Do You Need a Staff that Understands Property Insurance Claims?

   Excellence in Claims Handling – Property Insurance Claims Certification

New Web-Based Courses for Those

Needing to Deal With a Property Insurance Claim

Excellence in Claims Handling Certification will Help you to Prepare for a Career in Insurance.

The Excellence In Claims Handling program provides everything a person or entity presenting a claim needs to effectively present the claim and provides the insurance claims person with everything he or she needs to properly represent the insurer.

The insured, risk manager, or corporate counsel will be able to present a first party property claim – whether a fire, theft, or windstorm or some other insured against cause – with little difficulty and professionalism and present a sworn proof of loss acceptable to an insurer.

The insurance claims person completing the course will be able conduct a thorough investigation of the policy and claim. The insurance claims person will also be able to assist an insured to fulfill all of the promises made by the insured to the insurer and the insurer to provide the indemnity promised by the insurance policy.

Each person completing the course will be able to claim that he or she is a professional first party property claims person ready to provide excellence in claims handling and be ready to resolve any claims problem that arises for the benefit of the insurer and the policy holder.

Courses Available from Experfy.com

I am pleased to announce that there is now available a series of courses available to help anyone involved with a property insurance claim an ability to provide or receive excellence in claims handling.

The series of courses was designed so that the student can obtain the needed information easily while he or she sits down in the morning for a first cup of coffee or any other time in the day in short, easy to consume lessons. For instance “Insurance and Claims” is made up of three modules and 27 lectures while “Investigating the Property Claim” is made up of four modules and 65 lectures. You can review each course, each module and each lecture at the links below.

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Course Description

The Excellence In Claims Handling program provides everything the insurance claims person needs to properly represent the insurer when presented with a first-party property claim. It also provides the person or entity insured, its risk manager or CFO with everything needed to present a claim to effectively present the claim and provides the information needed to obtain the maximum indemnity promised by the insurance policy. A key to every insurance claim is the thorough investigation required by law where the insurer’s adjuster or claims person works with the insured or his, her or its representative, to gather sufficient facts to determine the cause and origin of the claimed loss, whether the loss was due to a cause, the risk of loss of which was insured, and if so to determine the extent of the loss and the indemnity owed by the insurer to the insured. This program provides the insurer’s representative the tools needed to complete a thorough investigation and the insured’s representative with the tools to assist the adjuster to complete the needed investigation promptly so that the insured and the insurer are satisfied with a prompt and complete payment of the indemnity promised by the policy.

What am I going to get from this course?

Either conduct a thorough investigation of a property insurance claim or be ready and able to assist the insurer’s representative in the need to complete a thorough investigation of a property insurance claim.

Excellence in Claims Handling: Investigating the Property Claim

Insurance and Claims:

How an insured and insurer deal with a first-party property claim.

Understand how to read and understand a first-party property insurance policy so that a property insurance claim can be thoroughly investigated, evaluated and adjusted to the satisfaction of the insurer and the insured.

Course Description

The course provides the information needed by a person or entity insured faced with damage to or loss of real or personal property. It explains the reasons for insurance, how the insurance contract is constructed, read, understood and applied to provide the person or entity insured with the indemnity promised by the policy. Understand how to read and understand a first-party property insurance policy so that a property insurance claim can be thoroughly investigated, evaluated and adjusted to the satisfaction of the insurer and the insured.

What am I going to get from this course?

Understand how to read and understand a first-party property insurance policy so that a property insurance claim can be thoroughly investigated, evaluated and adjusted to the satisfaction of the insurer and the insured.

Instructor Barry Zalma is an insurance coverage consultant and Certified Fraud Examiner.

Excellence in Claims Handling:

Knowledge of Insurance Law.

The course explains the legal basis for the interpretation of the property insurance policy contract and how courts interpret those contracts.

Course Description

The Excellence In Claims Handling program provides everything the insurance claims person nee

ds to properly represent the insurer when presented with a first-party property claim. It also provides the person or entity insured, its risk manager or CFO with everything needed to present a claim effectively and provides the information needed to obtain the maximum indemnity promised by the insurance policy.

The program explains the legal basis for the interpretation of the property insurance policy contract and how courts interpret those contracts. A first-party property insurance policy makes multiple promises including a promise to provide indemnity to the insured in case of a loss by a peril – like fire – insured against. The first-party property policy imposes obligations on the claims person and the insured so that the insured can, with the assistance of the insurance claims professional, prove to the insurer that the loss was caused by a peril insured against, the extent of the loss to repair or replace the property with material of like kind and quality and negotiate a settlement acceptable to both the insured and the insurer.

The program is presented in increments that can be reviewed at the convenience of the student whether viewed in short increments with the student’s first cup of coffee in the morning or as the last effort of the day. Repetition also aids in learning. When all of the course increments are completed the student will be able to announce that he or she is a first-party property claims professional and knows everything needed to either investigate and adjust a property insurance claim or everything needed to present a first-party property claim to an insurer so that the indemnity promised by the policy can be obtained quickly, effectively and without dispute.

What am I going to get from this course?

Excellence in First Party Property Insurance Claims

The insured, risk manager, or corporate counsel will be able to present a first party property claim – whether a fire, theft, or windstorm or some other insured against cause – with little difficulty and professionalism and present a sworn proof of loss acceptable to an insurer.

The insurance claims person completing the course will be able conduct a thorough investigation of the policy and claim. The insurance claims person will also be able to assist an insured to fulfill all of the promises made by the insured to the insurer and the insurer to provide the indemnity promised by the insurance policy.

The student will have a basic understanding of insurance law and how that law is applied to the interpretation of the insurance contract.

Excellence in Claims Handling:

Solving Claims Problems

Learn about problems that arise as a result of a first party property claim and how each problem can be resolved with information learned from the course and other Excellence in Claims Handling programs.

Course Description

What am I going to get from this course?

Excellence in First Party Property Insurance Claims

The insured, risk manager, or corporate counsel will be able to present a first party property claim – whether a fire, theft, or windstorm or some other insured against cause – with little difficulty and professionalism and present a sworn proof of loss acceptable to an insurer.

The insurance claims person completing the course will be able conduct a thorough investigation of the policy and claim. The insurance claims person will also be able to assist an insured to fulfill all of the promises made by the insured to the insurer and the insurer to provide the indemnity promised by the insurance policy.

Each person completing the course will be able to claim that he or she is a professional first party property claims person ready to provide excellence in claims handling and be ready to resolve any claims problem that arises for the benefit of the insurer and the policy holder.

https://www.experfy.com/training/courses/solving-claims-problems

To supplement to the courses Barry Zalma has written Ten Volumes Comprising A Comprehensive Group of Materials on Property & Casualty Insurance Claims are available as paperbacks or Kindle books from Amazon.com.

Insurance claims professional and expert witness Kevin Quinley said about the following ten volumes: “Zalma’s series of books is a terrific blend of both the legal underpinnings and the practical implications for the claim practitioner.

Insurance Maven Bill Willson said: “Zalma On Insurance Claims” is a tour de force, an indispensable tool that should be a part of every claims training program in America and in the library of every claims professional for quick and frequent reference. This comprehensive guide belongs in the library of every insurance defense AND policyholder law firm. It should be a part of every claims training program of carriers, independent adjusting firms, and public adjusters. Many of these parts should be part of the training or reference programs for non-claims personnel, from agents to underwriters to risk managers.”

Also useful is The Compact Book of Adjusting Property Insurance Claims – Second Edition, A Manual for the First Party Property Insurance Adjuster Available as a Kindle book and Available as a paperback.


Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. 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 51 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.

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The Law of Unintended Consequences and Insurance

Simplified Wording Causes Ambiguity

Insurance contracts can be simple or exceedingly complex, depending on the risks taken on by the insurer. Regardless, insurance is neither more nor less than a contract whose terms are agreed to by the parties to the contract.

Over the last few centuries, almost every word and phrase used in insurance contracts have been interpreted and applied by one court or another. Ambiguity in contract language became certain. However, the average person saw the insurance contract as incomprehensible and impossible to understand.

Courts, struggling to understand policies of insurance added to the concern of Legislators and, as said in Insurance Company of North America v. Electronic Purification Company, 67 Cal. 2d 679, 689, 63 Cal. Rptr. 382, 433 (1967):

the insurance company gave the insured coverage in relatively simple language easily understood by the common man in the marketplace, but attempted to take away a portion of this same coverage in paragraphs and language which even a lawyer, be he from Philadelphia or Bungy, would find difficult to comprehend. [Hays v. Pacific Indemnity Group,8 Cal. App. 3d. 158, 80 Cal. Rptr. 815 (1970).]

Ostensibly to protect the public, to salve the concerns of jurists like the one quoted above, insurance regulators and Legislatures decided to require that insurers write their policies in “easy to read” language. Because they were required to do so by law, the insurers changed the words in their contracts into language that people with a fourth-grade education could understand. Precise language interpreted by hundreds of years of court decisions was disposed of and replaced with imprecise, easy to read language. [For examples of the “easy to read” or “plain English statutes” go to Appendix 1.]

