A Video About the Effect of the Tort of Bad Faith

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A Video About the Effect of the Tort of Bad Faith

See the full video at https://rumble.com/vhemph-the-effect-of-the-tort-of-bad-faith.html  and at https://youtu.be/Ygvybu6QPZw

It is indisputable that in the 1950’s, 1960’s and 1970’s the insurance industry abused some insureds to avoid paying legitimate claims. Without a factual basis, insureds were accused of arson or other variations on insurance fraud. Indemnity payments were refused on the flimsiest of excuses. People were found to have diseases that only horses could catch. Disability payments were refused because an insured was wheeled in her wheelchair to church one day and, therefore, was not totally house-confined. Insureds were driven into bankruptcy when reasonable demands within policy limits were refused.

To stop this abuse, the courts of the state of California invented the tort of bad faith. It took a universal contract remedy and decided that the breach of an insurance contract without, what the court decided was proper, genuine or even fairly debatable reasons, was transferred from a contract breach into a new tort. Many other states have followed the lead.

Until the invention of the tort of bad faith all that an insured could collect from an insurer that wrongfully denied a claim were the benefits due under the policy. After the creation of the tort of bad faith, the courts allowed the insureds to collect, in addition, the entire panoply of tort damages, including punitive damages.

The tort of bad faith, and the punitive damages that seem to go with it, have, in my opinion, served their purpose. Insurers now have professional claims departments. Insureds are almost universally treated with courtesy and respect. More than 90% of all claims are resolved without litigation or argument. Legitimate claims are paid with alacrity.

Insurance fraud continues to grow. The amount of money taken from insurers every year are in the tens or hundreds of billions of dollars. The fear of punitive damages has made the fight against fraud difficult and almost impossible. Even when an insured is arrested, tried and convicted of the crime of insurance fraud, or attempted insurance fraud. Attempts will still be made to sue the insurer for the tort of bad faith.

Before I retired from the practice of law, I contended daily with insurers who wanted to fight fraud but who found they must decide to pay a claim rather than face the exposure of a punitive damage judgment. Sometimes, the settlement of bad faith lawsuits, where there has been no bad faith and an appropriate denial of a claim or refusal to pay a policy limits demand, the insurer concludes it must pay more to avoid a potential run-away jury.

I can, as my mentors taught me 53 years ago, state with confidence the opinion that an insurer should spend millions of dollars for the defense of a non-covered or fraudulent claim and not a dime for tribute to an insured who brings a spurious bad faith law suit.

However, practical insurance professionals have a need to resolve litigation as inexpensively as possible to protect the shareholders who want the insurer to make a profit. As a result, the insurer will disobey the millions for defense covenant and will make a business decision to pay the non-covered loss or the fraud, rather than take a chance on an adverse verdict.

As with all things in insurance, the attitudes of insurers move in cycles. More often than not, I am now called upon to testify as an expert in bad faith cases that the insurer insists on taking to trial by jury rather than pay off a scofflaw.

I can only hope that this cycle continues and more attempts at fraud are defeated.


© 2021 – Barry Zalma

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

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

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

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

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Substantial Compliance With Statute Effectively Transfers Title to a Vehicle

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Transfer of Title Eliminates Dealer’s Obligation to Insure Vehicle

Delores Zepeda appealed from a summary judgment of the trial court dismissing her claims against Central Motors, Inc. (Central Motors). Zepeda argued that Central Motors’ failure to comply with all of the statutory requirements of KRS 186A.220 served to invalidate its transfer of ownership of a vehicle to the buyer. In Delores Zepeda v. Central Motors, Inc., NO. 2020-CA-0650-MR, Commonwealth of Kentucky Court of Appeals (MAY 14, 2021) Zepeda tried to obtain insurance benefits from the seller of the vehicle in which she was injured because it did not comply with state statutes relating to title to vehicles.

FACTS

Delores Zepeda was a passenger in a 2002 BMW 530i (the vehicle) driven by Darley Morales who was involved in a motor vehicle accident that occurred on August 14, 2014 where Zepeda suffered injuries as a result of the crash.

Subsequently, Zepeda sued Morales’ Estate and the owner of the vehicle, Mr. Garcia. Of particular relevance to the appeal, Zepeda asserted a claim against Central Motors, alleging that its insurance is responsible for damages because it failed to properly transfer title to Garcia.

Central Motors purchased the vehicle on March 19, 2014, and brought the vehicle to Lexington on the same date. On July 24, 2014, Garcia executed a purchase agreement with Central Motors for the vehicle. As part of that transaction, he also executed a power of attorney that permitted Central Motors to execute any other paperwork necessary to transfer title. At that time, Garcia paid Central Motors the necessary fees required to transfer title and fees. In addition, Garcia executed a retail finance agreement to finance his purchase of the vehicle from Central Motors. Finally, Safe Auto Insurance issued an Auto Insurance Policy Declaration on behalf of Garcia, which was provided to Central Motors. Garcia took possession of the vehicle the same day.

On August 11, 2014, Central Motors submitted the documents to the Fayette County Clerk. These documents included an application for a motor vehicle title. Central Motors paid the required fees at that time. On August 13, Central Motors filed a title lien statement with the Woodford County Clerk, which was Garcia’s county of residence. The title for the vehicle was issued in Garcia’s name on August 15, and the vehicle registration was completed and delivered to Garcia on August 18. These latter two dates were after the accident.

Central Motors moved for summary judgment, arguing that it was not the owner of the vehicle for insurance purposes as a matter of law. The trial court agreed with Central Motors, finding that it substantially complied with all statutory requirements to effectively transfer the vehicle to Garcia on July 24, 2014. This appeal followed.

ANALYSIS

Summary judgment is appropriate if the pleadings, depositions, answers to interrogatories, stipulations, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. In this case, there are no disputed issues of material fact. Rather, the only question is whether Central Motors remained the owner of the vehicle for insurance purposes on August 14, 2014 due to its failure to comply with the statutory requirements of KRS 186A.220.

Kentucky is a certificate of title state for the purposes of determining ownership of a motor vehicle and requiring liability insurance coverage. In Kentucky an “owner” means “a person who holds the legal title of a vehicle or a person who pursuant to a bona fide sale has received physical possession of the vehicle subject to any applicable security interest.

Central Motors obtained proof of insurance from Garcia prior to delivering possession of the vehicle to him. Because Central Motors failed to strictly comply with some statutory provisions, Zepeda argues that it is not entitled to take advantage of the “safe harbor” provisions of KRS 186A.220(5).

Substantial compliance, i.e., late compliance, allowa the dealer to take advantage of the exception in KRS 186.010(7)(c). The intention of the legislature in those provisions was to effectuate an efficient registration and titling process. If a dealer complies with these requirements late, it does not vitiate the overarching goal. Substantial compliance is sufficient for those sections. A licensed dealer, therefore, can cure an untimely compliance with KRS 186A.220, sections 1 through 4, by complying at a later date.

When the proper legal documents are transferred from the dealer to the buyer, the responsibility for insurance coverage on the part of the dealer ceases. Even if the dealer fails to strictly comply with the requirements the dealer will not be considered the owner of the vehicle if it complied with those requirements prior to the accident and it verified the buyer’s insurance prior to delivering possession.

By filing the required paperwork to transfer the vehicle to Garcia, Central Motors accomplished the purpose of KRS 186A.220(1). Central obtained proof of insurance from Garcia before giving him possession of the vehicle, and it filed the application for a certificate of title with the required fees prior to the accident.

The appellate court agreed with the trial court that Central Motors was not the owner of the vehicle on August 14, 2014, and had no liability for insurance coverage. Consequently, the trial court properly granted summary judgment for Central Motors on this issue.

Ownership of the vehicle transferred to the buyer upon delivery of possession, and Central Motors ceased to have any obligation to insure the vehicle. The summary judgment granted by the trial court was affirmed.

ZALMA OPINION

It is often sad that some people have insufficient insurance protection to properly compensate a person injured by the negligent operation of a motor vehicle. Regardless, it is just plain wrong to stretch statutes to try to impose liability upon the seller of a vehicle who substantially complied with the statute and ascertained that the buyer of the vehicle was properly made the title owner and had insurance in accordance with the law before allowing him possession of the vehicle.


© 2021 – Barry Zalma

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

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

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

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

 

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A Video About the Assault & Battery Exclusion

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Intentional Torts Should Never Be Insurable

See the full video at https://rumble.com/vhcptz-a-video-about-the-assault-and-battery-exclusion.html and at https://youtu.be/uKrIFCLPDvM

Insurance against the liability that comes from an intentional tort is said to be against “public policy.” Insurance companies are generally forbidden to write liability insurance promising protection against the consequences of an intentional tort since such activity would encourage intentional torts.

Assault or battery is, by definition, intentional torts that should not be insured. An assault is defined as:

An intentional, unlawful offer of corporal injury to another by force, or force unlawfully directed toward person of another, under such circumstances as create well-founded fear of imminent peril, coupled with apparent present ability to execute attempt, if not prevented.

Battery differs from assault only in that the present ability is carried out and there is an actual, unwarranted touching that causes a corporal injury to another.

Insurance involves the transfer from the policyholder to the insurer of the risk of possible losses. It should never be available for losses that the policyholder knows of, plans, intends, or is aware are substantially certain to occur. The standard “occurrence” definition excludes coverage for injury expected or intended by the insured and incorporates the fundamental concept that fortuitous loss as a prerequisite for coverage.

 


© 2021 – Barry Zalma

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

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

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

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

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A House is not Built by Magic

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Depreciation of Labor & Materials is Needed to Determine ACV

I have argued against those courts who claim insurers, when determining, ACV, should only depreciate materials and not labor. To reach such a conclusion those courts need to conclude that a house is built magically by materials only that never require the labor of a person to bring those materials together to make a home. In Thomas Accardi v. Hartford Underwriters Insurance Company, No. 42A19, 373 N.C. 292, 838 S.E.2d 454, Supreme Court of North Carolina (February 28, 2020) the Supreme Court ruled with logic and common sense when asked to rule that ACV can only be determined by depreciation of materials and not the labor required to complete a repair.

FACTS

Plaintiff owns a home in Fuquay Varina, North Carolina that was damaged in a hailstorm on or about 1 September 2017. The storm caused damage to the roof, siding and garage of plaintiff’s home and required repair and restoration. At the time of the damage, the home was insured by defendant.

Plaintiff submitted a claim to defendant requesting payment for the damage to the home. Defendant confirmed the damage was covered under plaintiff’s policy and sent an adjuster to inspect the home on or about 26 September 2017. The adjuster inspected the property and prepared an estimate of the cost to repair or replace the damaged property. According to the estimate, plaintiff’s home suffered $10,287.28 in loss and damages. This estimate included costs for materials and labor to repair the home, as well as sales tax on the materials.

The terms of the policy provided that defendant would initially pay plaintiff the ACV. Once the item was repaired or replaced, defendant would settle the claim at RCV. In other words, defendant would reimburse plaintiff for any extra money paid to repair or replace the item, up to the RCV. While not defined in the base policy, the term ACV was defined in a separate endorsement limited to roof damage, which provided the following:

You will note your policy includes Actual Cash Value (ACV) Loss Settlement for covered windstorm or hail losses to your Roof. This means if there is a covered windstorm or hail loss to your roof, [defendant] will deduct depreciation from the cost to repair or replace the damaged roof. In other words, [defendant] will reimburse for the actual cash value of the damaged roof surfacing less any applicable policy deductible. (emphasis added)

In the current action, defendant calculated the ACV by reducing the estimated cost of repair by depreciation of property and labor, as provided in the limited endorsement. Thus, plaintiff’s total estimated cost of repair for the dwelling and other structures, $10,287.28, was reduced by the $500 deductible and depreciation in the amount of $3,043.92—which included the depreciation of both labor and materials. This resulted in plaintiff being issued an ACV payment of $6,743.36. According to plaintiff, in determining the ACV, defendant was required to separately calculate the materials and labor costs of repairing or replacing his damaged property and depreciate only the material costs, not the labor costs, from the total repair estimate. Based on this argument, plaintiff sought to represent a class of all North Carolina residents to whom defendant paid ACV payments, where the cost of labor was depreciated.

Defendant moved to dismiss for failure to state a claim contending that the plain meaning of ACV includes the depreciation of both labor and materials. The Business Court concluded that “the term ACV as used in [t]he [p]olicy is not ‘reasonably susceptible to more than one interpretation,’ and that the term ACV unambiguously includes depreciation for labor costs.” The Business Court determined that while the “definitions” section of the insurance policy does not provide a definition of the term “ACV,” the definition used in the roof coverage addendum sufficed. Thus, the definition from the roof coverage addendum should be read in harmony with the use of the term “ACV” throughout the policy. Regarding the term “depreciation,” as used in calculating ACV, the court determined that the term was unambiguous because the policy did not distinguish between depreciation of labor and depreciation of material costs.

To hold otherwise, the court stated, would be to read a nonexistent provision into the policy that excludes labor costs. In the court’s view, “it does not make logical sense to separate the cost of labor from that of physical materials when evaluating the depreciation of a house or its component parts,” when the value of a house is more than simply the costs of the materials used.

ANALYSIS

Courts outside of North Carolina are split on whether the term “depreciation” includes both labor and materials. Decisions from other jurisdictions, however, provide little guidance to this Court because the policy language in each case differs meaningfully, as do the insurance laws of each state.

The Supreme Court concluded that “Actual Cash Value,” as used in the policy, is not susceptible to more than one reasonable interpretation and the term unambiguously includes costs for the depreciation of labor. Although the base policy fails to define the term, the roof coverage addendum provides a definition that must be read in harmony with the remainder of the policy.

Neither is the term “depreciation” ambiguous. The policy language provides no justification for differentiating between labor and materials when calculating depreciation, and to do so makes little sense.

The value of a house is determined by considering it as a fully assembled whole, not as the simple sum of its material components. To conclude that labor is not depreciable in this case would “impose liability upon the company which it did not assume,” and provide a benefit to plaintiff for which he did not pay.

The Supreme Court of North Carolina refused to do so and concluded that the insurance policy at issue unambiguously allows for depreciation of the costs of labor and materials.

ZALMA OPINION

Until technology creates a method to build a home without the labor of any human when determining ACV by using the common technique of determining replacement value and then depreciating that cost to reach ACV, it only makes sense to depreciate the full cost of the repair or replacement. Since building a house or repairing a roof without labor is impossible the North Carolina Supreme Court’s decision is obvious and those that rule labor cannot or should not be depreciated are illogical and a means to punish an insurer by making insurers pay a benefit it did not assume and for which the insured did not pay.


© 2021 – Barry Zalma

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

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

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

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

 

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A Video About More Exclusions

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Exclusions for Wear & Tear, Depletion, Deterioration, Rust, Corrosion and Erosion, and Water Damage

See the full video at https://rumble.com/vhao2h-a-video-about-more-exclusions.html and at https://youtu.be/3agTCVEGtGc

Wear and Tear

The wear and tear exclusion, perhaps because it is so obvious, has seldom been the subject of appellate review. The exclusion for wear and tear is not, however, as argued by the insured, limited to ‘abnormal wear and tear,’ but rather encompasses all ‘wear and tear’. See Lovell v. State Farm Mut. Auto. Ins. Co., 466 F.3d 893, 902 (10th Cir.2006) Applying Colorado law and holding that when the language used in an insurance contract is plain and its meaning is clear, the agreement must be enforced as written. The policy at issue unambiguously excludes losses caused, “directly or indirectly,” by ‘wear and tear, marring, scratching, deterioration.

Deterioration, depletion, inherent vice or latent defect, rust or corrosion, mold, wet or dry rot, erosion

The plain meaning of the exclusion is the insurer will not cover slow-moving disintegration or corrosion of the concrete foundation because of external forces. Whether deterioration be termed corrosion, decay, or any one of several other synonyms, damage caused by contact between the soil and foundation of the house is precisely the type of loss the exclusion was meant to cover.

Water Damage

For water damage to be covered in most residential properties there must first be damage to the roof by wind.


© 2021 – Barry Zalma

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

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

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

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

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Charitable Immunity Defeats Malpractice Suit

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Arkansas Makes Charitable Entities Immune from Suit

After being sued for medical malpractice a hospital and its doctors and nurses moved for summary judgment asserting charitable immunity. In St. Bernard’s Community Hospital Corporation D/B/A Crossridge Community Hospital v. Terry Cheney, In His Capacity As Special Administrator Of The Estate Of Sandra Cheney, Deceased; Charles King Bibby, M.D.; Wynne Medical Clinic, P.A.; James Donald Cathey, M.D.; Zachary Lloyd Stevenson, M.D.; And Elizabeth A. Ramsey, R.N., No. CV-19-324, 2021 Ark. App. 236, Arkansas Court Of Appeals Divisions III And IV (May 12, 2021) the Court of Appeal was asked to enforce the immunity and dismiss the lawsuit.

FACTS

Sandra Cheney was a patient at CrossRidge and died in the care of the hospital after experiencing septic shock and associated system failure. After her death, her husband was appointed as special administrator of her estate and sued CrossRidge and several other doctors and entities for negligence and medical negligence in their care and treatment of Ms. Cheney.

This case involves the defense of charitable immunity raised by a hospital. CrossRidge filed a motion for summary judgment arguing it was entitled to charitable immunity. The trial court denied the motion for summary judgment, finding that there are material issues of disputed facts as to whether the doctrine of charitable immunity applies. CrossRidge appealed.

CrossRidge operates an acute care hospital located in Wynne, Arkansas, and provides emergency and acute hospital care to citizens of Cross County, Arkansas, and surroundings areas. CrossRidge filed a motion for summary judgment claiming it was immune from suit based on the doctrine of charitable immunity. CrossRidge attached supporting exhibits that included its articles of incorporation and bylaws, an independent auditor’s report, its financial statements, its financial-assistance policy, and confirmation from the Internal Revenue Service of CrossRidge’s tax-exempt status.

