is available, it is also the obligation of the adjuster to advise you of your duties and obligations to obtain complete indemnity from the insurer and to protect the property from further loss.

The Notice of Loss

If you believe that your property was damaged or destroyed by a peril insured by your policy you should call or write the insurance agent, broker or insurer immediately (or as soon as practical) to report your claim. Follow up the phone call with a fax, an email, and a letter. If the house was not destroyed but a great deal of firefighting water or subsequent rain or flood water entered the property try to get a remediation team into the home or business within the first 48 hours to begin drying out the property. If you do not know one ask your insurer for a referral. This is crucial to preventing or containing mold growth and rot. If the agent, insurance company, independent adjuster, or restoration company delays the claim, follow up with a fax, an email, and a letter confirming their delay in responding. It would be helpful to send copies of the follow-up letters to the consumer protection unit of the state’s Department of Insurance. Take detailed notes of every conversation, including the name, company, phone number, address, and job title of every insurance adjuster, representative, consultant, and contractor you deal with. Confirm all agreements in writing and insist that appointments and deadlines be honored. Keep a log of all notes and letters and ask for and keep business cards from everyone involved in your claim.

Immediately after the telephone call, write a letter to the broker or agent, with a copy to the insurer, providing the same information. The letter need not be formal. It can be handwritten on any available paper. Make a photocopy.

The notice of loss should include the following information:

  • Your full name.
  • The location of the property.
  • The policy number.
  • The effective dates of the policy.
  • The date when damage first occurred.
  • The type of property damage.
  • The cause or causes of the damage.
  • How the adjuster can contact you.
  • That you need immediate contact from the adjuster.

By providing the information to the agent, the broker and/or the insurer you have fulfilled the first obligation under the policy: to provide immediate notice of loss to the insurer.

If the insurer is working effectively and has a catastrophe team of adjusters in place you should receive contact from an adjuster within 24 hours of the notice. The first call should arrange an appointment to inspect the property. You should arrange for inspection as soon as possible and have the entire property available for the inspection if possible. If emergency efforts are required, you should so advise the adjuster so that he or she can help you take emergency measures to protect against further loss.

If possible, you or the adjuster should arrange to have one or more contractors present at the first meeting to determine the extent of the damage. If the damage is extensive, consider retaining the services of a public insurance adjuster [if you determine a public insurance adjuster would be helpful, it is appropriate to seek one who is a member of the National Association of Public Insurance Adjusters (NAPIA), a professional membership organization that seeks to instill professionalism in the trade] or an attorney experienced in representing policyholders in the claims process to represent your interest. The lawyer will usually work on an hourly fee basis while the public insurance adjuster will expect a percentage of the amount paid by the insurer. You must recognize that the public insurance adjuster will ask for a 10 – 15% negotiable fee. Do not hesitate to negotiate with the public insurance adjuster. Never pay the first fee quoted. Considering the volume of work in a catastrophe, you should be able to negotiate a fee between 3% and 10%.

Insurance Company Response

Your insurer should respond to typical catastrophe claims by written or verbal contact within 24 hours of your notice of the claim. The insurer should share information regarding emergency repairs, additional living expenses, temporary advance payments and prevention of further loss with you.

Your insurer should, and in California is obligated to, advise you of your responsibilities under the policy. Many require their representatives to be at your home within 24 to 72 hours of notice of claim. If you explain that your fire loss is severe, the insurer should attempt to have a representative at your house within 24 hours.

The insurer is obligated by statute, state administrative regulations, or by the terms of the policy to determine whether your claim is covered and provide an initial estimate of damage within seven to 14 days after the insurer’s first on-site visit. This first estimate is subject to change. Within the same time frame, your insurer should attempt to provide you with a written statement confirming or denying coverage. These time limits are usually waived in catastrophes and may be impossible to meet with regard to Hurricane Katrina event and other massive catastrophes. You should expect your insurer to return all phone calls within 24 hours. Initial contact may be with your insurance agent or broker or a claims office or the toll-free phone number included in the policy. Because of the volume of claims after a catastrophe like those in the 2005 hurricane season and the 2008 California wild fire season, this time frame will probably not be feasible.

First Contact with the Adjuster

Your first contact with the adjuster is usually an informative meeting where you discuss the cause of the loss, the type of loss, when the loss was discovered, and make an initial effort to agree on a tentative scope of loss.
You should expect the adjuster to do the following:

  1. ask for a walk-through inspection of the entire dwelling or building.
  1. You should make every effort to point out each item of damage or suspected damage during the walk-through inspection
    1. You, or your representative, should assist the adjuster in viewing both the damage and the source of the damage;
  1. ask you to submit to a recorded statement;
  2. ask you for the identities of each family member or vendor who can give the adjuster information about the loss;
  3. ask for the recorded statements of the persons identified;
  4. ask permission to allow experts retained by the insurer to inspect the property and do minor destructive testing to establish the appropriate methods of reconstruction and repair; and
  5. ask permission to contact others who know information about the loss and to obtain from those people within your control a detailed recorded statement and documents relating to their knowledge of the loss and the extent of the loss.

First Meeting with the Adjuster

An adjuster is a person professionally trained to assess the damage to your property. He or she will probably visit your home or business before you are asked to complete any forms. The more information you have about your damaged home or business and belongings, the sooner your claim will be settled. Your adjuster generally will come prepared to do a thorough and complete evaluation of the damage to your property. If the adjuster is unable to complete a thorough inspection due to time constraints or the extent of damage, he or she should prepare a scope of the loss report. This is a brief listing of the findings of damage determined at the initial inspection of the damage. The adjuster should ask you to agree to the scope of loss. Agreeing to a scope of loss is not presenting a claim. It is understood by the adjuster that the scope is incomplete and will be added to as new damage is discovered. It is usually supplemented with a second visit after the reports of experts are received to complete the inspection.

The “scope of loss” should include the following:

  • degree of damage;
  • a description of each location where damage was observed;
  • a description of the adjuster’s and your own best estimates of the type of damage observed;
  • a list of all personal property damaged or destroyed;
  • quality of the materials and workmanship; and
  • measurements needed to calculate quantities, including length, width, and height of rooms and the number of “openings” (windows and doors) in each room.

The scope of loss, usually referred to by claims people as the “scope,” differs from the finished estimate in two ways the scope does not necessarily list any prices, although prices can be used to describe quality
the scope does not list the calculated quantities; it includes just the raw counts and measurements needed to calculate quantities for the estimate.

Protect All Property from Further Damage

Every policy requires that the insured protect the property from further loss. Therefore, you should turn off any water flow to broken appliances or pipes, arrange to have openings in roofs or walls covered to protect from rain damage, and seek help from the adjuster to further protect your property from losses of all types.

Take any necessary emergency measures to protect the building and personal property from any further damage. Do not throw anything away until permission of the insurance company is obtained in writing and you have documented its condition unless the damaged property presents a hazard to the health or safety of your family or others.

If the insurer delays or refuses to authorize measures to prevent further loss, confirm the insurer’s delay in a fax, email, and a letter, and take whatever reasonable measures you can afford to protect the property. If your loss is covered, the insurance company should also cover the cost of any reasonable emergency measures you took to protect your property. It is not unusual for an insurer to deny coverage for damage resulting after the initial claim on the grounds that an insured failed to comply with the policy condition to protect the property from further damage.

Document the Loss

If you were prudent and prepared, before the catastrophe, an inventory of your contents or took pictures of your contents, provide the adjuster with the inventory and photographs or videotape. Photograph, videotape, and inventory all damaged property after the loss. Make sure you record the date of the photos and videotape. It is important to document the source and the extent of damage whether by fire or water intrusion.

In most states, a material misrepresentation, concealment, or omission made in connection with the claim will give the insurer a valid reason to reject the entire claim. For example, claiming that an item was destroyed that really wasn’t or substantially overstating the value of a damaged item is fraud. In most states insurance fraud is a felony that can place you in state prison if convicted. No catastrophe is so bad as to cause you to attempt to defraud your insurer to make up for uninsured losses. You should never exaggerate, speculate, or guess about the loss or value of any particular piece of property. Make it clear to your insurer when recollection may not be accurate, when you are estimating value, and the basis for your estimate. For the value of items you are not sure about on a claim presentation, use the phrase “To Be Determined.” If you do not have receipts to show the price of an item, information can be found in catalogs, statements from retail clerks, bank statements, credit card statements, or statements from family members or friends.

If all else fails, a formal appraisal can be obtained from a professional personal property appraiser. Save this as a last resort, since the insurer will usually refuse to reimburse you for the costs of hiring an appraiser, but may hire one at no cost to you if asked courteously.

You Must Cooperate with the Insurance Company’s Investigation and Handling of the Claim

You have a contractual obligation to cooperate with the insurer in its investigation and handling of the claim. However, you never have an obligation to allow yourself to be abused. In most states the insured and the insurance company have a mutual obligation to act in good faith and deal fairly with each other to investigate and process the claim. This means that both should avoid taking any unreasonable position or doing or saying anything that would in any way frustrate each other’s rights under the policy. The insurer may require one or more recorded statements from you. Always request a copy of the tape and a transcript of the statement to review. When the recording is complete, ask the adjuster to break out the tab so that nothing can be recorded over the tape and place your signature and date on the tape label. Ask the adjuster to similarly place his or her signature on the tape. You have a right to review and correct the transcript of any recorded statement.

You may also be required to appear for an “Examination Under Oath” (EUO). The insurer may, but is not required to, hire an attorney to take the EUO to represent the insured. Since a lawyer is not required, however, the insurer will not pay for the attorney that is representing you. The EUO is a contractual obligation and there is usually no clause in the insurance policy promising to pay a lawyer to help the insured make a claim against an insurer. You should not appear for an EUO until you understand all rights, the insurance coverage, and the full extent of the claim, or until counsel is retained. Do not refuse to appear at an EUO or the insurer may reject the claim because such refusal is a breach of a material condition of the policy. You may reasonably request a delay in appearance at an EUO to obtain the services of counsel or a public insurance adjuster.

The insurer may ask you to make available various documents related to the claim, including banking statements, investment reports, receipts, and other personal financial documents. You are required to produce any documentation reasonably related to the insurer’s investigation of the claim that can include tax returns. In some states, tax returns are considered privileged and the insured cannot be compelled to produce them, while in other states the failure to produce tax returns is sufficient cause to deny the claim. [See Barry Zalma, Insurance Claims: A Comprehensive Guide, (Specialty Technical Publishers, 2002): Chapter II-5.] The insurer can require you to produce these kinds of documents as long as they are reasonably related to its investigation. You should not provide these documents to the insurer until you understand the rights, duties, and obligations imposed by the insurance coverage and the full extent of the claim. You should never refuse to produce documents unreasonably since the requirement for document production is a condition precedent to the insurer’s obligation to provide a defense and/or indemnity to you.

Proof of Loss Requirement

Most first party property policies require that you submit a sworn proof of loss form to the insurer within a certain amount of time, either after the loss or after being provided the proof of loss form. During a catastrophe, especially when total losses are involved, insurers will often waive this requirement.

Flood insurance policies require the proof of loss within sixty days of the loss and are applied in a draconian fashion. If you cannot produce a proof of flood loss within 60 days of the loss obtain an extension of time, in writing from the adjuster, or you will lose all rights under the policy to indemnity.

The National Flood Insurance Program, on September 21, 2005, announced that it is waiving proof-of-loss requirements for victims of Hurricane Katrina and will instead rely on claims adjuster reports, aerial photography, and information on water depths to help expedite the process of paying claims, the Federal Emergency Management Agency said.

According to the NFIP, information from underwriting files will be used in concert with photographic and topographical data to determine where it is readily apparent that a covered property’s flood damage has exceeded the amount of coverage purchased. The process would allow claims to be paid on homes that have been washed off their foundations, have been inundated by standing water for extended periods of time, or where only a slab or the home’s pilings remain, even where no formal site visit has been conducted.

In most states you are contractually obligated to submit the sworn proof of loss within the time limit (usually 60 days from the date of request), or at least to substantially comply with the requirement, unless the insurer agrees to dispense with the sworn proof of loss or extend the time. You should not submit the sworn proof of loss to the insurer until you understand all of the rights and obligations imposed by the policy, the insurance coverages, and the full extent of the claim. It is not unusual for an insurer to consider mistakes in the sworn proof of loss (since they are sworn to under oath) as intentional misrepresentations sufficient to allow it to reject coverage for a claim. A statement made under oath cannot, by definition, contain an innocent misrepresentation. Never sign a sworn proof of loss, even if your lawyer or professional public insurance adjuster prepares it, until you have carefully read every word and are certain that the statements made are true.

Some insurers believe that, at some point, you will refuse to comply with their requests. If you refuse to comply with reasonable requests for a recorded statement, an EUO, a sworn proof of loss, or documents reasonably related to the insurer’s investigation, you may give the insurer a valid excuse to deny the claim based on your breach of the duty to cooperate. If you believe that any requests made by the insurer are unreasonable, ask the insurer to explain the reason(s) for the requests in writing. Err on the side of caution and provide all documents that have some reasonable connection to the policy or loss. Before giving an insurer a reason to deny a claim because of your failure to cooperate, consult with a policyholder attorney, a public adjuster, or the state Department of Insurance before refusing a request that may, in retrospect, turn out to have been reasonable.

Get a Second Opinion

Many insureds believe that insurers make a practice of making inadequate (sometimes called “lowball”) offers of settlement. They are wary of what they think are estimates from insurance-company-friendly contractors. Whether true or not, it is a good practice to get a second, or even a third, written estimate to repair and replace damaged property from reputable, independent professionals that you would hire to do the repairs if there was no insurance. You are entitled to have the damaged property replaced with “like kind and quality.” This means that you should insist that the amount determined to be the amount of loss is sufficient to replace the property with property of like kind and quality to the damaged property. When you cannot match the remaining undamaged tile, wallpaper, carpeting, or other portions of undamaged property, you are usually entitled to have the entire “line of sight” replaced to match. For example, if a broken water pipe destroys the hardwood floor in a kitchen and does no damage to the contiguous hardwood floor in the adjoining family room, the insurer is required to replace both the damaged and undamaged floors so that they match as long as they are in a continuous line of sight.

Some losses are paid on an actual cash value (ACTUAL CASH VALUE) basis, which in some states means either the fair market value of the property at the time of loss unless the policy defines ACTUAL CASH VALUE differently. Many policies will define ACTUAL CASH VALUE as replacement cost less physical depreciation for age and wear and tear. Some losses are paid out on a replacement cost value (REPLACEMENT COST VALUE), where the insured is paid the difference between actual cash value and replacement cost value after the insured has actual sums necessary to complete the replacement. You may collect the ACTUAL CASH VALUE loss immediately and advise the insurer you intend to make claim for the difference between ACTUAL CASH VALUE and REPLACEMENT COST VALUE when the structure is rebuilt. If your policy has a time-limit for rebuilding be sure to get a written extension of time since, after a catastrophe, the rebuilding process is often severely delayed.

When fire and water-damage reconstruction contractors write estimates for insurance companies they always add at the end of their estimate a sum equal to 10% of the basic contract price for “overhead,” and an additional 10% of the basic contract price for “profit.” This technique is a fiction believed only by contractors and adjusters. Knowledgeable construction people know that no contractor could survive on 10% profit and that contractors build overhead and profit into their basic unit costs (paint, plaster, roofing, etc.) and add the “profit and overhead” numbers as a fee for the extra service they provide to insurers. In recent years, some insurers have attempted to withhold 20%, an amount equal to the contractor’s “profit and overhead” numbers to arrive at an ACTUAL CASH VALUE amount. There is no basis in the policy that allows withholding profit and overhead as a means of calculating ACTUAL CASH VALUE. In fact, ACTUAL CASH VALUE is defined either as the difference in the fair market value of the property before the loss and the fair market value of the property after the loss or the full cost of replacement using like kind and quality, less physical depreciation. You should insist that any amounts withheld from payment pending completion of the work, be documented in writing and justified by the adjuster objectively. Policyholder attorneys and some insurance regulators have successfully prevented insurers from withholding these amounts.

Investigate Contractors

Thoroughly investigate the qualifications, license, and references of your insurance company’s approved contractor before agreeing to hire them to perform the repairs. The State Contractors Licensing Board will usually provide the consumer, by telephone or over the Internet, with the contractor’s license status and history of discipline. At a minimum, the licensing entity and a reference should be checked before a contract is signed. You do not have to use consultants or contractors recommended or approved by the insurer to perform repairs. Approved contractors are typically contractors who have agreed to discount their labor and costs and follow insurer guidelines in exchange for a volume of business from the insurance company. If your insurer promises to guarantee the approved contractor’s work, the guarantee is generally limited to replacing any defective materials or correcting faulty workmanship. The insurer is not insuring against any contractor delays, negligence, or liability. Accordingly, do not use the approved contractor unless it is a contractor that you would independently hire to do the work after a thorough screening. Check that each contractor’s license is valid and for any complaints against the license. Ensure that the contractor is bonded and insured.