The “easy to read statutes” made with the intent to help the public understand insurance policies and avoid litigation, became a victim of law of unintended consequences. Instead of protecting the consumer, the imprecise language resulted in thousands of lawsuits determined to impose penalties on insurers for attempting to enforce ambiguous “easy to read” language.

The lawsuits cost insurers and their insureds millions of dollars to get court opinions that interpret the language and reword their “easy to read” policies to comply with the court decisions. For more than 50 years, the unintended consequence of a law designed to avoid litigation has done exactly the opposite.

The attempts by regulators and courts to control insurers and protect consumers were made with the best of intentions. The judges and regulators found it necessary to protect the innocent against what they perceived to be the rich and powerful insurer. Unfortunately, the plain English statutes had the opposite effect.

Of course, the fact that easy to read policies cause more problems than they cure, had no effect on regulators and legislators, the laws and regulations have not been changed.

Bad Faith Causes Bad Behavior

In the 1950s, the California Supreme Court created a tort new to U.S. jurisprudence: the tort of bad faith.

A tort is a civil wrong from which one person can receive damages from another for multiple injuries. The tort of bad faith was created because an insurer failed to treat an insured fairly, and the court felt that the traditional contract damages were insufficient to properly compensate the insured. The court allowed the insured to receive, in addition to the contract damages that the insured was entitled to receive under the contract had the insurer treated the insured fairly, damages for emotional distress and punitive damages to punish the insurer for its wrongful acts.

Insureds, lawyers for insureds, regulators, and courts across the United States cheered the action of the California Supreme Court, for providing a fair remedy to abused insureds. Most of the states adopted the tort created by the California Supreme Court. Some enacted statutes allowing for litigation of the tort of bad faith. Many did so, like California, by judicial fiat.

After the creation of the tort of bad faith, if an insurer and insured disagreed on the application of the policy to the factual situation, damages were no longer limited to contract damages as in other commercial relationships. If the court found that the insurer was wrong, it could be required to pay the contract amount and damages for emotional distress, pain, suffering, punishment damages, attorney fees, and any other damages the insured and the court could conceive in order to deter other insurers from treating their insureds badly.

The courts and legislators adopting the tort of bad faith hoped that the tort of bad faith would have a salutary effect on the insurance industry and force insurers to treat their insureds fairly. However, even after claims for $40 wrongfully denied resulted in $5 million verdicts, the intended purpose of the bad faith cases and statutes were skewed. Juries, unaware of the reason for and operation of insurance, decided that insurers that did not pay claims were evil and that they wrote contracts so they never had to pay claims. The jurors were convinced it was appropriate to punish insurers severely even when the insurer’s conduct was correct and proper under the terms of its contract since no insurance policy can cover every possible eventuality.

The massive judgments were publicized, and many insurers decided fighting their insureds in court was too expensive regardless of how correct their position was on the contract. They found it less expensive to pay than to fight just as shop owners threatened by the Mafia decided it was better to pay protection to the Mob rather than fight.

Most of the massive verdicts were reversed or reduced on appeal. The bad actors raised their premiums and lost little business. Other insurers, faced with the massive verdicts, allowed fear to control reason, and paid claims that were improper or fraudulent.

The extra cost was passed on to all insurance consumers. The insurers who acted improperly were punished less than then honest insurers who were threatened with punitive damages. The insurers who treated their insureds badly, in fact, profited since they continued their wrongful acts and only were required to pay the few insureds that sued. Those insureds that did not sue added to the wrongdoers’ profit margins.

Honest insurers, fearful of being painted with the bad faith brush, paid frauds and claims they did not owe. As a result the insurers that paid claims they did not owe found they needed to raise premium charges to cover the extra expense. The increased premium paid by insureds to cover the extra expense was a clear example of the effect of the law of unintended consequences. The insurers and their insureds who paid rather than fight for fear of assessments of punitive damages, lost business and profits because they could not actuarially predict the cost of paying tribute to insureds and lawyers claiming the tort of bad faith.

The law of unintended consequences struck the insurance industry and the insurance buying public. Rather than deter wrongful actions the law of unintended consequences resulted in punishing the honest and correct insurers, honoring the insurers who acted in bad faith with profit, and allowed many frauds to succeed.

Opiods

 According to the CDC, between 2000 and 2017, the number of opioid overdose deaths in the United States more than 700,000 people have died from a drug overdose.  On average, 130 Americans die every day from an opioid overdose.

From 1999-2017, almost 400,000 people died from an overdose involving any opioid, including prescription and illicit opioids.

This rise in opioid overdose deaths can be outlined in three distinct waves.

  1. The first wave began with increased prescribing of opioids in the 1990s , with overdose deaths involving prescription opioids (natural and semi-synthetic opioids and methadone) increasing since at least 1999.
  2. The second wave began in 2010, with rapid increases in overdose deaths involving heroin.
  3. The third wave began in 2013, with significant increases in overdose deaths involving synthetic opioids – particularly those involving illicitly-manufactured fentanyl (IMF). The IMF market continues to change, and IMF can be found in combination with heroin, counterfeit pills, and cocaine.

The road to the current epidemic began to be paved with good intentions in the late 1990s when, soon after the FDA approved the controlled-release form of oxycodone (Oxycontin), the American Pain Society introduced the phrase “pain as the fifth vital sign.”

In 1999, the Department of Veterans Affairs embraced the statement, as did other organizations. The Joint Commission standards for pain management in 2001 stated “pain is assessed in all patients” (all was dropped in 2009) and contained a passing reference to pain as the fifth vital sign.

In 2012, CMS added to its ED performance core measures timely pain treatment for long bone fractures, emphasizing parenteral medications. The government was, to save people from pain, requiring the prescription of opiods that resulted in multiple addictions.

By 2010, the problems created by emphasizing effective pain management had become evident, and measures began to be introduced to restrict the prescribing and availability of pharmaceutical opioids. The restrictions sent many patients to EDs seeking pain medications. Others sought substitutes on the street and ultimately ended up in EDs as overdoses from very potent synthetics. Many EPs began to limit opioid prescriptions to 3 days for acute painful conditions, though not all patients were able to obtain follow-up appointments with PCPs within that time period.

In April 2016, the Joint Commission issued a statement claiming it was not responsible for “pain as the fifth vital sign” or for suggesting that pain be treated with opioids.

In June 2016, the AMA urged dropping “pain-as-the-fifth-vital-sign” policies, and in 2014, CMS modified its core measure emphasis on parenteral medication in the timely treatment of long bone fractures. But the damage has been done, leaving many people requiring help managing their pain and others suffering the consequences of opioid dependence.

As a result, the government health programs began paying for opiods without any real controls or limitations on the doctors prescribing them and patients becoming dependent on them.

In the hope of reducing opioid use, abuse, and overdoses, policymakers have focused on developing and promoting tamper-resistant or abuse-deterrent formulations (ADFs) that render diverted opioids unusable if individuals attempt to use them for nonmedical (i.e., recreational) purposes.

Although the benefits of ADFs seem to be nonexistent, these formulations have led to real harms. ADFs have encouraged users to switch to more dangerous opioids, including illegal heroin. In at least one instance, the reformulation of a prescription opioid led to a human immunodeficiency virus (HIV) outbreak.

Along the way, ADFs unnecessarily increase drug prices, imposing unnecessary costs on health insurance purchasers, taxpayers, and particularly patients suffering from chronic pain. Like the federal government’s promotion of abuse-deterrent alcohol a century ago, these efforts are producing unintended consequences, such as making legal pain relief unaffordable for many patients and possibly increasing morbidity and mortality.

In the 1990s, for example, some states required consumers to purchase coverage for an experimental, expensive, and highly toxic breast-cancer treatment called high-dose chemotherapy with autologous bone marrow transplant. The treatment involves harvesting the patient’s bone marrow, administering essentially lethal doses of chemotherapy, and then reinfusing the patient’s bone marrow to restart her immune system. The treatment proved no more effective than standard chemotherapy, meaning it subjected breast-cancer patients to greater suffering for no clinical benefit. Under pressure from patient advocacy groups, states—including Massachusetts and Minnesota—nevertheless required insurers to cover the procedure.

The evidence shows that ADF opioids are an ineffective and harmful approach to reducing opioid overdoses. Government at all levels should stop promoting them. Congress should end or limit the ability of pharmaceutical manufacturers to impose higher costs on pain patients by using ADFs to evergreen their opioid patients. The FDA should end its policy of encouraging ADF opioids, particularly its goal of eliminating non-ADF opioids. Ideally, the agency should adopt a position of skepticism.

At the least, it should be neutral on the issue. Lawmakers should abandon efforts to require consumers to purchase coverage for costlier ADF opioids and should instead allow insurers to steer medical users of these products toward cheaper, non-ADF, generic formulations.

The prescription of opiods has become a temptation for physicians who feel they are underpaid to become rich providing medically unnecessary opiods.


This post was adapted from my newest book, The Law of Unintended Consequences and the Tort of Bad Faith.