SBHC, SBMC, and CrossRidge are charitable, non-profit corporations. The Craighead County Circuit Court affirmed SBHC’s charitable status on July 28, 2016, and it has affirmed SBMC’S charitable status six times in the past seventeen years.

ANALYSIS

The essence of the charitable-immunity doctrine is that organizations such as agencies and trusts created and maintained exclusively for charity may not have their assets diminished by execution in favor of one injured by acts of persons charged with duties under the agency or trust. Charitable immunity is immunity from suit, not simply immunity from liability. Immunity from suit is an entitlement not to stand trial or face the other burdens of litigation, while immunity from liability is a mere defense to a suit. Because the charitable-immunity doctrine favors charities and results in a limitation of potentially responsible persons whom an injured party may sue, an appellate court must give the term “charitable immunity” a narrow construction.

To be entitled to charitable immunity a court must determine:

  • whether the organization’s charter limits it to charitable or eleemosynary purposes;
  • whether the organization’s charter contains a “not-for-profit” limitation;
  • whether the organization’s goal is to break even;
  • whether the organization earned a profit;
  • whether any profit or surplus must be used for charitable or eleemosynary purposes;
  • whether the organization depends on contributions and donations for its existence;
  • whether the organization provides its services free of charge to those unable to pay; and
  • whether the directors and officers receive compensation.

These factors are illustrative, not exhaustive, and no single factor is dispositive of charitable status. A pivotal issue in determining one’s entitlement to charitable immunity is whether the charitable form has been abused. The standard for whether to grant summary judgment in a charitable-immunity case was set forth by the Arkansas Supreme Court in Anglin v. Johnson Regional Medical Center, 375 Ark. 10, 15, 289 S.W.3d 28, 31 (2008).

If there are disputed material facts regarding charitable immunity, then summary judgment is improper because these disputed facts must be determined by a jury. If, however, there are undisputed facts and merely differing interpretations of those facts, then summary judgment is proper if reasonable persons could not reach different conclusions based on those undisputed facts.

The Court of Appeal determined that the trial court erred in finding that there were disputed material facts. Rather, the facts in this case were undisputed with merely different interpretations. Therefore, in the summary-judgment proceeding, the trial court should have determined whether CrossRidge was entitled to charitable immunity on these undisputed facts.

Cheney only offered an argument that CrossRidge does show a surplus, and that it discounts its numbers by payments to entities with joint ownership, which its admits are separate and distinct. However, CrossRidge’s articles and bylaws state that no part of its net earnings will inure to the benefit or be distributable to any of its directors, officers, or other private persons.

A modern hospital, with rare exceptions, would find it extremely difficult to operate wholly or predominantly on charitable donations. The fact that a non-profit medical provider relies on funding sources other than contributions or donations cannot negate its overriding charitable purpose. Simply because a hospital relies on sources other than contributions or donations does not necessarily negate its charitable status. In accordance with its stated mission, CrossRidge is committed to providing financial assistance to people who are uninsured, underinsured, ineligible for a government program, or otherwise unable to pay for emergency and other medically necessary care. CrossRidge will provide care of emergency medical conditions to individuals regardless of their ability to pay.

This case involves differing legal interpretations of undisputed facts. In such cases, the trial court should grant summary judgment when reasonable persons could not reach different conclusions based on the undisputed facts.

ZALMA OPINION

Charity is important and charitable organizations like the hospital defendants need protection from litigation that would reduce the funds available to provide charitable services. In Arkansas the state has established a charitable immunity to protects the charities from litigation. As a result, even if the hospital was negligent and caused the death of Sandra Cheney her heirs have no right to sue the charitable institution for damages. Whether this is a universal good is open to conflicting opinions but the immunity makes it possible for a hospital to go on providing charitable medical care without expensive malpractice insurance.


© 2021 – Barry Zalma

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

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

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

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

 

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A Video Explaining Four Exclusions

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Mysterious Disappearance, Loss or Shortage Disclosed on Inventory, Intentional Acts & Inherent Vice

See the full video at https://rumble.com/vh8itd-a-video-explaining-four-exclusions.html and at https://youtu.be/YWcaRi9_gWg

An exclusion is a provision of an insurance policy referring to hazards, perils, circumstances, or property not covered by the policy. Exclusions are usually contained in the coverage form or causes of loss form used to construct the insurance policy.” [IRMI Online Glossary of Insurance & Risk Management Terms https://www.irmi.com/online/insurance-glossary/terms/e/exclusion.aspx (last visited Mar. 8, 2017)].

Intentional Act

“One common exclusion is a clause that prohibits coverage for an intentional loss.”

Mysterious Disappearance

The term “mysterious disappearance” first appeared in insurance policies in 1943. Johnson v. General Accident, Fire & Life Assur. Corp., 454 S.W. 2d 837, 838 (Texas California Civil Code. App. 1970). The term has been defined several ways, but all share the sense of an unexplained loss.

The term “mysterious disappearance” first appeared in insurance policies in 1943. Johnson v. General Accident, Fire & Life Assur. Corp., 454 S.W. 2d 837, 838 (Texas California Civil Code. App. 1970). The term has been defined several ways, but all share the sense of an unexplained loss.

Shortage Disclosed on Inventory

The “mysterious disappearance” exclusion is often paired with, or followed by, an exclusion for loss or shortage disclosed on taking an inventory because of the similarity of moral hazard raised by losses either unknown or not discovered until an inventory is taken. The inventory shortage exclusion is often misunderstood and misapplied. The exclusion, in simple, clear and unambiguous language states: “This policy does not insure against … [l]oss or shortage disclosed upon taking inventory.”

Inherent Vice

Inherent vice relates to internal decomposition or some quality which brings about the object’s own injury or destruction, not an extraneous cause. [Employers Casualty Company v. Holm, 393 S.W. 2d 363, 367 (Tex. Civ. App. 1965).] The subjective test for fortuity raises questions regarding whether the inherent vice exclusion is effective.


© 2021 – Barry Zalma

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

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

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

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

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Mafioso Cons Jeweler Out of $2.09 Million

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Clear and Unambiguous Exclusion Must Be Enforced

On Tuesday, March 21, 2017, plaintiff Crown Jewels was contacted by a person who identified himself as Paul Castellana, who represented that he worked for Sony Pictures International, was shooting a video with Jennifer Lopez, and wanted to borrow pieces of plaintiff’s jewelry for the shoot, which was to be in Miami the coming weekend. Plaintiff and Castellana communicated via email, Castellana using a Sony Pictures International email address. After the two settled on five pieces of jewelry totaling $2.09 million, Castellana sent plaintiff a certificate of insurance for the items. He also gave plaintiff the contact information for someone who could confirm the authenticity of the certificate of insurance; the contact information matched the person’s contact information on the insurance group’s website. The person confirmed to plaintiff that Castellana was “a good client of his” whose “reputation in the industry [was] stellar.” Plaintiff then gave the jewelry to an associate of Castellana’s who had come to plaintiff’s store to collect it. When Castellana failed to return the jewelry the following week, plaintiff contacted law enforcement, hired a private investigator, and filed a claim with defendant.

In Crown Jewels Estate Jewelry, Inc., Doing Business as Stephen Russell v. The Underwriters at Interest at Lloyd’s London, etc., 2021 NY Slip Op 03110, Index No. 655939/17, Appeal No. 13833, Case No. 2020-04312, Appellate Division of the Supreme Court of the State of New York (May 13, 2021) Crown Jewels appealed the trial court order which denied plaintiff’s motion for summary judgment. Plaintiff, a high-end jeweler in Manhattan, was insured under an all-risk, jewelers block policy issued by defendant. The policy excluded from coverage:

[l]oss, damage or expense caused by or resulting from sabotage, theft, conversion or other act or omission of a dishonest character . . . on the part of any person to whom the Interest Insured may be delivered or entrusted by whomsoever for any purpose whatsoever . . .  (hereafter the dishonest entrustment exclusion).

Investigation revealed that Castellana was an alias for one James Sabatino, a member of the Gambino Organized Crime Family of La Cosa Nostra (United States v Sabatino, SD Fla, Case No. 16-20519-CR-JAL, Case Management/Electronic Case Filing [CM/ECF] Doc. No. 231, “Stipulated Factual Proffer,” at ¶¶ 3, 30).

While in federal prison in Miami, Sabatino managed to obtain several cell phones, which he used to create the Sony Pictures International email address and communicate with plaintiff by voice call and email. His co-conspirators then collected the jewelry and transported or sent it to others in south Florida or elsewhere for resale. The jewelry at issue in this case was never recovered. The fraud was discovered serendipitously when federal prison officials went to Sabatino’s cell to search it and found him on the phone; a search of the phones themselves uncovered his scheme. Sabatino ultimately pleaded guilty in federal court to one count of conspiracy to violate the RICO Act and was sentenced to a term of 240 months in Florence ADMAX in Colorado.

Lloyd’s denied plaintiff’s insurance claim, relying on the dishonest entrustment exclusion, and plaintiff sued Lloyd’s for breach of contract.

ANALYSIS

The plain language of the dishonest entrustment exclusion, by which the appellate court must be guided, confirmed that the exclusion applies to the present case because the loss of plaintiff’s jewelry resulted from theft, or an act of a dishonest character, on the part of the persons to whom the jewelry was entrusted.

It is irrelevant to whom, or for what purpose, the jewelry was actually or intended to be entrusted because entrustment is to be determined by the state of mind of the insured rather than that of the recipient.

ZALMA OPINION

Jewelers are happy to loan expensive jewelry to movie stars and movie companies because the publicity is valuable. They demand insurance protection. Unfortunately, Crown Jewels relied on the thief to give him the e-mail and telephone number of the insurer to confirm the existence of insurance. Of course, the person contacted was an associate of Sabatino, the jewels were delivered and never seen again. The jeweler found it had no insurance and must eat the more than two million dollar loss. Cr0wn Jewels will never loan jewelry again without a complete and thorough investigation of the borrower and the insurer who must name them as an insured. A very expensive lesson learned.


© 2021 – Barry Zalma

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

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

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

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

 

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A Video About Coverage Counsel

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How Claims Counsel & Coverage Counsel and the Adjuster Establishes Coverage

See the full video at https://rumble.com/vh6lr9-a-video-about-coverage-counsel.html  and at https://youtu.be/lmH7Yy_fJeQ

The insured may meet with an attorney representing the insurer under two circumstances:

  • If the insured has been sued by a third person the insurer will retain counsel to defend the insured at the insurer’s expense. Counsel will meet with the insured and work to present the most effective defense to the suit. Insureds most often meet with claims counsel in a situation where the insured is in an automobile accident and a third party sues him or her for injuries incurred in the accident.
  • If there is a problem with coverage or with the extent of the claim, if the insured retains counsel to present his or her claim, or if fraud is suspected, the insurer will retain counsel to protect its interests. Attorneys who represent insurers in such situations are often referred to as “Coverage Counsel.” Coverage Counsel will usually deal with the insured’s personal attorney.

The insured may meet with Coverage Counsel if an examination under oath is demanded by the insurer to resolve coverage issues found in the investigation of a first party property claim. In that case the insured must, as a condition of the insurance, appear before claims counsel and give sworn testimony.

The insurance Examination Under Oath (“EUO”) is a formal type of interview authorized by an insurance contract. It is taken under the authority provided by a condition of the insurance contract that compels the insured to appear and give sworn  testimony on the demand of the insurer or find his, her or it claim rejected for breach of a condition. A notary and a certified shorthand reporter are always present to give the oath to the person interviewed and record the entire conversation.


© 2021 – Barry Zalma

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

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

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

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

 

 

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When an Insurer Fulfills its Promises There Can Never be “Bad Faith”

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It is Contumacious to Sue an Insurer Who Fulfills all Promises Made by its Policy

An insurance contract is nothing more than mutual promises made by the insurer to the insured and from the insured to the insurer. When an insurer keeps all of the promises it made, settles a claim made against its insured before suit is filed, it has fulfilled all of the promises made by the policy.

In NL Corp., Inc. v. Seneca Specialty Insurance Company, Appellate Case No. 28927, 2021 Ohio 1610, Court Of Appeals Of Ohio Second Appellate District Montgomery County (May 7, 2021) NL sued its insurer for bad faith after it settled a wrongful death claim and obtained a release in favor of NL of all potential claims. Regardless, NL sued only to see Seneca obtain a summary judgment requiring NL to pay its deductible as it promised.

NL Corp., Inc. appealed from the judgment. NL contended that Seneca’s wrongful conduct in handling the matter required NL to retain an attorney, and that Seneca refused to reimburse NL for the attorney’s fees and costs. NL also appealed from the trial court’s granting summary judgment on Seneca’s counterclaim for the deductible owed under the insurance policy, which NL had refused to pay. Seneca contended that, because it paid the claim, NL was obligated to pay the deductible.

Factual Background

NL operates a nightclub in the Dayton area. On May 11, 2014, a patron at the club, Adam Bishop, fell in the parking lot after a confrontation with club security and struck his head on the pavement; he died several days later. The police took witness statements and prepared a police report, and the police were given surveillance video that had recorded Bishop’s fall.

Fearing criminal and civil liability, NL retained attorney Scott Jones. About a month after the incident, NL reported the incident to its insurance company, Seneca. NL, after months of delay and refusal to cooperate, finally gave Seneca the surveillance tape. Seneca advised its insured outlining its preliminary coverage position that it concluded the $250,000 assault-and-battery limit under the policy may apply to the claim and indicated that NL had not cooperated with Seneca’s investigation of the claim.

Seneca maintained that it had no obligation to pay for counsel for NL, because no suit had been filed. Nevertheless, at Jones’s insistence, Seneca appointed attorney David Ross to represent NL in the investigation. But NL was not satisfied. It wanted separate counsel, unbeholden to Seneca, because NL was concerned about a potential conflict of interest between it and Seneca in the event that the Bishop family brought a claim for an intentional tort or over-the-limit coverage questions arose.

Bishop was a resident of Missouri at the time of his death, and under Missouri law, a settlement of a wrongful-death claim had to be approved by a Missouri probate court. A probate case was opened, and on December 15, 2015, the Bishop family’s settlement agreement with Seneca was approved by the court. Seneca paid the family the agreed $250,000 under the policy’s coverage for assault and battery.

After the settlement NL sued Seneca, claiming that Seneca claiming it had breached the insurance policy by refusing to reimburse it for it’s independent counsel, Jones’s, fees and costs. Seneca counterclaimed that NL had refused to pay the $5,000 deductible that it owed under the policy after Seneca made the payment to the Bishop family.

Seneca moved for summary judgment on NL’s claims and on its counterclaim for payment of the deductible. The trial court sustained Seneca’s motion.

Analysis

Other than its failure to mention the affidavit of NL’s expert there was no evidence suggesting that the trial court did not consider the affidavit. Regardless the court had good reason not to consider the expert’s opinion since an expert cannot properly give an opinion on the law that applies in a dispute.

Breach Of Contract, Bad Faith, And The Deductible

NL claimed that Seneca breached the insurance policy by not providing NL an adequate or continuing defense, not adequately and timely investigating the incident and coverage obligations, and refusing to reimburse NL for the attorney fees and costs that it incurred in using independent counsel to protect its interests.

Applying the contract language Seneca agreed to pay those amounts that NL became legally obligated to pay as damages because of Bishop’s injury. Seneca reserved the right and duty to defend NL against any “suit” seeking those damages. In many places, the insurance contract distinguishes between a “suit” and a “claim.” With respect to the Bishop occurrence, Seneca’s contractual duty to defend NL was never triggered because there was never a “suit.” There was only a claim made directly to Seneca by the Bishop family. The probate case in Missouri was a “civil proceeding,” but it did not seek damages, being merely a proceeding to approve the settlement. Therefore, Seneca was not obligated to appoint counsel for NL.

Seneca did not have a contractual duty to reimburse NL for the fees and costs that NL incurred by retaining Jones as its attorney before the occurrence was even reported to Seneca. Under the insurance contract, Seneca agreed to pay reasonable expenses incurred at its request. However, Seneca never asked NL to hire an attorney. The policy, by its terms, NL agreed that it would not voluntarily incur any expense “without our [Seneca’s] consent.” The insurance contract here did not require Seneca to provide NL a defense until there was a lawsuit for damages. While NL’s hiring of an attorney to investigate and prepare for potential litigation might have been a good idea, it was not something for which Seneca was obligated to pay.

A “suit” was needed to trigger Seneca’s obligation to assign counsel for a defense. There was no “suit.” Seneca had no contractual duty to defend NL and no contractual obligation to reimburse NL for the attorney that NL voluntarily retained.

Bad-Faith Claim

The Court of Appeal saw nothing unreasonable about Seneca’s refusal to provide a defense since there was no suit.  NL presented no evidence that anything Seneca did was arguably unreasonable, given the circumstances and undisputed terms of the contract.

The Deductible

As to Seneca’s counterclaim for the deductible that it said NL owed under the insurance contract, NL argued that Seneca’s failure to reimburse it for attorney fees and costs constituted a material breach that relieved NL from paying the deductible.

There was no dispute that an endorsement required NL to pay Seneca a $5,000 deductible. Seneca settled the Bishop family’s claim for the full amount available under the policy’s assault-and-battery coverage, triggering NL’s obligation to pay and protected NL from a judgment in excess of the policy limit. Since the Court of Appeal concluded that Seneca had no obligation to reimburse NL for its counsel’s fees the deductible was owed.

NL failed to produce summary judgment evidence to create a genuine issue of material fact as to whether Seneca breached the insurance contract, whether Seneca acted in bad faith, or that NL did not owe the deductible.  Seneca was not obligated to pay the fees and costs of the attorney that NL voluntarily retained. Further, Seneca did not act in bad faith in its handling of the matter. And, because Seneca paid the claim, NL is obligated to pay the required deductible.