Seek Proper Legal Advice

Never sign a release, waiver, indemnity, or “hold harmless” agreement without proper legal advice. If the insurer, adjuster, consultant, or contractor asks you to sign a release, waiver, indemnity, or hold harmless agreement, ask them to explain why in writing. These kinds of agreements can be used to deprive an insured of rights and benefits and may obligate you to pay thousands of extra dollars for issues that arise. Consult a policyholder attorney to determine your rights before signing any such agreement.

Seek professional help, if needed. If you reach an impasse with the insurer, document the dispute fully in writing. Explain your position and why the insurance company’s position is unreasonable. If the dispute does not require legal advice, you may be able to resolve it by calling the California Department of Insurance at 1-800-387-HELP or by hiring a lawyer or public adjuster. If the dispute does require legal advice, contact a lawyer who is experienced and specializes in representing policyholders. There are many consultants who claim to be “insurance claims experts” who do not have adequate training, skill, or experience. Before you retain one investigate the person diligently by contacting licensing bodies and references.

Be Aware of Deadlines

Make sure you know all the deadlines that may cut off the right to file a lawsuit. California has a four-year statute of limitations for breaches of written contracts but most insurance policies require suit within one or two years of the loss or the denial of a claim. If your claim is denied seek legal advice promptly.

In most states the insurance company is required to tell you, in writing, that the claim is denied, and that the limitations clock is running. That is, if you disagree with the insurer’s conclusion to deny your claim you have a limited time to file suit. Make sure you understand all possible deadlines. Consult with a policyholder attorney as soon as possible. The time limitation can be as short as one year from the date the loss occurred and can be put on hold by actions of the insurer. If you wish to sue, it is best to contact counsel as soon as possible before the expiration of the time limit.

Report all Unfair Claims Handling to the Department of Insurance or an Insurance Regulator

The state Insurance Department tracks policyholder complaints about their insurers and compiles the results. Most states have proactive consumer advocates in their insurance departments who will jump in to help you if they believe the insurer is not treating you fairly.

Conclusion

Many insurers involved in Catastrophes provide their adjusters with policy limits authority and instruct the adjuster to be generous. If your house was one of those totally destroyed and coverage is available there is a good probability that you will receive the full policy limits immediately.

If you did not carry sufficient insurance to totally rebuild your house and replace your contents consider the acquisition of a factory built home which can be trucked to your site and completed, with all appliances included, for much less than a conventionally constructed home.

Almost all claims will be handled promptly and fairly. A person knowledgeable about insurance claims can better deal with an insurance company. Don’t take advantage of your insurer and don’t let an insurer take advantage of you. You are entitled to indemnity. You and your insurer should work together to make you whole.

[Adapted from Barry Zalma’s book, “Insurance Claims: A Comprehensive Guide” and his book “Mold: A Comprehensive Claims Guide” published by the National Underwriter Company.]

 

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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New Jersey Finds Broker Has Fiduciary Duty to Insured

Broker’s Failure to Properly Value Property Liable to Insured for Losses

An insurer’s basic duty is to transact insurance with an insurer on behalf of the insured as ordered by the insured. Neither the broker nor the insurer are obligated to advise the insured of the amount of insurance the insured needs unless the broker holds himself out as an expert and gives the advice.

In New Jersey, in Loyle, LLC and Elyol, Inc., t/a Loyle Lanes Bowling Center, v. Greater New York Mutual Insurance Company and Brouwer, Hansen & Izdebski Associates, and John H. Izdebski, Inc. v. Greater New York Mutual Insurance Company, Superior Court Of New Jersey Appellate Division, DOCKET NO. A-2221-15T4 (September 5, 2017) the Appellate Division found the defendant broker to be a fiduciary whose advice was wanting and affirmed the jury’s verdict in favor of the insured.

FACTS

Following a 2010 arson fire that destroyed the bowling alley they owned and operated, plaintiffs discovered they were underinsured for the property and business interruption losses they sustained. Plaintiffs successfully claimed their insurance broker, defendant Brouwer, Hansen & Izdebski, Inc. (BHI), negligently advised them concerning the insurance coverage limits required to replace the bowling alley building and its contents in the event of a total loss and to reimburse plaintiffs for losses due to business interruption. The matter proceeded to trial and the jury agreed, resulting in the entry of a $1,998,808.77 judgment against BHI.

The bowling center was insured under a policy with Greater New York Mutual Insurance Company (GNY) that became effective on April 1, 2009 (2009 policy). The policy provided replacement cost coverage for the building with a limit of $3,425,000, replacement cost coverage for the building’s contents with a limit of $200,000, and business interruption coverage with a limit of $400,000.

An appraisal conducted after the fire, however, revealed that the building’s actual replacement cost was $6,395,247.32, and the replacement costs of the contents exceeded the policy limits. GNY paid plaintiffs the full payment of the coverage limits under the policy, together with adjustments, for a total of $4,070,000.

While GNY sued those it claimed responsible for the fire the plaintiffs filed a separate complaint alleging insurance broker malpractice against BHI, claiming BHI negligently advised plaintiffs concerning the amount of insurance required to provide replacement cost coverage for a complete loss of the bowling center building and its contents and, as a result, plaintiffs’ 2009 policy had grossly deficient coverage.

THE TRIAL

A BHI employee, broker David Stanton, sold plaintiffs the 2009 policy. In their complaint, plaintiffs alleged that BHI, through Stanton, negligently provided erroneous advice that the 2009 policy limits were sufficient to cover the full replacement cost of the bowling center building and its contents in the event of a total loss.

PLAINTIFFS’ EXPERT

Plaintiffs presented the testimony of William C. Stewart, Jr., an expert on insurance producer and broker conduct. Stewart testified during the hearing that based on his review of the 1998 notes, he believed Stanton wrongfully discounted the Loyle-Thompson appraisal valuing the building at “3.6 million” in favor of his personal appraisal of “2.7 million.” He opined: “[I]t was incorrect advice for [] Stanton to recommend [$]2.7 million in coverage because if you accepted the $3.6 million appraisal, [eighty] percent . . . would have been [$]2.88 million. . . . Stanton was, therefore, recommending underinsurance and a coinsurance penalty because the property would have not been insured to [eighty] percent of its value.”

Stewart also testified that Stanton erred in March 2009 by advising Michael that plaintiffs did not require additional insurance coverage as a result of the 2008 renovations. Stewart admitted it was not the job of a licensed insurance broker to determine the replacement value of a building, but testified that if a client asks a broker whether more insurance is needed, the broker “has an obligation to give an accurate answer because . . . he’s inviting reliance on his answer.”

THE VERDICT

The jury returned a verdict finding BHI negligent, and that BHI’s negligence proximately caused plaintiffs’ damages. The jury found plaintiffs’ total loss from the fire was $6,840,000, representing the sum of its findings as to building loss ($5,600,000), business interruption ($750,000), and contents loss ($490,000). The court molded the verdict by deducting the sums paid by GNY under the policy ($4,070,000), and the amounts recovered by plaintiffs from Safe & Sound and S.S. Sprinkler ($950,000) from the amount of plaintiffs’ total loss ($6,840,000) for a damage award of $1,820,000. The court also awarded $178,808.77 in prejudgment interest and costs for a total judgment of $1,998,808.77.

ANALYSIS

A trial judge may only grant a motion for a new trial if, having given due regard to the opportunity of the jury to pass upon the credibility of the witnesses, it clearly and convincingly appears that there was a miscarriage of justice under the law. A miscarriage of justice may occur where there is a manifest lack of inherently credible evidence to support the jury’s finding, or where it is obvious the jury overlooked or undervalued crucial evidence.

An insurer and its agents have no common law duty to advise an insured concerning the possible need for higher policy limits upon renewal of the policy. If such a duty would be in the public interest, it is better established by comprehensive legislation, rather than by judicial decision.

However, it has been held that brokers are liable for the negligent procurement of insurance on behalf of an insured where the broker agrees to procure a specific insurance policy for another but fails to do so.

Liability resulting from the negligent procurement of insurance is premised on the theory that the broker ordinarily invites reliance on his expertise in procuring insurance that best suits their requirements. Because of the complexity of the insurance industry and the specialized knowledge required to understand all of its intricacies, the relationship between an insurance agent or broker and a client is often a fiduciary one. The fiduciary duty exists in part because an agent or broker is sophisticated in the field of insurance and the client is not.

The undisputed evidence showed that at all times relevant to the issuance of the 2009 policy, BHI and Stanton acted as independent insurance brokers. Generally, so separate are the broker and the insurer that when the insured recovers against the broker, the broker may not obtain indemnification from the insurer. The insurer, GNY, did nothing to set a value of the property on which the insured or broker relied.

ZALMA OPINION

The broker lost because it took on the obligation to value the property – an obligation for which he was not qualified – without sending the insured to a professional who could properly value the property. In so doing the broker made his duty to the insured a fiduciary duty which he clearly and obviously failed to fulfill.

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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Conviction Stands for Care Giver’s Stealing from Old & Sick

Evil Incarnate – Stealing Life Insurance Proceeds from Beneficiaries of the Elderly

When we get old and sick, close to death, the family turns over care of the elderly relatives to professional care givers who are expected to care for the best interests and concerns of the elderly. The relatives, concerned, use a professional organization and believe that care givers are vetted carefully, are honest, and professional. When one of those care givers takes advantage of the elders in their care the punishment must be as severe as the law allows and claims of error in an appeal must be proved without doubt.

In State Of Ohio v. Lisa Marcum, Court Of Appeals Of Ohio Second Appellate District Montgomery County, 2017 Ohio 7517, CASE NO. 27059 (September 8, 2017) Marcum appealed from her March 28, 2016 Judgment Entry of Conviction, following a bench trial, on one count of insurance fraud ($7,500.00 or more and less than $150,000.00), in violation of R.C. 2913.47(B)(1), a felony of the fourth degree; one count of theft from an elderly person (beyond the scope of consent) ($7,500.00 or more, less than $37,500.00) in violation of R.C. 2913.02(A)(2), a felony of the third degree; one count of tampering with records, in violation of R.C. 2913.42(A)(2), a felony of the third degree; one count of theft (checks), in violation of R.C. 2913.02(A)(1), a felony of the fifth degree; and one count of bribery, in violation of R.C. 2921.02(C), a felony of the third degree.

Marcum was sentenced to 18 months for insurance fraud, 36 months for theft from an elderly person, 36 months for tampering with evidence, 12 months for theft, and 36 months for bribery, all terms to be served concurrently. The court ordered restitution in favor of Scott Schaurer in the amount of $28,220.67.

FACTS

The bench trial began on November 16, 2015. Multiple witnesses were called and they proved that Marcum, assigned to care for Willa and William Stamback, from whom she stole and made claims that she was the beneficiaries of the Stambacks life insurance policy. The niece of the Stambacks had their power of attorney which, at the urging of Marcum, was removed and put in Marcum’s hand.

Marcum was employed by Right at Home (a in home care organization) and that she initially met her when Marcum brought William to the hospital to visit Willa.

Marcum began working part-time at Right at Home at the end of 2009, and that she became a subcontractor with the company in 2011. He testified that she was a State Tested Nurses’ Aide. Marcum was one of the caregivers assigned by Right at Home to care for the Stambacks.

Rachel Ferrara testified that she is an associate attorney at Smith, Rolfes and Skavdahl Company LPA in Cincinnati, practicing “mostly insurance defense.” Ferrara stated that Marcum “presented a claim under an insurance policy and I took examination under oath testimony from her.” She stated that the policy was issued by the National Mutual Insurance Group, which is a subsidiary or affiliate of Ferrara’s client, Celina Insurance. Ferrara stated that Marcum filed a “theft-loss claim for personal property.” According to Ferrara, Marcum was residing at 16 West Walnut Street at the time, and “she was seeking coverage for these personal property items that were stolen from the residence she was residing in.”

Ferrara stated that the named insureds on the policy were Willa and William Stamback. Ferrara stated that Marcum “described [the Stambacks] as her parents and she was their daughter and that her daughter, Christina was their granddaughter.” Ferrara testified that Marcum “provided several different stor[ies] with regard to how she became acquainted first with the Stambacks and then took over their healthcare needs.”

Ferrara testified that Marcum “said she was not paid by the Stambacks when she was providing care for them herself. She was paid in some shape or form by Right at Home when she was in their employ but was not paid by the Stambacks.”

According to Ferrara, in the course of her examination, she learned that Marcum obtained the Stambacks’ powers of attorney. When asked if she spoke to Marcum about William’s relationship to Willa, Ferrara stated that Marcum “said that it was very clear William loved Willa very much and that he would sign anything if he thought it was for Willa. You could use his wife to get him to do anything.” According to Ferrara, Marcum stated that she did not become aware that she was the contingent beneficiary on the Stambacks’ wills until after the estate was submitted to probate.

ANALYSIS

An appellate court applies the same standard when reviewing the denial of a Crim.R. 29(A) motion as is used to review a sufficiency of the evidence claim. In contrast, a weight of the evidence argument challenges the believability of the evidence and asks which of the competing inferences suggested by the evidence is more believable or persuasive. When evaluating whether a conviction is against the manifest weight of the evidence, an appellate court must review the entire record, weigh the evidence and all reasonable inferences, consider witness credibility, and determine whether, in resolving conflicts in the evidence, the trier of fact clearly lost its way and created such a manifest miscarriage of justice that the conviction must be reversed and a new trial ordered.

Because the trier of fact sees and hears the witnesses at trial, the court must defer to the factfinder’s decisions whether, and to what extent, to credit the testimony of particular witnesses. The fact that the evidence is subject to different interpretations does not render the conviction against the manifest weight of the evidence.

INSURANCE FRAUD

The trial court clearly credited the testimony of the multiple witnesses over the testimony of Marcum, and, therefore, the appellate court deferred  to the trial court’s assessment of credibility. Doing so, the applellate court concluded that the trial court did not err in overruling Marcum’s motion for acquittal, and that Marcum acted with a purpose to defraud, and knowing that she was facilitating a fraud, in presenting the claims for the proceeds of Williams’ life insurance policy and for the items allegedly stolen from the Stambacks’ home, in violation of R.C. 2913.47(B)(1).

Having thoroughly reviewed the entire record, the court also concluded that Marcum’s conviction for insurance fraud is supported by sufficient evidence and not against the manifest weight of the evidence and affirmed the judgment of the trial.

ZALMA OPINION

My mother, for the last 15 years of her life, was cared for 24/7 by a wonderful woman who never took more than the amount she agreed was her salary for the service. Before mother died they were close friends and I showed my appreciation with a bonus sufficient for the care-giver to complete the home she and her husband were building. Marcum, on the other hand, did not care for the elders in her care but attempted to steal from them and the beneficiaries of their life insurance. Her sentences should have been consecutive rather than concurrent. She should never leave jail.

 

 

 

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 Agreement to Endorsement Adding Exclusion Is Fatal to Its Assets

Insured Saved Premium by Agreeing to Loading Exclusion & Must Defend Itself

People who are not insurance professionals think the price of insurance is more important than the coverages provided. As a result they are often willing to limit the coverage available to save a few dollars of premium. This is usually unwise and often much more expensive than the premium money saved.

In Homeland Insurance Company Of New York v. A Tec Ambulance, Inc, Michelle Rhody, Michael Bachta, And Donna Lenzi As Independent Administrator Of The Estate Of Glen Lenzi, Deceased, United States District Court Northern District Of Illinois Eastern Division, No. 15 C 11086,  (September 6, 2017) the insured ambulance company agreed to an endorsement adding an exclusion for losses caused while loading or unloading its ambulance.

FACTS

While Michelle Rhody and Michael Bachta were moving Glen Lenzi (“Glen”) on a stretcher to an ambulance for A Tec Ambulance (“A-Tec”), Glen fell from the stretcher and later died. A-Tec’s insurer Homeland Insurance Company of New York (“Homeland”), seeks a declaratory judgment that it has no duty to defend or indemnify A-Tec, Rhody, or Bachta in a lawsuit by Glen’s wife, Donna Lenzi (“Donna”).

Before Glen died, his lawyer contacted A-Tec. A-Tec then contacted its insurer, Homeland. Homeland investigated and discovered that while Rhody and Bachta were taking Glen on a stretcher to the ambulance, he fell from the stretcher and hit his head. Rhody and Bachta then gathered Glen and took him to his appointment. He later developed a brain hemorrhage.