The concept of unintended consequences is one of the building blocks of economics. Adam Smith’s “invisible hand,” the most famous metaphor in social science, is an example of a positive unintended consequence.

Most often, however, the law of unintended consequences illuminates the perverse unanticipated effects of legislation and regulation. In 1692 the English philosopher John Locke, a forerunner of modern economists, urged the defeat of a parliamentary bill designed to cut the maximum permissible rate of interest from 6 percent to 4 percent. Insurance is controlled by the courts, through appellate decisions, and by governmental agencies, through statute and regulation. Compliance with the appellate decisions, statutes, and regulations—different in the various states—is exceedingly difficult and expensive.

The business of insurance is, unfortunately, subject to the law of unintended consequences as if it were on steroids.

Available as a paperback  

Available as a Kindle book


© 2019 – Barry Zalma

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New Insurance Books by Barry Zalma

The Law of Unintended Consequences and the Tort of Bad Faith; Compact Books of Adjusting Property & Liability Claims; and Arson-For-Profit Fire at the Cowboy Bar & Grill

Barry Zalma, Esq., CFE, an insurance coverage and claims expert, has created a library of insurance claims books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

For those who serve the insurance industry and its policyholders (whether as lawyers, adjusters, claims management, or public insurance adjusters) the ability to perform their duties appropriately in good faith it is absolutely necessary that they maintain insurance professionalism.

The books described in this post need a home in each law office, each insurance company. each independent adjuster’s claims office and in the offices of every public insurance adjusting firm.

Barry Zalma’s Insurance Claims Library will provide essential resources and will go a long way to create a staff of insurance claims professionals.  The books listed below are a small taste of the insurance law and insurance claims books written by Barry Zalma and available on amazon.com and at http://zalma.com/blog/insurance-claims-library/ or the individual links at each described book.

The Law of Unintended Consequences and the Tort of Bad Faith

The concept of unintended consequences is one of the building blocks of economics. Adam Smith’s “invisible hand,” the most famous metaphor in social science, is an example of a positive unintended consequence.

Most often, however, the law of unintended consequences illuminates the perverse unanticipated effects of legislation and regulation. In 1692 the English philosopher John Locke, a forerunner of modern economists, urged the defeat of a parliamentary bill desi

gned to cut the maximum permissible rate of interest from 6 percent to 4 percent. Insurance is controlled by the courts, through appellate decisions, and by governmental agencies, through statute and regulation. Compliance with the appellate decisions, statutes, and regulations—different in the various states—is exceedingly difficult and expensive.

The business of insurance is, unfortunately, subject to the law of unintended consequences as if it were on steroids.

Available as a paperback  

Available as a Kindle book

“The Compact Book of Adjusting Property Insurance Claims – Second Edition”

A Manual for the First Party Property Insurance Adjuster

The insurance adjuster is not mentioned in a policy of insurance. The obligation to investigate and prove a claim falls on the insured. Standard first party property insurance policies, based upon the New York Standard Fire Insurance policy, contain conditions that require the insured to, within sixty days of the loss, submit a sworn proof of loss to prove to the insurer the facts and amount of loss.

The policy allows the insurer to then, and only then, respond to the insured’s proof of loss. The insurer can then either accept or reject the proof submitted by the insured.

The Compact Book of Adjusting Property Claims -- Second Edition: A Primer For The First Party Property Claims Adjuster.Technically, if the wording of the policy was followed literally the insurer could sit back, do nothing, and wait for the proof. If the insured was late in submitting the proof the insurer could reject the claim. If the insured submits a timely proof of loss the insurer could either accept or reject the proof of loss. If the insurer rejected the proof of loss the insured could either send a new one or give up and gain nothing from the claim. Suit on the policy would be difficult because the policy contract limited the right to sue to times when the proof of loss condition had been met.

Insureds and insurers were not happy with that system. It made it too difficult for a lay person to successfully present a claim. The system, as written into the standard fire policy seemed to run counter to the covenant of good faith and fair dealing that had been the basis of the insurance contract for centuries. Most insurers understood that their insureds were mostly incapable of complying with the strict enforcement of the policy conditions. To fulfill the covenant of good faith and fair dealing insurers created the insurance adjuster to fulfill its obligation to deal fairly and in good faith with the insured.

The Second edition adds new material from 2018 and 2019, is easier to use and more compact than the original.

Available as a Kindle book.

Available as a paperback.

“The Compact Book on Adjusting Liability Claims, Second Edition”

A Handbook for the Liability Claims Adjuster

This Compact Book of Adjusting Liability Claims is designed to The Compact Book Of Adjusting Liability Claims Second Edition: A Handbook for the Liability Claims Adjusterprovide the new adjuster with a basic grounding in what is needed to become a competent and effective insurance adjuster. It is also available as a refresher for the experienced adjuster.

The liability claims adjuster quickly learns that there is little difficulty with a claimant (the person alleging bodily injury or property damage against a person insured) if the claim is paid as demanded. The insured may be unhappy if the claimant’s claim is paid as presented since most do not believe they did anything wrong or fear an increase in premiums charged for subsequent policies.

The adjuster must be prepared to salve the insured’s emotions, explain why in the law and the policy it was appropriate to pay the claimant and that the settlement is in the best interest of both the insured and the insurer the adjuster represents.
The adjuster knows, and must be prepared to explain to an insured, that if a claim is resisted or denied the claimant will be unhappy, will probably file suit. If not promptly settled the claimant’s lawyers will rake the insured over the coals to prove that the insured is liable for the claimant’s injuries. The litigation will take time, effort, and money to establish the extent of the injuries and who is responsible for the injuries. Failure to settle promptly can cost the insured his or her reputation and will certainly cost the insurer much more than the claim could have been resolved for had it been resolved before the claimant retained a lawyer.

Available as a Kindle book

Available as a paperback.

“Arson-For-Profit Fire at the Cowboy Bar & Grill”

A true crime novel based on the experience of the author, Barry Zalma, who for more than 51 years has acted for insurers who were faced with arson-for-profit, one of the most dangerous insurance fraud schemes. The book explains how an insurance claims adjuster, working with a fire cause and origin expert, a forensic accountant and insurance coverage lawyer, were able to defeat an arson-for-profit scheme and obtain a judgment requiring the perpetrator to take nothing and repay the insurer all of its expenses in defeating the claim.

Available as a paperback.

Available as a Kindle book.

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A Sinking Feeling is not Enough for Coverage

Warranty of Seaworthiness is Essential

Insurance protecting against the risk of loss of a vessel – whether it operates on inland waterways or on the open sea – always requires that the insured keep the vessel seaworthy. Failure to do so voids the coverage. Seaworthiness is usually defined in the policy and must be proved by the insured.

In Progressive Gulf Insurance Company v. William Burke, Civil Action No. 7:18-cv-00293, United States District Court for the Western District of Virginia Roanoke Division (May 10, 2019) the USDC was asked to determine if Progressive Gulf Insurance Company is obligated to provide insurance coverage for the loss of a yacht owned by William Burke, which sank at its dock on Smith Mountain Lake, behind Burke’s house. Progressive moved for summary judgment because it claims it had no duty to provide any coverage for that loss because Burke failed properly to winterize the yacht, which failure was the cause of the damage.

BACKGROUND

Progressive’s motion for summary judgment set forth a numbered statement of undisputed facts. Burke made no attempt to respond to specific facts or to cite any specific portions of the record, as required by Federal Rule of Civil Procedure 56(c). Therefore, the court deemed the facts set forth by Progressive undisputed.

The Sinking of the Yacht

The yacht owned by Burke is a 2006 custom catamaran motor-yach (the Vessel). The Vessel includes two air conditioning units (the A/C units), which were installed more than ten years ago. According to the reports of Progressive’s two experts, the Vessel sank because it had not been properly winterized.

In particular, neither Burke nor his adult son, Travis—to whom Burke had delegated winterization tasks—properly winterized the A/C units. The manufacturer’s instructions required that all water in the A/C units be replaced with antifreeze and that the Vessel’s sea cocks be closed. It is undisputed that neither of these steps were taken.

Because there was water left in the Vessel’s raw-water inlet that water froze. It then expanded and caused part of the A/C system to crack and break free of its mount. That, in turn, allowed lake water to enter the Vessel through its open seacock to flow unimpeded into and out of the broken strainer, flooding the Vessel until it sank.

The Policy

Progressive issued a “Virginia Boat and Personal Watercraft” insurance policy (the Policy) to Burke. The Policy was an “Agreed Value Policy,” with a coverage limit of $150,000. The policy excluded from coverage a loss “that occurs because a covered watercraft has not been properly winterized in accordance with the manufacturer’s specifications, subject to local customs.”

The policy required the vessel to be “seaworthy” which was defined as to be fit to “withstand the foreseeable and expected conditions of weather, wind, waves, and the rigors of normal and foreseeable use in whatever type of waters a watercraft will be located.”

For a watercraft to be considered seaworthy the policy required the insured to exercise due diligence to properly manage the watercraft; comply with all federal safety standards and provisions; and follow all customary and manufacturer-recommended maintenance guidelines.