ZALMA OPINION

An insurer that – with little assistance from its insured – kept all the promises made by it in the policy of insurance should be praised for its conduct not sued. But since no good deed goes unpunished it was sued for breach of contract and bad faith by the insured it protected. The Ohio Court properly refused to allow NL to bludgeon its insurer to pay for actions it did not agree to pay by making a claim of bad faith. It failed because the court actually read the policy and found that Seneca did exactly what it promised to do and should have been rewarded for its conduct not accused improperly of wrongdoing.


© 2021 – Barry Zalma

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

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

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

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

 

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Failure to Pay Premium Finance Can be Expensive in Many Ways

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Cancellation Triggered Audit Which Cost Insured Much Additional Premium

FAILING TO PAY ADDITIONAL PREMIUM IS BREACH OF CONTRACT

Ryan and Heather Bollschweiler own Redstang Enterprises (collectively, Redstang), an unincorporated business that builds horse-related corrals and structures. Redstang appealed the superior court’s grant of summary judgment for Travelers Property Casualty Company of America. In Travelers Property Casualty Company Of America v. Ryan Bollschweiler, et al., No. 1 CA-CV 20-0338, Arizona Court Of Appeals Division One (May 11, 2021) the Court of Appeal was faced with claims of bad faith.

FACTUAL HISTORY

Redstang did not qualify for workers’ compensation insurance coverage in the marketplace because it had a lapse in insurance coverage. Redstang, therefore, applied for workers’ compensation insurance through the National Council for Compensation Insurance (NCCI), the designated plan administrator for Arizona’s “assigned risk plan.” NCCI does not provide insurance coverage. Instead, it accepts applications, estimates the annual premium based on the application, and assigns the application to an insurer to provide coverage.

Employers apply for coverage through the assigned risk plan using standardized application forms. The application specifically notifies applicants that insurance coverage is “afforded under the applicable Workers Compensation Insurance Plan [WCIP] developed or administered by NCCI.” (Emphasis added.)

In total, the application forms mention NCCI’s plans, policies, and procedures more than two dozen times. In its application, Redstang listed four employees and no uninsured subcontractors. Based on this information, NCCI estimated Redstang’s annual premium at about $6,850.00. NCCI then assigned the application to Travelers, who issued a workers’ compensation policy to Redstang.

The policy expressly stated the initial premium was merely an estimate, and “[t]he final premium will be determined after this policy ends by using the actual, not the estimated, premium basis and the proper classifications and rates that lawfully apply to the business and work covered by this policy.” To that end, the policy required Redstang to “keep records of information needed to compute premium.”

Redstang entered into a financing agreement with Imperial PFS to pay the estimated premium. The agreement included a power of attorney, giving Imperial the authority to cancel the policy on Redstang’s behalf if Redstang defaulted on its installment payments.

Several months later, Redstang defaulted on its payments to Imperial. Based on the default, Imperial exercised its authority under the power of attorney and mailed a letter to Redstang and Travelers cancelling Redstang’s policy. Redstang did not object to the cancellation, and Travelers complied with Imperial’s request to cancel the policy.

Under NCCI practices and consistent with the policy terms, Travelers conducted a cancellation audit. The audit revealed two notable issues: (1) along with the four listed employees, two subcontractors required coverage; and (2) Redstang’s records did not contain adequate information to allow Travelers to segregate Redstang’s employees’ work by classification as required by NCCI Rule 2G.

The time sheets available for audit typically have a few words to explain each employee’s workday—sometimes covering more than 12 hours. Though some explicitly say “roofing,” most contain vague descriptions such as “welding,” “sheet metal,” or “red heads.” Others have multiple duties lumped together for a day. One timesheet provides no work description at all listing only “47 y Greenway.”

Because Travelers could not identify “the actual time spent working within each job classification,” it calculated Redstang’s final premium using only “the highest rated classification,” code 5059, as Rule 2G requires. This resulted in an annual premium of $48,171.00.

When Redstang failed to pay the outstanding balance, Travelers sued for breach of contract. Redstang answered, asserting counterclaims of consumer fraud and deceptive insurance practices. The superior court found for Travelers, entering judgment against Redstang for: $40,604.00, with interest, in contract damages; $10,000.00 in attorney fees; and $6,405.03 in taxable costs.

ANALYSIS

Although some believe the best defense is a strong offense, charging an insurer with consumer fraud and deceptive insurance practices – without evidence to prove the charges – is contumacious.

The Court of Appeal noted that summary judgment is appropriate when no genuine dispute as to any material fact exists and the moving party is entitled to judgment as a matter of law.

Redstang argued it did not breach its contract with Travelers because the NCCI Basic Manual does not control the policy. Contrary to the argument it is clear that Arizona established the assigned risk plan by statute as the coverage of last resort for employers who cannot otherwise obtain workers’ compensation insurance. As the designated plan administrator, NCCI must “develop a plan of operation” for the assigned risk plan, including “[a] method for apportioning the workers’ compensation assigned risks among all insurers.” Travelers, in turn, must participate in the assigned risk plan because it provides workers’ compensation insurance in Arizona. Arizona statute expressly prohibits any deviation from NCCI rating rules by providers in the assigned risk plan.

Arizona state law, the application, and the final policy provided notice that NCCI’s rules and procedures governed Redstang’s insurance coverage. Redstang also argued its payroll records provided sufficiently detailed information for Travelers to differentiate between class codes. Redstang further argued its policy with Travelers does not say anything about what form the records need to be in.

To begin, the issue was not about the type of records Redstang kept. Indeed, Redstang maintained “payroll and disbursement records” as required by the policy. Rather, the issue was whether Redstang’s payroll records comply with the policy’s requirement to contain “information needed to compute premium.” They did not.

Redstang was on notice that: (1) its initial premium was merely an estimate; and (2) its final premium would be determined by applying the same calculations to the actual time each of its employees spent within each NCCI rate code. Redstang, therefore, knew or should have known its payroll records needed to contain enough information for Travelers’s auditor to identify the specific tasks employees performed and appropriately segregate the time.

Redstang’s timesheets, as contained in the record, did not meet the required standard. Indeed, some simply refer to a job location, while others provide only generic descriptions such as “sheet metal” or “welding” and nothing more. Though some records provide more detailed information, they include only a single entry for the entire day showing the total hours worked across multiple tasks. Such records fall short of “reflect[ing] actual time spent working within each job classification” as required by Rule 2G.

Redstang was on notice the initial premium was merely an estimate. Redstang also was aware Travelers would calculate the final premium after determining the actual risk exposure based on an audit of Redstang’s workplace and its payroll-related records.

Travelers established the premium due based on the audit was $47,453.00, which included the short-term cancellation fee of $4,650.00. After accounting for the $6,849.00 Redstang paid toward the estimated premium, the balance remaining was $40,604.00—the amount of the superior court’s award.

The Court of Appeals exercised its discretion and awarded Travelers, as the successful party on appeal, its reasonable attorney fees and costs.

ZALMA OPINON

Travelers clearly complied with the requirements of Arizona law and the terms of the policy. Redstang did the opposite and then, in an attempt to avoid paying the premium it owed, hoping to frighten Travelers away from exercising its rights to damages for breach of contract, wrongfully accused Travelers of fraud. That attempt, appropriately, failed. Redstang was its own biggest problem – it worked without workers’ compensation insurance and, as a result, it could only get insurance through the assigned risk plan, then it financed the premium and did not pay the finance company who cancelled the policy triggering an audit that proved lies on the application allowing a large additional premium. This case teaches that it is always best to truthfully report the risk to an insurer and that attempts to charge wrongdoing will not deter an insurer whose suit is based on facts and law.


© 2021 – Barry Zalma

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

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

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

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

 

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Zalma’s Insurance Fraud Letter – May 15, 2021

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ZIFL – May 15, 2021

The May 15, 2021 issue of Zalma’s Insurance Fraud Letter Includes articles on the following subjects and a video at https://rumble.com/vh1fdj-zalmas-insurance-fraud-letter-may-15-2021.html or at https://youtu.be/BJuH9MY3ac0

EUO Is A Condition Precedent

People who commit insurance fraud tend to run from serious insurers who deny claims for fraud, misrepresentation, concealment or failure to fulfill conditions precedent. State Farm filed an unopposed motion for summary judgment against defendants All Med Merchandise and Trading, Inc., Haar Orthopedics & Sports Medicine, P.C., Park Avenue Orthopedics, P.C., and Anthony Vigorito, D.C., probably because the defendants knew they had no case and placed their efforts to collect from fraud by going against insurers who would rather pay than fight.

Insurance Fraud Statutes

Insurance fraud laws have been enacted in 47 of the 50 states, the District of Columbia and the United Kingdom. The statutes were not written to give an unfair advantage to insurers, as some members of the plaintiffs’ bar claim, but to protect the insurance buying public against the enormous disadvantage insurers meet when faced with a potentially fraudulent claim.

Unlike other victims of crimes, insurers are required by most of the statutes, to staff Special Investigative Units (SIU) to investigate and work to defeat insurance fraud attempts.

Ethics and the Public Insurance Adjuster

Some public insurers, acting alone or with the assistance of unscrupulous lawyers, violated the standards set by NAPIA and the covenant of good faith and fair dealing.

Health Insurance Fraud Convictions

Sentenced to Prison for Defrauding Medicaid Program Out of Hundreds of Thousands of Dollars – Folashade Adufe Horne, 52, of Laurel, Maryland, was sentenced May 12, 2021 to 13 months in prison for defrauding the D.C. Medicaid program out of more than $370,000. Plus many more convictions.

Other Insurance Fraud Convictions

Former Madera Insurance Agent Convicted for Felony Grand Theft Because she Embezzled over $20,000 of consumers’ insurance payments

Wendy Judd, 47, of Madera, a former insurance agent pleaded guilty to felony grand theft after embezzling over $20,000 of insurance premium payments from consumers. Plus many more convictions.


© 2021 – Barry Zalma

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

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

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

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

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A Video About the Adjustment of a Commercial Property Claim

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Commercial Property Claims Require Experienced and Qualified Adjusters

See the full video at https://rumble.com/vgze7v-adjustment-of-a-commercial-property-claim.html  and at https://youtu.be/A28popOyoVw

The adjustment of a commercial loss is performed in the same manner as any other property loss. The difference is one of tone, extent of loss and professionalism of the insured, rather than substance.

Adjusters who usually deal with a business entity, and its officers or employees, rather than an individual, find claims handling is often, but not necessarily always, easier.

The experienced adjuster who deals with commercial claims usually has knowledge of the business and the people who operate the business. Some insurers even assign a single adjuster to a major commercial insured to handle all claims presented by the commercial insured. Familiarity, and a good working relationship over a period of months or years, benefits both the insured and the insurer.

A fire can be devastating for a business if the business is not rapidly put back to work after the fire is extinguished. The adjuster must recognize this fact and act quickly to complete a fair and thorough investigation.


© 2021 – Barry Zalma

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

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

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

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

 

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Win Some – Lose Some – No Harm No Foul

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Contract Limiting Exposure of Fiduciary Partially Enforced

In Thomas John, etc. v. George Varughese, etc., 2017-04162, 2017-05352, 2021 NY Slip Op 03026, Supreme Court Of The State Of New York Appellate Division, Second Judicial Department (May 12, 2021) the plaintiff appealed a judgment upon the decision made after a nonjury trial, in favor of the defendant and against the plaintiff dismissing the complaint.

FACTS

In April 2015, the plaintiff on behalf of Dutchess Gardens Realty, LLC (hereinafter the company), commenced a shareholders’ derivative action against the defendant, George Varughese, the then managing member of the company. The defendant had begun serving in that capacity in late 2009. The plaintiff alleged that the defendant engaged in certain improper conduct to the detriment of the company. After a nonjury trial, the Supreme Court, dismissed the complaint.

ANALYSIS

The elements of a cause of action to recover damages for breach of fiduciary duty are (1) the existence of a fiduciary relationship, (2) misconduct by the defendant, and (3) damages directly caused by the defendant’s misconduct.

The company’s operating agreement contained a provision exculpating a managing member from liability for breach of fiduciary duty, except as to actions or omissions that were “in bad faith or involved intentional misconduct or a knowing violation of law or that he personally gained in fact a financial profit or other advantage to which he was not legally entitled.” The defendant may be held liable only for an intentional or bad faith breach of fiduciary duty, or an act from which he personally gained a financial profit or other advantage to which he was not legally entitled.

The trial evidence showed that the defendant intentionally breached a fiduciary duty to the company by transferring the sum of $50,000 from the company’s funds to another entity in which he had an interest, without authority and without any benefit to the company. The defendant’s use of those funds for his own attorney’s fees was not authorized by the company’s operating agreement.

However, the remaining alleged actions of the defendant did not rise to the level of an intentional or willful breach of fiduciary duty, nor an intentional waste of the company’s assets. The plaintiff failed to establish that the defendant overpaid himself for professional services or overpaid a property manager, or that he otherwise breached a fiduciary duty to the company.

In addition, the plaintiff failed to establish any acts of actionable misrepresentation. To prevail on a cause of action for fraudulent misrepresentation, a plaintiff must allege a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury. Liability for negligent misrepresentation has been imposed only on those persons who possess unique or specialized expertise, or who are in a special position of confidence and trust with the injured party such that reliance on the negligent misrepresentation is justified.

In light of the operative exculpatory clause in the company’s operating agreement, the defendant may be held liable only for an intentional act of misrepresentation or concealment. The plaintiff alleged that the defendant failed to disclose certain information regarding the lack of insurance coverage after a 2011 fire, and failed to timely disclose an action to foreclose a mortgage on real property owned by the company. The plaintiff also alleged that the defendant failed to timely disclose certain financial information about the company. Because the plaintiff did not prove that any such actions induced reasonable reliance or resulted in damage to the company, Plaintiff failed to establish the elements of these causes of action.

Lastly, the cause of action alleging gross negligence, insofar as based on a 2011 fire and the lapse in insurance coverage at that time, was untimely asserted. Contrary to the plaintiff’s contention, the defendant properly raises the statute of limitations as an alternative ground for affirmance.

The plaintiff failed to establish that any other alleged acts of the defendant constituted gross negligence, as the evidence did not show that the defendant engaged in intentional wrongdoing, or conduct that evinced a reckless indifference to the rights of others.

CONCLUSION

The judgment was modified, on the law and the facts, by deleting the provision thereof dismissing the second cause of action, which alleged breach of fiduciary duty, and substituting therefor a provision awarding judgment in favor of the plaintiff as to that cause of action in the principal sum of $50,000; as so modified, the judgment was affirmed insofar as appealed from.

ZALMA OPINION

Failure to obtain insurance by a fiduciary of a property owning LLC could be actionable except where there is no damage to the LLC. The defendant was lucky that his failure to provide insurance coverage protecting the property resulted in no harm to the LLC. However, using the LLC’s money to pay his personal attorney, was a clear breach of the fiduciary duty and the appellate division reversed that part of the judgment and ordered the defendant to pay what he misappropriated.


© 2021 – Barry Zalma

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

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

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

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

 

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A Video Describing Some Types of Insurance Fraud

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Types of First Party Property Fraud

See the full video at https://rumble.com/vgxehx-a-video-describing-some-types-of-insurance-fraud.html and at https://youtu.be/tFb93xdIr6w

Every first-party property adjuster will face in his or her career attempts to defraud the insurer for whom the adjuster works. It is necessary that the adjuster is aware of each type of property insurance fraud he or she may encounter. Some, but surely not all, fraud types follow:

Arson for Profit

Arson is the intentional burning of property. It no longer is limited to specific types of property. Although perhaps the most dangerous of all methods of insurance fraud, people continue to attempt insurance fraud by burning their homes, vehicles, and business structures.

The Staged Theft

The staged or fake residential theft where the insured reports the theft of property from a residence or business when none actually occurred. In U.S. v. Tam, 240 F.3d 797, 2001 Daily Journal D.A.R. 885, three defendants were convicted of conspiracy to commit mail fraud and to transport stolen cars in foreign commerce, mail fraud, and transporting stolen cars in foreign commerce, and two of them were also convicted of conspiracy to launder money, following a jury trial. The appellate court concluded evidence was sufficient to support one defendant’s convictions.

Staged Water Damage or Mold Claim

Where the insured intentionally promotes damage by wetting down the residence or business property with a hose or disconnecting a plumbing fixture to generate water damage and encourage mold growth.

A staged loss, regardless of the type, is fraud. Even if no claim is filed an insured can be accused of attempted fraud and face criminal penalties. For example, in a New York case, a man gave his car keys to a third party who was to sell or otherwise dispose of the car. The insured was told by the third party to file a fraudulent claim against his own policy and claim that the car was stolen. After reporting the theft, the insured became frightened and did not move forward with the claim.

Post-Dating a Loss

This fraud technique involves a loss at a time when an individual has no insurance or inadequate insurance.

Following the loss, the individual applies for insurance, or increases the limits of existing coverage, so he or she has sufficient insurance to cover the loss. After a period of time (usually several weeks), a fraudulent claim is submitted for a loss reported to have happened after the new policy came into effect.


© 2021 – Barry Zalma

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

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

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

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

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Murderer of Four of Her Children by Arson Avoids Death Penalty

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A Case of Evil – But Death Penalty Reversed

This is not an insurance case although the damage caused by Sandi Dawn Nieves would have resulted in a fire insurance claim. This is a case of premeditated murder by a woman who intentionally killed four of her children and attempted – but failed – to kill the fifth. The California Supreme Court, in The People v. Sandi Dawn Nieves, S092410, Supreme Court Of California (May 3, 2021) spent more than 180 pages to conclude that her conviction should stand but reversed the finding of the jury that she should be put to death.