Glen died from the hemorrhage, and Donna sued A-Tec in Illinois state court, later amending her allegations to add Rhody and Bachta as defendants. In her fourth amended complaint, Donna allegeD that after Rhody and Bachta put Glen on the stretcher, he fell off on the way to the ambulance and hit his head. She also alleges that Rhody and Bachta failed to properly examine and treat Glen and failed to inform medical workers at the dialysis appointment that Glen had fallen. Donna alleges Rhody and Bachta failed to follow safety protocols and violated A-Tec policies and procedures, making them liable for medical negligence.

A-Tec’s insurance policy (the “Policy”) with Homeland provides coverage for Professional Services Wrongful Acts, which are defined as “any actual or alleged act, error or omission, or series . . . by an Insured in rendering, or failing to render, Professional Services” or “any actual or alleged act, error or omission, or series . . . by any person other than an Insured in rendering, or failing to render, Medical Services, but only for an Insured’s vicarious liability with regard to such Medical Services.”

The Policy has exclusions of coverage including that the Policy “does not apply to, and [Homeland] will not pay Loss or Defense Expenses, for any Claim based upon, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving any actual or alleged: Bodily Injury or Property Damage arising out of… arising out of the ownership, maintenance, use, operation or entrustment to others of any aircraft, Auto or watercraft or the loading or unloading thereof. For purposes of this Exclusion (D)(5), “loading or unloading” includes, but is not limited to, the Insured’s handling or placement of any individual into, onto or from any such aircraft, Auto or watercraft[.]”

ANALYSIS

In Illinois the interpretation of an insurance contract like the Policy is a question of law. The Federal Court follows the law of the Illinois Supreme Court and, in the absence of such precedent, uses its best judgment to decide how the Illinois Supreme Court would construe the law. Although the duty to defend is much broader than the duty to indemnify the obligation to defend is not unlimited. The duty to defend only arises when the damages alleged in the underlying complaint fall within or potentially within the insurance policy’s coverages.

The Policy’s Exclusion (D)(5), as amended by Endorsement No. 9, states that the Policy does not cover loading and unloading of a patient. The parties do not dispute that Glen fell from the stretcher during the loading of the ambulance or that the ambulance is an Auto as defined in the Policy.

Under Illinois law, the facts of the complaint control coverage, with coverage found in multiple source cases if one source of injury is covered and arises separately and “wholly independent” of any source of injury that is not covered. If the other alleged sources of the injury are intertwined with an excluded liability, then there is no coverage, but if the events of an injury can be separated from the exclusion, then there is coverage because the covered source is not connected to the exclusion.

Contrary to the allegations of Donna, there was no “separate or independent compensable injury” because Rhody and Bachta’s alleged failings, which the underlying complaint and Defendants/Counter-Plaintiffs characterize as medical negligence, still arose from the fall and Glen’s injury was directly linked to the fall. Donna alleged that Rhody and Bachta let Glen fall and then continued to fail him in relation to the fall until Glen’s injuries grew to include death. Rhody and Bachta’s “additional wrongdoing,” and argued are independent acts that created a new injury, intertwined with the fall rather than severable.

Glen’s injuries arose from an excluded liability and are not subject to coverage because they are all intertwined with Glen’s fall during the loading of the ambulance. Therefore, Homeland is entitled to a declaratory judgment that it has no duty to defend the underlying complaint and, because the duty to defend is broader than the duty to indemnify, no duty to indemnify either.

ZALMA OPINION

A-Tec saved some premium when it agreed to the endorsement excluding coverage for loading patients into their ambulance and lost the ability to have an insurer defend and indemnify it from the allegations A-Tec was responsible for Glen’s death. By agreeing to the endorsement to remove coverage Homeland was willing to provide it, A-Tec placed its assets at risk.

 

 

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 Hard to Obtain

Excess Insurer Loses Claim of Lack of Exhaustion of Primary Insurance

Excess insurance policies are designed to function only in catastrophes and have no obligation until the primary insurance policies are exhausted. In addition the insured is required to advise the excess insurer once it determines there is a potential that the primary policies may be exhausted well before they are exhausted.

When there are multiple layers of primary insurance and multiple claims because of potential widespread, multiple state pollution events, calculating what is covered and how much has been expended by the various primary insurers, before the excess insurer is required to respond.

In Velsicol Chemical, LLC v. Westchester Fire Insurance Company, as successor in interest to International Insurance Company, No. 15-CV-2534, United States District Court Northern District Of Illinois Eastern Division (September 7, 2017) Velsicol Chemical, LLC sued Westchester seeking contractual damages and to enforce its rights to defense and indemnity under an excess insurance policy (the “Policy”) issued to it by International Insurance Company the predecessor to Westchester.  The insurer sought  summary judgment in its favor to not pay defense or indemnity.

BACKGROUND

Velsicol is a limited liability company and until September 30, 2008, Velsicol was known as Velsicol Chemical Corporation. International Insurance Company (“International”) now Westchester, issued the Policy to Velsicol for the period of January 1, 1983 to January 1, 1986. Pursuant to an Assumption and Indemnity Reinsurance Agreement effective January 1, 1993, the Policy was reinsured by Westchester, with Westchester assumed all of the rights and obligations of International under the Policy.

The Policy

During the pertinent time period, Velsicol had two underlying primary comprehensive general liability insurance policies. Under the terms of the Policy, Westchester is not responsible for claims until the underlying primary coverage is exhausted.

Factual Background

On October 15, 1998, Velsicol filed a Second Amended Complaint in the Circuit Court of Cook County captioned “Fruit of the Loom, Inc. and Velsicol Chemical Corporation v. Admiral Insurance Company, et al.,” (the “Illinois State Court Action”), against International, among others. In the Illinois State Court Action, Velsicol alleged claims for declaratory judgment and/or breach of contract against, among others, International and sought defense and indemnity coverage under the Policy for numerous sites, including certain sites at issue in this suit.

Damages occurred at nine different sites.

Primary Policy Exhaustion

From 1995 through 1997, Stephanie McLaughlin was employed as an environmental claims specialist and, in that capacity, was the adjustor responsible for the handling of Velsicol’s claims on behalf of Westchester. On January 6, 1997, McLaughlin created a “Strategic Plan” for the Velsicol account. McLaughlin’s January 6, 1997 Strategic Plan indicated that she had received a report from a law firm representing London Market Claims Services advising that Velsicol had incurred $95,129,111 in total costs associated with sites for which it had made insurance claims as of December 31, 1995. McLaughlin’s January 6, 1997 Strategic Plan included a report, also from the law firm representing London Market Claims Services, stating that the costs incurred by Velsicol in connection with its claims, as well as anticipated costs associated with those claims in which the costs incurred, exceeded $70,000,000.

Westchester maintains that the underlying primary policies are not exhausted under the terms of the Policy, and that Velsicol has not met its burden of proving primary coverage exhaustion.

ANALYSIS

Under Illinois law, an insurer has a duty to indemnify when the insured becomes legally obligated to pay damages in the underlying action that gives rise to a claim under the policy. Once the insured has incurred liability as a result of the underlying claim, an insurer’s duty to indemnify arises only if the insured’s activity and the resulting loss or damage actually fall within the CGL policy’s coverage.

Westchester moves for summary judgment on each remaining count, arguing that Velsicol’s claims are not covered by the Policy. Westchester specifically argues that Velsicol’s notice of claims was untimely as a matter of law for the claims involving the various claims. Finally, Westchester argues that Velsicol has failed to show the exhaustion of all triggered primary policies.

Breach of Notice

Westchester argues that Velsicol’s notice of the claims for the seven of the sites where claims were made were untimely as a matter of law.

Under Illinois law, insurance policy notice provisions impose valid prerequisites to insurance coverage. Illinois courts examine reasonable notice differently in the context of excess insurance policies. An excess policy generally requires notice of an occurrence or suit ‘when it appears likely’ that the excess policy will be implicated. Illinois courts consider when a reasonable person would have believed it reasonably likely that the claim would implicate the excess insurance.

The notice provision at issue states: “Upon the happening of an occurrence reasonably likely to involve the company hereunder, written notice shall be given as soon as practicable to the company or any of its authorized agents.” (Emphasis added) The question, therefore, is when a reasonable person would have believed it reasonably likely that the claim would implicate the excess insurance.

Because Velsicol presented evidence creating a genuine dispute as to material facts for trial, the Court denied Defendant’s summary judgment motion based on breach of notice as to the seven sites.

Pollution Exclusion

While insurers have the burden of proving that an exclusion applies, insureds, in turn, have the burden to prove that an exception to an exclusion restores coverage.

Velsicol demonstrated genuine issues of material fact pertaining to the pollution exclusion with respect to its application to claims arising from permitted uses. Velsicol also demonstrated genuine issues of material fact pertaining to whether all primary policies have been exhausted.

ZALMA OPINION

When hundreds of millions of dollars have been paid or are anticipated for an excess insurer to avoid its obligation to step in and provide defense and indemnity after primary exhaustion it must be a very high layer and must be able to show that there was still available insurance below the excess insurer’s requirement to proceed. Westchester tried but found that the insured was able to raise a question of fact sufficient to avoid summary judgment. Trial may allow Westchester to avoid the exposure but, as these cases tend to grow exponentially, probably not.

 

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 Must Meet Burden or no Coverage

Insured Obligated to Prove Loss Is Due to Covered Peril

Insurance companies have no interest in insuring against losses due to wear and tear or deferred or incompetent maintenance because such losses are not fortuitous. Losses that are caused by the inadequacy of the insured in failing to protect its property is usually, if not always, excluded by a property policy.

In Travelers Property Casualty Company Of America v. Brookwood, LLC, 2:15-cv-01016-KOB, United States District Court For The Northern District Of Alabama Southern Division (September 6, 2017) the USDC was asked to resolve whether a commercial insurance policy covers water damage from a leaking roof.

ISSUES

Brookwood, LLC owns a building that suffered water damage from a leak. The leak damaged the building and a tenant’s property. Brookwood made claims under its insurance policy with Travelers Property Casualty Company of America, and Travelers denied those claims.

Travelers makes three arguments in support of its request for a declaratory judgment:

  1. It asserts that the damages are not covered because the policy excludes coverage for all of the possible causes of the leak.
  2. Its policy does not provide coverage for Brookwood’s economic losses, including repairs to the building and the loss of rental income from its tenant.
  3. Travelers asserts that its policy does not provide coverage for damages to personal property owned by Brookwood’s tenant because the lease between Brookwood and its tenant allocates to the tenant the risk of loss to the tenant’s property, and thus it is not damage Brookwood is legally obligated to pay.

FACTS

Defendant Brookwood owns the Raymond James building, located at 2900 U.S. Highway 280 in Birmingham, Alabama.

The parties do not dispute that the roof of the Raymond James building leaked, causing damage to the building and to a tenant’s property, on or about November 16, 2014, when the Birmingham area received approximately 2.43 inches of rain and experienced winds of up to 24 miles per hour. Specifically, rain entered the roof through openings in the roof’s EPDM membrane.

On September 19, 2014, prior to the leak, Mr. Tyler Hixson of Hixson Consultants inspected the Raymond James building’s 18-year-old roof and provided a report to Brookwood with his findings and recommendations. The report noted that the EPDM roofing membrane had disbonded in several places, such that “[s]ignificant water entry can occur”; that the EPDM membrane was denatured, patched, and, in multiple locations, open where it met the base flashing; that bridging membrane had been employed; that the ballast had been displaced in some locations, exposing the membrane to accelerated UV deterioration; and that certain areas were unsealed or incompletely sealed.

Brookwood hired Leak Solutions to perform the recommended work. On November 4, 2014, Brookwood’s building engineer, Marlon McElroy, observed Leak Solutions employees using metal shovels to scrape ballast on the roof in the area where the leak at issue in this case later occurred. Upon their departure on November 7, Leak Solutions employees left the EPDM membrane unrepaired and exposed in multiple areas.

On or about November 16, Birmingham received nearly two-and-a-half inches of rain. On November 17, 2014 the roof leaked. The engineer hired by Travelers opined that the removal of the ballast would have made the membrane more susceptible to temperature changes and UV degradation and that UV exposure and wind could have damaged the seams. Further, he stated that shoveling the ballast could have created openings in the membrane through which water entered into the building’s interior.  The engineer testified that that based on his personal experience, “the wind speeds [of up to 24 miles per hour] were not sufficient to have caused any type of uplift on this roof.”

The engineer concluded that Leak Solutions’s substandard repair work enabled rain to enter the building through the EPDM membrane and damage the interior. Based on the engineer’s report and information from Brookwood, Travelers denied Brookwood’s claim under the Property Policy on December 16, 2014.

The insured’s expert testified that Leak Solutions’s using metal shovels to move ballast and then leaving the membrane exposed amounted to a failure of Leak Solutions to perform their work in a manner that’s representative of the industry and the standard of care the industry uses.

After Travelers denied Brookwood’s claim under the Property Policy, Brookwood submitted to Travelers a claim for coverage under the CGL Policy on December 19, 2014.

DISCUSSION

Exceptions to coverage are interpreted as narrowly as possible to maximize coverage, and are construed strongly against the insurance company that issued the policy. But if there is no ambiguity, courts must enforce insurance contracts as written and cannot defeat express provisions in a policy by making a new contract for the parties.

The Property Policy is an “all-risk” policy, meaning that it provides coverage for all physical damage to covered property unless a cause of loss is specifically excluded or limited.

Travelers points to the Rain Limitation in section D. Limitations 1.c.(1) that excludes coverage for rain damage to the interior of the covered building or personal property unless the building first sustains damage by a covered loss to its roof. The Rain Limitation provides that interior damage caused by rain is covered if “[t]he building or structure first sustains damage by a Covered Cause of Loss to its roof or walls through which the rain . . . enters[.]”

Travelers has established that the damage to McWane’s space and property was caused by rain, so the damage is excluded unless Brookwood shows that the interior rain damage was caused by a covered cause.

To the extent faulty workmanship, inadequate maintenance, and/or wear and tear caused the roof damage, they are excluded causes of loss. Leak Solutions’s actions leaving the job site without restoring ballast, may be the primary cause of the roof damage.

Neither faulty workmanship nor inadequate maintenance could have caused either thermal shock or wind. Although a construction defect, itself, is not covered by the policy, if the defect causes (i.e. ‘results in’) a Covered Cause of Loss, and that Covered Cause in turn results in property damage, the resulting property loss is covered.

The mere existence of a scintilla of evidence in support of the plaintiff’s position will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff. Neither expert investigated wind as a cause of the membrane damage.

Because Brookwood failed to meet its burden to produce evidence on which a jury could find that a covered cause of loss produced the leak through which the rain entered, thus establishing the applicability of an exception to the Rain Limitation, it cannot recover under the Property Policy any damages incurred as a result of the November 16, 2014 roof leak.

Coverage Under CGL Policy

Section 2.j.(1) excludes from coverage property damage to property Brookwood “own[s], rent[s], or occup[ies], including any costs or expenses incurred by [Brookwood], or any other person, organization or entity, for repair, replacement, enhancement, restoration or maintenance of such property for any reason, including prevention of injury to a person or damage to another’s property . . . .”

The rental agreement allocates the risk of loss to McWane’s furniture to McWane. Thus, by the terms of the rental contract, Brookwood is not “legally obligated to pay” for damages to McWane’s personal property caused by the leak on or about November 16, 2014.

CONCLUSION

Because Brookwood has failed to meet its burden to establish that an exception to the Rain Limitation applies, the Property Policy does not provide coverage for damages stemming from the Raymond James building’s roof leak on or about November 16, 2014. Nor does the CGL policy provide coverage for those damages. Given that its Travelers policy does not provide coverage, Brookwood’s counterclaims fail as a matter of law.

ZALMA OPINION

Because no one actually reads their insurance policy – even after a loss – they expect every possible loss due to every possible cause to be covered by their insurance policy. As the District Court made clear, that assumption is without a basis in truth. Rather, it is the duty of the insured to provide proof that a covered cause of loss resulted in damage. Brookwood failed in its obligation.

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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Representing Insureds in a Catastrophe

Available from the American Bar Association at https://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=218303&term=zalma

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No Case Against Prosecutors for Malicious Prosecution

Prosecutors Immune From Suit For Charging Police Officers With Fraud

When a prosecutor obtains a grand jury indictment for fraud only to later learn than there was inadequate evidence to prove a case against them and dismisses the charges, the prosecutor did both in good faith. A suit for malicious prosecution requires malice by the person bringing the charge, not just a failure to prove its case.

In Philip Blessinger, et al. v. City Of New York, et al., 17cv47, 17cv108, United States District Court Southern District Of New York (September 1, 2017) the City of New York, District Attorney Cyrus Vance, and five Assistant District Attorneys, moved to dismiss a federal civil-rights action by retired police officers who were indicted in a massive Social Security fraud.

BACKGROUND

Plaintiffs Philip Blessinger, John Byrne, Scott Greco, and Darlene Ilchert were indicted in a sweeping investigation by the Manhattan DA into a large-scale Social Security Disability insurance fraud. The masterminds of the scheme, the “Lavallee Group,” approached retired police officers like Plaintiffs and offered to prepare fraudulent applications for Social Security Disability Insurance (“SSDI”) in exchange for cash kickbacks from the resulting SSDI benefits.