DISCUSSION

Under Virginia law, the interpretation of an insurance policy presents a question of law. Just as with any contract, the court must interpret the policy by determining the parties’ intent from the words they have used in the document.

The court determined that there was ample evidence to suggest that the loss was caused by a failure to winterize in accordance with the manufacturer’s specifications, subject to local customs. The one marina manager at Smith Mountain lake who was willing to talk with Progressive’s expert likewise testified that customary winterization for a vessel in the area included removing all water from systems, lines and fittings and replacing it with antifreeze – exactly what was recommended by the AC manufacturer.

Because is it undisputed that neither Burke nor Travis followed the manufacturer-recommended maintenance guidelines regarding winterization of the A/C units, the vessel was not seaworthy as that term is defined in the Policy. Because that failure was the undisputed cause of the loss, the loss and damages are not covered by the policy, under its plain and unambiguous terms and summary judgment was granted in favor of Progressive.

ZALMA OPINION

The USDC, by Elizabeth K. Dillon United States District Judge, read a clear and unambiguous policy condition, applied the facts established by the insurer, and determined that the vessel sank because it was not properly winterized and was, therefore, not seaworthy as required by the policy. Insurance never provides indemnity against every possible risk of loss. All have conditions and exclusions, as did the Progressive policy. We read here another suit that could probably justify sanctions for bringing a frivolous suit.


© 2019 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. 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 51 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.

“THE HOMEOWNERS INSURANCE POLICY”

HOW TO BUY AN APPROPRIATE HOMEOWNERS POLICY AND SUCCESSFULLY MAKE A CLAIM TO THE INSURER

Insurance is a contract between a person seeking insurance and an insurer. It is obtained by making contact with the insurer as a prospective insured seeking insurance. The homeowners policy is a specialized policy of insurance that protects the homeowner from certain risks of loss to the real and personal property at the home, the exposure the insured faces for injury to a household employee, and the exposure the insured faces to liability for bodily injury or property damage caused to third parties. The book explains how to buy a homeowners policy and how to collect on any claim made to the homeowners insurer.

Paperback Book    Kindle Book

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Books Needed by Every Adjuster

California Fair Claims Settlement Practices Regulations; California SIU Regulations; Ethics for the Insurance Professional; Rescission of Insurance; The Insurance Examination Under Oath; and Random Thoughts on Insurance

Barry Zalma, Esq., CFE, an insurance coverage and claims expert, has created a library of insurance claims books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

For those who serve the insurance industry and its policyholders (whether as lawyers, adjusters, claims management, or public insurance adjusters) the ability to perform their duties appropriately in good faith it is absolutely necessary that they maintain insurance professionalism.

The books described in this post need a home in each law office, each insurance company. each independent adjuster’s claims office and in the offices of every public insurance adjusting firm.

Barry Zalma’s Insurance Claims Library will provide essential resources and will go a long way to create a staff of insurance claims professionals.  The books listed below are a small taste of the insurance law and insurance claims books written by Barry Zalma and available on amazon.com and at http://zalma.com/blog/insurance-claims-library/

Some of the books available to create or maintain insurance professionalism include:

“California Fair Claims Settlement Practices Regulations”

A Guide to Insureds, Public Insurance Adjusters, and Lawyers to Properly Investigate and Adjust Insurance Claims

This book was designed to assist insurance personnel who do business in the state of California. It will assist all insurance claims personnel, claims professionals, independent insurance adjusters, special fraud investigators, private investigators who work for the insurance industry, the management in the industry, the attorneys who serve the industry, public insurance adjusters, policyholders and counsel for policyholders working with insurers doing business in California. All insurers doing business in California must comply with the requirements of the Regulations or face the ire of, and attempts at financial punishment from, the CDOI. That punishment is now questionable and limited because some courageous insurers fought the CDOI and succeeded before an administrative law judge who limited the right to punish. Regardless of difficulties in assessing punishment the state of California requires all who are involved in the claims process — even if only tangentially — to be trained with regard claims handling in compliance with the Regulations and attest to completion of such training under oath. To avoid the annual training the claims person can submit a sworn document that avers that he or she has read and understood the Regulations. Reviewing this book and the Regulations set forth below should be sufficient to comply with the training requirements of the Regulations. It is necessary that insurance personnel who are engaged in any way in the presentation, processing, or negotiation of insurance claims in California be familiar with the Regulations. Counsel for insurers and policyholders should also be familiar with the Regulations since they set a minimum standard for claims handling in the state.

Available as a Kindle book.

Available as a paperback.

California SIU Regulations”

The State of California Imposes Control on the Investigation of Insurance Fraud

California SIU Regulations: The State of California Imposes Control on the Investigation of Insurance FraudCalifornia SIU Regulations is designed to assist California insurance claims personnel, claims professionals, independent insurance adjusters, special fraud investigators, private investigators who work for the insurance industry, the management in the industry, the attorneys who serve the industry, and all integral anti-fraud personnel working with California admitted insurers to comply with the requirements of California SIU Claims Regulations.

The state of California, by statute, requires all admitted insurers to maintain a Special Investigative Unit (an “SIU”) that complies with the requirements set forth in the Special Investigative Unit Regulations (the “SIU Regulations”) and train all integral anti-fraud personnel to recognize indicators of insurance fraud.

Available as a Kindle Book.

Available as a paperback.

“Ethics for the Insurance Professional”

Methods for Insurers and their Personnel to Act with the Utmost Good FaithProduct Details

Ethics is a process of systematically applying, using, defending and recommending concepts of right and wrong behavior. Ethical behavior is required of both parties to a contract of insurance for the system to work. Ethics is the essence of insurance. Ethical behavior is required of both parties to a contract of insurance for the system to work. If any party to the insurance contract acts unethically the ability of insurance to work effectively and profitably will fail. Ethics is the essence of insurance. Since insurance was first created it has been a business of utmost good faith. As a result, the insured and the insurer are expected to treat each other ethically.

Available as a paperback.

“Rescission of Insurance”

Product DetailsRescission is an equitable remedy as ancient as the common law of Britain. When the United States was conceived in 1776 the founders were concerned with protecting their rights under British common law. They adopted it as the law of the new United States of America modified only by the limitations placed on the central government by the U.S. Constitution approved in 1789. The viability and ability to enforce contracts was recognized as essential to commerce. Courts of law were charged with enforcing legitimate contracts. Courts of equity were charged with protecting contracting parties from mistake, fraud, misrepresentation and concealment since enforcing a contract based on mistake, fraud, misrepresentation or concealment would not be fair. The common law developed rules that courts could follow to refuse to enforce the terms of a contract that was entered into because of mutual mistake of material fact, a unilateral mistake of material fact, the breach of warranty (a presumptively material promise to do or not do something), a material concealment, or a material misrepresentation. The remedy – called rescission – created a method to apply fairness to the insurance contract and allow an insurer to void a contract and allowed courts to refuse to enforce such a contract entered into by misrepresentation or concealment of material facts.

Available as a paperback.

Available as a Kindle book.

“The Insurance Examination Under Oath”

Product DetailsThe 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.

Available as a Kindle book.

Available as a paperback.

“Random Thoughts on Insurance”

Product DetailsAfter more than 50 years acting as a claims person and insurance coverage lawyer I enjoy reading court decisions concerning insurance. The idea of this blog is to find new cases that are interesting to me and then write a summary. Some of the cases reviewed will be important. Some may be of first impression. Others will be totally unimportant. All will be interesting.

The case digests and articles from 2010 to the present, in the six volumes summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Read about these and other insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/

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Doctrine of Reasonable Expectations Does not Apply

Fire Policy Does Not Provide Liability Insurance

Another case of leading a horse to water but not being able to make him drink.

When an agent explains to a non-resident owner of a dwelling that homeowners insurance is not available and that the resident must have their own insurance, the agent can’t force the insured’s to buy what is needed. When a loss occurs, the insureds then sue the agent because they didn’t buy what they needed and there was no coverage available. The mere fact that there was no coverage available does not create a reasonable expectation of coverage without evidence to support it.

Anyone can allege a cause of action. Proving it true is more difficult. In Francine Hamilton and Raymond Hamilton, Plaintiffs-Appellants v. Deborah Galati, Albert Galati, and Patricia Galati, Defendants, and Deborah Galati, Third-Party Plaintiff v. First Brokers Insurance and Farmers Insurance Company of Flemington, Third-Party Defendants-Respondents, Docket NO. A-5462-16T1, Superior Court of New Jersey Appellate Division (May 9, 2019) a suit was properly alleged but proof was impossible.

FACTS

Albert and Patricia are Deborah’s parents. They purchased a home for her and her children. After Deborah moved into the property, she acquired an Alaskan Malamute dog, who broke free of its outside tether and attacked Francine Hamilton, causing personal injuries.

Before the Malamute attacked Francine Hamilton, around the time Deborah moved into the property, Patricia contacted First Brokers for homeowner’s insurance for Deborah’s house. Bonnie Bowen, a First Brokers agent, explained that Patricia could not obtain homeowner’s coverage because she did not reside there. Instead, Bowen was willing to issue a dwelling/fire policy, but this would only cover Albert and Patricia for losses to the real property.