A jury convicted Sandi Dawn Nieves of the first degree murder of her daughters Nikolet Amber Nieves, Rashel Hollie Nieves, Kristl Dawn Folden, and Jaqlene Marie Folden, attempted murder of her son, and arson. The jury found true the special circumstance allegations that defendant committed multiple murders, and that each murder was committed while lying in wait and while engaged in the crime of arson. Following the penalty phase of trial, the jury returned a verdict of death. The trial court denied defendant’s motion to modify the death penalty verdict and her motion for a new trial and sentenced her to death. This appeal is automatic.

BACKGROUND

Defendant called 911 to report a fire at her home in early July 1998. When paramedics arrived, the fire had been out for some time and defendant was covered in soot and sitting in the living room with her 14-year-old son F.D. Defendant’s four daughters, ages 12, 11, 7, and 5, were lying on sleeping bags on the kitchen floor and had all died of smoke inhalation. The oven was open with burned items inside and gasoline had been poured and lit in the hallway and bedrooms.

Defendant sent a note “Now you don’t have to support any of us! FUCK YOU you are scum!” Defendant’s son F.D. testified that on the night of the fire defendant declared they would have a “slumber party” in the kitchen.

DISCUSSION

Prospective jurors are disqualified from serving on a capital jury when their views about capital punishment would prevent or substantially impair the performance of their duties in accordance with their instructions and oath.

Here, the prospective juror’s responses to adequate written questions were not ambiguous and the questionnaire twice instructed him to consider the nature of the charged crimes when answering. The trial court did not abuse its discretion by declining to repeat questions in oral voir dire that had already been answered.

Guilt Phase Issues

The trial court struck a portion of testimony by defense expert Del Winter, a retired fire investigator. Winter testified that the fire at defendant’s house was set in several places and that a very small amount of gasoline was used. He found it odd that the fire was set where it was not likely to cause significant damage and the gas can was put back in its place after use. He concluded that “the fire didn’t make a lot of sense.” Winter could not recall a similar type of fire, stating, “This is pretty unusual.” Addressing scorched items in the oven, Winter testified that “[i]t’s just like the rest of this case. It just doesn’t make any sense as far as logic.”

At the conclusion of his testimony, Winter identified several classifications of arson, such as insurance fraud and crime cover-up and a category he called “psycho fires,” in which the motive for the fire is obscure. Although Winter was allowed to opine over objection that defendant’s fire fell into the “psycho” category, the next day the trial court revisited the ruling and struck the testimony.

Arson-Murder Special Circumstance

The requirement of an independent felonious purpose applies to felony-murder special-circumstance findings. This subdivision authorizes a special circumstance finding when the murder was committed while the defendant was engaged in the commission of or the attempted commission of various other specified felonies.

There was substantial evidence from which the jury could have concluded that defendant’s purpose for the arson apart from the murder was suicide. After lighting gasoline throughout the house, defendant lay down with her children and stayed with them while the fire and smoke overwhelmed them; at one point when he regained consciousness, defendant’s son saw that she was unconscious on the floor with his sisters. In her testimony, defendant acknowledged that she had contemplated suicide most of her life.

Because killing oneself is a purpose separate from killing one’s victims, the Supreme Court concluded that the evidence is sufficient to establish that defendant committed arson with independent, albeit concurrent, goals of killing herself and killing her children.

The Supreme Court reversed the death sentence and affirmed the judgment in all other respects.

ZALMA OPINION

Although Ms. Nieves had no intention to defraud her insurer she provided evidence that any arson, including an arson-for-profit, is a dangerous and evil proceeding where people die or are seriously injured. In this case the fire intentionally set and accelerated by Ms. Nieves killed four of her children and seriously injured a fifth. I don’t understand the reversal of the death penalty since Ms. Nieves fit all the required categories but can hope she will never leave prison. The case did not deserve a more than 180 page opinion. It could have been resolved without giving detailed analysis of each claim of error.


© 2021 – Barry Zalma

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

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

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

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

 

 

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A Video About Care Needed to Elect Rescission

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Rescission is an Important Remedy to Avoid Fraud

See the full video at https://rumble.com/vgvbcz-a-video-about-care-needed-to-elect-rescission.html?mref=6zof&mrefc=2 and at https://youtu.be/w4svt_3v-64

Never Rescind a Policy Without a Thorough Investigation and Advice of Counsel

Insurers must use the rescission remedy with care. Insurers should never assume that the promise to pay indemnity to the insured under a policy of insurance can, with impunity, be broken by advising the insured that the insurer has rescinded the policy.

Rescission without sufficient evidence is wrongful. Rescission without the advice of competent counsel is a tactic fraught with peril.  Rescission without a thorough investigation is dangerous. Where no valid ground for rescission exists, the threat or attempt to seek such relief, may constitute a breach of the covenant of good faith and fair dealing which is implied in the policy and expose the insurer to tort damages for that breach, including punitive damages.  One plaintiffs’ lawyer became wealthy when he learned that claims people were given a rubber stamp that said “RESCISSION” and had no idea what it was. He would take the claims person’s deposition and ask them to spell the word. When the claims person failed his bad faith case was established. When they spelled the word correctly, he would ask the adjuster to state the elements necessary to effect a rescission. Almost none could answer.

California, with a Draconian rescission law, still make it clear that if an insurer elects rescission without sufficient evidence it will bring the wrath of the courts down on it and will be the basis for allegations, easily proven, of extra-contractual torts. [ Imperial Casualty & Indemnity Co. v. Sogomonian (1988) 198 Cal.App.3d 169, 184, 243 Cal. Rptr. 639.]

If sufficient evidence exists, the rescission remedy will deprive the insured or the insurer of all rights under the policy. The court will conclude that the contract never existed and neither party has any right under the contract.

 


© 2021 – Barry Zalma

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

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

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

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

 

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Lie on Application for Life Insurance Voids Coverage

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Rescission Available for Misrepresentation of Material Facts

Insurance requires that neither party to the contract of insurance do anything to deprive the other of the rights of either to the benefits of the policy. Each must, therefore, treat the other with the utmost good faith. In Edith Darby v. Primerica Life Insurance Company And Ashton Lucian King, Civil Action No. 20-1723 Section “R” (1), United States District Court Eastern District Of Louisiana (May 4, 2021) the insurer moved for summary judgment because the insured and the decedent lied in the application for life insurance.

BACKGROUND

On February 4, 2019, Darby, as policy owner, and her son, Wilbert Bias, as insured, applied for life insurance with Primerica. In completing the application, Bias answered “no” to the following two questions: “[w]ithin the past 10 years has any person named in this application been treated for or diagnosed by a member of the medical profession with: . . . [a] mental or nervous disorder?  [w]ithin the past 10 years, has any person named in this application: . . . used illegal or illegally obtained drugs (including prescription drugs) or been convicted of drug or alcohol related charges?

Both Bias and Darby signed the policy application below the following in bold-face type: “The approval of insurance for the proposed insured(s) is based on the representations made regarding the use of tobacco or nicotine, responses to medical questions and other application information. False representations will result in a denial of coverage in a claims investigation and may be considered insurance fraud.

Further, Bias and Darby acknowledged that “coverage may be rendered void if [Primerica] determines that any information in the application related to such coverage is false, incomplete or incorrect.”

After the policy came into force, Bias died before the expiration of the two year contestability period.  Darby submitted proof of Bias’s death to Primerica in an attempt to collect on the policy. Because Bias died during the two-year contestability period set forth in the policy, Primerica contends that it initiated a routine investigation. In the course of that investigation, Primerica contends that it discovered Bias was diagnosed with and treated for a mental or nervous disorder and that he was a regular illegal drug user.

In light of the information it discovered in its investigation, Primerica asserts that it denied Darby’s claim, rescinded its policy, and refunded the premiums paid for the policy. Darby sued asserting a breach-of-contract claim and seeking damages. Primerica moved for summary judgment, arguing that Bias’s misrepresentations on the insurance application preclude the success of Darby’s breach-of-contract claim.

DISCUSSION

Primerica supports its motion for summary judgment by citing to uncertified medical records. The medical records being unsworn or uncertified, in itself, does not bar their consideration for purposes of a summary judgment motion in federal court.

Primerica’s Motion

Under Louisiana Revised Statute Section 22:860, an insurer is not liable for the death benefit provided by its policy if the insurer can show that the insured made misrepresentations on his application for insurance.

False Statements Mental or Nervous Disorder & Illegal Drug Use

The Fifth Circuit has found that the ordinary meaning of “mental or nervous disorder” includes conditions like depression. A medical record from New Orleans East Behavioral Health Center indicates that Bias reported “panic attacks” as well as “depressed mood” to his health care providers. The same document revealed that Bias was prescribed “Zoloft titration to 100mg daily for anxiety and mood,” as well as “Hydroxyzine” for anxiety. In light of the uncontroverted evidence provided by Primerica, the Court found that there is no genuine issue of material fact as to whether Bias made a false statement by answering “no” to the question of whether he had been diagnosed with or treated for a “mental or nervous disorder” within the past ten years.

In multiple places, the medical records reflected that Bias used cannabis regularly.   Primerica, therefore, established that there is no genuine issue of material fact as to whether Bias made a false statement by answering “no” to the question of whether he had used illegal drugs in the past ten years before completing his application.

Intent to Deceive

Next, the Court considered whether Bias acted with the “intent to deceive” when he made the above representations. The intent to deceive must be determined from surrounding circumstances indicating the [1] insured’s knowledge of the falsity of the representations and [2] his recognition of the materiality of his misrepresentations, or from circumstances which create a reasonable assumption that the insured recognized the materiality.

As to whether Bias knew that the misrepresentations were material, the policy application communicates the fact in bold print. Bias and Darby both signed the application just beneath this language. There is no indication that Bias disclosed his drug use or medical problems elsewhere on his application.

Materiality

To prove materiality Primerica’s Underwriter testified that had Primerica knew of the Decedent’s mental health treatment and his habitual illegal drug use at the time of the Application, it would not have issued the Policy.

Plaintiff has introduced no evidence tending to show that the misstatements were immaterial regarding defendant’s risk assumption. Accordingly, the Court concluded that no issue of material fact exists as to whether Bias’s misrepresentations materially affected the risk assumed by Primerica. Therefore, Primerica’s motion for summary judgment was granted.

ZALMA OPINION

Rescission is an ancient equitable remedy that exists so that no one may profit from fraud or misrepresentation or concealment of material facts. Here, the insured and the decedent lied on the application for insurance and it was established that the insurer would never have been issued on the life of Bias because of his drug use and mental disorders. Equity – fairness – required the court to affirm the rescission of the policy.


© 2021 – Barry Zalma

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

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

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

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

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Mold Myths

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Insurance Claims and Mold Reality

See the full video at https://rumble.com/vgta21-mold-myths.html and at https://youtu.be/EwII0VakWeE

Get Rich Quick Thanks to Mold

Although there have been successful lawsuits, the days of multi-million dollar verdicts in insurance mold claims are probably disappearing.

As for the get-rich-quick mold remediation companies, they are finding that they must give real service or they will soon be visiting the bankruptcy court.

“Killer Mold” Exists

Despite alarmist headlines that pronounce “Black mold can kill you!” medical research has not been able to determine what amount of exposure to “black mold,” if any, is toxic to a normally healthy individual. [Article in the IEQ Review entitled “Indoor Exposure To Molds And Allergic Sensitization”] Nonetheless, there are several toxic and pathogenic species of mold that can have a severe acute or chronic effect on people, especially those whose immune systems are compromised.

Mold Can Be Killed with Bleach Alone

Although a 10% bleach solution is, in some cases, an effective means of cleaning up mold, it is not a solution. It is more important to determine why the mold is there in the first place. If the moisture and warm temperatures that facilitate the growth are not remedied, mold will return no matter how much bleach is applied.

The Existence of Mold Means There Is a Problem

Mold exists everywhere. It is an important component of the natural scheme of things. Once a baseline is established for “normal” quantities of mold, the property owner can be certain that there is no problem until the normal quantities are exceeded. Unfortunately, most self-proclaimed experts in the field have yet to agree on what is “normal.


© 2021 – Barry Zalma

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

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

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

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

 

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EUO is a Condition Precedent

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Fail to Appear for, or Sign and Return, EUO Breaches Material Condition

People who commit insurance fraud tend to run from serious insurers who deny claims for fraud, misrepresentation, concealment or failure to fulfill conditions precedent. State Farm filed an unopposed motion for summary judgment against defendants All Med Merchandise and Trading, Inc., Haar Orthopedics & Sports Medicine, P.C., Park Avenue Orthopedics, P.C., and Anthony Vigorito, D.C., probably because the defendants knew they had no case and placed their efforts to collect from fraud by going against insurers who would rather pay than fight.

In State Farm Mutual Automobile Insurance Company v. Advantage Med Innovations, Inc., Ake Services,  Inc.,All City Family Healthcare Center, Inc.,Allmed Merchandise And Trading, Inc.,Apt Physical Therapy, et. al, Index No. 157328/2019, 2021 NY Slip Op 31344(U), Supreme Court Of The State Of New York New York County Part IAS Motion 46 (April 21, 2021) the trial court was asked to rule on State Farm’s Motion for Summary Judgment claiming fraud by the insured.

FACTS FOR MOTION FOR SUMMARY JUDGMENT

State Farm sought a declaration that it had no duty to provide coverage or make a payment of claims for no-fault benefits made by or on assignment of Peter S. Rosario, the insured party, Cheyenne Griffin, the driver, and Shreick Hoffman and Omar Osborne, passengers in the vehicle. The no-fault claims sought to be nullified arise out of a two-vehicle collision that occurred on October 28, 2018 at approximately 9:00 p.m. on Pennsylvania Avenue and Stanley Avenue in Brooklyn, New York.

State Farm’s motion against All Med Merchandise and Trading, Inc., Haar Orthopaedics and Sports Medicine, P.C., Park Avenue Orthopaedics, P.C., and Anthony Vigorito, D.C. was based on an intentional act and that Griffin, Hoffman and Osborne’s injuries did not arise from the incident, that Hoffman failed to appear for his examination under oath, and that Griffin and Osborne failed to return subscribed copies of their examination under oath transcripts.

ANALYSIS

An intentional and staged collision caused in the furtherance of an insurance fraud scheme is not a covered accident under a policy of insurance. A no-fault insurer is not required to establish that the subject collision was the product of fraud, which would require proof of all elements of fraud, including scienter, by clear and convincing evidence. Rather, a no-fault insurer must demonstrate the facts elicited during an investigation which make up the founded belief that the alleged injury does not arise out of an insured incident.

In support of the motion, plaintiff submitted the examination under oath transcripts of Cheyenne Griffin and Omar Osborne, as well as an affidavit of merit from Timothy Dacey, claims specialist for plaintiff State Farm Mutual Insurance Company.

Griffin testified that the light at the intersection was green, she proceeded through the intersection and was almost fully through the intersection, when another vehicle pulled out of a parking space and forcefully hit her vehicle’s right bumper.

Osborne was asked how he found his attorney, he stated that the lawyer contacted him, picked him up and told him that he had a lawyer. He guesses that the therapy people gave them his contact information.

State farm submitted the affidavit of claims specialist Timothy Dacey. He testified that the claimants began receiving tens of thousands of dollars’ worth of treatment from various medical providers. Dacey further averred that the claim’s legitimacy was questioned since the insured was not in the vehicle at the time of the accident and that the insured’s policy was cancelled one month after the accident due to non-payment. Additionally, the fact that the insured obtained new insurance with GEICO and was subsequently involved in two additional losses, one on November 11, 2018 and the other on November 25, 2018 involving a friend driving the insured’s vehicle. Lastly, the fact that none of the claimants alleged injuries at the scene of the accident and thereafter began undergoing significant treatment with a large number of medical providers, also contributed to the plaintiff questioning the legitimacy of the claimants’ representations.

The court concluded that State Farm met its prima facie burden establishing that there is a founded belief that the collision was intentionally caused, that the loss was not a covered event, and that the claimants’ injuries did not arise from an insured incident as evident from inconsistencies in the transcripts. Additionally, State Farm asserted that Hoffman failed to appear for his examination under oath, and Griffin and Osborne failed to subscribe their examination under oath transcripts, violating a condition precedent to no-fault coverage.

The failure of a person eligible for no-fault benefits to appear for a properly noticed EUO constitutes a breach of a condition precedent, vitiating coverage. The injured party or that party’s assignee, medical service provider, must then submit written proof of claim or it will be precluded from offering any defenses at trial.

As to Griffin and Osborne who submitted to their EUO’s, although they appeared, they failed to subscribe and return their EUO transcripts. The claimants’ failure to subscribe and return the transcripts of their examinations under oath violated a condition precedent to coverage and warranted denial of the claims.

State Farm’s summary judgment motion was granted.

ZALMA OPINION

This decision from New York is an example of the need for insurers faced with a potentially fraudulent claim to refuse to pay. It will find that fraud perpetrators are unwilling to fight an honest attempt to defeat a claim that was fraudulent since it is more profitable to assert fraudulent claims against insurers who are unwilling or unable to fight a fraudulent claim. Since the fraud in this case was obvious State Farm was obligated to fight. It did so and avoided a fraudulent claim. The court should have referred the defendants to the local prosecutor for criminal prosecution of attempted insurance fraud.


© 2021 – Barry Zalma

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

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

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

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

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Fraud by Divine Right

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A Video True Crime Story of Insurance Fraud

See the full video at https://rumble.com/vgo0sp-fraud-by-divine-right.html and at https://youtu.be/jtoznFpV5e4

They were All-American girls. Muffy and Buffy met each other as cheerleaders in high school. They were best friends. They did everything together. The two young women shared everything from clothes to boyfriends. They decided to use insurance fraud to supplement their income and allow them to continue to live with nothing but the best in excess of their earnings.