The Lavallee Group sent Plaintiffs to selected mental-health professionals who provided documentation of psychiatric conditions such as post-traumatic stress disorder, anxiety disorder, and depression. Plaintiffs allegedly used these diagnoses to file fraudulent SSDI applications, which were prepared by the Lavallee Group and contained substantively identical claims. Once they obtained the SSDI benefits, Plaintiffs paid the Lavallee Group in cash increments of less than $10,000.

In January 2014 a Manhattan grand jury indicted Plaintiffs (along with more than one hundred other individuals), charging them with Grand Larceny and Criminal Facilitation. They were subsequently arrested on warrants issued under the indictments. ADA Bhatia also filed civil asset forfeiture proceedings against Plaintiffs, alleging that the proceeds of the scheme were subject to forfeiture. Three of the Plaintiffs filed motions to dismiss their indictments for lack of evidence and improper venue; the presiding New York Supreme Court justice denied each motion. Following the indictments, the District Attorney’s office continued to investigate the charges by, inter alia, sending investigators to speak to Plaintiffs’ family members, neighbors, and friends.

In August 2016 ADA Santora moved to dismiss the charges against each Plaintiff, citing “additional information and records . . . includ[ing] psychiatric reports, additional medical records, [and] work history reports, each of which was not available to the People at the time the Grand Jury voted the Indictment.” In light of “this and other newly discovered information,” Santora stated, “the People believe they are unable to prove the cases against these four defendants beyond a reasonable doubt.” The District Attorney also stipulated to a dismissal of the civil forfeiture proceedings the following day.

DISCUSSION

Defendants argued that the claims for false arrest, malicious prosecution, unreasonable asset seizure, and abuse of process under § 1983 are barred by the Eleventh Amendment (with respect to claims brought against the DA Defendants in their official capacities) and the doctrine of absolute prosecutorial immunity (with respect to claims brought against the DA Defendants in their individual capacities).

The District Court, therefore, concluded that plaintiffs’ claims against the DA Defendants in their official capacities are plainly barred by the Eleventh Amendment which, with few exceptions, bars federal courts from entertaining suits brought by a private party against the state in its own name.

Plaintiffs alleged that the DA Defendants violated their constitutional rights by indicting and arresting them, freezing their assets as possible proceeds of fraud, and later dismissing the charges. All of this conduct is part and parcel of a district attorney’s role, in prosecuting (or deciding whether to continue to prosecute) a crime on behalf of the state.

Accordingly, these claims cannot form the basis for liability against the DA Defendants in their official capacities.

Similarly, the claims against the DA Defendants in their individual capacities are barred by the doctrine of absolute immunity. Plaintiffs’ claims against the DA Defendants in their individual capacities are based on conduct that falls squarely within the scope of absolute immunity.

Accordingly, the plaintiffs’ claims cannot form the basis for liability against the DA Defendants in their official capacities.

Similarly, the claims against the DA Defendants in their individual capacities are barred by the doctrine of absolute immunity. Plaintiffs’ claims against the DA Defendants in their individual capacities are based on conduct that falls squarely within the scope of absolute immunity.

ZALMA OPINION

Although the plaintiffs were properly charged by the grand jury the prosecutors, much to their honor, continued their investigation and discovered that as to the plaintiffs they could not prove beyond a reasonable doubt that the plaintiffs’ were guilty. This is not a finding that they were innocent. They should have accepted the dismissal and return of their funds happily, decided to never attempt fraud again, and not be so greedy as to attempt to punish the prosecutors who did nothing more than their duty.

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 Must Prove That Claim Falls Within Insuring Agreement

Insured Learns No Insurance Policy Insures Against Every Risk

People who buy liability insurance want it to cover every possible risk faced by the insured. When a loss or claim occurs the read the policy, perhaps for the first time, only to find the policy does not cover every possible risk and that, to get coverage, the insured is obligated to prove that the policy’s insuring agreement agreed to defend or indemnify the insured against the suit brought against the insured.

In W.G. Hall, LLC v. Zurich American Insurance Company, United States District Court Northern District Of California, Case No. 17-cv-00646 NC (August 31, 2017) W.G. Hall, LLC (WGH), a staffing services company, settled a wage and hour class action lawsuit. Before and after settling the class action, WGH sought coverage from its professional liability insurer, Zurich American Insurance Company for the amount it would pay out in the settlement agreement. Zurich refused to reimburse WGH for the settlement amount on several grounds, and WGH sued Zurich for breach of contract and derivative claims.

WGH seeks summary judgment on its claims for breach of contract and declaratory relief, as well as a judgment from the Court that none of five affirmative defenses raised by Zurich are applicable in this case. Zurich opposes WGH’s motion and seeks summary judgment on its behalf as to the entire case.

BACKGROUND

On November 27, 2013, Zurich issued to WGH an insurance coverage package effective from December 1, 2013, through May 19, 2015.  That package contained Professional Liability coverage.

WGH is a staffing services company, which hires and trains staffing services workers and furnishes them to its clients. Even when its employees are working directly for WGH’s clients, WGH remains the employer of record for its employees and provides payroll services for its clients for the work its employees perform. In 2014 and 2015, Danny Isquierdo and Freddy Robledo filed putative class actions against WGH, which were later consolidated in July 2015 (Isquierdo and Robledo litigation).

The alleged actions giving rise to these claims were that WGH failed to compensate its employees “for internal orientations, client orientations, reporting and consultations, post-assignment termination meetings, client interviews, related travel and other work off the clock. . . .”  WGH and the class reached a settlement, and the court preliminarily approved the class action settlement. Both parties agree that WGH reach a settlement without Zurich’s consent.

DISCUSSION

The burden is on the insured to bring the claim within the basic scope of coverage, and (unlike exclusions) courts will not indulge in a forced construction of the policy’s insuring clause to bring a claim within the policy’s coverage.  The burden falls upon the insurer to phrase exceptions and exclusions in clear and unmistakable language.

The Disputed Policy Text

The insurance policy at issue here provides the following: “We will pay those sums that the insured becomes legally obligated to pay as ‘damages’ because of any ‘claim’ arising from a ‘wrongful act’ to which this insurance applies. The ‘wrongful act’ must take place: a. During the policy period; and b. In the ‘coverage territory.'”

Construction of “Wrongful Act”

In both motions, the parties dispute whether the allegations in the underlying class action litigation fall under the policy’s coverage of “wrongful acts.” The meaning of “wrongful act” is key in this case because if there is no “wrongful act” within the meaning of the policy, Zurich is not required to provide coverage.

Under the policy, “wrongful act” means “any actual or alleged act, error, or omission, misstatement, or misleading statement in the course of providing ‘staffing services’ to your clients by you or by any person for whose acts you are legally responsible.” WGH asserts that the claims in the underlying litigation relating to unpaid wages constitute “wrongful acts.”

Failure to pay wages would be considered by any layperson an error or omission. Nonetheless, the law on this point favors Zurich. An insured’s alleged or actual refusal to make a payment under a contract does not give rise to a loss caused by a wrongful act.

WGH was required to pay employees’ wages. WGH has never claimed that no employment contract existed between itself and the plaintiffs in the underlying litigation, and indeed concedes that at least oral contracts existed with the plaintiffs. WGH did not meet its burden to show it was entitled to coverage. The Court granted Zurich’s motion for summary judgment on the first (breach of contract, second (breach of contract/duty to defend), and fourth (declaratory relief) claims for relief.

In addition, in its motion for summary judgment, Zurich argued convincingly that WGH’s third claim for bad faith/breach of the implied covenant of good faith and fair dealing claim fails because no coverage is due under the policy.

The Contract Exclusion Bars Coverage.

The policy states that Zurich need not cover “any ‘claim’, based upon or arising out of, in whole or in part: I. Any liability assumed by an insured under any contract or agreement, unless such liability would have attached to the insured by law in the absence of such contract or agreement.” Zurich contended that none of the claims against WGH would exist absent an employment contract, so the exclusion applies.

The exclusion here applies to “Any liability assumed by an insured under any contract or agreement, unless such liability would have attached to the insured by law in the absence of such contract or agreement.” In the policy, the phrase “arising out of” connotes a broad definition for the type of contract that will be excluded from coverage, as does the extension of the contract exclusion to “[a]ny liability assumed by an insured under any contract . . . .”

Absent an employment contract between the class plaintiffs and WGH, this case would not exist.

The Settlement Does Not Constitute “Damages.”

The parties dispute whether the settlement constitutes “damages” under the policy.

WGH admitted no liability in the underlying litigation. However, the plain language of the settlement agreement demonstrates that the manner in which the settlement proceeds were allocated precludes the settlement being considered “damages” under the policy.

As relevant here, the policy provides that settlements are covered as damages unless the purported damages are for personal profit or advantage which the insured is not legally entitled to or criminal or civil fines, penalties, fees, or sanctions. The Court found this is the only reasonable interpretation of the disputed language.

Zurich, therefore, is not obligated to cover WGH’s settlement in the underlying litigation because the claims against WGH and the settlement do not fall within the basic coverage provision of the policy.

ZALMA OPINION

The District Court gave consideration to every claim by the insured, none of which deserved its time and trouble, only to conclude as it was required to, that the claims against WGH were contract breach claims, not tort claims, that those claims did not fall within the insuring agreement and, in addition, were clearly and unambiguously excluded. In the end there was a waste of the time of the court and the litigants.

 

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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Hurricane Harvey & Work to Defeat Anticipated Fraud

Hurricane Harvey & Fraud

The following was published in the September 1, 2017 issue of Zalma’s Insurance Fraud Letter available, free, at – http://www.zalma.com/ZIFL-CURRENT.htm.

If you are working with insurers dealing with damage due to Hurricane Harvey you should find this article useful.

Estimates show that insured losses from Harvey will range from $10 billion to $20 billion and losses up to $190 billion. Since most people in Houston did not have flood insurance or the flood insurance they had was inadequate, government money will probably exceed the insurance losses by a factor of five to ten.

Although most contractors, builders, and public adjusters are honest and professional this amount of money is just too great a temptation for fraud perpetrators, dishonest contractors and unlicensed and unscrupulous public insurance adjusters.

Adjusters involved in storm duty in the Gulf Coast of Texas must be prepared to deal with, detect and defeat attempts at fraud.
Over the past few decades fraud has become an ever escalating problem. It is part of the CODB equation and quickly becomes just one more cost to be passed on to the insurance buying public. When a catastrophe hits everyone suffers. The victims of the catastrophe suffer. The insurers whose staff is not adequately trained to investigate and adjust claims and recognize fraud compounds the suffering of the victims and costs the insurer.
Some examples an insurer may encounter in a catastrophe situation include the following.

1. Peter and Wendy Pan were evacuated from their home just hours ahead of the fires. When they were eventually allowed to return, they found only a pile of charred rubble. The inferno had claimed everything. In the coming months, throughout the difficult claims adjustment process, many things will be tested. Among those things are the honesty of the system, the honesty of the Poways and the process behind it all. Did Wendy really lose 50 pairs of shoes purchased from Nordstom’s and Sak’s or did she really lose 12 pairs of PayLess shoes? Did Peter have a $500 fishing pole or a $25 fishing pole?


2. The adjusters: Is Willie Adjuster specifically steering business to his brother-in-law Charlie Contractor?


3. The contractors – Does Charlie then figure out a creative way to reward Willie by cutting corners and using inadequate or substandard materials?


4. Public adjusters – Are they more interested in a quick settlement and their contingency fee rather than indemnity for the insured?


5. Companies – Is there any creative policy language interpretation occurring? Are they refusing to pay covered claims?


The list is nearly endless. Every person and every entity involved in this tragedy will make their own choice as it relates to the honesty of the overall process. The perception is one of victimless crimes. It somehow makes a difference within the realm of situational ethics that individuals do not have to pay. It’s easier if to defraud if only the trillion-dollar insurance pool is tapped. The wildfires are simply a convenient example. Similar problems arise after earthquakes, hurricanes, tornadoes or tsunami.


The reality is that policyholder fraud is also pervasive throughout every layer of the insurance marketplace.

1. Underwriting Fraud – Betty Buyer says she only drives her car back and forth to church each Sunday even though she really drives it about 100 miles per day within the scope of her business.

2. Rating Fraud – She also uses her Indio, California cottage address as her home address instead of her real Central Los Angeles address, saving herself $1,200 a year in premium payments.

3. Premium Fraud – the High Rise Window Washing Company reports to its workers’ compensation insurer that it has two employed window washers and 28 clerical employees – when the reverse is true.

4. Nondisclosure Fraud – Andy Agent sells an 88-year-old widow a variable annuity.

5. Claims Fraud – Paper accidents, inflated claims, owner give ups, kickback schemes, crooked adjusters, bad doctors/lawyers, etc.

6. Identity Fraud – Do we really know with whom we are dealing at any step along the way?

Once again the list is nearly endless.

Catastrophe Fraud Schemes

Some schemes an insurer or FEMA employee may see after the claims come in as a result of the Harvey catastrophe include:

• False or exaggerated claims by policyholders.

• Misclassification of flood damage as wind, fire, or theft.

• Claims filed by individuals residing hundreds of miles outside the disaster-zone.

• Bid-rigging by contractors, falsely inflating the cost of repairs.

• Contractors requiring upfront payment for services, then failing to perform the agreed upon repairs.

• Charity fraud scams designed to misappropriate funds donated for disaster relief.

• Public Insurance Adjusters promising insureds that their services will allow the insured to profit from the disaster.

A Proposal

If the insurance industry either desires, or is forced, to put the skids on fraud, the single obvious answer is education and training. Every individual who is trusted the duty and/or privilege of working in or for the insurance industry must be educated in both the process and the products. This would result in an atmosphere of “no excuses.” It is important that insurers take proactive approach rather than a reactive approach.

To be certain that the public receives the indemnity to which they are entitled and to be certain that fraud fails, insurance regulatory agencies must, before the next catastrophe, ascertain the abilities of the insurers who do business in their jurisdiction to properly indemnify their insureds and compel every insurer to train their personnel up to competence.

It does little good for an adjuster to sit in a training class after the fact, to scratch his head and realize that he paid many bogus claims as part of the overwhelming confusion and workload associated with a catastrophe. Being proactive, managing the need immediately, is the far better answer.

It should be the duty of insurance regulatory agencies to require insurers, their claims personnel, independent insurance adjusters and public insurance adjusters, to be licensed, competent and well trained on insurance, insurance claims handling, fraud recognition techniques, and enough of the law of the state to competently adjust claims and recognize and defeat fraud. In that regard it is necessary that each person involved in the claims process – from the clerk who takes in the first notice of loss to the executive who has the final say on the largest claim paid – be trained and knowledgeable in the following subjects:

A. Insurance, its history and modern application.

B. The Fair Claims Settlement Practices law of the state and Regulations imposed to enforce the law.

C. How to read, understand and interpret insurance contracts.

D. Investigation techniques including, but not limited to, interviewing, photography of loss scenes, use of independent experts, use of private investigators and use of claims counsel.

E. Insurance fraud and fraud recognition, the operation and use of the SIU, and a thorough understanding of reporting to the Fraud Bureau or Fraud Division.

F. The special fraud investigative unit laws and the Regulations enacted to enforce them.

G. The law of contracts and torts needed by claims professionals to competently adjust claims.

Compliance with the training requirements should be more than a requirement that the claims personnel attend training. It must include a requirement that the participants actually understood what they are learning. The obligation to train need not be onerous or even take the claims person away from work for an extensive period of time. Modern computer-based training programs can be taken incrementally by the student while she or he drinks that first cup of morning coffee.

The learning results are measurable and can be monitored by testing. The insurer, and its Regulators, can electronically receive a record of the time spent by the claims person in the training plus the results of the tests.

A claims person who uses computer-based training three minutes a day, five days a week and fifty weeks a year will receive 12.5 hours of training while the claims person who spends six minutes a day will receive 25 hours of training.

Another bonus to the insurer from this approach is that ongoing training keeps the subject matter fresh and in the forefront of the mind.

Training is not a panacea. It is a beginning. Regulators must audit and enforce the requirement that claims personnel are trained and then utilize that training to provide the indemnity promised by the insurance policy. Such is the surest answer to our ability to be able to protect both the insured and the insurer.

A Regulatory Approach to Fraud After a Catastrophe

After a catastrophe Regulators are faced with a dilemma. They must draw the fine line between protecting insured victims who have suffered a loss and must be fairly compensated while recognizing that fraud will be rampant and the insurers must thus also be protected. For example, while the wild fires of October 2007 were still burning, California regulators authorized insurers to bring in unlicensed adjusters from out of state to serve the thousands of victims and, at the same time, created a fraud task force to hold down fraud. Texas is doing the same after Hurricane Henry.