Bowen suggested that Deborah separately obtain renter’s insurance. Patricia told Bowen that Deborah did not pay rent, but Bowen repeated that she should have renter’s insurance. Patricia testified in deposition that she believed renter’s insurance only covered the value of contents, did not understand it would have provided Deborah property liability coverage because it was never explained to her, and thus she did not encourage Deborah to obtain it. Deborah did not obtain renter’s insurance.

The trial judge found in favor of Farmers and First Brokers because the policy unambiguously defined “insured” as including only Albert and Patricia. He considered construction of the policy language to be “really a plain language type of situation, and it’s not something that needs any further description. You can’t define every word in a policy, and that’s one of the words I don’t think you have to define.” Because terms in insurance policies are to be given their plain meaning, in the absence of ambiguity, Deborah was not an additional insured.

The judge also concluded that the insureds could not reasonably expect to include their daughter in the definition of “insureds” when she resided in another household. He also did not consider Deborah to be a third party beneficiary, or that the broker or insurance company had a fiduciary or other duty to her based on the phone call from her mother.

ANALYSIS

The words of an insurance policy are to be given their plain, ordinary meaning. In the absence of any ambiguity, courts should not write for the insured a better policy of insurance than the one purchased. An ambiguity exists where the average policyholder would not be able to ascertain the boundaries of coverage.

In order to be covered by the policy, the additional insureds must reside in Albert and Patricia’s household. There is no ambiguity in the term “household” and Deborah did not live there.

Deborah did not fall within the term “resident,” nor was she a member of Albert and Patricia’s “household.” There is no ambiguity here; the doctrine of “reasonable expectations” simply does not apply.

Equity will grant reformation of an insurance policy where there is mutual mistake or where a mistake on the part of one party is accompanied by fraud or other unconscionable conduct of the other party. The record revealed that Patricia made no mistake as to the scope of coverage; she only made assumptions and no further inquiries. Albert and Patricia knowingly purchased a dwelling/fire policy, and knew it would only cover them and not Deborah. Deborah did not obtain a renter’s policy as the broker suggested. There was no mutual mistake.

The Hamiltons allege that since Albert and Patricia now have a new insurance policy on Deborah’s home, listing Deborah as an “additional insured” under the policy, it was in fact possible for First Brokers and Farmers Insurance to have added Deborah as an “additional insured.” They contend that the broker and insurer’s failure to do so initially is a breach of fiduciary duty.

Here, the agent for First Brokers was clear about the type of insurance she was providing to Albert and Patricia. She was clear that the policy only covered Albert and Patricia and that Deborah would have to obtain her own policy. While the agent could have recommended another policy under which Deborah could be added as an “additional insured party,” the agent owed no fiduciary obligation to Deborah. Her failure to do so does not rise to a breach of fiduciary duty. That the agent and the carrier owed a duty to Albert and Patricia did not translate into a duty to Deborah.

The motions for summary judgment were properly granted in this case. The judge based his decision on relevant law, and took into account all the probative, competent evidence.

ZALMA OPINION

In this case the only policy issued was a dwelling fire policy that did not insure third party liability and only insured the owners of the property, not the resident, Deborah. The Malamute’s actions causing injury – even if there was liability coverage – would only apply to the owners, not their daughter who lived at the dwelling rent free. Deborah could have followed the advice of the agent and been covered for the Malamute’s attack. This case is a silly waste of the court’s time.


© 2019 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. 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 51 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.

“Arson-For-Profit Fire at the Cowboy Bar & Grill”

A true crime novel based on the experience of the author, Barry Zalma, who for more than 51 years has acted for insurers who were faced with arson-for-profit, one of the most dangerous insurance fraud schemes. The book explains how an insurance claims adjuster, working with a fire cause and origin expert, a forensic accountant and insurance coverage lawyer, were able to defeat an arson-for-profit scheme and obtain a judgment requiring the perpetrator to take nothing and repay the insurer all of its expenses in defeating the claim.

Available as a paperback.

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Zalma’s Insurance Fraud Letter – May 15, 2019

 Zalma’s Insurance Fraud Letter   

Failure to Appear for EUO is a Breach of a Material Condition

Failure to Appear for EUO is a Breach of a Material Condition 

The examination under oath is one of the most effective tools against insurance fraud. It is a condition precedent to recovery of indemnity on almost every first party property policy. Refusal to appear is usually sufficient to allow an insurer to deny a claim even if the claim is otherwise recoverable.

Staged Accident Can Never Be a Covered Event

In 21st Century Insurance/21st Century Advantage Insurance Company/21st  Century National Insurance Company v. Marie Baptisye et al., Index No.: 156199/2013, 2019 NY Slip Op 30781(U), Supreme Court of the State of New York County of New York: Part 63 (March 29, 2019) the insurer sought summary judgment against the answering Defendants, Doctor Goldshteyn Chiropractic, P.C., Mind & Body Acupuncture P.C., One to One Rehab PT, P.C., Remedial Medical Care P.C., Skillman Medical Diagnostic, P.C., Sharp View Diagnostic Imaging, P.C., and Easy Care Acupuncture P.C., for a declaration that: (a) Defendants Ralph Magny (Magny), Daphne Rympel (Rympel), and Hans Deetjen (Deetjen) because they breached a material condition precedent to coverage by refusing and failing to appear for an Examination Under Oath (EUO). In addition Plaintiff asked for a ruling that it is not obligated to pay, honor, or reimburse any of the answering Defendants for any claims that were submitted for any No-Fault reimbursement on behalf of Magny, Rympel, and Deetjen; and (b) the incident of April 7, 2011 because the reported accident was staged and not a covered event, such that Plaintiff is not required to pay any sums arising out of the alleged incident.

Insurance Fraud Conviction for Issuing Fake Policies Affirmed

When an employee of an insurance company defrauds the insurer by creating false policies and taking commissions from policies never issued or paid and then collecting on claims from the false policies is not only insurance fraud but violation of multiple federal statutes. In United States of America v. Patricia Diane Smith Sledge, No. 17-50363, United States Court of Appeals for the Ninth Circuit (March 11, 2019) Patricia Sledge appealed from her jury conviction and sentence for mail fraud and witness tampering.

Murder for Life Insurance Money Results in Life in Prison

When the Judge Does not Agree to Sentence as Part of Plea There is no Limit on the Trial Court
Kevin Pushia purchased multiple life insurance policies on the life of a disabled person he claimed was his brother. He then, working with others, caused Lemuel Wallace to be murdered violently so he collect on the life insurance policies. He assisted the prosecution by testifying against his co-defendants who participated in the scheme. On August 27, 2010, in the Circuit Court for Baltimore City, Kevin Pushia pled guilty to conspiracy to commit murder and to seven counts of insurance fraud. On October 17, 2011, the circuit court sentenced appellant to life plus 45 years.
In Kevin Pushia v. State of Maryland, No. 00739, Court of Special Appeals of Maryland, Case No. 109162003, 11008057-063 (April 29, 2019) Pushia appealed claiming that the plea deal limited the amount of time he could be sentenced.