Buffy and Muffy admitted to the adjuster that the watches were never stolen in either claim. They withdrew the claim for the two watches. They still tried to convince him that the rest of their claim resulted from a legitimate auto burglary. He was not convinced. He denied the claim on the spot. He followed up with a written denial.

He reported the claim to the Fraud Division who agreed it was a fraudulent claim and presented it to the local district attorney. The District Attorney refused to prosecute on the grounds that there was insufficient evidence to guarantee a conviction.

Muffy and Buffy went back to work at the bank. They hired a lawyer who threatened to sue if the claim was not paid in full. Since there was no arrest the insurer felt vulnerable. It paid $60,000 to obtain a general release.

Muffy and Buffy lived comfortably for a while on the money the lawyer obtained for them.  They were determined to, and continued to, commit insurance fraud once every few years, to supplement their income.

For Muffy and Buffy crime pays well.


© 2021 – Barry Zalma

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

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

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

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

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Certificate of Insurance Does Not Confer Insurance Coverage

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Additional Insured Can Rely on Certificate

The trial court judgment granted the motion of defendant Philadelphia Insurance Companies for summary judgment declaring that it had no obligation to defend or indemnify plaintiff. In County Of Erie v. Gateway-Longview, Inc., et al., And Philadelphia Insurance Companies, 157 CA 20-00665, 2021 NY Slip Op 02631, Supreme Court Of The State Of New York Appellate Division, Fourth Judicial Department (April 30, 2021) the Appellate Division looked on the judgment with a jaundiced eye.

FACTS

Plaintiff commenced this action seeking a declaration that the Philadelphia Insurance Companies (defendant) were obligated to defend and indemnify it as an additional insured in the underlying actions. Defendant moved for summary judgment declaring that it had no obligation to defend or indemnify plaintiff on the ground that plaintiff is not an additional insured under the relevant policy.

ANALYSIS

It is well established that a certificate of insurance, by itself, does not confer insurance coverage, particularly where, as here, the certificate expressly provides that it is issued as a matter of information only and confers no rights upon the certificate holder and does not amend, extend or alter the coverage afforded by the policies. [Landsman Dev. Corp. v RLI Ins. Co., 149 AD3d 1489, 1490 [4th Dept 2017]]. A certificate of insurance is only evidence of a carrier’s intent to provide coverage but is not a contract to insure the designated party nor is it conclusive proof, standing alone, that such a contract exists.

Nevertheless, an insurance company that issues a certificate of insurance naming a particular party as an additional insured may be estopped from denying coverage to that party where the party reasonably relies on the certificate of insurance to its detriment. For estoppel based upon the issuance of a certificate of insurance to apply, however, the certificate must have been issued by the insurer itself or by an agent of the insurer.

The appellate court concluded, therefore, that there was an issue of fact whether the insurer is estopped from denying additional insured coverage to plaintiff. In its moving papers, the insurer did not present any evidence addressing plaintiff’s reliance on the certificate of insurance or establishing that neither it nor an authorized agent issued the certificate of insurance. Defendant’s failure to make such a prima facie showing requires denial of the motion, regardless of the sufficiency of the opposing papers.

ZALMA OPINION

People, not necessarily insurance experts, rely on Certificates of Insurance as evidence that they are protected by the insurer who issued, or allowed the insurer’s agent, to issue a certificate of insurance showing it to be an additional insured. The Appellate Division made it clear that the only way the insurer can prove it did not add the Plaintiff as an additional insured only if it makes a case that the Plaintiff did not rely on the Certificate or that it was not issued by an authorized agent. I would, of course, prefer that no one rely on a Certificate of Insurance and demand the actual endorsement or policy with the endorsement showing it to be an additional insured.


© 2021 – Barry Zalma

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

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

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

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

 

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You Only Get What You Pay For

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Insurance Agent Owes no Duty to a Person Not a Client

In Jeff Fendley v. Sims Norment, No. 06-20-00066-CV, Court of Appeals Sixth Appellate District of Texas at Texarkana (April 29, 2021) an attempt to avoid legal problems by transferring title to a house from Jeff Fendley to his parents created a problem when the house and its contents burned.

After a home owned by Charles and Sallie Fendley was destroyed by fire, they received the full value claimed under an insurance policy issued by Hochheim Prairie Farm Mutual Insurance Association (the Insurance Company). The Fendley’s adult son, Jeff Fendley, who had always resided in the home, deeded it to his parents “for legal reasons” and paid the monthly premium for the insurance (the Policy).

When Jeff asked Sims Norment, an insurance agent if he needed to purchase renter’s insurance to cover loss of personal property in the event of a disaster, Norment believed and represented to Jeff that his belongings were covered by the Policy and that renter’s insurance was unnecessary.

The Insurance Company denied a claim for Jeff’s belongings because he was not an insured. Jeff sued Norment for negligence and alleged that he “had a duty to provide the insurance coverage that [Jeff] needed.” Norment moved for summary judgment on the ground that he did not owe Jeff any duty to provide a particular insurance coverage that he did not apply or pay for. The trial court granted Norment’s summary judgment.

Factual Background and the Summary Judgment Evidence

The summary judgment evidence established that Charles and Sallie never lived in the home that Jeff deeded to them in 2011 “for legal reasons.” Jeff said that he told Norment that he lived in and owned the home even though “the house was in [his] father’s name.” Even so, summary judgment evidence established that Charles applied for the Policy, the down payment receipt for the Policy listed Charles’s name, the Policy was issued to Charles and Sallie, and Jeff, who paid for the insurance premiums, was not an insured under the Policy.

Before the fire Norment told Jeff that it was unnecessary to purchase renter’s insurance since the contents of the home were covered under the Policy. In explaining that he had misadvised Jeff.  According to Norment, the Insurance Company denied Jeff’s claim for property loss on the ground that he was not insured under the Policy.

Jeff’s petition alleged only one ground of negligence, namely that Norment “had a duty to provide the insurance coverage that the Plaintiff needed and paid a premium for” and that the “negligence was the direct and approximate cause of [Jeff] not having insurance coverage on his contents when the loss occurred.”

In his motion for summary judgment, Norment argued that Jeff was not his client, did not apply for insurance coverage, was not the insured under the Policy purchased by his parents, and had no agreement with the Insurance Company. Norment stated, “I have done work for Jeff Fendley in the past, but not related to this particular Policy.” The summary judgment evidence showed that Jeff was paying for his parents’ Policy and that they received the coverage paid for, which included compensation for personal property gifted to Jeff and placed in his home. As a result, Norment argued that he had no duty to provide additional insurance coverage that Jeff had neither applied for nor paid for.

Analysis

The threshold inquiry in a negligence case is duty. An insurance agent generally does not owe a duty unless there is privity between the agent and the putative insured. No evidence showed that Jeff and Norment were in privity with respect to any policy that would provide coverage for Jeff’s personal belongings.

The Court of Appeal, therefore, concluded that there is no Texas case that interposed any duty in favor of a non-client upon a client’s insurance agent regarding the agent’s negligent failure to procure a liability policy with a certificate designating the non-client as an additional insured.

Even accepting Jeff’s argument that he is Norment’s customer based on past, unspecified, dealings, in Texas, an insurance agent owes the following common-law duties to a client when procuring insurance:

  1. to use reasonable diligence in attempting to place the requested insurance, and
  2. to inform the client promptly if unable to do so.

Here, neither of those duties was breached because Jeff did not pay for or apply for additional insurance, and the coverage he paid for on behalf of his parents was provided pursuant to the Policy.

Although Jeff asked for Norment’s opinion on the need for renter’s insurance, no legal duty exists on the part of an insurance agent to extend the insurance protection of his customer merely because the agent has knowledge of the need for additional insurance of that customer, especially in the absence of evidence of prior dealings where the agent customarily has taken care of his customer’s needs without consulting him.

Since no evidence showed that Jeff and Norment shared an expectation that the agent habitually would satisfy all of Jeff’s insurance needs without consultation, Jeff had no basis to expect performance from Norment.

Jeff claimed only that Norment had a duty to provide the insurance coverage that the Plaintiff needed and paid a premium for.

The failure to provide coverage claim failed as a matter of law because Texas law imposed no duty on Norment to secure additional insurance not specifically requested or applied for under the facts of this case, and the coverage under the Policy that was paid for was provided and the Court of Appeal, therefore, affirmed the trial court’s judgment.

ZALMA OPINION

Jeff was his own worst enemy. He tried to avoid legal problems by transferring title of his home to his parents who did not live there. He occupied the house and when it burned his personal property was damaged or destroyed. Since he was not an insured of the policy the insurer owed nothing to him. He had no privity with the agent who owed him no duty. If there is no duty there can be no negligence case. Jeff was too smart by half and failed to order insurance to protect his insurable interest.


© 2021 – Barry Zalma

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

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

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

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

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A Video Explaining Common Tactics Used to Set Up a Bad Faith Claim

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Bad Faith Set-Ups Defeat the Purpose of the Tort of Bad Faith

See the full video at https://rumble.com/vgjxmn-a-video-explaining-common-tactics-used-to-set-up-a-bad-faith-claim.html and at https://youtu.be/82UeL_GwlDg

One tactic for setting up a bad faith claim is to make a settlement offer that likely cannot be complied with by the insurer. Knowing the settlement demands may not be met, the insured/claimant waits for the insurer’s misstep, then asserts a bad faith claim.

Sometimes the insured/claimant will make an offer for settlement containing an arbitrary and unrealistic deadline for acceptance, before the insurer has had the opportunity to fully investigate the claim. When the insurer is unwilling to agree immediately to the insured’s/claimant’s demands, a bad faith claim is filed.

For example, in DeLaune v. Liberty Mut. Ins. Co., 314 So. 2d 601 (Fla. 4th DCA. 1975), plaintiffs made an offer to settle their claim stemming from an automobile accident for the $10,000 policy limit, attaching a 10-day deadline for the defense to accept the offer. Defense counsel, believing that settlement for the policy limits was possible, but not yet authorized to approve the settlement, contacted the plaintiffs’ counsel on the last day of the deadline and asked for an extension of the offer until the following Monday after the Friday deadline. The plaintiffs refused and initiated a common law bad faith action for the excess judgment.

These developments have resulted in the bad faith landscape in some jurisdictions appearing geared more closely to providing policyholder counsel with a lucrative recovery than safeguarding the appropriate balance of interests between insurer and insured.

Bad faith cases that are manufactured to avoid a settlement expand the concept of “bad faith” beyond what the case law and statutes require for “good faith.” An offer of settlement made only for the purpose of setting up a bad faith lawsuit is the obverse of the requirement that insurers act fairly and in good faith. Ultimately, bad faith claims have become so common that the stringent standard actually needed to prove the tort of bad faith appears to have been ignored and bad faith claims allowed based on mere technical failures in reaching a settlement.


© 2021 – Barry Zalma

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

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

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

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

Posted in Zalma on Insurance | Leave a comment

Bad Faith Set-Ups

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How to Recognize an Attempted Bad Faith Set Up

Bad faith insurance claims are successful when a plaintiff can prove that the insurance company wrongfully denied an insurance claim and deprived the insured of the benefits of the contract of insurance without good cause. Bad faith insurance suits can arise in the context of any insurance policy.

California created the tort of bad faith by court decision. Florida, on the other hand, like many states created by legislation liability for insurers who act in bad faith in denying insurance claims. Since most states allow suit for the tort of bad faith it often seems that every claim that is rejected – whether correctly or wrongfully – results in a suit alleging breach of contract and the tort of bad faith.

In light of the substantial damage awards attendant to bad faith claims, plaintiffs’ attorneys have great incentive to try to maneuver insurance companies into committing acts that may constitute bad faith. They may, and fairly often do, attempt such “set-ups” by creating a situation where the insurer refuses to settle a tort claim within policy limits within a limited period of time. The plaintiff’s purpose, of course, is to recover substantial extra-contractual damages, including attorneys’ fees, where permitted. In short, since a bad faith verdict can be vastly more lucrative than simply collecting on a “within policy limits” claim, the temptation for a lawyer to take advantage of a young, inexperienced or inadequate insurance adjuster, overcomes any sense of morality or the need to obtain a settlement that is in the best interests of the lawyers’ clients.

With bad faith claims viewed as the gateway to recovering attorney fees and damages well in excess of policy limits, insurers and policyholders counsel need to be well versed in addressing scenarios in which an insurer’s allegedly flawed investigation, settlement practices, and/or noncompliance with statutory claims handling requirements open the door to extracontractual disputes.

While bad faith claims start with establishing some form of unreasonable conduct by the insurer, something more than negligence, a mistake, or poor judgment is required to present a meritorious bad faith claim. This holds true whether the bad faith claim rests on the insurer’s alleged breach of the implied covenant of good faith and fair dealing, its fiduciary or quasi-fiduciary obligations owed to its insured, or its violation of unfair insurance practices or claims handling statutes.

Some fact situations that can easily result in a bad faith suit include:

  1. Low policy limit and high exposure claims;
  2. Failure to settle a liability claim within limits when liability of the insured is clear.
  3. Lost opportunities to settle within limits;
  4. Failure to apprise insured of material litigation or settlement developments;
  5. Flawed investigation unduly focused on developing grounds to deny claim;
  6. Competing claims for policy limits;
  7. Mishandled control of defense, including disregard of conflicting interests and/or insured’s entitlement to independent counsel;
  8. Failing to timely apprise insured of coverage limitations;
  9. Overlooked traps in demand letters;
  10. Insufficient attention to efforts to establish bad faith claim in problematic jurisdictions;
  11. Material violation of statutory claims handling requirements; and/or
  12. Problematic claims file entries.

As a result, the bad faith set-up became common. The bad-faith set-up is not a new tactic. In 1985, Justice Kaus of the California Supreme Court observed:

It seems to me that attorneys who handle policy claims against insurance companies are no longer interested in collecting on those claims, but spend their wits and energies trying to maneuver the insurers into committing acts which the insured can later trot out as bad faith. [White v. W. Title Ins. Co., 710 P.2d 309, 328 n.2 (Cal. 1985) (Kaus, J., concurring and dissenting)]

In J.B. Aguerre, Inc. v. American Guarantee & Liability Ins. Co. (1997) 59 Cal.App.4th 6, 68 Cal.Rptr.2d 837, the Court of Appeal affirmed a judgment of dismissal on demurrer, holding a liability insurer did not act unreasonably as matter of law in refusing to meet the plaintiff’s $2 million settlement demand, despite the alleged risk of exposing the insured to uncovered punitive liability. The insured’s alleged fear of his punitive exposure coerced him to contribute to a settlement out of duress. Justice Neal observed as follows:

What we have here, at bottom, is an effort by [the insured] to concoct a bad faith claim out of whole cloth   with the ‘ingenious assistance of counsel.’    [The insured] has attempted to position itself to pursue a high stakes, bad faith case, seeking punitive damages, from which it hopes to emerge not only with the [underlying] claim disposed of at no cost to [the insured], but a profit as well in the form of damages recovered from [the insurer].  [¶] Bad faith litigation is not a game, where insureds are free to manufacture claims for recovery.   Every judgment against an insurer potentially increases the amounts that other citizens must pay for their insurance premiums. Id. at pp.17-18, 68 Cal.Rptr.2d 837.)

Bad faith set-ups most frequently originate in the third-party context. When an insurer is defending an insured against a tort claim and there are insufficient limits available to compensate the insured party. In this context, the set-up involves attempts to cause an insurance company to reject a policy limits settlement offer. Third-party claimants and their counsel have come up with various ways in which to present their offers to reduce the chance that the insurer will actually accept the offer within the stated time period.

The plaintiff’s goal, of course, is to obtain a sizeable excess verdict. If successful, the next step in the strategy is for claimant’s counsel to enter into an agreement with the insured whereby claimant gives a covenant not to execute on the judgment in exchange for an assignment of the claim based on bad faith failure to settle. The most common form of a bad faith set-up is to make a settlement demand – typically policy limits – with an unreasonable time demand.

A claimant may make a settlement demand with an unrealistic time limitation before the insurance company has full access to the information bearing on liability and damages.  The insurance company often declines to meet the demand, explaining that it needs further information. This position is then portrayed as a failure to settle, and will then be used against the insurance company as evidence of unreasonable conduct in the settlement of the case.

In a particular case, an insured’s demand letter imposed such unreasonable conditions that the Ninth Circuit concluded that the insurer did not act in bad faith in not immediately meeting the demand. [Charyulu v. California Cas. Indem. Exch., 523 F. App’x 478, 480 (9th Cir. 2013)]

In assessing bad faith, the reasonableness of the conduct of the insurer’s counsel must be measured against the corresponding actions of the plaintiff’s counsel. Granting summary judgment, one district court may properly look to another district court’s determination that a particular demand letter was unreasonable and a legally insufficient predicate for an insurance bad faith claim as a matter of law. [AAA Nevada Ins. Co. v. Vinh Chau, 808 F. Supp. 2d 1282, 1288 (D. Nev. 2010), aff’d in part, dismissed in part sub nom.]

In AAA Nevada Ins. Co. v. Chau, 463 F. App’x 627 (9th Cir. 2011) the Ninth Circuit granted summary judgment because, on the undisputed facts, the insureds’ counsel’s “demand letter was itself unreasonable and appears to be nothing more than an attempt to set up a potential bad faith claim.


© 2021 – Barry Zalma

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

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

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

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

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A Video About The Duties of the Liability Claims Adjuster

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Explaining the Need for Liability Claims Adjusters

See the full video at https://rumble.com/vghs7p-a-video-about-the-duties-of-the-liability-claims-adjuster.html and at https://youtu.be/zT-keAsU2Tc

The insurance adjuster is seldom, if ever, mentioned in a policy of insurance. The strict wording of the third party liability policies set the obligation to prove a claim that entitles the insured to defense or indemnity of a claim against the insured by an injured third party. Over a century ago insurers determined that to properly deal fairly and in good faith with their insureds, an insurance claims professional was needed to thoroughly investigate claims made against the insured, work with the insured and a third party claimant to resolve claims without litigation, and properly protect the interests of the insured.