The California Regulators recognized that after a catastrophe billions of dollars of insurance money floods into the location to indemnify policyholders, insurers send in teams of insurance adjusters to help those whose property has been damaged or destroyed, and fraud perpetrators send in teams of criminals to milk as much of the money from the insurers as they possibly can. They also recognized that it’s anybody’s guess which group moves the fastest, but that the crooks had the distinct advantage because companies are so intent on providing excellent service to policyholders that they momentarily lower their fraud defense shields in the interest of expediency.

Insurance Regulators are charged by their states with a duty to protect the public. This obligation is amplified by a catastrophe. The Regulators must be prepared to deal with the inability of insurers to adequately serve the public who will present a high volume of claims, approve adjusters who are not licensed in the state, and police vendors, inadequate or incompetent insurance claims adjusters and unscrupulous public insurance adjusters. Simultaneously the Regulators must protect the insurers from insurance fraud which history teaches us will consume between 10% and 30% of the claims paid in a catastrophe (CAT) loss.

As fires swept through Southern California, Texas, New Mexico, Oregon and other states the vast majority of those watching the horrors on television were thinking about the people, the homes and the immense tragedy. Viewers see lost pets, charred toys, tear-stained faces and whole neighborhoods burned to the ground. At the same time, those closer to the insurance industry, worked to adequately staff their claims operation in the area where the CAT occurred while considering how to have the catastrophe teams think about arson, crime, and fraud while providing immediate relief to the honest victims of the fires. It indeed presented a conundrum.

The entire concept of insurance, the spreading of the risk of loss, is a mystery to most. Many view insurance as akin to a pull on a slot machine. Money in, pull, and see if anything pours out. Most will not hear the bells ring nor get any return at all, some will get a small payoff, and a rare few will receive what could be described as a jackpot.

What the public does not understand (and, to be honest, what many in the actual business of insurance do not understand either) is that there is little risk in the equation of insurance. With potential loss probabilities computed on astronomical amounts of data and absolute cost of doing business (CODB) numbers, insurers are seldom surprised on long term projections. What should be understood by all is that insurance companies are essentially money managers, spreading the losses of a few over the ability of the many to pay.

The lion’s share of carrier profit is derived from investments, not from underwriting profit.

Red Flags Of Catastrophe Claims

The National Insurance Crime Bureau publishes the following red flags of Catastrophe Insurance fraud that should help determine what claims require further scrutiny allowable considering the volume and need of the people who have suffered legitimate losses. Some of the red flags catastrophe adjusters and FEMA should consider include:

• Insured declares extensive losses without physical evidence.

• Items claimed do not match claimant’s life-style, decor, house, occupation or income.

• Items claimed cannot physically fit in existing floor space.

• Lack of carpet indentation from alleged large furniture or appliance.

• Extensive commercial losses occur at site where few or no security measures are in effect.

• Insured is unusually knowledgeable regarding insurance terminology and the claims settlement process.

• Insured is overly pushy for quick settlement.

• Insured is willing to accept an inordinately small settlement rather than document all claim losses.

• On scene investigation reveals no remains of the items claimed and normally found in a home or business, i.e., kitchen-major and minor appliance, etc.

• Investigation reveals absence of family photographs, heirlooms or items of sentimental value.

Insured’s Without Catastrophe Insurance Coverage

• Affected area as not evacuated.

• Lack of security in the area,

• No other homes were damaged or destroyed in the area.

• Name or address on receipt does not match insured’s information.

• Insured has no documentation or receipts.

• Insured submits a theft claim as a result of looting.

• Insured had all cash purchases.

• Insured claims items were new.

• Insured can’t properly describe items function or features.

• Property was in poor condition prior to loss.

Contractors or other providers:

• Does not maintain a local office or have a local telephone number.

• Are not able to provide references.

• Want payment up front.

• Have inadequate equipment to perform job.

• Arrive at loss site without being solicited.

• Offer below market prices.

• Offer cash incentives to get the job.

• Estimate is very general – a lump sum.

• Are not bonded or are underinsured and are not licensed or newly licensed.

• Multiple contractors using same licence.

Claims people dealing with a catastrophe, like Henry, must serve those insured fairly, quickly and with good faith. That does not mean that the claims person must ignore the indicators of fraud.

The insurance industry and the federal government can expect, as history of other catastrophes have proved, that about ten percent of all claims will include some indication of fraud.

Problems with Public Adjusters in Texas Before Harvey

Elvira Chandler was charged by a Travis County, Texas, grand jury in the last week of August with filing fraudulent insurance claims following a series of hail storms that hit the Rio Grande Valley. The 61-year-old was charge with first degree insurance fraud, a felony offense that carries a potential sentence of five years to life in prison and up to a $10,000 fine.

According to the indictment, Chandler submitted 14 claims to property insurers alleging hail damage that either didn’t exist or was not caused by hail.

After the 2012 Hidalgo County hailstorms, estimates flooded in that bore no relation to what was actually damaged in the hailstorm or the actual cost to repair. This indictment shows that the Texas Department of Insurance (TDI) Fraud Unit considers the gross exaggeration of a damage estimate to be actionable insurance fraud.

Lawsuits arising out of Hurricane Harvey will be litigated under new legislation, HB 1774, passed earlier this by the Texas legislature. That under the new legislation, if a lawyer uses an inflated estimate in a pre-suit demand letter, that lawyer’s attorneys’ fees will be at risk at trial.

Recent cases against a hail attorney and roofing contractor reveal a crackdown on disaster-related fraud. The improper solicitation of clients by attorneys and their case runners became a major problem after the 2012 Hidalgo County hail storms according to the TDI.

The recent indictment of attorney Kent Livesay on numerous counts of felony insurance fraud and barratry should, but probably will not, temper the inevitable feeding frenzy to sign-up Hurricane Harvey clients.

Another case, a pending class action lawsuit against Lon Smith Roofing, is a warning to other roofing and storm restoration contractors who act as public adjusters illegally. Texas law prohibits contractors from taking assignments of benefits or powers of attorney. Doing either will subject contractors to criminal penalties for engaging in the unauthorized practice of public adjusting and the unauthorized practice of law.

You have my permission to pass this on to anyone you think may find it useful.

 

 

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 – September 1, 2017

 Zalma’s Insurance Fraud Letter, Volume 21, No. 17 

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. Regardless, they are more often than not successful.

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. Catastrophes, like Hurricane Harvey, will draw amateur and professional fraudsters who are seeking to peel off some of the $190 billion that will be needed to rebuild Houston and the surrounding areas.

 The Current Issue Contains the Following

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Fake Doc Goes to Jail for 6 to 12 Years

No Remorse, Multiple Frauds, Serious Sentence

Criminal conduct does not fit any normal pattern. In some cases the criminal conduct is so egregious, the conduct of the defendant is contumacious, the defendant shows no respect for the judicial process, it takes unmitigated gall to appeal the sentence.

In Commonwealth Of Pennsylvania v. Patrick Usanga, Superior Court Of Pennsylvania, J-S36027-17, No. 2349 EDA 2015, (AUGUST 16, 2017)  Patrick Usanga, appealed from the judgment of sentence entered on May 20, 2015, as made final by the denial of his post-sentence motion on July 8, 2015.

FACTS

Usanga a Nigerian born United States citizen obtained a medical degree from the University of Guadalajara in Mexico in 1982. He took the board examination to be a licensed medical doctor in Pennsylvania several times in the 1980s and 1990s, but did not pass. In 2009 he obtained a license to operate Northeast Behavioral Medicine, Inc., with himself as the sole officer of the corporation. He applied for and received a license to operate a psychiatric clinic soon after incorporation. At all times during the period of time Northeast Behavioral Medicine was in business and seeing patients, Usanga was the only provider at the facility.

During that period he saw patients for various mental health and substance abuse issues. Several of his former patients testified that he told them that he was either a psychologist or a psychiatrist. Usanga billed various insurance companies, including Aetna and Blue Cross, for his services. For most of the invoices, Usanga billed a code, 90808, based on the Current Procedure Terminology manual (“CPT”) which is used by all medical insurance companies. The code that Usanga used relates to a psychological office visit for 75 to 80 minutes. Usanga also used several other codes that relate to other psychological and psychotherapy treatments.

Usanga never had a valid license to perform the services for which he was billing Aetna and Blue Cross. In 2011 the Pennsylvania Department of Public Welfare (“DPW”) conducted an annual field investigation of Northeast Behavioral Medicine. Following that visit, DPW sent Usanga a letter stating that his facility did not meet the criteria to operate a psychiatric clinic. Usanga failed to satisfy the requirements imposed by the DPW.

Thereafter his license to operate a psychiatric clinic was revoked. Concurrently to the period of time that Usanga was operating Northeast Behavioral Medicine, he was also collecting unemployment compensation and Social Security disability benefits.

Usanga was not entitled to unemployment benefits once he incorporated his business and became self-employed. The Pennsylvania Department of Labor determined that the Usanga was paid $52,000.00 in unemployment compensation that he was not entitled to receive.

The Social Security Administration determined that he was not entitled to the full amount that was paid to him during that time because he was working during that period of time, he was not truthful on his application regarding whether he was married, and he did not disclose that he was also receiving unemployment compensation during that period.

On March 16, 2015, trial commenced with Usanga present. On March 23, 2015, Usanga failed to appear for the fifth day of trial and trial continued in his absence. On March 26, 2015, Usanga was convicted of 23 counts of insurance fraud, eight counts of tampering with public records, four counts of theft by deception, and making a false statement regarding an unemployment compensation claim.

On May 20, 2015, Usanga was sentenced to an aggregate term of 6 to 12 years’ imprisonment followed by five years’ probation.

ANALYSIS

The evidence regarding the harassment charges would have been admissible in Usanga’s trial for the economic crimes. The harassment charges arose from Usanga’s alleged touching of a patient’s foot and making sexually suggestive comments during an appointment. This evidence tended to prove that Usanga failed to render the medical services to that patient for which he billed her insurance company. Usanga did not face any undue prejudice as a result of consolidation of the offenses. The testimony regarding the harassment charges was a tiny portion of a trial that lasted over a week and the Commonwealth did not focus on that charge. Instead, the focus of the Commonwealth’s case was Usanga’s economic crimes.

Usanga argued that the trial court imposed an excessive sentence with respect to the theft by deception and insurance fraud convictions. This argument challenges the discretionary aspects of his sentence. Pursuant to statute, Usanga does not have an automatic right to appeal the discretionary aspects of his sentence. Instead, Usanga must petition this Court for permission to appeal the discretionary aspects of his sentence.

To reach the merits of a discretionary aspects claim, the court must conduct a four part analysis to determine:

(1)       whether Usanga has filed a timely notice of appeal;

(2)       whether the issue was properly preserved at sentencing or in a motion to reconsider and modify sentence;

(3)       whether [the] Usanga’s brief has a fatal defect; and

(4)       whether there is a substantial question that the sentence appealed from is not appropriate under the Sentencing Code.

The determination of whether a particular issue raises a substantial question is to be evaluated on a case-by-case basis. Usanga argues that the trial court failed to adequately explain why it sentenced him outside the guidelines. Sentencing is a matter vested in the sound discretion of the sentencing judge, and a sentence will not be disturbed on appeal absent a manifest abuse of discretion.

In order to show an abuse of discretion, Usanga must establish, by reference to the record, that the trial court ignored or misapplied the law, exercised its judgment for reasons of partiality, prejudice, bias or ill will, or arrived at a manifestly unreasonable decision.

The sentencing court may, in an appropriate case, deviate from the guidelines by fashioning a sentence which takes into account the protection of the public, the rehabilitative needs of the defendant, and the gravity of the particular offense as it relates to the impact on the life of the victim and the community. In doing so, the sentencing judge must state of record the factual basis and specific reasons which compelled him or her to deviate from the guideline ranges. When evaluating a claim of this type, it is necessary to remember that the sentencing guidelines are advisory only.

In this case the trial court had the benefit of a pre-sentence investigation report. At sentencing, the trial court explained in great detail its reasons for deviating from the sentencing guidelines applicable to Usanga’s convictions for both theft by deception and insurance fraud. It stated that Usanga’s offenses were “very serious matters[.]” The trial continued by explaining how Usanga’s failure to appear on the fifth day of trial, although he was required to appear as a condition of his bail bond, evidenced that Usanga “still doesn’t get it.” The trial court stated that Usanga’s failure to acknowledge that he lacked a Pennsylvania physician’s license and was not a counselor further proved that he still didn’t get it.

The trial court found that Usanga would continue his criminal conduct “until he’s stopped.” The trial court noted that Usanga’s convictions “were very serious matters. This isn’t just 1, 2, or 3 convictions.” After acknowledging the repeated pattern of criminal conduct at issue in this case, the trial court observed that, “The behavior in this case is egregious. The public has been harmed.”

The trial court carefully considered all of the relevant sentencing factors. Usanga was convicted of dozens of serious offenses and showed no remorse after his conviction nor did he show any respect for the judicial process during trial. The trial court’s deviation from the sentencing guidelines and imposition of an aggregate sentence of 6 to 12 years’ imprisonment was not unreasonable.

ZALMA OPINION

Fraud by a fake health care provider hurts more than the insurance companies. It hurts the people he treated without the skill, knowledge or experience to act as a psychologist or psychiatrist. In addition, to prove his complete disregard for the rule of law he also claimed and obtained, while stealing from insurers, disability insurance and unemployment insurance. To cap off his lack of concern he did not even attend the trial. His sentence was generously low.

 

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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Is a Non-Adversarial Trial a Fraud on Insurers?

Tort Plaintiff’s Suit Against Defendant’s Insurer Fails

When a defendant is judgment proof plaintiffs often enter into an agreement with the defendant to allow a high dollar judgment that could only be collected against the insurer. It sounds good and simple. However, insurers are not stupid. If the judgment is entered in a non-adversarial way they will fight the judgment and refuse to pay.

In Landmark American Insurance Co. and Seneca Specialty Insurance Co. v. Eagle Supply & Manufacturing L.P. F/K/A Eagle Construction & Environmental Services, L.P. and Metex Demolition, LLC, No. 11-14-00262-CV, State of Texas in the Eleventh Court of Appeals,  (August 25, 2017) the insured allowed a judgment in excess of $2 million to be entered against it while in bankruptcy so that the plaintiff could try to collect from its insurers.

FACTS

Eagle Supply & Manufacturing L.P. f/k/a Eagle Construction & Environmental Services, L.P. owns three power plants in Texas. In the summer of 2011, Eagle contracted with Metex Demolition, LLC for the sale of personal property from the power plants. The contracts also required Metex to perform various demolition, cleanup, and remediation services at the power plants. The contracts required Metex to obtain liability insurance for the demolition work. Landmark American Insurance Co. issued a pollution liability policy to Metex, and Seneca Specialty Insurance Co. issued a general commercial liability insurance policy to Metex.

This appeal arises from Eagle’s contention that Metex damaged its property while performing services under the contracts and that Landmark and Seneca are contractually liable for these property damages under the liability insurance policies.

Metex filed a Chapter 11 bankruptcy proceeding on March 30, 2012. Ten days later, Eagle filed the underlying suit in state court.

Eagle asserted a liquidated claim under various contracts totaling $2,309,830.01. While the bankruptcy proceeding was pending, Eagle added Landmark and Seneca as parties to the underlying action on November 9, 2012. Eagle initially asserted that Landmark and Seneca owed contractual obligations to Eagle under the policies to remedy the property damages caused by Metex. Landmark and Seneca each filed a plea to the jurisdiction in their initial pleadings asserting that the trial court lacked subject-matter jurisdiction because Eagle did not have standing to bring a direct cause of action against them.

A settlement agreement was filed in the bankruptcy proceeding. The parties agreed “that Eagle will proceed in the Eastland County Litigation and may name Metex as a defendant with the Eastland County Affiliated Parties in order to access insurance coverage and policy proceeds.” The settlement agreement further provided that Metex damaged Eagle’s property, essentially admitting to liability.

Eagle subsequently filed a motion for summary judgment against Metex in the underlying action. At the hearing on the motion, Eagle’s counsel advised the trial court that Metex did not oppose the motion and that Metex did not file a response to the motion. In that regard, Metex responded to Eagle’s requests for admissions by admitting to every request for admission made by Eagle, including requests pertaining to liability and damages for the property damage that is the subject of Eagle’s claims against Landmark and Seneca. The trial court ultimately granted Eagle’s motion for summary judgment against Metex.

The trial court denied Landmark’s and Seneca’s motions for summary judgment and the insurers appealed.

ANALYSIS

This appeal presents a question of law because it concerns Eagle’s standing to pursue claims against Landmark and Seneca.