Health Insurance Fraud Convictions 

Rehab Doctor Admits Ordering $10 Million in Phony Drug Tests

Domenick Braccia admitted he participated in a ring that targeted out-of-network insurers to maximize reimbursements for unnecessary tests, court records show. In his case, court records show fraudulent claims of more than $9.5 million were sent to Independence Blue Cross of Philadelphia and federal employee health benefit plans, causing losses of more than $2.4 million.
Braccia, a Pennsylvania physician who co-owned a small network of substance abuse rehabilitation centers pleaded guilty to signing orders for nearly $10 million in unnecessary urine and allergy tests, prosecutors said.
He also is one of 11 people facing state charges following a Pennsylvania statewide grand jury investigation into fraudulent health care billing. That investigation is ongoing. In total, Independence Blue Cross was billed for more than $33 million and paid out more than $4 million for unnecessary work, according to Pennsylvania Attorney General Josh Shapiro.
Braccia was the medical director for three Philadelphia-area substance abuse facilities known as Liberation Way, records show. According to the records, Braccia allegedly signed blank forms for drug-testing orders that were handed out by other employees who were not physicians.
He often did not evaluate the patients and did not visit one of the three facilities at all, the court records show.
Liberation Way owners also gave employees cash incentives to ensure every patient submitted as many samples as their insurance would cover. Liberation Way allegedly billed the insurers at “exorbitant” amounts, court records said, and the tests were sent to Florida laboratories that kicked back some of the payments to the owners.
Liberation Way also allegedly operated a cycle of addiction “treatment” that illegally directed patients to live at company-owned, unlicensed ‘sober homes’ to increase the amount of treatment time for which it could bill insurers. Patients who relapsed would reenter treatment at a higher level of care, which resulted in Liberation Way billing for even higher rates of reimbursement so that patients were cycled through treatment as many times as possible, up to eight times.
Court records showed Braccia already made a payment of $1.2 million in penalties.
A sentencing date has not been made public. He still faces the state charges, according to Pennsylvania records.
A New Jersey physician, Ramesh Sarvaiya, pleaded guilty last month in federal court for his role in the scheme.
Patient Recruiter Sentenced for Role In $1.6 Million Kickback Scheme
Yamilet Diaz, 50, of Hialeah, Florida, was sentenced by U.S. District Judge James I. Cohn of the Southern District of Florida.  After a four-day trial in February 2019, which Judge Cohn presided over, Diaz was convicted of one count of conspiracy to defraud the United States and to receive health care kickbacks and four counts of receiving health care kickbacks.
Diaz, a South Florida patient recruiter was sentenced to 87 months in prison May 8, 2019 for her role in a scheme involving approximately $1.6 million in Medicare claims for home health care services that were procured through the payment of kickbacks.
According to evidence presented at trial and at sentencing, from approximately February 2012 to August 2013, Diaz received kickbacks in return for referring Medicare beneficiaries to five South Florida home health agencies to serve as patients.  The evidence established that Diaz and her co-conspirators caused Medicare to make over $1.6 million in payments to the home health agencies based upon claims for home health services submitted on behalf of the beneficiaries recruited by Diaz.  The evidence further established that Diaz personally benefited from the fraud and received at least $710,000.
New York Diagnostic Testing Facility Owners Plead Guilty
Tea Kaganovich, 47, and Ramazi Mitaishvili, 58, a married couple, both of Brooklyn, New York, each pleaded guilty to one count of health care fraud and one count of conspiracy to defraud the lawful functions of the IRS before U.S. Magistrate Judge Steven M. Gold of the Eastern District of New York.  Sentencing has been scheduled for July, 18, 2019, before U.S. District Judge Margo K. Brodie of the Eastern District of New York.
The two New York diagnostic testing facility owners pleaded guilty May 8, 2019 for their roles in a more than $18.5 million health care fraud scheme.
The defendants were the co-owners of several diagnostic testing facilities in Brooklyn, including Sophisticated Imaging Inc., East Coast Diagnostics Inc., East Shore Diagnostics Inc., East West Management Inc. and RM Global Health Inc. As part of their guilty pleas, Kaganovich and Mitaishvili admitted that they executed a scheme in which they submitted fraudulent health care claims for diagnostic testing services.
The defendants admitted that they paid approximately $18.5 million in kickbacks for the referral of beneficiaries who submitted themselves to diagnostic testing and other purported medical services. Kaganovich and Mitaishvili falsely reported to the IRS that the illegal kickback payments were legitimate business expenses, which caused relevant tax forms to falsely under-report business income and claim deductions, they further admitted.
Nigerian Guilty to Role in $8.3 Million Medicare Fraud Scheme
Ayodeji Temitayo Fatunmbi, 47, pleaded guilty to one count of conspiracy to commit health care fraud and one count of conspiracy to commit money laundering before U.S. District Judge Christina A. Snyder of the Central District of California.  Fatunmbi was extradited from Nigeria to the Central District of California in October of 2018 on charges contained in a May 2013 indictment.  Sentencing has been scheduled for Aug. 19, 2019 before Judge Snyder.
The Nigerian man pleaded guilty May 8, 2019 for his role in a durable medical equipment (DME) scheme that fraudulently billed more than $8 million dollars to Medicare for DME that was not medically necessary.
As part of his guilty plea, Fatunmbi admitted that he and others paid cash kickbacks to patient recruiters and physicians for fraudulent prescriptions for DME such as power wheelchairs, which the Medicare beneficiaries did not need.  Fatunmbi and co-conspirators caused Lutemi Medical Supply (Lutemi), a DME supply company that he co-ran, to submit approximately $8.3 million in claims to Medicare, which resulted in the company being paid over $3.5 million.  Fatunmbi further admitted that he was responsible for $2,090,434 in false and fraudulent claims for medically unnecessary DME and that as a result of his conduct, Medicare paid Lutemi a total of $1,076,893.  In furtherance of this scheme, Fatunmbi and a co-conspirator wrote checks from Lutemi’s bank account to Lutemi employees and others, and Fatunmbi instructed that those monies be returned to him to pay the illegal cash kickbacks to the patient recruiters and doctors, he admitted.  Fatummbi admittedly directed others at Lutemi to engage in these transactions to conceal the nature and source of the proceeds of the health care fraud conspiracy.  As part of his plea agreement, Fatunmbi agreed to pay restitution to Medicare in the amount of $1,076,893.
Fatunmbi was charged along with Olufunke Ibiyemi Fadojutimi, 47, of Carson, California, and Maritza Elizabeth Velasquez, 44, of Las Vegas, Nevada.  Velasquez pleaded guilty on July 24, 2013, to one count of conspiracy to commit health care fraud, and was sentenced to 15 months in prison and restitution in the amount of $3,411,428.  Fadojutimi was found guilty after a jury trial on July 31, 2014, of one count of conspiracy to commit health care fraud, seven counts of health care fraud and one count of money laundering, and sentenced to four years in prison and restitution in the amount of $4,372,466.  In her sentencing, Fadojutimi was held responsible for the full amount of over $8 million in intended losses caused by the fraud at Lutemi.

© 2019 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. 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 51 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.

“The Compact Book on Adjusting Liability Claims, Second Edition”

A Handbook for the Liability Claims Adjuster

This Compact Book of Adjusting Liability Claims is designed to The Compact Book Of Adjusting Liability Claims Second Edition: A Handbook for the Liability Claims Adjusterprovide the new adjuster with a basic grounding in what is needed to become a competent and effective insurance adjuster. It is also available as a refresher for the experienced adjuster.

The liability claims adjuster quickly learns that there is little difficulty with a claimant (the person alleging bodily injury or property damage against a person insured) if the claim is paid as demanded. The insured may be unhappy if the claimant’s claim is paid as presented since most do not believe they did anything wrong or fear an increase in premiums charged for subsequent policies.

The adjuster must be prepared to salve the insured’s emotions, explain why in the law and the policy it was appropriate to pay the claimant and that the settlement is in the best interest of both the insured and the insurer the adjuster represents.
The adjuster knows, and must be prepared to explain to an insured, that if a claim is resisted or denied the claimant will be unhappy, will probably file suit. If not promptly settled the claimant’s lawyers will rake the insured over the coals to prove that the insured is liable for the claimant’s injuries. The litigation will take time, effort, and money to establish the extent of the injuries and who is responsible for the injuries. Failure to settle promptly can cost the insured his or her reputation and will certainly cost the insurer much more than the claim could have been resolved for had it been resolved before the claimant retained a lawyer.

Available as a Kindle book

Available as a paperback.

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Fourth Circuit Amazingly Concludes Insurer Must Defend Malpractice Action Even When Insured Leaves Country Never to Return

Doctor Provides No Notice, Runs Away, Fails to Cooperate in Defense, Yet Insurer Must Pay Default Judgment

Liability insurance policies, like medical malpractice policies, contain a condition precedent requiring the insured to cooperate in the defense of any suit brought against the insured, assist counsel in presenting a defense, and testify at trial. In a case where the insured doctor provided no notice, fled the country with a stated decision never to return, and who was unavailable to assist in the defense of the suit, had a default judgment entered against him when the insurer believed it was unable to have a lawyer enter an appearance for a client who does not consent.

In Claudia M. Mora, individually and as a parent, natural guardian and next friend of A.C., a minor and S.C., a minor; Juan Carlos Castillo; Advance Walk-in Urgent Care, LLC; and Union Multi-care Medical Center, Inc., and Richard Osei Akoto, M.D., P.C., LLC; and Richard Osei Akoto, M.D., v. Lancet Indemnity Risk Retention Group, Inc., No. 18-1566, United States Court of Appeals for the Fourth Circuit (May 7, 2019) the Fourth Circuit amazingly, held the insurer responsible to pay the judgment up to its limits.

FACTS

In January 2015, Dr. Ishtiaq Malik treated Juan Castillo for his complaints of chest pains and shortness of breath. After administering a treadmill stress test and an EKG, Dr. Malik prescribed a beta blocker but did not refer Castillo to a cardiologist or instruct him to seek any other immediate medical attention. Eight days later, Castillo died from a cardiac event.

On July 2, 2015, counsel for Castillo’s wife, Claudia Mora, and children notified Dr. Malik’s malpractice insurer, Lancet Indemnity Risk Retention Group, Inc. (“Lancet”), that they were preparing to file a medical malpractice action against Dr. Malik. Plaintiffs indeed filed that action on July 24, 2015 in Montgomery County, Maryland state cour. Plaintiffs alleged that Dr. Malik negligently failed to refer Castillo to a cardiologist, leaving his condition undiagnosed and untreated, resulting in Castillo’s death. That same day, Plaintiffs mailed a copy of the complaint to Lancet and Lancet’s outside counsel.

Lancet retained attorney Brad Kelly to defend Dr. Malik. Dr. Malik Lancet eventually learned Dr. Malik had moved to Pakistan and had no plans to return to the United States.