Adjusting liability insurance claims requires skill, patience, knowledge of insurance, basic knowledge of tort and contract law, and knowledge and experience as an investigator. To properly and effectively perform the duties of a liability claims adjuster, he or she must be capable of effectively dealing with the following basic obligations:

  1. To understand the law of torts as applied in the state where the adjuster works.
  2. To understand the law of contracts as applied in the state where the adjuster works.
  3. To understand sufficient medical terminology to be able to evaluate claims of injury.
  4. To understand the costs to repair or replace damaged real or personal property.
  5. To understand how to read and apply the terms and conditions of a liability insurance policy to a particular fact situation developed by his or her investigation.
  6. To understand how to thoroughly investigate all claims assigned.
  7. To conduct an investigation of every claim assigned fairly and in good faith with an intent to find coverage for the loss presented by the insured.
  8. To be able to effectively, fairly and in good faith negotiate with claimants and lawyers to resolve bodily injury or property damage claims asserted against an insured.
  9. To ascertain that the insurer pays promptly all claims the insurer owes under the contract.
  10. To resist, and recommend against payment of all claims the insurer does not owe under the contract of insurance.

In the United States, the average adjuster is a 22-year-old graduate of a liberal arts college who has little or no training sufficient to allow him or her to fulfill the obligations imposed on them as a representative of an insurer.


© 2021 – Barry Zalma

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

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

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

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

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Arbitration Awards will be Confirmed as a Judgment Absent Obvious Error

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Insurance Settlement’s Arbitration Provision Resolves Disputes Regarding Asbestos Claims

Arbitration exists for the sole purpose of limiting disputes and avoiding long, drawn-out lawsuits. When major litigation is resolved involving multiple parties, like asbestos litigation, prudent litigators – when they settle – include an arbitration clause to avoid further expensive litigation.

Insurance Company of North America, Inc., Century Indemnity Company, and ACE Property and Casualty Insurance Company (collectively, “INA”) moved the USDC to confirm an arbitration award issued on January 6, 2020 (the “Award”). In Syngenta Crop Protection, LLC v. Insurance Company Of North America, Inc., Century Indemnity Company, and Ace Property And Casualty Insurance Company, 18cv715(DLC), United States District Court Southern District Of New York (April 23, 2021)

Background

This action concerned an insurance coverage dispute over the relationship between a set of decades-old insurance policies and a subsequent settlement agreement. Plaintiff Syngenta Crop Protection, LLC (“Syngenta”) sought coverage under these policies for claims involving asbestos exposure of contract workers associated with its predecessor. INA asserts that those asbestos-related claims were released by a 1999 settlement agreement (the “1999 Settlement”).

INA filed a demand for arbitration with the American Arbitration Association (“AAA”) pursuant to the 1999 Settlement. Syngenta sued seeking to enjoin arbitration. The court’s  opinion stayed this action pending arbitration, noting that the arbitration clause in the 1999 Settlement requires that “any dispute with respect to” the settlement be resolved through arbitration. The parties thereafter participated in arbitration and the Arbitrator issued the Award on January 6, 2020.

INA filed this motion to confirm the Award. INA sought immediate confirmation of the Award.

Discussion

The Federal Arbitration Act provides in relevant part that:

“If the parties in their agreement have agreed that a judgment of the court shall be entered upon the award made pursuant to the arbitration . . . then at any time within one year after the award is made any party to the arbitration may apply to the court . . . for an order confirming the award, and thereupon the court must grant such an order unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11 of [the FAA].”

The USDC noted that normally, confirmation of an arbitration award is a summary proceeding that merely makes what is already a final arbitration award a judgment of the court, and the court must grant the award unless the award is vacated, modified, or corrected.

A court’s review of an arbitration award is severely limited in view of the strong deference courts afford to the arbitral process. This deference promotes the twin goals of arbitration, namely, settling disputes efficiently and avoiding long and expensive litigation. Consequently, the burden of proof necessary to avoid confirmation of an arbitration award is very high, and a district court will enforce the award as long as there is a barely colorable justification for the outcome reached.

Still, when asked to confirm an ambiguous award, the district court should instead remand to the arbitrators for clarification. INA timely filed a motion to confirm the Award. INA argued that the Award should be confirmed because it has not been vacated, modified, or corrected. The USDC concluded that INA is correct, and the Award must be confirmed.

The Award allowed Syngenta to obtain insurance coverage for claimants in a limited circumstance: “employment records must confirm that the individual [claimant] was exclusively employed for not less than 30 consecutive work days while working on [Syngenta’s predecessor’s] premises.” Syngenta contends that two phrases in the Award — “employment records” and “30 consecutive workdays” — are ambiguous.

Syngenta, however, did not move to vacate, modify, or correct the Award. Nor has it shown that remand to the Arbitrator is warranted because the Award is ambiguous. Syngenta has not shown that either phrase to which it points is “susceptible to multiple meanings” or has engendered any actual confusion that has occurred since the issuance of the Award over a year ago.

Courts are not required to find contract language ambiguous where the interpretation urged by one party would strain the contract language beyond its reasonable and ordinary meaning. Indeed, the Award confirms the proper interpretation when it repeatedly refers to claimants as “non-employee contractors” or “non-employee independent contractors.”

Additionally, Syngenta argued that the phrase “30 consecutive workdays” is ambiguous because it does not contemplate cases where the available evidence for a claimant reflects a gap in work but does not indicate that the claimant actually worked elsewhere during that gap. This argument failed because it does not make the phrase “30 consecutive workdays” ambiguous. A gap between workdays indicates that the workdays are no longer consecutive.

The USDC concluded that Syngenta had not demonstrated that the phrase is subject to multiple interpretations. To the extent the parties have a dispute regarding how the Award applies to a specific claim, the parties may return to arbitration to resolve the dispute. Therefore, INA’s motion to confirm the Award was granted.

ZALMA OPINION

This case established the wisdom of the parties in 1999 when they entered into a settlement agreement to include an arbitration provision. The dispute was resolved by the arbitrator with an opinion that was sufficiently clear and unambiguous to allow it to be followed by the parties and allowed them to avoid unneeded litigation. It would appear, especially with settlements of mass tort claims, to include an arbitration provision to allow disputes over the agreement to be resolved by arbitration. Otherwise, as did Syngenta, lawsuits would continue to be filed and money and time wasted and turn a settlement into a never ending story.


© 2021 – Barry Zalma

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

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

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

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

 

 

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A Video Explaining Construction Defects and Exclusions to Coverage

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Intentional Acts Exclusions and Fortuity

See the full video at https://rumble.com/vgfw2f-a-video-explaining-construction-defects-and-exclusions-to-coverage.html and at https://youtu.be/U7fX5sEzdaU

Implicit in the concept of insurance is that the loss occur as a result of a fortuitous event not one planned, intended, or anticipated. Oddly, the fortuity principle never appears in insurance contracts. The principle is rooted in common law and in the statutes of at least six states. The fortuity principle has the effect of an exclusion. That is, an all-risk policy might provide coverage for all risks minus named exclusions, but never provides coverage for non-fortuitous events, even though non-fortuitous events are not named exclusions in the policy. For this reason, the fortuity principle is sometimes called the unnamed exclusion.

A fortuitous event is an event which so far as the parties to the contract are aware, is dependent on chance. It may be beyond the power of any human being to bring the event to pass; it may be within the control of third persons; it may even be a past event, such as the loss of a vessel, provided that the fact is unknown to the parties. Compagnie des Bauxites de Guinee v. Ins. Co. of N. Am., 724 F.2d 369,372 (3d Cir. 1983) (quoting Restatement of Contracts § 291 cmt. A (1932))

“The purpose behind the fortuity doctrine applies with full force where a party attempts to purchase insurance against the consequences of his own ongoing wrongful conduct.” (Scottsdale Ins. Co. v. Travis, Court of Appeal of Texas, 68 S.W.3d 72 (2001))

Judge Cardozo, in 1923, stated a simple and obvious rule of law that “no one shall be permitted to take advantage of his own wrong. [Messersmith v. American Fidelity Co., 232 N.Y. 161, 133 N.E. 432 (1921).] California, by statute, covers has codified Cardozo’s statement. Almost every insurance policy issued in the US excludes the intentional acts of the insured. Those that do not are covered by the public policy adopted by most states. To insure against wrongful acts would be to allow people to act wrongfully with no adverse effect since their victims would be compensated by insurance.


© 2021 – Barry Zalma

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

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

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

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

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Failure of Standing Removes Declaratory Relief Action Back to State Court

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Attempt at Class Action Against Insurer Bounce Back to State Court

No court really likes to deal with class action suits, especially when they seek prospective action. In Leroy Mack v. USAA Casualty Insurance Company, No. 19-14958, United States Court Of Appeals For The Eleventh Circuit (April 22, 2021) Leroy Mack totaled his car and was not satisfied with the method his insurer, USAA Casualty Insurance Company, used to calculate what it paid him. He sued USAA on behalf of himself and a putative class for declaratory judgments that USAA’s method was inconsistent with Florida law and the insurance policy. As supplemental relief to those declaratory judgment claims, Mack also asked for USAA to recalculate the class members’ claims using a legal method and make them new offers. Mack conceded, however, that a “correct” calculation method will not necessarily result in higher offers.

THE ISSUES

The question is whether Mack has Article III standing because he requests that USAA make new settlement offers as supplemental relief if his declaratory judgment claim succeeds.

BACKGROUND

Under the policy, USAA will pay up to the “actual cash value” of the covered vehicle in the event of a total loss. To determine that value, USAA uses a third-party service, the CCC ONE valuation system, which purports to automatically calculate actual cash value based on comparable vehicle data from its own computer system and data on the insured’s vehicle input by USAA adjusters. In the event of a disagreement over the amount of loss—which includes actual cash value—the policy allows for either party to demand appraisal.

Mack submitted a claim under the policy, and USAA agreed to coverage. USAA offered to pay Mack the actual cash value of his vehicle as determined by the CCC ONE system, and Mack accepted payment. But about two months after cashing that check, Mack sent USAA a demand letter. He argued that USAA had violated Florida law and breached its policy by failing to pay him license and title transfer fees or a document fee. USAA responded that it was only responsible for “actual cash value and tax.”

USAA interpreted the complaint as contesting its valuation of Mack’s vehicle and invoked its right under the policy to demand appraisal. USAA moved to dismiss the complaint on the basis that it amounted to a dispute over the amount of loss and that the policy required Mack to fully comply with the appraisal and other provisions before filing suit. Mack responded that his claims raised purely legal questions and did not constitute a dispute over the amount of loss, therefore, they were not amenable to appraisal. The district court determined that “[t]his is a case about payment of money,” not “about legal coverage or whether or not a contract provides for anything.” Accordingly, the court dismissed the case without prejudice “pending appraisal.”

After Mack filed his initial brief with this Court, the parties reached a settlement as to the title and license fees claims, thereby mooting the only damages claim. The only remaining count is for declaratory judgment and supplemental relief, in which Mack seeks two declaratory judgments:

  • that USAA’s use of the CCC System violates Florida law and the policy and
  • that Florida law and the policy require that USAA pay dealer fees as part of any total loss settlement.

Supplemental to those declarations, Mack seeks a recalculation of all class members’ total loss claims under a new method and new offers based on those amounts if they are higher than the amount originally offered and an order requiring USAA to offer dealer fees to the class members. Mack insists  that a recalculation of his and other class members’ claims under a new method will not necessarily result in a higher offer by USAA. Instead, he states that “recalculation using a legal method might or might not result in a higher value than the CCC system value” and that he “does not claim his vehicle’s value was greater than USAA’s calculation.”

DISCUSSION

The allegations necessary to establish standing depend on the type of relief sought. To establish standing when seeking retrospective relief, a plaintiff must show that he has suffered “an invasion of a legally protected interest” that is both “concrete and particularized” and “actual or imminent, not ‘conjectural’ or ‘hypothetical.'” But if a plaintiff seeks prospective relief, such as a declaratory judgment, he must “allege facts from which it appears there is a substantial likelihood that he will suffer injury in the future.” Malowney v. Fed. Collection Deposit Grp., 193 F.3d 1342, 1346 (11th Cir. 1999) (citing City of Los Angeles v. Lyons, 461 U.S. 95, 102 (1983)). And that future injury must be “real,” “immediate,” and “definite.”

The possibility that a plaintiff may someday be in another car accident and still be insured by the insurance company under the same or a similar policy being interpreted the same way, thereby having this issue present itself again is too contingent to constitute a substantial likelihood of future injury. The complaint’s allegations  were found to be insufficient to establish the substantial likelihood of future harm necessary to establish standing for a declaratory judgment claim.

The next question is whether Mack has standing to seek, retrospective relief—i.e., more money for his totaled car. Mack chose to frame his claims as seeking prospective relief through requests for declaratory judgments; he specifically chose not to pursue damages for the retrospective harm that he has also arguably alleged.

A court may decide whether Mack is eligible for supplemental monetary relief only after issuing a declaratory judgment in his favor. For a federal court to have jurisdiction to issue a declaratory judgment, a plaintiff must assert a reasonable expectation that the injury they have suffered will be repeated in the future. Because there was no substantial likelihood that Mack will total his car again while insured by USAA, he lacked standing to sue for a declaratory judgment about the method it uses to assess payments under the policy.

If Mack lacks standing to pursue his declaratory judgment claims, then the federal court system is powerless to resolve whether declaratory relief is appropriate to remedy the alleged harm.  Because the District Court had no jurisdiction to entertain this suit, the judgment was vacated and the District Court was ordered to remand the case back to the state court.

ZALMA OPINION

Because Mack tried to turn a declaratory relief action about insurance coverage into a class action that might resolve more money for Mack and the members of the class for additional payments when there was no way the court could grant declaratory relief. He made most of his suit moot by entering into a personal settlement with USAA and simply had no standing to be in federal court. He may still get relief from the Florida court who could easily agree with the Eleventh Circuit’s analysis that he had no standing to go forward.


© 2021 – Barry Zalma

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

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

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

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

 

 

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It Takes “Chutzpah” to Claim Bad Faith After Admitting Fraud Under Oath

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Insurance Fraud Voids Coverage as a Matter of Law

I once, in an argument to a court, used the term “chutzpah” to make my case. The judge had never heard the term and thought I had used a swear word in his court and was about to hold me in contempt when my opponent, who also happened to be Jewish, joined me explaining the meaning of the word to the court. He and I explained that “chutzpah” means unmitigated gall such that, if he had presided over a trial where the defendant was found guilty of murdering his parents and asked for clemency because he was an orphan. In State Auto Property And Casualty Insurance Company v. Sigismondi Foreign Car Specialists, Inc., Civil Action No. 19-5578, USDC For The Eastern District Of Pennsylvania (April 12, 2021) the insured, after admitting under oath that he had fabricated documents to obtain greater returns from his insurer, had the unmitigated chutzpah to sue his insurer for bad faith for refusing to pay his fraudulent claim.

BACKGROUND

The State Auto policy provided coverage to Sigismondi for a commercial property in Philadelphia where the auto repair shop is located. In January 2019, Sigismondi presented a claim under the policy for water damage to its building and certain inventory, including automobile and audio equipment.

Sigismondi provided the insurer’s salvor with claimed replacement cost figures. Many of those figures were substantially greater than the values determined by the salvor.  Sigismondi admitted that it used computer software to edit at least some of the invoices submitted to State Auto, including by entering price information and dates.  As a result, State Auto requested the Examinations Under Oath of Joseph Sigismondi, Sigismondi’s owner, and Debbie Miller, an employee of Sigismondi.

During his examination, Mr. Sigismondi provided sworn testimony that the invoices provided to State Auto were scanned into a computer and altered. State Auto submitted that the president of the vendor in question submitted an affidavit stating that Mr. Sigismondi did not contact the vendor to ask for pricing information. Based on the discovery of the altered invoices, State Auto denied Sigismondi’s claim.

DISCUSSION

Sigismondi pointed to no record evidence indicating that State Auto lacked a reasonable basis for denying benefits under the policy, let alone that State Auto “knew of or recklessly disregarded” the lack of such a basis. To the contrary, the record reflects that State Auto responded reasonably after learning that Sigismondi had submitted altered vendor invoices to support its claim under the policy.

Generally, to void an insurance policy under Pennsylvania law, an insurer must prove the following factors by clear and convincing evidence:

  1. the insured made a false representation;
  2. the insured knew the representation was false when it was made or the insured made the representation in bad faith; and
  3. the representation was material to the risk being insured.

The clear and convincing evidence standard requires evidence that is so clear, direct, weighty, and convincing as to enable the trier of fact to come to a clear conviction, without hesitancy, of the truth of the precise facts in issue. State Auto argued it was entitled to summary judgment on this Count because Sigismondi materially breached the policy’s concealment or fraud provision by altering the invoices at issue. Pennsylvania courts have long ruled that a violation of the fraud and concealment provision of an insurance policy serves as a complete bar to the insured’s recovery under the policy and Sigismondi does not dispute that it made misrepresentations to State Auto by submitting altered invoices, or that it knew its representations were false when it made them.

Therefore, the Court’s analysis requires a determination that the misrepresentations were material. A fabricated receipt created by a consumer and presented as an official document from a retailer, without the retailer’s knowledge, constitutes false or misleading information, and certainly would be material to the insurance claim. Sigismondi’s fabricated invoices were clearly material to its insurance claim. Construing the record in the light most favorable to Sigismondi, and applying the clear and convincing evidence standard, no reasonable jury could find that Sigismondi did not knowingly make false representations by submitting altered invoices in support of its claim and that the representations were material to its claim. Therefore, State Auto was entitled to summary judgment on this Count.