Landmark asserts in its first issue that Eagle lacks standing as an insured party under the Landmark policy to assert a direct action against Landmark for breach of contract or extra-contractual claims.

In Texas, the general rule is that an injured party cannot sue the tortfeasor’s insurer directly until the tortfeasor’s liability has been finally determined by agreement or judgment. The roots of the no-direct-action rule lie in the no-action clause commonly found in liability insurance policies. There are also public policy reasons that support the rule.

The “Policy Declarations” page of the Landmark policy named “Metex Demo LLC” as the only named insured. The Landmark policy provided “Contractors Pollution Liability Coverage” to the named insured.

As a liability insurance policy, the Landmark policy is a “third-party” policy that is designed to insure against a loss to third parties caused by the insured or another covered person for whom the covered person may be legally responsible. To the extent that Eagle is a third-party claimant under the Landmark policy, the no-direct-action rule precludes Eagle from pursuing a direct action against Landmark unless and until Metex’s liability to Eagle has been established by final judgment or agreement.

As noted previously, Metex is the only named insured in the Landmark policy. Furthermore, the Landmark policy is a third-party liability policy that only provides coverage for damages caused by Metex to third-parties. It does not contain any provisions providing first-party coverage for an insured party’s own loss.

Eagle did not cite any provision of the Landmark policy that required the court to consider Eagle’s contracts with Metex to determine if Eagle is a first-party claimant under the Landmark policy.

With respect to the Certificate of Liability Insurance, the court concluded that it does not confer first-party claimant status to Eagle. In addition to naming Landmark as an insurer, the certificate also identified Seneca and three other insurance companies as insurers for Metex. By its express terms, the certificate did not confer any rights to Eagle as the certificate holder, and it did not alter or amend the coverage provided by the applicable insurance policies.

It is well-established under Texas law that when a certificate of insurance contains language stating that the certificate does not amend, extend, or alter the terms of any insurance policy mentioned in the certificate, the terms of the certificate are subordinate to the terms of the insurance policy. Eagle is not an insured under the Landmark policy and it cannot sue Landmark for breach of contract under the policy as a first-party claimant.

Since a third-party claimant may not bring a claim under the prompt payment statute nor may it bring an action under the DTPA against a liability insurer. Eagle, therefore, does not have standing to bring a first-party claim against Landmark for either breach of contract or extra-contractual claims.

In no event, however, is a judgment for plaintiff against defendant, rendered without a fully adversarial trial, binding on defendant’s insurer or admissible as evidence of damages in an action against defendant’s insurer.

TRIAL MUST BE FULLY ADVERSARIAL

The phrase “fully adversarial” requires courts to retroactively evaluate and thus second-guess trial strategies and tactics, which often produces an inaccurate and unreliable result. The controlling factor is whether, at the time of the underlying trial or settlement, the insured bore an actual risk of liability for the damages awarded or agreed upon, or had some other meaningful incentive to ensure that the judgment or settlement accurately reflects the plaintiff’s damages and thus the defendant—insured’s covered liability loss.

The settlement agreement in this case removed any meaningful incentive for Metex to oppose Eagle’s property damage claim at the time each subsequent judgment was rendered. To the contrary, the settlement agreement contained language requiring Metex and its principals “to take such actions as are necessary to assert, diligently pursue, and effectuate a claim (or claims), to and against each of the insurance carriers that provide insurance coverage for the damages.” After the settlement agreement was executed, Eagle’s property damage claims against Metex no longer involved opposing parties, and the proceedings that followed were not fully adversarial.

As a matter of law, neither the bankruptcy court judgment nor the summary judgment against Metex was the result of a fully adversarial trial. Thus, neither of the judgments is binding on Landmark, and the judgments are not admissible as evidence of damages in a subsequent action against Landmark.

The trial court erred in denying Landmark’s and Seneca’s motions for summary judgment pertaining to Eagle’s claims against Landmark and Seneca. Eagle is not a first-party claimant entitled to bring a direct cause of action under either the Landmark policy or the Seneca policy.

ZALMA OPINION

Metex laid down and died during the trial by admitting all of Eagle’s Requests for Admission and refusing to oppose Eagle’s motion for summary judgment. As a result it entered into what appeared to be a fraudulent judgment designed to obtain money from the insurers that they did not owe. A judgment in favor of the insurers was proper but not enough since the parties plaintiff should be punished for their contumacious conduct.

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 Telephone Consumer Protection Act Is Always an Invasion of Privacy

Three Ninth Circuit Judges Agree TCPA Suit is Excluded Invasion of Privacy

Whenever someone calls you with a machine that you did not want to receive the Telephone Consumer Protection Act allows you to sue and get damages or statutory penalties.

In Los Angeles Lakers, Inc., a California corporation v. Federal Insurance Company, an Indiana corporation, United States Court Of Appeals For The Ninth Circuit, No. 15-55777, (August 23, 2017) the Ninth Circuit affirmed the district court’s Fed. R. Civ. P. 12(b)(6) dismissal of an action brought under diversity jurisdiction by the Los Angeles Lakers against the Federal Insurance Company after Federal denied coverage and declined to defend the Lakers in a lawsuit alleging violations of the Telephone Consumer Protection Act.

FACTS

The underlying action alleged that the Lakers violated the Telephone Consumer Protection Act when, during a game, they invited attendees to send a text to a specific number and then sent a response text message using an “automatic telephone dialing system,” in violation of the Act. Federal Insurance Company denied coverage and declined to defend the Lakers, concluding that the underlying lawsuit was an invasion of privacy suit, which was specifically excluded from coverage.

When Congress passed the Telephone Consumer Protection Act (“TCPA”) it sought to protect individuals against invasions of privacy, in the form of unwanted calls (and now text messages) using automatic telephone dialing systems. Congress explicitly stated this purpose in the text of the TCPA. In light of this plainly stated purpose, and the lack of any other indicia of congressional intent in the statute, a TCPA claim is, by its nature, an invasion of privacy claim. Accordingly, a liability insurance policy that unequivocally and broadly excludes coverage for invasion of privacy claims also excludes coverage for TCPA claims.

BACKGROUND

On October 13, 2012, David M. Emanuel attended a basketball game at the Los Angeles Lakers’ home arena—the Staples Center. While at the game, Emanuel observed a message on the scoreboard, inviting attendees to send a text a message to a specific number. Emanuel sent a text message to the number, hoping the Lakers would display the message on the scoreboard. In response, Emanuel received the following text message: “Thnx! Txt as many times as u like. Not all msgs go on screen. Txt ALERTS for Lakers News alerts. Msg&Data Rates May Apply. Txt STOP to quit. Txt INFO for info.”

Emanuel, on behalf of himself and others similarly situated, brought a class action lawsuit against the Lakers. Emanuel alleged that the Lakers sent the response text message using an “automatic telephone dialing system,” in violation of the TCPA. He asserted, several times, that this message was an invasion of his privacy, and that the Lakers had invaded the privacy of other class members. Emanuel brought two claims for relief — (1) negligent violation of the TCPA and (2) knowing and/or willful violation of the TCPA — and sought statutory damages and injunctive relief.

The Lakers promptly asked their insurance provider, the Federal Insurance Company (“Federal”), to defend them against the lawsuit. Federal insured the Lakers under a “ForeFront Portfolio” insurance policy (“the Policy”). The Policy contained a “Directors & Officers Liability Coverage Section.” Although the coverage provided was broad the Policy also contained a number of exclusions from Corporate Liability Coverage. Specifically, the Policy provided that “[n]o coverage will be available” for a claim, based upon, arising from, or in consequence of libel, slander, oral or written publication of defamatory or disparaging material, invasion of privacy, wrongful entry, eviction, false arrest, false imprisonment, malicious prosecution, malicious use or abuse of process, assault, battery or loss of consortium[.]” (emphasis added)

Federal denied coverage and declined to defend the Lakers, concluding that Emanuel had brought an invasion of privacy suit, which was specifically excluded from coverage.

ANALYSIS

This case required the Ninth Circuit to interpret both the Policy and the TCPA.

The Policy on its face clearly excludes from coverage claims “based upon, arising from, or in consequence of . . . invasion of privacy.” The Policy does not explicitly exclude coverage of TCPA claims, so the Ninth Circuit concluded it must determine whether Emanuel’s TCPA claims fall within this exclusion.

This clause broadly excludes from coverage claims with a minimal causal connection or incidental relationship to invasion of privacy.

It was also necessary for the Ninth Circuit to examine the clause “invasion of privacy” in this exclusion. California courts have recognized “four distinct forms of tortious invasion [of privacy].” Johnson v. Harcourt, Brace, Jovanovich, Inc., 118 Cal. Rptr. 370, 375 (Cal. Ct. App. 1974). Included in this list is intrusion upon the plaintiff’s seclusion or solitude. This form of invasion of privacy has been described as the right to be let alone. Unwanted calls, received at inconvenient times, generally invade an individual’s privacy and right to be let alone.

Federal argues a TCPA claim is inherently an invasion of privacy claim. The three elements of a TCPA claim include:

(1)           the defendant called a cellular telephone number;

(2)           using an automatic telephone dialing system;

(3)           without the recipient’s prior express consent.

Absent from this list is proof that the call invaded the recipient’s privacy. This omission is no mistake. As demonstrated by the explicitly stated purpose of the TCPA, Congress concluded that the calls it prohibited in passing the TCPA were an implicit invasion of privacy.

Moreover, once a TCPA plaintiff has established these three elements, and has thus proven an invasion of privacy, the plaintiff may obtain either actual or statutory damages.

The Duty to Defend

While the duty to defend is broad, it is not limitless. California courts have warned against misconstruing the principle of potential liability under an insurance policy. More specifically, an insured may not trigger the duty to defend by speculating about extraneous facts regarding potential liability or ways in which the third party claimant might amend its complaint at some future date. Thus, an insured may not manufacture coverage by guessing what other unknown facts or unsupported claims a claimant could possibly assert.

Statements from Emanuel’s complaint regarding economic injury and personal injury cannot overcome the reality that Emanuel asserted two claims for relief, both under the TCPA. As explained above, a TCPA claim is an invasion of privacy claim, regardless of the type of relief sought.

For all of these reasons, we must conclude that there was no potential that Emanuel could amend his complaint to assert a claim for relief that would be supported by any of the facts alleged or otherwise known.

Federal, therefore, did not have a duty to defend the Lakers against the Emanuel complaint.

Because a TCPA claim is inherently an invasion of privacy claim, Federal correctly concluded that Emanuel’s TCPA claims fell under the Policy’s broad exclusionary clause.

Accordingly, Federal did not breach the Policy, or the implied covenant of good faith and fair dealing, under any cognizable legal theory, when it declined to defend against or cover the Emanuel complaint.

As there was no cognizable legal theory under which the Lakers could establish that Federal breached the Policy, and there were no known facts to support any other claim for relief, the district court properly dismissed the Lakers’ complaint.

ZALMA OPINION

Even the Ninth Circuit concluded that an insurance policy is a contract. An exclusion for suits alleging invasion of privacy is clear, unambiguous and enforceable against a TCPA suit since to bring such an action the plaintiff must allege an prove that the Lakers invaded the plaintiff’s right of privacy.

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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Plain Text Of Policy Requires Coverage

Dispute Over Application of Additional Insured Endorsement Resolved

Every construction contract requires sub-contractors to name the general contractor as an additional insured. When a loss occurs seeking damages against the general contractor litigation is almost a certainty and the interpretation of the policy needs appellate resolution.

In Certain Underwriters At Lloyd’s Of London, Syndicate BRIT2987 Subscribing to Policy Number BRIT13329 v. Sterling Custom Homes, Incorporated, United States Court Of Appeals For The Fifth Circuit, No. 16-50892, (August 24, 2017) the appeal concerns financial responsibility for losses caused by fire damage at a construction site. The general contractor’s insurer has paid the general contractor, and has obtained a state-court judgment against a subcontractor for the damages. The district court ruled on summary judgment that the subcontractor’s insurer owes no coverage for the losses and appealed to the Fifth Circuit.

BACKGROUND

Sterling Custom Homes, Inc. (“Sterling Homes”), the general contractor for a residential construction project in Austin, Texas, subcontracted with Silvestre Espinoza’s painting company. The subcontracting agreement obligated Espinoza to obtain, and to name Sterling Homes as an additional insured under, a commercial general liability insurance policy.

Espinoza bought such a policy (the “Lloyd’s policy”) from Certain Underwriters at Lloyd’s of London, Syndicate BRIT2987, Subscribing to Policy Number BRIT13329 (“the Syndicate”). An “additional insured endorsement” extended blanket additional insured coverage to other entities under the Lloyd’s policy “as per written contract[s].”

In March 2015, a fire caused substantial damage to the construction project. Great American Assurance Company (“Great American”), the insurer responsible for Sterling Homes’s builder’s risk insurance policy, paid Sterling Homes approximately $1.28 million for losses related to the fire. Then, having become subrogated to Sterling Homes’s rights, Great American filed a lawsuit in Texas state court in Sterling Homes’s name against Espinoza.

The Syndicate filed a declaratory judgment action in the federal Western District of Texas. The Syndicate sought a declaration that (1) a provision in Espinoza’s Lloyd’s policy called the cross suits exclusion barred any coverage obligation in connection with Sterling Homes’s state-court action against Espinoza, (2) the Syndicate owed no duty to defend Espinoza in that suit, and (3) if the Lloyd’s policy provides any coverage, coverage is limited to $100,000 under the policy’s fire-damage provision.

The district court granted the Syndicate’s motion for summary judgment. In its order, the district court declared that Espinoza’s Lloyd’s policy “does not provide coverage for the property damage arising out of the state court action” between Sterling Homes and Espinoza and ruled that the Syndicate “has no duty to defend” Espinoza in the state-court suit.

DISCUSSION

In a diversity case involving the interpretation of a contract, the federal appellate court applies the substantive law of the forum state, including its choice-of-law rules.” The district court applied Texas rules of contract interpretation, and the parties do not contest the application of Texas law in their appellate briefing.

Texas principles of interpretation

Under Texas law the policy should be interpreted as a whole and in accordance with the plain meaning of its terms. Courts must construe the policy such that no provision is rendered meaningless. If an insurance contract ‘is worded so that it can be given a definite or certain legal meaning, then it is not ambiguous.

In Texas, like every other state, the goal of contract interpretation is to ascertain the parties’ true intent as expressed by the plain language they used. Any disagreement about the meaning of the contract does not render it ambiguous; instead, the contract must be susceptible to two or more reasonable interpretations.

Relevant contractual provisions

Three contractual provisions are relevant: The first comes from Sterling Homes’s subcontracting agreement with Espinoza, while the second and third appear in Espinoza’s Lloyd’s insurance policy.

Subcontracting Agreement

The subcontracting agreement between Sterling Homes and Espinoza required Espinoza to maintain an insurance policy for “General Liability.” The agreement also required Espinoza to name Sterling Homes “as an additional insured” under Espinoza’s policy.

Lloyd’s Policy’s “Cross Suits” Exclusion

Espinoza’s Lloyd’s policy includes a “cross suits” exclusion. The provision excludes coverage for: “’Bodily injury’, ‘property damage’, ‘personal and advertising injury’ or any injury, loss or damage arising out of any claim, ‘suit’, action or other proceeding or any allegation or expense initiated or caused to be brought about by any insured covered by this policy against any other insured covered by this policy.”

Lloyd’s Policy’s “Additional Insured” Endorsement

Espinoza’s Lloyd’s policy is modified by an endorsement concerning coverage for “additional insured[s].”

The endorsement states: “Who Is An Insured (Section II) is amended to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of your ongoing operations performed for that insured.”

Analysis of the Policy

To avoid the cross suits exclusion, Sterling Homes argues that its state court suit against Espinoza does not present litigation between two insureds. We must therefore determine the meaning of and relationship between the Lloyd’s policy’s cross suits exclusion and additional insured endorsement.

In this case, our decision to interpret the cross suits exclusion in accordance with its plain text — “any insured” means any insured entity, without regard to how the entity obtained insurance — does not nullify the policy’s additional insured provision.

Interpreting The Additional Insured Endorsement

The Lloyd’s policy’s additional insured endorsement adds entities listed on a specific Schedule to the list of insureds, “but only with respect to liability arising out of your [i.e., Espinoza’s] ongoing operations performed for that insured.”

The additional insured endorsement makes Sterling Homes an insured only with respect to Sterling Homes’s liability arising out of Espinoza’s ongoing operations for Sterling Homes. “The goal of contract interpretation is to ascertain the parties’ true intent as expressed by the plain language they used.

The court’s interpretation recognizes the likelihood that Espinoza, the policy’s purchaser, intended to buy from the Syndicate a commercial general liability policy that provided him coverage for claims made against him by his general contractors. Similarly, nothing in the plain language of the subcontracting agreement obligating Espinoza to name Sterling Homes as an additional insured suggests the parties intended for Espinoza to lose insurance coverage in the event Sterling Homes needed to sue him.