Kelly advised Lancet that because he had not obtained Dr. Malik’s consent to representation, the Maryland Rules of Professional Conduct barred him from appearing in the malpractice action for Dr. Malik. After Kelly advised Lancet that he believed he was ethically barred from appearing on Dr. Malik’s behalf, Lancet elected not to participate in the malpractice action — it did not investigate the malpractice claim, it did not obtain Castillo’s medical records, and it did not answer Plaintiffs’ complaint.

Lancet unsuccessfully moved to delay the damages hearing on Malik’s default yet the state court entered judgment in the Plaintiffs’ favor in the amount of $2.56 million.

Mora, her two minor children, and her adult son, Juan Carlos Castillo, sued the insurer in Maryland state court, seeking a declaration that Lancet owed coverage under the Policy for the judgment in the malpractice action. Lancet removed the case to federal court and filed a counterclaim seeking a declaration that the Policy was void because of Dr. Malik’s failure to comply with notice and cooperation provisions in the Policy.

Following a two-day bench trial on the issue of prejudice, the district court entered judgment in favor of Plaintiffs, declaring that Lancet was “liable for the money damages of its Insureds pursuant to the Policy’s terms.” Specifically, the district court found that neither ethical rules, nor Maryland law, nor the terms of the Policy prevented counsel for Lancet from entering an appearance and defending the malpractice action. In addition, the district court concluded that Lancet had failed to meet its burden to establish that it had been actually prejudiced by Dr. Malik’s refusal to participate because, even in Dr. Malik’s absence, Lancet had several viable paths to defending the malpractice action, which it elected not to pursue. The district court awarded Plaintiffs damages in the amount of $996,840.50 as well as post-judgment interest.

ANALYSIS

Under Maryland law—which the parties agree controls this diversity case—courts should interpret the language of an insurance policy with the same principles and rules of construction that are used to interpret other contracts. Courts must construe insurance policies as a whole to determine the intention of parties. In interpreting an insurance policy, courts must look first to the contract language employed by the parties to determine the scope and limitations of the insurance coverage.

An attorney would not have violated ethical rules if the attorney appeared in the malpractice proceedings on behalf of Lancet (not named as a defendant) and the Insureds because Section 2 of the Policy conferred on Lancet the right and duty to defend any Claim covered by the Policy. That provision also afforded Lancet the “right” to investigate any covered claims against the Insureds and the “right” to choose counsel to defend any claims asserted against the Insureds.

“The customary clause in insurance policies requiring the insured to permit the insurer’s lawyer to defend claims insured against is consent in advance by the insured to such dual representation and obviates an improper relationship, but if, in the course of the dual representation an actual conflict develops between the interests of the insured and those of the insurer, the lawyer must either withdraw entirely from the case or continue to represent one of the clients only.” [Fid. & Cas. Co. v. McConnaughy, 179 A.2d 117, 121 (Md. 1962) (emphasis added)].

To that end, Plaintiffs’ expert explained that insurers include advance consent clauses in their policies because the insurers bear the ultimate financial risk and therefore need the authority to defend the action. The expert further testified that, as a matter of practice, Maryland malpractice defense attorneys routinely receive cases directly from an insurer and begin working on the cases without waiting for additional consent from the insured. He also concluded that defense counsel could represent Lancet’s interests in the suit after withdrawing from the defense of the doctor.

The policy required that the Insured must cooperate and assist the Company and the appointed defense counsel in all aspects of the investigation and defense; and shall, upon request, submit to examination and interrogation by a representative of the Company, under oath if required, attend hearings, depositions and trials, assist in effecting any settlement, securing and giving evidence, and obtaining the attendance of witnesses, all without charge to the Company.

That section further provides that “[a]ny failure of the Insured to cooperate that prejudices our ability to defend any Claim, shall void this Policy.” The insurer has the burden of proof to show prejudice. The district court found that Lancet failed to meet its burden to establish prejudice.  The plain language of the Policy authorized counsel for Lancet to enter an appearance on behalf of its insureds. Lancet was prejudiced by its own choice not to defend the action from the outset. Any prejudice attributable to Dr. Malik’s noncooperation was “hypothetical” and therefore not a sufficient basis to void the policy.

The Fourth Circuit found that the district court also found credible testimony by Plaintiffs’ expert on emergency medicine, Dr. Alec Anders, that “the medical records alone provided sufficient evidence for medical experts to opine on [the] standard of care” because Dr. Malik’s “contemporaneous notes reflect[ed] his diagnostic impressions, course of care, and follow-up plan.”

The Fourth Circuit concluded that the district court reasonably inferred that record evidence was sufficient to render a standard of care opinion — a well-supported finding not subject to reversal as clearly erroneous.

The Policy includes conflicting language as to whether post-judgment interest that brings an award over-and-above the Policy’s $1 million limit is covered.  The district court did not err in awarding Plaintiffs post-judgment interest in excess of the Policy’s limit.

ZALMA OPINION

This decision makes no logical sense. The District Court and the Fourth Circuit bought the testimony of two experts that were contrary to common sense. A lawyer retained to defend an  insured by an insurer is not retained to represent the insurer. A lawyer should never file a pleading on behalf of a client who does not know the lawyer. Yet the Fourth Circuit found the lawyers wanting for not doing so. The court wanted the plaintiff to recover money regardless of the meaning of the policy itself and the clear, unambiguous breach of a material condition precedent to recovery. They also misread the policy that allows an insurer to defend to allow the insurer to step into the shoes of its insured as if it were the defendant. Finding notes written by the doctor to be sufficient to mount a defense without the doctor available to testify and explain his notes made sense to the Fourth Circuit and the District Court but would have made no sense to a jury or judge asked to hear evidence at a malpractice trial who would consider the failure to testify to be an admission of wrongdoing.


© 2019 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. 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 51 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.

“The Compact Book on Adjusting Liability Claims, Second Edition”

A Handbook for the Liability Claims Adjuster

This Compact Book of Adjusting Liability Claims is designed to The Compact Book Of Adjusting Liability Claims Second Edition: A Handbook for the Liability Claims Adjusterprovide the new adjuster with a basic grounding in what is needed to become a competent and effective insurance adjuster. It is also available as a refresher for the experienced adjuster.

The liability claims adjuster quickly learns that there is little difficulty with a claimant (the person alleging bodily injury or property damage against a person insured) if the claim is paid as demanded. The insured may be unhappy if the claimant’s claim is paid as presented since most do not believe they did anything wrong or fear an increase in premiums charged for subsequent policies.

The adjuster must be prepared to salve the insured’s emotions, explain why in the law and the policy it was appropriate to pay the claimant and that the settlement is in the best interest of both the insured and the insurer the adjuster represents.
The adjuster knows, and must be prepared to explain to an insured, that if a claim is resisted or denied the claimant will be unhappy, will probably file suit. If not promptly settled the claimant’s lawyers will rake the insured over the coals to prove that the insured is liable for the claimant’s injuries. The litigation will take time, effort, and money to establish the extent of the injuries and who is responsible for the injuries. Failure to settle promptly can cost the insured his or her reputation and will certainly cost the insurer much more than the claim could have been resolved for had it been resolved before the claimant retained a lawyer.

Available as a Kindle book

Available as a paperback.

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Investigating Fraud

What the Fraud Trained Adjuster Needs to Know

The purpose of an insurance fraud investigation is to gather evidence to establish whether a suspected fraudulent claim is legitimate or is, in fact, an attempt to defraud the insurer.

If the facts reveal the claim is legitimate, the fraud investigation stops and the claim is paid. If the facts support the suspicion, then further evidence must be gathered to allow the insurer to successfully deny the claim and refuse to pay.

Training the Investigators

The introduction of the tort of bad faith resulted in the insurance industry running scared for many years from investigating fraud. Insurers avoided denying claims fearful that they would subsequently be sued for bad faith. Insurers discouraged their adjusters from looking too closely at claims. As a result, knowledgeable personnel either looked for another career or were laid off by companies interested in improving their bottom line by hiring the less experienced personnel.

Insurance fraud investigations are often expensive. The extent of insurance fraud, depending on which of the various estimates are believed vary from $80 billion to $300 billion dollars every year. The sum is so enormous as to defy understanding. Insurers are finding that they cannot increase premiums to honest insureds fast enough to cover the amounts lost to fraud. They cannot afford to let such an enormous amount of money deplete their assets and destroy their profits without a fight.

The first line of defense to stop the hemorrhage of billions of dollars to fraud perpetrators is a staff of well-trained experienced and professional adjusters and investigators.

Although many adjusters will never witness the sorts of frauds described in this book they must be trained to recognize fraud, and thus be equipped with enough knowledge to separate the suspicious from the honest claim. States are, like California, requiring that insurers train all of their claims personnel to recognize insurance fraud, attempted insurance fraud and the indicators or red flags of insurance fraud. The laws and regulations attempting to force the victim of the crime, insurers, to investigate and prepare prosecutions for the state, are unfortunately honored more in the breach than in the following.