State Auto also moved for summary judgment on its claim that Sigismondi violated Pennsylvania’s Insurance Fraud Act, which creates a private cause of action for insurers to remedy various types of fraud. Sigismondi does not dispute that it knowingly made false representations to State Auto, and the Court can only conclude as a matter of law that those misrepresentations were material to the claim.

On this record, no reasonable jury could find for Sigismondi even under the heightened clear and convincing evidentiary standard. State Auto is entitled to summary judgment on its Pennsylvania Insurance Fraud Act claim. As a matter of law Sigismondi intended to mislead State Auto into relying on the misrepresentations.

The Court granted State Auto’s motion for summary judgment on the declaratory judgment claim (Count I) and the Pennsylvania Insurance Fraud Act claim (Count II) but denied its motion for summary judgment on the common law fraud claim (Count III). The reverse bad faith claim (Count IV) was dismissed without prejudice. State Auto’s motion for summary judgment on the counterclaim was denied as moot. A hearing on damages will be scheduled at a future date.

ZALMA OPINION

To sue an insurer for bad faith claims handling after admitting to a blatant attempt at fraud, a misrepresentation and concealment of material fact establishes a person with unmitigated chutzpah. In my opinion the court should have referred Sigismondi to the local prosecutor for attempted insurance fraud which would, based upon his under-oath admissions, be an easy crime to prosecute. Insurance fraud is inimical to the public policy of every state and deserves more punishment than a simple dismissal of Sigismondi’s attempt at fraud.


© 2021 – Barry Zalma

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

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

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

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

 

 

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Zalma’s Insurance Fraud Letter – May 1, 2021

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ZIFL – Volume 25, No. 9

See the full video at https://www.linkedin.com/pulse/zalmas-insurance-fraud-letter-may-1-2021-barry-zalma-esq-cfe/?trackingId=W6wo%2BpTblJ6XC1aCC02AsA%3D%3D https://rumble.com/vgbcof-zalmas-insurance-fraud-letter-may-1-2021.html and at https://youtu.be/hkToYThKE5w 

The May 1, 2021 issue of Zalma’s Insurance Fraud Letter includes the following articles and a video reporting on the key article about the Examination Under Oath at

The Examination Under Oath is an Important Tool for Every Fraud Investigation

The EUO Is a Serious and Important Part of the Insurer’s Investigation

The attorney, insurance claims professional or investigator who conducts the EUO can take a role similar to the role of a prosecutor without the usual constitutional restraints controlling testimony at a deposition or trial. [Hickman v. London Assurance Corporation, 184 Cal. 524, 195 P. 45 (1920)] A false statement as to any material fact during the EUO can cause the policy to be declared void, even if the fact has no relationship to the loss.

In Claflin the false testimony concerned a witness that would not affect the amount payable under the policy but to protect his reputation for veracity. The U. S. Supreme Court found that the witness of the injury was material to the investigation and declared the policy void for fraud because he made false statements under oath.

Contrary to the Belief of Lawyers for the Insured, the EUO Is Not an Adversary Proceeding like a Deposition in a Lawsuit.

Insurance Benefits Not Available to Remodel Fixer Upper

Good News From the Coalition Against Insurance Fraud

Probation for Insurance Fraud Proves Futile

Health Insurance Fraud Convictions

When You Do the Crime & Only Get Probation it is not Wise to Commit a New Crime

Other Insurance Fraud Convictions

OIG’s Most Wanted Fugitives

When Granted Non-Custodial Probation it is Insulting to Appeal the Conviction

New Books for the Insurance Claims Professionals


© 2021 – Barry Zalma

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

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

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

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

 

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A Video Explaining Construction Defect Claims of Sick Building Syndrome & Legionaries Disease

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Construction Defects that Cause Illness or Disease

See the full video at https://rumble.com/vg9jdv-a-video-explaining-construction-defect-claims-of-sick-building-syndrome-and.html and at https://youtu.be/VXHyZIX6xEM

Sick building syndrome (SBS) covers a whole range of health problems that are related to toxin exposure in a building. There are serious questions raised by physicians and mold experts about the existence of a true relationship between the mold and bacterial infections that have been reported to be the cause of SBS. SBS is used to describe situations in which building occupants experience acute health and discomfort effects that appear to be linked to time spent in a building, but no specific illness or cause can be identified. The complaints may be localized in a particular room or zone, or may be widespread throughout the building. In contrast, the term “Building Related Illness” (BRI) is used when symptoms of diagnosable illness are identified and can be attributed directly to airborne building contaminants.

A study concluded that Stachybotrys chartarum produces the mycotoxin Satratoxin H, which is implicated in very high cytotoxicity and several environmental allergic reactions. The various papers concerning the toxicity of contact with mold spores has met with serious concerns that people can really be sickened by exposure to mold spores.

Legionnaires’ Disease acquired its name in 1976 when an outbreak of what was believed to be pneumonia occurred among persons attending a convention of the American Legion in Philadelphia. Later, the bacterium causing the illness was named Legionella. Patients with Legionnaires’ Disease usually have fever, chills, and a cough, which may be dry or may produce sputum. Some patients also have muscle aches, headaches, tiredness, loss of appetite, and, occasionally, diarrhea. Laboratory tests may show that these patients’ kidneys are not functioning properly. Chest X-rays often lead to a diagnosis of pneumonia. It is difficult to distinguish Legionnaires’ Disease from other types of pneumonia by symptoms alone; other tests are required for diagnosis.

Legionellosis is an infection caused by the bacterium Legionella pneumophila. The disease has two distinct forms: Legionnaires’ Disease, the more severe form of infection that includes, as a result of the infection, the development of pneumonia, and Pontiac fever, a milder illness.


© 2021 – Barry Zalma

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

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

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

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

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$117 Million Judgment Against Johnson & Johnson Reversed & Turned to Wallpaper

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Judge Failed to Properly Vet Experts Before Trial to the Detriment of the Defendants

In Stephen Lanzo, III and Kendra Lanzo v. Cyprus, Johnson & Johnson et. al., DOCKET NO. A-5711-17, DOCKET NO. A-5717-17, Superior Court Of New Jersey Appellate Division (April 28, 2021) Johnson & Johnson Consumer Inc. (JJCI) and Imerys Talc America, Inc. (Imerys) appealed from a judgment dated April 23, 2018, which awarded plaintiffs Stephen Lanzo III and his wife Kendra Lanzo $117 million in compensatory and punitive damages, and other orders entered by the trial court during the course of this litigation.

Plaintiffs sued Cyprus Amax Minerals Company (Cyprus Amax) and Cyprus Minerals Company (collectively, Cyprus), Johnson & Johnson (J&J), JJCI, Imerys, and Whittaker Clark & Daniels, Inc. (Whittaker) claiming they were responsible for Lanzo’s contracting mesothelioma.

Plaintiffs claimed Mr. Lanzo contracted mesothelioma from his long-term use of Johnson Baby Powder (JBP) and J&J’s Shower to Shower talcum powder (SS). J&J and JJCI produced, marketed, and sold JBP and SS using J&J’s own talc or talc supplied by other defendants. Plaintiffs alleged the products contained asbestos. In the complaint, Ms. Lanzo asserted a claim for the loss of her spouse’s services, society, and consortium.

During the trial, J&J, JJCI, Imerys, and Cyprus Amax moved to bar plaintiffs’ expert, Jacqueline Moline, M.D., from testifying that non-asbestiform cleavage fragments of certain minerals can cause mesothelioma. The judge limited the scope of Moline’s testimony, but allowed her to testify regarding “non-asbestiform cleavage fragments from a medical point of view.”

The jury returned a verdict against JJCI and Imerys finding that Mr. Lanzo had been exposed to asbestos and that such exposure was a substantial factor in causing his mesothelioma.  The jury assigned seventy percent responsibility for the compensatory damage awards to JJCI and thirty percent to Imerys.

Daubert and the Vetting of Experts

The Court explained that when it adopted the more relaxed approach for expert testimony, “it envisioned the trial court’s function as that of a gatekeeper – deciding what is reliable enough to be admitted and what is to be excluded. Those are not credibility determinations that are the province of the jury, but rather legal determinations about the reliability of the expert’s methodology.”

The appellate court concluded that the trial court erred by failing to perform its required gatekeeping function with regard to the testimony of expert Moline because the court did not conduct a Rule 104 hearing to test her theory and conducted no analysis as to whether the Daubert factors had been met. Thus, the court erred by allowing Moline to testify that there was no difference between asbestiform fibers and non-asbestiform cleavage fragments with the same dimensions and chemical composition in terms of their ability to cause disease.

Having concluded that the trial court erred by allowing expert testimony that non-asbestiform minerals can cause mesothelioma, a thorough review of the record, convinced the appellate court that the judge’s erroneous decisions were clearly capable of producing an unjust result, and therefore, new trials were required.

Perhaps anticipating that defendants would claim only non-asbestiform amphiboles were present in some of the talc used in JBP, counsel for plaintiffs argued in his opening statement that non-asbestiform fibers could cause asbestos-related disease. Plaintiffs’ counsel told the jury that:

“[J&J] got together with other companies that were selling talc and they chose to call the asbestos something else. I guess on the theory that if you don’t call it asbestos then it can’t cause asbestos-related disease. You see, [J&J] and the other talc companies argued that these minerals come in different forms, they grow in the ground in different forms. On the right you see something very fibrous, you see all the fibers. On the left it’s rocky, it’s chunky and it’s non-fibrous. And they argued and they claimed that there is a difference when it comes to . . . the ability to cause disease . . . on whether or not the single fiber that gets into the lungs, that gets into the pleura, that attacks the cells grew up one way or grew up another. . . . The defendants will urge everyone to adopt these other definitions. And our experts will tell you it doesn’t matter what you call something. The cells of our body don’t know the difference about where they grew up, . . . whether they grew up as a fiber or as a rock. It’s the same mineral. It’s the same chemistry. It’s the same dimensions. It causes the same diseases. . . . .[Webber is] going to explain to us that it doesn’t matter what you call it, it matters whether or not it can be breathed in and it matters whether or not it can penetrate all the way to where the cancer starts. That’s the important thing.” [(Emphasis added).]

If the jury accepted the experts’ unverified opinions, it could certainly believe that it did not matter, in terms of the ability to cause disease, whether Longo correctly identified the structures he found in the vintage samples as bundles or whether those structures were asbestiform or non-asbestiform.

Based on the testimony of plaintiffs’ experts, and plaintiffs’ opening and closing remarks, the jury could have concluded that the term “asbestos” in the question on the verdict sheet referred to non-asbestiform as well as asbestiform minerals, an unfair and inappropriate conclusion.

Therefore, the trial court did not perform its gatekeeping function and erroneously permitted the “experts” to testify concerning their untested opinion that non-asbestiform minerals could cause mesothelioma.  Therefore, the judgment was reversed and remanded for new trials for both defendants.

Once the jury was permitted to draw an adverse inference that Imerys’ talc was contaminated with asbestos, it would be difficult, if not impossible, for the jury not to make the same finding as to JJCI. Therefore, the trial court erred by failing to sever the claims against JJCI and Imerys.

The trial court erred by allowing the jury instructions improperly constrained consideration of alternative causes of Mr. Lanzo’s illness; and there was insufficient evidence to support the jury’s verdicts.

ZALMA OPINION

Turning a $117 verdict into nothing more than wallpaper was the result of the over-use of experts to render opiniona for which they were not qualified; coupled with unfounded opening and closing statements by plaintiffs’ counsel, resulted in reversal because the trial court allowed the plaintiffs’ counsel and their experts to deceive the jury. Defense counsel protected the record and the appellate court had no option but to reverse, covering its decision with a more than 50 page opinion although the decision was based on a single mistake in allowing overblown testimony from experts. Whichever insurer or insurers insured the defendants can breathe sighs of relief until the new trial and they will be prepared to effectively defend the charge.


© 2021 – Barry Zalma

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

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

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

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

 

 

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A Video Explaining the Requirements of “Additional Insured” Provisions in a Construction Contract

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“Additional Insured” Requirements of Construction Contracts and Policies

See the full video at https://rumble.com/vg7oeh-a-video-explaining-the-requirements-of-additional-insured-provisions-in-a-c.html and at https://youtu.be/aBnA3wJkg8g

Although the “additional insured” requirement provides additional security to the owner and architect, it can add to the cost of insurance. Regardless, the requirement is often included in contract documents and, if not carefully drafted, can result in multiple disputes as to which insurer is required to defend which insured. Construction contract language should be designed to avoid such disputes.

An owner and a contractor should make every effort to obtain language in their contract forms that will avoid ambiguous “additional insured” endorsements. The form language in the example above includes a requirement that the contractor provide the owner with a certificate, a copy of the actual endorsement making the owner an additional insured, and a copy of the entire policy. An owner who receives an endorsement should read it carefully and if it is not clear, then the owner should demand that it be clarified.

The requirements are usually verified by the contractor providing to the owner, architect, and others a “certificate of insurance” that is a statement by an insurance agent or broker that insurance exists at the time the certificate is signed in the amounts stated in the certificate by the insurers represented. A certificate is not insurance but only evidence of insurance at a specific time. Certificates often promise to advise the certificate holder if the policy is cancelled or otherwise goes out of force.

Parties to such contracts must carefully review their insurance contracts and be certain that their agents and brokers obtain policies that provide for such waivers of subrogation. Failure to do so can void the insurance contract as was held by the California Court of Appeals in Liberty Mutual Insurance Co. v. Altfillisch Construction Co., 70 Cal.App.3d 789, 139 Cal.Rptr. 91 (Cal.App.Dist.4 1977) where the court held that the waiver was “clearly a breach of the insured’s implied covenant of good faith and fair dealing.”


© 2021 – Barry Zalma

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

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

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

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

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Insurers Who are Victims of Insurance Fraud Should Demand Restitution

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Insurance Fraud Perpetrator Must Pay Restitution as a Condition of Probation

Ryan Patrick Natividad appealed from a post-judgment order after the trial court ordered him to pay over $75,000 in restitution. Natividad argued that the trial court abused its discretion by ordering he pay restitution. Failure to pay the restitution can cause Natividad to have his probation revoked and spend time in jail.

In The People v. Ryan Patrick Natividad, G058448, Court Of Appeal Of The State Of California Fourth Appellate District Division Three (April 14, 2021) the Court of Appeal explained why probation requires payment of full restitution if the amount assessed by the trial court is proper and reasonable even if the victim has other potential remedies.

FACTS

A complete recitation of the facts can be found in People v. Natividad (Nov. 8, 2019, G055248) [nonpub. opn.]. Suffice it to say, Natividad, a police officer, claimed he injured his right hand while on duty, but camera footage proved he didn’t. A jury convicted him of insurance fraud.

The trial court suspended imposition of sentence and placed Natividad on formal probation for three years. The court ordered him to serve 180 days in jail on electronic supervision. As a condition of probation, the court ordered he pay restitution in an amount determined by the probation department.

Natividad requested a restitution hearing on the amount of restitution. At the hearing, the prosecution offered five exhibits and the testimony of a Costa Mesa (City) human resource analyst (Employee). Natividad did not dispute the City’s restitution request for medical expenses, attorney’s expenses, and investigation costs related to the workers’ compensation claim for his hand injury. Natividad, however, challenged the City’s payment of insurance premiums, and the City’s payment of salary, benefits, and insurance.

Employee testified the City placed Natividad on administrative leave with pay in January 2015 because it was investigating his workers’ compensation claim for fraud. She stated that in July 2015, the City learned he was not available as required by the administrative leave process and it stopped paying him. She said that same month the City received a doctor’s note from a neurosurgery facility that indicated he had been under medical care since May 2015, but he never notified the City of an illness as required by the memorandum of understanding. As relevant here, Employee explained that when an employee was absent without pay, he was responsible for paying insurance premiums.

She added Natividad exhausted his accrued leave in September 2015 and he was required to personally pay for his insurance. Employee stated the City continued to provide him, and his wife and son, insurance coverage as was the City’s practice, and it invoiced him directly for October, November, and December 2015, and January 2016.

The prosecutor argued that but for Natividad’s criminal act, the City would not have paid him salary and his benefits. The prosecutor acknowledged Natividad’s position the City could recover the over-payment via another remedy, but the City suffered the loss “because of what he started.”

After expressing sympathy for Natividad’s health condition, the trial court concluded “the first cause of all this was the alleged and now established workers’ comp[ensation] fraud, and I don’t think the [C]ity should be compelled to pursue other remedies.” The court added the evidence demonstrated the City provided Natividad and his wife and child health coverage even though he was not entitled to it because he had a brain tumor and he probably could not get other health coverage. Thus, the court ruled that all the requested amounts should be included in the restitution order.

DISCUSSION

Natividad argued the trial court abused its discretion by ordering him to pay restitution of $7,782.56 for insurance premiums that were not related to or resulting from his criminal act.

The trial court is authorized by statute to impose restitution as a condition of probation.  In People v. Anderson (2010) 50 Cal.4th 19, 27 (Anderson), our Supreme Court stated, “While restitution under section 1203.1 may serve to compensate the victim of a crime, it also addresses the broader probationary goal of rehabilitating the defendant. ‘”Restitution is an effective rehabilitative penalty because it forces the defendant to confront, in concrete terms, the harm his actions have caused.”‘ [Citation.] Restitution ‘impresses upon the offender the gravity of the harm he has inflicted upon another, and provides an opportunity to make amends.’ [Citation.]”

California courts have long interpreted the trial courts’ discretion to encompass the ordering of restitution as a condition of probation even when the loss was not necessarily caused by the criminal conduct underlying the conviction. There is no requirement the restitution order be limited to the exact amount of the loss in which the defendant is actually found culpable, nor is there any requirement the order reflect the amount of damages that might be recoverable in a civil action.