Because Sterling Homes was not an additional insured under the Lloyd’s policy with respect to its state-court litigation against Espinoza, the court held that the district court erred when it determined that the cross suits exclusion applied to that litigation.

For the reasons set forth above the district court’s summary judgment ruling was reversed and returned to the district court for further proceedings.

ZALMA OPINION

A subrogating insurer only has the rights that its insured has so it is – contrary to the holding of the Fifth Circuit – is suing in the name of its insured. The Fifth Circuit could have concluded that since the suit is for Sterling, an insured, that the Cross Suits provision applies. In addition, most CGL policies include a waiver of subrogation provision which should have defeated the subrogation action or, since the insurance was purchased for the benefit of both, subrogation could be prohibited as mutual benefit insurance. This may arise when the case is tried.

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’s Attempt to Sue Those Who Caused Arrest Fails

Prolix 115 Page Complaint Inadequate

Insurance fraud criminals are, if nothing else, creative. When Mark Shapiro was arrested for insurance fraud he sued everyone in sight including the federal prosecutor, the FBI, the National Insurance Crime Bureau, individuals, corporations and insurers. That he had no case and could not allege a clear and concise complaint resulted in a quick defeat in the US District Court. Unhappy with the result Shapiro appealed.

In Mark Shapiro v.  Daniel Sachs Goldman, Nicholas L. Mcquaid, Preet Bharara, United States Of America, The National Insurance Crime Bureau, Anthony Tardalo, Janice K.
Fedarcyk, Donald G. Anspacher, Susan Q. Hood, Robert Brody, Douglas S. Menges,
Nancy Pierce, Michael Seifer, et al, (about 80 defendants), No. 16-3097-cv, United States Court Of Appeals For The Second Circuit (August 24, 2017) Mark Shapiro appealed from the dismissal of his complaint alleging various constitutional and tort claims pursuant to Bivens v. Six Unknown Named Agents of Federal Bureau of Narcotics, 403 U.S. 388 (1971), and the Federal Tort Claims Act (“FTCA”), 28 U.S.C. §§ 1346(b), 2671-2680, against federal prosecutors and Federal Bureau of Investigation (“FBI”) agents (“Government Defendants”), as well as the National Insurance Crime Bureau (“NICB”) and several of its employees and board members (together with the NICB, “Private Defendants”) for their role in securing his indictment incident to a wide-ranging insurance-fraud investigation.

At oral argument Shapiro withdrew all but three of his Bivens claims. Those remaining are for: (1) malicious prosecution, (2) inducement of false testimony, and (3) defamatory statements made by the government, known as a “stigma plus” claim. Also remaining on appeal are Shapiro’s FTCA claims.

The Second Circuit, for the purposes of the appeal, accepted all factual allegations as true and drew all reasonable inferences in Shapiro’s favor. In so doing, the Second Circuit was required to assume the parties’ familiarity with the facts and record of prior proceedings and issues on appeal.

Fed. R. Civ. P. 8(a)(1)-(2) requires a complaint to contain a “short and plain statement” setting forth grounds for the court’s jurisdiction and showing that the plaintiff is entitled to relief. Despite three opportunities to plead, Shapiro repeatedly violated this standard, filing a prolix 115-page Second Amended Complaint. That, by itself, warrants affirmance of the district court’s dismissal.

When a complaint does not comply with the requirement that it be short and plain, the court has the power, on its own initiative or in response to a motion by the defendant, to dismiss the complaint.

Upon independent review of the record, the Second Circuit accepted the reasons stated in the thorough opinion of the district court, see Shapiro v. Goldman, No. 14 Civ. 10119 (NRB), 2016 WL 4371741 (S.D.N.Y. Aug. 15, 2016), concluded that dismissal was warranted for failure to plead facts that plausibly support his claims.

To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face. Insofar as the Private Defendants request that we issue an order to show cause as to why Shapiro or his counsel should not be sanctioned for bringing a frivolous appeal. That application was denied.

ZALMA OPINION

Another example of litigation “chutzpah.” A 115 page complaint cannot be considered “short and plain.” In addition the court found that even using 115 pages the plaintiff was unable to state sufficient facts to state a cause of action. “Chutzpah” is not enough. What is required is a short and plain complaint.

 

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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It’s Not Nice to Lie to Your Insurance Company

An Omission of Material Facts Is the Same as a Material Misrepresentation

As I have said hundreds of times before the covenant of good faith and fair dealing is the essence of insurance and the insured is as obligated as the insurer to deal fairly and in good faith with the insurer as the insurer is required to deal fairly and in good faith with the insured. When an insured omits to advise an insurer of a material fact it deceives the insurer and there is never a meeting of the minds as to the risks being taken.

In Beazley Underwriting, Ltd., Plaintiff v. Go Green Bioproducts, LLC, et al., United States District Court For The Middle District Of Georgia Macon Division, 5:16-CV-347 (CAR), (August 15, 2017) Plaintiff Beazley Underwriting sought court approval of the rescission of an insurance policy.

BACKGROUND

 According to the Complaint, Defendant Bioproducts rented a building in Dry Branch, Georgia, (the “Dry Branch Site”) from Defendants Davis and Recycle beginning in April of 2012. Defendant Bioproducts operated a Gala 3000 model wash line (the “wash line”) at the Dry Branch Site. In September of 2013, Defendants Davis and Recycle initiated eviction proceedings against Defendant Bioproducts and claimed to own the wash line. Due to the ownership dispute, the wash line remained at the Dry Branch Site.

Months after the eviction proceedings commenced, defendants Bioproducts, TMD Technologies, DanCar Holdings, Tony Heath, and Ryan Penderquest (collectively, the “Insureds”) applied for an insurance policy covering the wash line from Plaintiff Beazley Underwriting. The Insureds failed to inform Plaintiff of Defendant Bioproducts’ eviction from the Dry Branch Site—where the wash line was located—and the ownership dispute over the wash line.

In July of 2014, Plaintiff issued the insurance policy to the Insureds. One year later, the Insureds renewed the policy. Thereafter a fire at the Dry Branch Site damaged the wash line, and the Insureds sought insurance coverage. Plaintiff’s inspections indicated the wash line could be repaired for $185,000.00. During its investigation of these events, Plaintiff examined under oath a representative of Defendant Bioproducts and learned of the Insureds’ omissions.  Plaintiff would not have issued the policy had it known the omitted facts.

Plaintiff sued to rescind the insurance policy. Defendants Bioproducts, TMD Technologies, and Biological & Environmental Solutions each filed answers to the Complaint. Defendants DanCar, Heath, Penderquest, Davis, and Recycle, however, were served with process but failed to file a responsive pleading. Plaintiff therefore moved for entry of default as to the non-responding defendants, and the Clerk of Court entered default on September 8, 2016.

Plaintiff moved for default judgment against the defaulting Defendants. To avoid the possibility of inconsistent judgments, the Court denied Plaintiff’s motion as premature and instructed Plaintiff to file a renewed motion for default judgment after the case was resolved against the non-defaulting Defendants. Subsequently, Plaintiff settled with each of the non-defaulting defendants and renewed its Motion for Default Judgment.

DISCUSSION

The entry of default judgment is appropriate when a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend and that fact is made to appear by affidavit or otherwise. Prior to obtaining a default judgment, the party seeking judgment must first obtain an entry of default from the Clerk of Court. Plaintiff has satisfied this requirement.

The mere entry of default, however, does not mandate the entry of a default judgment. Instead, the Court must find a sufficient basis in the pleadings for judgment to be entered. Default is not an admission of liability. It is an admission as to the well-pleaded facts in the complaint. The defendant may not challenge those facts on appeal. Once a court determines that default judgment should be entered, the court must then determine the amount and character of the recovery for which a sufficient basis is asserted in the complaint.

Under Georgia law, the insurance policy is governed by the law of the state where the contract was made, unless the application of the foreign law would be contrary to Georgia public policy. Here, the insurance policy was made in Georgia, and thus Georgia law governs. Under Georgia law, when an applicant for insurance makes material misrepresentations or omissions during negotiations, the insurer is entitled to rescind the policy.

Accepting the allegations in the Complaint as true, the Insureds made material omissions during negotiations for the policy. An omission is material where “[t]he insurer in good faith would . . . not have issued the policy or contract . . . if the true facts had been known to the insurer.” Here, the Insureds failed to inform Plaintiff of Defendant Bioproducts’ eviction from the Dry Branch Site—where the wash line was located—and the ownership dispute over the wash line. Had Plaintiff known the omitted facts, it would not have issued the policy.

For purposes of default judgment, a plaintiff’s allegation it would not have issued the policy had it known the omitted facts is sufficient to establish a material omission, and thus the Insureds’ omissions were material. Although the omissions were unrelated to the fire at the Dry Branch Site, rescission does not require that the information concealed be connected to the ultimate cause of the loss.

Accordingly, the Court declared the insurance policy VOID.

ZALMA OPINION

It is obvious why the defendants defaulted. They knew they got the policy as a result of lies. It is not nice to lie to your insurance company and when you do you will find that you never had a policy because it was void from its inception.

 

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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Florida Allows Tort & UM Actions to Be Tried Together

Cannot Sever Three Inextricably Interwoven Claims

An Uninsured Motorist or Underinsured Motorist claim is a suit on a contract of insurance where the insurer agrees to indemnify the insured if injured by an uninsured or underinsured motorist. Usually, UM claims are resolved in arbitration. In Florida, however, a UM/UIM claim can be resolved by litigation.

In Jessica Y. Choi, Petitioner, v. Auto-Owners Insurance Company and Haley P. Beutler, District Court Of Appeal Of Florida Second District, Case No. 2D16-4642 (August 16, 2017) Choi sued Haley P. Beutler for negligence and also sued Choi’s underinsured motorist (UM) insurance carrier, Auto-Owners Insurance Company in the same action. Choi appealed an order granting Auto-Owners’ motion to sever the causes of action against the two defendants.

FACTS

The automobile accident occurred in September 2014. According to the amended complaint, Choi was a passenger in a car that was struck by Beutler’s vehicle. Choi was seriously injured, and Beutler was underinsured. In count one, Choi sought recovery from Beutler for the injuries she suffered in the accident under a negligence theory. In count two, Choi sought UM benefits from Auto-Owners for damages she suffered in excess of the amount covered by Beutler’s insurance policy. In count three, Choi sought punitive damages against Beutler based on a claim that Beutler was intoxicated to the extent her faculties were impaired at the time of the accident.

Auto-Owners filed a motion to sever the UM claim against it from the claims against Beutler in counts one and three.  Auto-Owners also argued it was entitled to severance to avoid prejudice from the jury’s discovering that Choi had insurance coverage and that Beutler was intoxicated at the time of the accident.

The trial court granted the motion finding “Auto-Owners’ arguments to be the more logical and better reasoned view of the current state of the law and application of the rules of procedure in Florida.”

ANALYSIS

Choi’s claims against Auto-Owners and Beutler involve more than interrelated factual issues. In seeking recovery under the UM benefits available to her, Choi has in essence the same cause of action against her UM insurer, Auto-Owners, that she has against the underinsured tortfeasor, Beutler, for damages for bodily injury. Thus, an order severing Choi’s UM claim against Auto-Owners from her claims against Beutler may risk inconsistent outcomes and result in material injury that cannot be corrected on post-judgment appeal.

On the merits, Choi argues that the severance order departs from the essential requirements of the law because it rests on Auto-Owners’ argument that the nonjoinder statute applies to require severance. Auto Owners, at appeal, recognized that joinder is permitted under the circumstances present in this case but it asserts that the trial court had the discretion to grant the motion to sever because the prejudice to Auto-Owners outweighs Choi’s preference to have the claims tried together.

Rule 1.270(b) generally gives courts the discretion to sever claims “in furtherance of convenience or to avoid prejudice.” However, it is well-settled that it is a departure from the essential requirements of the law to sever claims that are inextricably interwoven based on the risk of inconsistent verdicts.

Furthermore, we note that severance would not avoid prejudice to Auto-Owners arising from the claims against Beutler. First of all, the jury would still learn that Choi had insurance coverage in the severed UM action against her insurer. Second, the jury would also learn that Beutler was intoxicated at the time of the accident in the severed UM action.

Choi’s cause of action against Auto-Owners for damages arising from Beutler’s negligence is at heart the same as her cause of action against Beutler. While Choi need not establish entitlement to punitive damages in her action against Auto-Owners, the facts regarding Beutler’s alleged intoxication will be relevant to the issue of fault if Auto-Owners challenges liability, as it asserts it will.

In conclusion, the appellate court reversed the trial court because it concluded the trial court departed from the essential requirements of the law by granting the motion to sever three inextricably interwoven claims.

ZALMA OPINION

To avoid such a conclusion most state UM/UIM statutes require resolution of the UM/UIM claim by arbitration and not litigation. The Florida court simply failed to recognize the prejudice the insurer faces by being joined with the tortfeasor as joint defendants. The two cases – contract & tort – are not inextricably interwoven. They are sincerely and completely different.

 

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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Removing Vehicle from Policy Not a Cancellation

Insured Has No Coverage After Removing Vehicle from Policy

Insurance policies are contracts. Both parties to the contract must abide by the terms and conditions of the policy. When an insured acquires a policy that insures against the risk of loss of operating more than one vehicle the insurer is only obligated to insure against the risks of loss of the vehicles listed in the policy.

An insured has the right to cancel, or modify, the coverages available at his or her option. In Facundo Perez v. American Freedom Insurance Company, Appellate Court Of Illinois Second District, No. 2-17-0081, 2017 IL App (2d) 170081-U, (August 21, 2017) Facundo Perez appealed the trial court’s order granting summary judgment to American Freedom Insurance Company who refused coverage for an accident involving a vehicle not scheduled on the policy.

FACTS

On May 13, 2012, plaintiff was involved in an accident while driving a 1989 GMC S-15 truck. Plaintiff, through his independent agent, Rick’s Insurance Agency (Rick’s), sought coverage under a policy issued by defendant. However, defendant denied coverage, claiming that coverage for the truck had been cancelled at plaintiff’s request.

The insurer moved for summary judgment. It relied on the following facts, which are undisputed:

  • In early 2012, plaintiff and his wife, Laura Garcia, submitted an insurance application through Rick’s. Defendant issued a policy, effective from January 10, 2012, to July 10, 2012. Garcia was listed as the applicant, and plaintiff was listed as a driver.
  • Plaintiff signed the application, but Garcia did not.
  • The policy initially covered a 2000 Dodge Caravan, a 2002 Pontiac Grand Am, and a 1999 Mercury Villager.
  • On February 15, 2012, at plaintiff’s request, defendant added the GMC truck to the policy while deleting the Grand Am.
  • Later that month, defendant requested that plaintiff provide a signed mechanical statement.
  • Because the truck was then about 23 years old, defendant wanted it inspected by a licensed body shop to ensure that it was safe.
  • Defendant issued a notice stating that the policy would be cancelled as to the truck, effective April 1, 2012, if the truck was not inspected.
  • Matt Dewyer, an underwriting supervisor for defendant, averred that on March 31, 2012, defendant received a fax from Rick’s asking defendant to delete the truck from the policy.
  • Defendant did so, effective April 1, 2012.
  • Ricardo Carranza, an insurance broker with Rick’s, averred that on February 28, 2012, he received defendant’s request for a signed mechanical statement regarding the truck. He sent two letters—one in English and one in Spanish—to plaintiff and Garcia, with a copy of defendant’s request.
  • He advised them that the completed mechanical statement should be returned to his office by March 25, 2012, or the policy would be cancelled.
  • On May 14, 2012, someone called Rick’s to say that he or she had been in an automobile accident with a 1989 GMC S-15 driven by plaintiff.
  • About a week later, plaintiff called the agency.
  • Carranza told him that the truck had not been insured for the accident.
  • Milady Rodriguez, office manager of Rick’s, averred that, after Rick’s mailed the inspection notice, plaintiff called the office.
  • Plaintiff said that he had not received the request for an inspection and asked Rodriguez to send the documents to him again.
  • Plaintiff also asked Rodriguez to look for another insurance company.
  • Rodriguez called plaintiff several times to tell him about different insurance policies, but plaintiff did not respond.
  • On March 31, 2012, plaintiff called Rick’s and requested that the truck be deleted from the policy.
  • Plaintiff said that he did not have time to have the vehicle inspected and he did not want the entire policy to be cancelled.
  • Plaintiff was advised that the truck was no longer covered and that it should not be driven until a mechanical statement could be completed and the vehicle added back to the policy, and plaintiff agreed.
  • That same day, Rick’s notified defendant of plaintiff’s request.
  • On April 4, 2012, defendant issued an endorsement deleting the truck from the policy as of April 1, 2012.