The trial court recognized Natividad’s criminal act was not the direct cause of the City paying $7,782.56 for insurance premiums, a point the Attorney General agrees with. However, the court reasoned his criminal act was “the first cause of all this.” The court concluded that on balance, the amount should be made part of the restitution order. The trial court’s comments establish it reasonably concluded justice required Natividad to repay the City because his breach of the law triggered the events that resulted in the City’s loss.

The trial court’s conclusion that based on the facts in this case, Natividad’s conduct was “the first cause” did not exceed the bounds of reason. The court did not abuse its discretion.

ZALMA OPINION

Although victims of insurance fraud have many available remedies – like suing the perpetrator for fraud – it takes time to get a judgment and the judgment may be difficult or impossible – bankruptcy – to collect. A restitution order gives the fraudster two choices: pay the restitution or go to jail. That is a great incentive and the fraudster will invariably find the money rather than go to jail. Therefore, every insurer that is the victim of insurance fraud, must demand restitution and provide the court with the evidence necessary to prove the amount of loss as a result of the fraud, including all investigative and legal costs incurred as well as claim payments made.


© 2021 – Barry Zalma

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

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

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

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

 

Posted in Zalma on Insurance | Leave a comment

A Video Explaining the Construction Contract

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The Construction Contract

See the full video at https://rumble.com/vg5ryd-a-video-explaining-the-construction-contract.html  and at https://youtu.be/3NxCPmhZJCg

When a construction contract, like every other contract, is unambiguous, the parties’ intent may be determined from the contract alone, and it is the duty of the court—not the jury—to state its meaning.

Construction contracts are governed by the same rules as all other contracts. When a court is called upon to interpret a construction contract its terms are given their ordinary and generally accepted meaning with the court working to give effect to the intent of the parties to the contract unless the contract itself gives special meaning to the contract.

A construction contract should always be written. It should, like all other contracts, set forth in detail the duties and obligations of the parties to the contract. It should communicate the scope of work to be rendered and the extent to which each party is involved in the differing aspects of the project.

Contracts serve as means of documenting the services and assets to be exchanged during the course of a project. The contract is important not only to finalize the deal in the minds of the parties to the construction project, but also to help define the performance of the work and may even determine who bears the tax burden.


© 2021 – Barry Zalma

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

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

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

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

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When Granted Non-Custodial Probation it is Insulting to Appeal the Conviction

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Insurance Fraud is is Inimical to Public Safety, Welfare and Order

Alexander Goldinsky appealed from a guilty plea to third-degree insurance fraud and was sentenced to two years’ probation instead of being placed in New Jersey’s Pretrial Intervention Program (PTI). In State Of New Jersey v. Alexander Goldinsky, Docket No. A-1474-19, Superior Court Of New Jersey Appellate Division (April 14, 2021) the Appellate Division was asked to reverse Goldinsky’s plea and place him in the PTI.

FACTS

Defendant staged an accident at his workplace. He alleged that he slipped and fell in the cafeteria. Surveillance video revealed that defendant filled a cup with ice, threw the ice on the floor, and laid on top of it. Defendant was transported by ambulance to the hospital, where he told medical personnel that he had slipped, fallen, and injured himself. Defendant knew this false information would be provided to his health insurer, Oscar Garden State Insurance Company (Oscar). Oscar paid $563.49 to cover the ambulance bill.

Defendant’s fraudulent conduct did not end at the hospital. He falsely claimed that as a result of the accident, he developed stuttering speech, suffered from constant headaches, started dropping items when he holds them in both hands, and experienced painful “frozen spasm sensations” and heavy eyelids that wanted to close. Defendant was examined by a neurologist, who despite defendant’s description of the accident and resulting symptoms, concluded: “The stuttering and hypersomnolence are atypical, even for a concussion. It is questionable whether he had a concussion or not. I suspect the symptoms are mainly psychogenic, perhaps a conversion reaction to the stress of the trauma. I doubt these symptoms are due directly to brain injury or a concussion.”

A Middlesex County grand jury returned a four-count indictment charging defendant with multiple counts of insurance fraud.

Defendant, who had no prior juvenile or adult criminal history, applied for admission to PTI. The PTI director recommended defendant’s acceptance into the program. The PTI recommendation report noted defendant was fifty-seven years old, divorced, and reported his mental health as good. The report stated that “defendant was remorseful about the crime . . . and is willing to provide restitution to the victim for their monetary loss.” The report concluded that “PTI would serve as a sufficient sanction to deter future criminal conduct” and that the crimes defendant was charged with were “not [of] such a nature that the value of supervisory treatment would be outweighed by the public need for prosecution.”

The recommendation was overruled by the prosecutor. In a detailed, eight-page, single-spaced letter, the prosecutor considered the statutory factors and concluded defendant was not a suitable candidate for diversion. The court accepted the recommendation of the prosecutor and on the same day defendant pled guilty to count one in exchange for a recommended sentence of non-custodial probation conditioned upon paying restitution in the amount $563.49 to an insurer, and dismissal of the remaining three counts.

Defendant was sentenced in accordance with the plea agreement to a two-year, non-custodial term of probation subject to certain conditions, including making restitution to Oscar Garden State Insurance Corporation in the amount of $563.48 and performing fourteen hours of community service.

ANALYSIS

Defendant sought reversal because he felt that he was entitled to admission to The Pretrial Intervention Program. PTI is a diversionary program through which certain offenders are able to avoid criminal prosecution by receiving early rehabilitative services expected to deter future criminal behavior.

PTI is essentially an extension of the charging decision, therefore the decision to grant or deny PTI is a quintessentially prosecutorial function. Prosecutorial discretion in this context is critical for two reasons. First, because it is the fundamental responsibility of the prosecutor to decide whom to prosecute, and second, because it is a primary purpose of PTI to augment, not diminish, a prosecutor’s options

In respect of the close relationship of the PTI program to the prosecutor’s charging authority, courts allow prosecutors wide latitude in deciding whom to divert into the PTI program and whom to prosecute through a traditional trial. The deference has been categorized as “enhanced” or “extra” in nature. Thus, the scope of review is severely limited.

Trial courts may overrule a prosecutor’s decision to accept or reject a PTI application only when the circumstances clearly and convincingly establish that the prosecutor’s refusal to sanction admission into the program was based on a patent and gross abuse of discretion. A defendant challenging the prosecutor’s recommendation against enrollment into PTI must establish that the decision was a patent and gross abuse of discretion.

Although this was defendant’s first criminal charge, the interests of society may justify the denial of an application for admission into PTI even though a defendant has led an exemplary life except for the conduct which forms the basis of the pending criminal charges. The trial court stated it disagreed with the prosecutor’s decision. It correctly abided by the principle, however, that a trial court must not substitute its own discretion for that of the prosecutor even where the prosecutor’s decision is one which the trial court disagrees with or finds to be harsh.

The Legislature has declared that “[i]nsurance fraud is inimical to public safety, welfare and order within the State of New Jersey” and that “[a]ll New Jerseyans ultimately bear the societal burdens and costs caused by those who commit insurance fraud,” N.J.S.A. 2C:21-4.4(a).

Defendant did not satisfy his burden. He has not proven by clear and convincing evidence that the prosecutor’s rejection of defendant’s PTI application amounted to a patent and gross abuse of discretion. Defendant has not demonstrated that the prosecutorial veto (a) was not premised upon a consideration of all relevant factors, (b) was based upon a consideration of irrelevant or inappropriate factors, or (c) amounted to a clear error in judgment. Nor has he shown that the prosecutor’s decision clearly subverted the goals underlying PTI. The rejection was neither unjust nor unfair.

Conversely, granting defendant PTI would not necessarily serve all the goals of PTI set forth in the statute. The prosecutor properly considered and weighed each of the relevant factors in reaching the decision to reject defendant’s application. The sentence and rejection of PTI was affirmed.

ZALMA OPINION

Insurance fraud is a serious crime – whether effective in great amounts or small – and deserves punishment. There was no question that Goldinsky was guilty of the crime. He faked the trip and fall on video, admitted the crime, and was luck that he was only sentence to two years of unsupervised probation. Instead, he appealed the chance to avoid a conviction and wasted the time of the appellate court. His crime was clear, premeditated and effective. He deserved jail time and avoided it.


© 2021 – Barry Zalma

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

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

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

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

 

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A Video Explaining the Basics of Construction Defects & Insurance

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Allegations of Construction Defects is one of the Most Active Areas of Litigation in the United States

See the full video at https://rumble.com/vg44bf-a-video-explaining-the-basics-of-construction-defects-and-insurance.html and at https://youtu.be/zRezpACnPeA

Claims professionals, risk managers, producers, underwriters, attorneys (both plaintiff and defense), and business owners will benefit greatly from the multiple volumes. It is also the perfect resource for insurance educators, trainers, and students whose role requires an understanding of construction defect law and construction insurance law.

Construction defect suits are now flooding the courts of North America in greater numbers every year. Construction Defects & Insurance is designed to help the property owner, builder, construction professional, insurer, insurance professional, construction defect plaintiffs’ lawyer, construction defect defense lawyer, and those who support them.

Anyone faced with construction defect issues can use the series of books to effectively avoid or resolve claims of such defects. It covers identification of construction defects, and explains how to insure, investigate, prosecute, or defend litigation that results from claims of construction defect.

All buildings have an expected life span. None, except perhaps the Egyptian Pyramids, were designed to last eons. Yet, even the pyramids in Egypt will erode to a mound of sand given enough time, wind, water and the movement of tectonic plates. Their demise will be an expected result of age and erosion rather than a construction defect. Venerable, well-constructed, structures seldom fail because of their advanced age. Usually, they are torn down and replaced with new structures before they have time to waste away.

The dollars involved in construction defect litigation have grown exponentially. If a problem exists in a multiple unit condominium association or a housing tract, minor repairs of the defects multiply over the various units to millions of dollars. In addition, the complexity of a construction defect suit usually results in hundreds of hours of work for attorneys, and the need for separate counsel for each party defendant like the owner, architect, general contractor and each subcontractor.


© 2021 – Barry Zalma

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

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

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

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

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Intentional or Criminal Act Exclusion Must be Resolved Before an Appeal

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Piecemeal Appeals are Disfavored

In a case where the plaintiff appealed the trial court’s judgment, which granted a partial summary judgment in favor of the defendant, the Louisiana Court of Appeal was faced with an incomplete judgment. In Gerald J. Asay v. SAFECO Insurance Company Of Oregon, 2020 CA 0852, State Of Louisiana Court Of Appeal First Circuit (April 16, 2021) the court was faced with a situation where it was shown that the case would result in multiple appeals.

FACTS

On October 24, 2014, Gerald Asay, an attorney, was involved in an automobile accident with his estranged wife, Paige, and her boyfriend, Robert Vial. Mr. Asay rear-ended the vehicle being driven by Mr. Vial while it was stopped at a red light. Paige was a passenger in the vehicle, and the Asays’ three-year-old daughter was in the backseat. The accident also caused Mr. Vial’s automobile to collide into the vehicle in front of it. The accident resulted in civil, criminal, and state bar disciplinary proceedings being instituted against Mr. Asay.

On June 16, 2015, Mr. Asay filed a Petition for Declaratory Judgment naming Safeco Insurance Company of Oregon (Safeco) as defendant. In his petition, Mr. Asay alleged that he was the named insured under an automobile insurance policy issued by Safeco that provided coverage for liability on the part of Mr. Asay and coverage for damage to his vehicle. Mr. Asay asserted that he was driving at a high rate of speed in an effort to catch up to Mr. Vial’s vehicle, which was stopped at a red light and that although he “braked heavily,” the accident occurred. He further alleged that, after the accident, he made a claim with Safeco, who declined coverage based on the determinations that the loss arose out of a “criminal act” and an “intentional act” thereby excluding coverage. Mr. Asay averred that there has been no adjudication that he was guilty of either a criminal act or an intentional act, and he requested a judgment declaring that the insurance policy provided coverage for the subject accident.

Thereafter, Safeco filed its answer and defenses, pleading the provisions and exclusions in the automobile policy, as well as in an umbrella policy, both issued to Mr. Asay.  Safeco filed a motion for summary judgment, asserting that Mr. Asay was seeking insurance coverage for his “October 2014 road-rage incident in which he intentionally rammed into a stopped car carrying his estranged wife and her then-boyfriend.” According to Safeco, because Safeco’s policies contained “intentional act” and “criminal act” exclusions, summary judgment excluding coverage was appropriate.

Mr. Asay filed a motion for partial summary judgment, seeking a declaration that the criminal act exclusion did not apply. In connection therewith, he filed one memorandum in support of his cross-motion for summary judgment and in opposition to Safeco’s motion for summary judgment. Mr. Asay asserted that although the automobile policy’s collision coverage section contained an exclusion for intentional acts, the collision coverage section of the policy did not contain a criminal act exclusion. He further averred that the criminal act exclusion with regard to liability coverage did not apply because he had neither been convicted nor entered a guilty plea to any crime as a result of the accident and that all criminal charges against him had been dismissed.

The trial court denied Safeco’s motion for summary judgment based on the applicability of the intentional act exclusion, finding that a genuine issue of material fact existed as to whether Mr. Asay harbored the requisite intent to cause property damage or bodily injury. However, the trial court found no genuine issue of material fact that the criminal act exclusion in Safeco’s policies was applicable. With regard to Mr. Asay’s motion for partial summary judgment, the trial court found that a genuine issue of material fact remained as to Mr. Asay’s intent, precluding the partial summary judgment.

The trial court denied Safeco’s motion for summary judgment with respect to Mr. Asay’s claim for collision coverage under Safeco’s automobile insurance policy. The trial court also denied Mr. Asay’s motion for partial summary judgment.

DISCUSSION

In this case, the judgment was designated as a final judgment under Louisiana Code of Civil Procedure article 1915B. Article 1915B(1) provides: “When a court renders a…partial summary judgment…, as to one or more but less than all of the claims, demands, issues, or theories against a party, whether in an original demand, reconventional demand, cross-claim, third-party claim, or intervention, the judgment shall not constitute a final judgment unless it is designated as a final judgment by the court after an express determination that there is no just reason for delay.”

However, appellate courts are not limited by the findings of a trial court and have the duty to examine subject matter jurisdiction even when the parties do not raise the issue. If no reasons for the certification are given, but some justification is apparent from the record, the appellate court should make a determination of whether the certification was proper.

Historically, Louisiana courts, like those of almost every state, have had a policy against multiple appeals and piecemeal litigation, with a goal of promoting judicial efficiency and economy in the administration of justice.

The trial court judgment partially dismissed Mr. Asay’s claim for a declaration of insurance coverage based on Safeco’s defense regarding the criminal act exclusion. Safeco’s defense that the intentional act exclusion also applies remains and has not been adjudicated. Therefore, even if the appellate court was to find the criminal act exclusion to be inapplicable to Mr. Asay’s claim for liability coverage under the automobile and umbrella insurance policies, the issue of the applicability of the intentional act exclusion would still exist. Moreover, Mr. Asay did not assert a claim for coverage under the umbrella policy in his petition for declaratory judgment, but the trial court granted summary judgment on the liability coverage in the umbrella policy. Whether the trial court properly ruled on coverage under the umbrella policy remains as an issue, adding to the possibility of piecemeal appeals.

Given the nature of the claims and the procedural posture of this case, addressing the issues at this time would promote piecemeal appeals and would not make review available at a time that best serves the parties.  As a result the court dismissed the appeal.

ZALMA OPINION

Insurance disputes often involve different issues when more than one condition or exclusion applies to a loss, claim or suit. In this case the trial court resolved one small part of the issues raised by Mr. Asay’s claim for declaratory relief. Since the trial court only resolved one of the issues and left several for resolution later or at trial it was improper to certify the judgment as final allowing an appeal. The Court of Appeal refused to take on the issue until the case is complete in the trial court and sent it back until all issues are resolved and the potential for piecemeal appeals are disposed of by the trial court.


© 2021 – Barry Zalma

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

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

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

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

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A Video Explaining the Effect of the Tort of Bad Faith

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Why it is Time to Abolish the Tort of Bad Faith

See the full video at https://rumble.com/vfzibb-a-video-explaining-the-effect-of-the-tort-of-bad-faith.html  and at https://youtu.be/71YiqNf-wQs

It is indisputable that in the 1950’s, 1960’s and 1970’s the insurance industry abused some insureds to avoid paying legitimate claims. Without a factual basis, insureds were accused of arson or other variations on insurance fraud. Indemnity payments were refused on the flimsiest of excuses. People were found to have diseases that only horses could catch. Disability payments were refused because an insured was wheeled in her wheelchair to church one day and, therefore, was not totally house-confined. Insureds were driven into bankruptcy when reasonable demands within policy limits were refused.

To stop this abuse, the courts of the state of California invented the tort of bad faith. It took a universal contract remedy and decided that the breach of an insurance contract without, what the court decided was proper, genuine or even fairly debatable reasons, was transferred from a contract breach into a new tort. Many other states have followed the lead.

Until the invention of the tort of bad faith all that an insured could collect from an insurer that wrongfully denied a claim were the benefits due under the policy. After the creation of the tort of bad faith, the courts allowed the insureds to collect, in addition, the entire panoply of tort damages, including punitive damages.

It worked. Insurers treated the insureds better. The threat of punitive damages made insurers wary of rejecting any claim. The creation of the tort of bad faith was in many ways a good thing for insurers and insureds. What the courts that created the tort of bad faith did not recognize was that it was also the key to Pandora’s box of abusive lawyers who found it to be a new profit center for their practices.

Bad faith litigation is not a game, where insureds are free to manufacture claims for recovery. It is time that it is abolished from litigation in the United States


© 2021 – Barry Zalma

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

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

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

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

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