Defendant concluded that the truck had been deleted from the policy at plaintiff’s request, it was not covered. The trial court agreed there was no coverage.

ANALYSIS

In his deposition, plaintiff denied receiving the inspection notice from defendant. He did not know whether Garcia received it, but he assumed that she did not, because otherwise she would have told him.

In its response, defendant asserted that, at Garcia’s request, it returned the unearned premiums to Rick’s. In an affidavit, Dewyer stated that defendant issued a refund of $64 to Rick’s. A statement of policy activity issued in April 2012 reflected the credit. Rodriguez averred that, besides the $64 refund attributable to the truck, Garcia received a $6 refund in February for the deletion of the Grand Am from the policy. Rodriguez reminded Garcia in May 2012 that she had $70 in credits and Garcia requested that the refunds be held and used as premiums for a renewal policy.

The court granted defendant summary judgment. The affidavits of Dewyer and Rodriguez proved that defendant refunded $70 to Garcia, who asked that it be held and used to help pay for a renewal policy. The court also rejected plaintiff’s argument that he lacked the authority to have the truck deleted from the policy. The court found that plaintiff acted as Garcia’s agent with regard to the policy: he signed the application in three places, he helped pay for the policy, and he admittedly was the one who called Rick’s to add the truck to the policy.

The trial court correctly found that plaintiff was Garcia’s agent regarding the policy. He was listed as a driver, signed the application in three places (while his wife did not sign it), and helped pay the premium. Moreover, he admittedly was the one who requested that the truck be added to the policy. If plaintiff lacked the authority to delete the truck from the policy, then he certainly lacked the authority to add it to the policy in the first place, and defendant would have been justified in removing it from the policy for that reason alone.

Plaintiff further contends that returning unearned premiums to the insured’s agent to be applied to the purchase of a future policy does not constitute the return of the unearned premiums to the insured. The return of unearned premiums is a condition precedent to cancelling a policy. Beyond establishing this general proposition, however, plaintiff cites no authority for his contention that defendant failed to do so here.

Defendant argues that it did not actually cancel the policy, but merely amended it to delete the truck. Defendant properly refunded the premiums.

Although both parties use the term “cancelled” to describe the removal of the truck from the policy, defendant did not, strictly speaking, cancel the policy. It merely changed the policy to delete the truck. The policy remained in force as to the other insured vehicles.

The trial court properly granted defendant summary judgment on plaintiff’s claim for insurance coverage on a truck that purportedly had been deleted from the policy at plaintiff’s request.

Under the circumstances, plaintiff had the authority to have the truck deleted, defendant effectively returned the unearned premiums, and, because the policy remained in effect as to other vehicles, defendant did not necessarily have to prove its mailing of a notice of “cancellation.”

ZALMA OPINION

It is time that appellate courts faced with specious and almost silly appeals punish the plaintiffs and lawyers who bring appeals like this one where the insured argued that he did not do what the evidence clearly established he did do – ask the insurer to remove the pick-up truck from the policy and then, because he had an accident in it, try to claim the insurer did him wrong by refusing to pay for a coverage it did not agree to provide. It’s time insured’s own up to their actions.

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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Navigation Limits Must Be Honored

No Coverage on Marine Policy When Vessel Damaged Outside Navigation Limits

Although every insurance policy contains an implied covenant of good faith and fair dealing marine insurance policies apply the covenant strictly. Because of the risks involved marine insurers often place navigation limits in the policy to be certain the vessel will not go into dangerous waters.

In Atlantic Specialty Insurance Company v. AC Chicago, LLC, Great Lakes Repair, Inc., United States District Court For The Northern District Of Illinois Eastern Division,  Case No. 15-cv-10972 (August 17, 2017) was faced with a claim for damage to a vessel that went outside the navigation limits set by the policy.

BACKGROUND

Plaintiff is an insurance company, Defendant ACC is an Illinois limited liability company, Defendant Schulz is one of three members of ACC, along with Ryan Weber and Joe Rickard, and Defendant Great Lakes Repair is a Michigan corporation.

The Marine Insurance Policy

The business of ACC was to purchase two America’s Cup Class sailboats and provide corporate charters, team building, client entertainment, and America’s Cup racing experience to the general public. One of these sailboats was the Stars & Stripes (“the vessel”). ACC submitted an insurance application to Plaintiff through its insurance broker. The insurance application requested the following navigation limits: “10 Miles North & 5 Miles East of 31st Street Harbor, Chicago.”

Plaintiff’s underwriter, David C. Richardson, reviewed the ACC application and evaluated the risk of insuring ACC. During his assessment of the ACC application, Richardson reviewed a nautical chart for Lake Michigan’s Chicago shoreline area to identify any potential marine hazards within the navigation limits that ACC requested, as well as in the surrounding area.  Recognizing nearby shoals as a risk, Plaintiff requested that ACC provide the sailing resumes of the captains who would be operating the vessel.  Plaintiff requested this information to determine whether the captains were familiar with Lake Michigan and the waters around Chicago, including the area where the shoals were located.

Based on the information contained in the ACC application, Plaintiff issued the marine policy to ACC. The policy contains a Navigation Condition, which requires that the vessel be confined to a specific navigational area in order for the policy’s coverage to apply. The Navigation Condition states: “It is hereby agreed that it is a condition of the policy that the insured vessel be confined to ten (10) miles North and five (5) miles East of 31st Street Harbor in Chicago, IL when vessels are operated May 1 to October 21 each year. * * * In the event of breach of any condition, coverage shall immediately terminate and shall reattach once said condition is no longer breached.”

The policy also contains a Held Covered Clause, which states: “The vessel is held covered in case of any breach of conditions as to * * * locality * * * provided (a) notice is given to the Underwriters immediately following receipt or knowledge thereof by the Assured and (b) any amended terms of cover and any additional premiums required by the Underwriters are agreed to by the Assured.” (emphasis added)

The Underlying Action

On August 1, 2015, the vessel went on a paid excursion in Lake Michigan. The vessel left 31st Street Harbor and sailed north to Chicago’s Navy Pier. Anthony LaHaie was the captain of the vessel for the trip, and Defendant Schulz, one of ACC’s owners, was on board the vessel acting as a crew member. The vessel sailed back and forth between Navy Pier and the Shedd Aquarium and then headed south to return to 31st Street Harbor. LaHaie, with no objection by Schulz, sailed the boat south of 31st Street Harbor. The wind was strong and out of the northwest at 15-18 knots, and the vessel was headed south at a great rate of speed. The “sea state was a light chop, 1-2 feet,” and traffic was heavy. The vessel sailed approximately one mile south of 31st Street Harbor so that it could be turned into the wind, which served to slow the vessel down. The vessel was then heading northwest, in the general direction of 31st Street Harbor, when it became grounded on a shoal known as the Oakland Shoal, located one mile southeast of 31st Street Harbor.

The vessel was towed off the shoal and the tow resulted in a $200,000 charge. On February 22, 2017, Judge Der-Yeghiayan granted Great Lakes’ motion for default judgment against Schulz and ACC.  During its investigation of the Great Lakes Claim, Plaintiff learned that the vessel was located one mile southeast of 31st Street Harbor when it grounded. Plaintiff subsequently disclaimed coverage because in its view, ACC was operating the vessel outside of the policy’s specified navigation limits at the time of grounding.

ANALYSIS

Plaintiff argues that ACC breached the Navigation Condition by sailing the vessel outside of the navigation limits, and thus the policy does not cover any damage or loss due to the vessel’s grounding.

Navigation Condition

When interpreting insurance contracts, the purpose is to give effect to the parties’ intent. Any ambiguities in an insurance contract are interpreted in favor of the insured. A court may not, however, create an ambiguity when the language is clear and unambiguous. If the words contained in the policy are unambiguous, a court must interpret them based on their plain, ordinary, and popular meaning. Additionally, federal admiralty law requires the strict construction of express warranties in maritime insurance contracts.

Here, the policy’s navigation limits were clearly limited to “ten (10) miles North and five (5) miles East of 31st Street Harbor,” which is what ACC requested in its application. An insurance policy provision is ambiguous only if it is subject to more than one reasonable interpretation.

Under Illinois law, an insurance policy is illusory only if there is no possibility under any set of facts for coverage.  An insurance policy does not need to provide coverage against all possible liabilities; if it provides coverage against some, the policy is not illusory. Here, the policy was not illusory because it clearly provided coverage to ACC when the vessel was within the navigation limits.

If ACC wanted to have coverage when sailing south of 31st Street Harbor in order to enter and exit the harbor, instead of having 31st Street Harbor act as the southern boundary of the navigation limits, then ACC should have specifically requested this coverage area in its insurance application instead of describing its desired navigation limits “in general terms” and unreasonably expecting Plaintiff to provide more coverage than was specifically requested.

The policy contains the exact navigation limits that ACC requested in its application for insurance coverage, which was submitted by ACC’s insurance broker. Plaintiff’s underwriter reasonably relied on these navigation limits in investigating the hazards within the navigation limits that could increase the risk that Plaintiff would be insuring and in providing a quote of insurance. Thus, the navigation limits in the Navigation Condition must be enforced as written.

In sum, the vessel was outside of the navigation limits when it grounded, and thus ACC breached the Navigation Condition.

Held Covered Clause

Held covered clauses protect the owner of the vessel from the harsh result of inadvertent failure to comply with specified warranties of the policy. However, a held covered clause can only apply if the insured’s breach of a condition was not willful. A willful breach of a navigation condition occurs when the insured knowingly and intentionally permits the vessel to travel outside of the navigation limits.

Here, ACC knew that the navigation limits in the policy were ten miles north and five miles east of 31st Street Harbor, as these navigation limits were requested by ACC in its insurance application. Additionally, ACC—with co-owner Schulz aboard—intentionally operated the vessel south of 31st Street Harbor, and thus outside of the specified navigation limits.

It also took two months to report the incident so there is no way to claim notice was “immediate.”

ZALMA OPINION

I continue to be amazed by people who file lawsuits to obtain coverage more than the coverage they asked for and try to pin their error on an insurer who did nothing more than provide the exact insurance ordered. The court granted summary judgment based on the obvious, clear, and unambiguous language of the policy and the facts of the incident.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 Navigation Limits Must Be Honored

Material Misrepresentation Voids Coverage

False Statements on Life Policy Application Sufficient to Void Coverage

Life insurance applications are used by insurers to determine – assuming the good faith and fair dealing of the insured – to make a decision whether to insure or not insure an applicant. If the applicant is not honest or simply lies on the application the insurer may declare the policy void and rescind the policy as if it never existed.

In Midland National Life Insurance Company v. Lisa J. Morrison, Shawn Cudmore Kremer, In Her Capacity As Personal Representative Of The Estate Of Glen D. Cudmore,
Also Known As Glen Duwayne Cudmore, Also Known As Glen Cudmore, Deceased
, United States District Court District Of South Dakota Central Division, 3:16-CV-03002-RAL (August 16, 2017) the beneficiaries of a life insurance policy attempted to recover the benefits of the life insurance policy after the insurer determined that the applicant/decedent had misrepresented material facts to obtain the coverage.

Midland National Life Insurance Company (Midland) sued Defendants Lisa J. Morrison and Shawn Cudmore Kremer seeking rescission of a life insurance policy issued to Glen D. Cudmore, and a declaratory judgment that it has no obligation under the policy other than the refund of premiums paid, plus interest. Morrison is named as the beneficiary to the life insurance policy, and Kremer is the personal representative of Cudmore’s estate. Midland seeks to rescind the policy based on information about Cudmore’s health that it learned during a two year contestability period following the policy’s issuance.

FACTS

During the last years of his life, Cudmore primarily received treatment from Dr. Margaret Upell and nurse practitioner Kathleen Zambo at the Upell Medical Clinic in Eagle Butte, South Dakota, visiting the office on an almost monthly basis. Starting early in 2013 Cudmore’s health care providers noticed elevated PSA levels and eventually required that he undergo a biopsy since there was a high potential of prostrate cancer.

Although he had undergone a biopsy and multiple tests, on November 21, 2013, Cudmore applied for life insurance with Midland and signed Part I of Midland’s General Purpose Life Insurance Application. Cudmore misrepresented and concealed the treatment concerning his prostrate.

As part of the application process, Cudmore had a paramedical examination and completed Part II of the application on December 11, 2013. Again Cudmore concealed or misrepresented the facts about his biopsy and other prostrate investigation and treatment.  The application contained an affirmative oath that: “The above statements and answers are true and complete to the best of my knowledge and belief. I agree that such statements and answers shall be part of the application and are made to induce the Midland National Life Insurance Company to issue the policy or certificate applied for.” Cudmore signed Part II of the application.

On January 10, 2014, Midland issued a life insurance policy to Cudmore, of which he accepted delivery on January 15, 2014, as Policy No. 1503084386. The policy has a face amount of $100,000.

On August 16, 2015, Cudmore died in an ATV accident, and on September 10, 2015, Morrison submitted the appropriate paperwork to claim the death benefit proceeds. Following Morrison’s claim, Midland conducted a routine contestability investigation, as Cudmore’s death occurred within two years from the policy’s effective date. During the course of this investigation, Midland obtained medical records relating to Cudmore involving his elevated PSA levels and the subsequent biopsy to determine whether the elevated PSA levels were related to prostate cancer.

On January 11, 2016, Midland sent letters to both Morrison and Kremer stating that because “Cudmore did not disclose his complete medical history . . . the Company did not have a proper opportunity to evaluate him as an insurance risk,” and had he disclosed his full history, Midland “would not have offered him life insurance coverage under the Policy, and would not have issued the Policy.” Midland alleged that Cudmore “materially misrepresented his medical history” during the application, and “[a]s such, we are exercising our right to rescind the Policy, deeming it null and void. The extent of our liability is limited to the return of all premiums paid into the Policy, plus interest.” Along with the letters, Midland sent a copy of the complaint filed with this Court, which seeks rescission of the life insurance policy “based on Mr. Cudmore’s misrepresentation and omission of material facts.”

Midland sought declaratory relief seeking affirmation of the rescission of the policy.

DISCUSSION

Midland only learned of the allegedly material misrepresentations of Cudmore’s medical history during a review that occurred within the two year contestability period under the insurance policy. In South Dakota, an insurance carrier during the contestability period can review and revoke the policy even if the alleged misrepresentation on the application is not related to the cause of the insured’s death.

By statute, all statements and descriptions in any application for an insurance policy, certificate, or annuity contract, by or on behalf of the insured or annuitant, shall be deemed to be representations and not warranties. No misrepresentation, omission, concealment of fact, or incorrect statement prevents a recovery under the policy or contract unless:

(1) Fraudulent or an intentional misrepresentation of a material fact; or

(2) Material either to the acceptance of the risk, or to the hazard assumed by the insurer; or

(3) The insurer in good faith would either not have issued the policy or contract, or would not have issued it at the same premium rate, or would not have issued a policy or contract in as large an amount, 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.

About six months before Cudmore filled out this part of the application, he had been recommended for, and had undergone, a biopsy of his prostate, which cannot reasonably be considered anything other than a “diagnostic test.” There is no genuine issue of material fact that Cudmore’s failure to disclose his prostate biopsy in response to question 35(c) was a misrepresentation made on the insurance application within the meaning South Dakota statutes.

MATERIALITY OF MISREPRESENTATIONS

A misrepresentation is considered material in an insurance application if it is such as would reasonably influence the decision of the insurer as to whether it would accept or reject the risk.

A misrepresentation of a material fact in reliance on which a contract of insurance is issued avoids the contract, whether the representation was made intentionally and knowingly or through mistake and in good faith.

Along with its motion for summary judgment, Midland filed a declaration from Roger Hofer, an associate chief underwriter with Midland. Hofer reviewed Cudmore’s medical records, applied Midland’s underwriting guidelines and his “knowledge, training, experience, and judgment,” and determined that if Cudmore had not made misrepresentations and had disclosed his full and completed health history, Midland would not have issued a life insurance policy to Cudmore. Specifically, Hofer stated that Midland relies on an insured’s application to determine whether the applicant is insurable under its underwriting guidelines. Hofer declared that under Midland’s guidelines, because Cudmore had one set of biopsies performed on his prostate while he was between the ages of 55 and 70 resulting in an “atypical small acinar proliferation,” Midland would have declined coverage and not issued the policy. A portion of Midland’s underwriting guidelines were attached to Hofer’s declaration and confirm this statement. Hofer declared that these underwriting guidelines were standard in the life insurance industry.

ZALMA OPINION

Insurance is a business of the utmost good faith. The covenant of good faith and fair dealing applies equally to the insured, the applicant for insurance, and the insurer equally. Mr. Cudmore knew, at the time he applied for insurance, that he had been tested for prostrate cancer and had undergone a biopsy and lied on the application. As a result the policy was properly rescinded and the beneficiary recovered nothing but a return of the premium paid.

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 Material Misrepresentation Voids Coverage