What A Fraud Trained Adjuster Must Understand

To turn a claims person into a fraud trained adjuster, the adjuster must become familiar with all of the following:

  • all insurance policy contracts used by the insurer;
  • the rules applied by the courts for the interpretation of insurance contracts;
  • the Fair Claims Practices Act of the jurisdiction in which they work;
  • the regulations promulgated by the Department of Insurance in their state to enforce the Fair Claims Practices Act;
  • The statutes in their state compelling the existence of a Special Investigation Unit (SIU);
  • The regulations established by their state concerning the training and operation of the SIU and claims personnel;
  • the law of contracts;
  • the law of torts;
  • the law of fraud;
  • the obligations of an insurer to pursue anti-fraud activities;
  • specialized knowledge for different types of claims, such as:
  • sufficient medical terminology to understand the diagnoses of physicians;
  • treatment of traumatic injuries;
  • cost of reasonable medical treatment for traumatic injuries;
  • methods for determining the extent of damage to structures or vehicles and the cost of repair or replacement;
  • methods for establishing the fair market value of items of personal property, including vehicles;
  • interview techniques that facilitate the obtaining of detailed information;
  • negotiation skills required for obtaining fair, reasonable, and acceptable settlements; and
  • the red flags of fraudulent claims.

This training does not occur overnight. It is a tall order that requires commitment by each insurer to thoroughly train their adjusters and other claims personnel concerning the indicators of fraud. Fraud training, by computer assisted training programs, is available for minimal costs from private vendors like Experfy.com, National Underwriter Company, IRMI, A.D. Banker, IRMI’s WebCE, the book Insurance Fraud and Weapons to Defeat Fraud, and other materials published by the author. In addition various insurer produced programs exist as well as programs by independent adjusting firms.

Basic classroom type training for insurance personnel is available across the country in local colleges and universities. Local colleges, community colleges, universities and law firms will provide training at little or no cost. The training programs should be supplemented by meetings between supervisors and claims staff on a regular basis to reinforce and supplement the information learned.

The insurer should also institute a regular program of auditing claims files to establish compliance with the subjects studied to see how effective the training was to discover and defeat fraudulent claims. Monthly meetings should be held with claims staff to reinforce what was learned in the training sessions and to discuss current investigations where fraud is suspected.

There is no quick and easy way to create insurance claims professionals who are knowledgeable about insurance fraud. The training takes time. The learning takes longer. Those adjusters and other personnel who take the fraud training seriously and apply it to existing claims should be rewarded and honored for their skill. Without applying the training to actual claims the training is wasted.

Red Flags of Fraud

Suspicious claims have common attributes. Insurers and their anti-fraud organizations have collated the common attributes into lists of indicators or red flags of fraud. The lists were created as training aids and to be used to determine whether further investigation is required to determine if a claim is legitimate or false and fraudulent. Continually growing, these lists are known as the “red flags” or “indicators” of fraud lists. There are many different categories, ranging from those associated with the claim itself or with insureds to indicators of specific types of fraud, such as bodily injury fraud or arson for profit.

If, when assessing a claim, three or more red flags are found the need for further investigation should be considered and evaluated by the claims person, a supervisor and the insurer’s special investigative unit. The existence of red flags does not mean a fraud has occurred. Red flags are only a signal to the adjuster to investigate further so that the suspicion may be either removed or confirmed. It is not any single indicator that alerts the adjuster to the possibility of a fraudulent claim but a combination of the red flag or red flags discovered coupled with the results of the thorough claims investigation.

Although the existence of multiple red flags should trigger an investigation, failure to investigate has been held to be reasonable as long as there are no patent inaccuracies or actual knowledge of false representations.

Multiple Red Flags Require Referral to the SIU

Once an adjuster identifies a possible fraudulent claim, it is often passed on to a Special Investigation Unit (SIU). Most states require insurers, by statute, to maintain an SIU. On average, 3% to 10% of claims should be referred to an SIU for further investigation. An industry study conducted during the mid-1980s revealed that by 1983, 47 of 399 insurers had SIUs in operation a number that has grown tremendously up to today where it approaches 100%.

Although this figure represented only 10% of the companies participating in the survey, the 47 companies with SIUs accounted for over 50% of the industry’s premium volume at the time. Today, as a result of statutory compulsion, almost every insurer has an SIU. An effective SIU has a major return on investment and gives a competitive edge to the insurer with an effective SIU over the insurer with no SIU or an ineffective SIU.

Specific to the training requirements of the state of California is Barry Zalma’s e-Book, Insurance Fraud and Weapons to Defeat Fraud available at amazon.com. Volume One available as a Kindle book and a paperback. Volume Two Available as a Kindle book and a paperback


© 2019 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. 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 51 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.

“Arson-For-Profit Fire at the Cowboy Bar & Grill”

A true crime novel based on the experience of the author, Barry Zalma, who for more than 51 years has acted for insurers who were faced with arson-for-profit, one of the most dangerous insurance fraud schemes. The book explains how an insurance claims adjuster, working with a fire cause and origin expert, a forensic accountant and insurance coverage lawyer, were able to defeat an arson-for-profit scheme and obtain a judgment requiring the perpetrator to take nothing and repay the insurer all of its expenses in defeating the claim.

Available as a paperback.

Available as a Kindle book.

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Insurance Fraud for Fun and Profit

“Arson-For-Profit Fire at the Cowboy Bar & Grill,” “M.O.M. & The Taipei Fraud,” “Arson for Profit: How an Attempt to use Arson & Fraud to Fund Terrorism Failed,” “Murder & Old Lace: Solving Murders Performed for Insurance Money,” “Murder And Insurance Fraud Don’t Mix,” “Candy and Abel: Murder for Insurance Money,” “HEADS I WIN, TAILS YOU LOSE,” and “Random Thoughts on Insurance”

Barry Zalma, Esq., CFE, an insurance coverage and claims expert, has created a library of insurance claims books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

For those who serve the insurance industry and its policyholders (whether as lawyers, adjusters, claims management, or public insurance adjusters) the ability to perform their duties appropriately in good faith it is absolutely necessary that they maintain insurance professionalism.

The books described in this post need a home in each law office, each insurance company. each independent adjuster’s claims office and in the offices of every public insurance adjusting firm.

Barry Zalma’s Insurance Claims Library will provide essential resources and will go a long way to create a staff of insurance claims professionals.  The books listed below are a small taste of the insurance law and insurance claims books written by Barry Zalma and available on amazon.com and at http://zalma.com/blog/insurance-claims-library/

Some of the books available to create or maintain insurance professionalism include:

“Random Thoughts on Insurance”

Product DetailsAfter more than 50 years acting as a claims person and insurance coverage lawyer I enjoy reading court decisions concerning insurance. The idea of this blog is to find new cases that are interesting to me and then write a summary. Some of the cases reviewed will be important. Some may be of first impression. Others will be totally unimportant. All will be interesting.

The case digests and articles from 2010 to the present, in the six volumes summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.


Fictionalized True Insurance Crime Books

“HEADS I WIN, TAILS YOU LOSE”

Product DetailsA collection of columns originally published in the magazines “Insurance Journal,” “Insurance Week,” and “The John Cooke Insurance Fraud Report” insurance trade publications serving the insurance community in the United States that have been updated and revised.

The title, “Heads I Win, Tails You Lose” is meant to describe insurance fraud as it works in the Unites States. It means that whenever a person succeeds in perpetrating an insurance fraud everyone who buys insurance is the loser.

Available as a Kindle Book.

Available as a paperback.

“Candy and Abel: Murder for Insurance Money

How a young lawyer and wise old investigator defeated an attempt at life insurance fraud.

Product DetailsAvailable as a Kindle Book.

Available as a paperback.

 

 

“Murder And Insurance Fraud Don’t Mix”

My name is Marion Orpheus Montague. My friends, and some enemies, call me “MOM.” It is not a designation of my ability to nurture my clients. I have never been, nor will I Product Detailsever be, maternal. I accept the play on my initials because it causes adversaries to underestimate me.

I am 66-years-old. My grayish blond hair is thin and my full beard is a bit scraggly. My face is round and often tinged with red. My nose is full, my eyes green and my cheeks bulge out to the sides trying to emulate the belly that precedes every other part of my body as I walk. People see me and do not believe that I am a private investigator. Seeing me they often think that I am on leave from my winter work as a Macy’s Santa Claus.

I like being underestimated. It makes my job as an investigator easier.

See how a fake robbery at a jewelry store led to murder and prison.

Available as a Kindle book.

Available as a paperback

“Murder & Old Lace: Solving Murders Performed for Insurance Money”

 

Product Details

When the women first met – 20 years ago at a Santa Monica health spa – Magogassasanian appeared taken with Gogolivesky. The women moved Alvarado into an apartment, then started applying for life insurance policies on him. They jointly took out four policies, each as 50% beneficiaries in addition to the individual policies they bought from my client. Gogolivesky also took out three more policies on her own while Magogassasanian only took out a single individual policy on Earnest. The two women pocketed nearly $6,000,000 in insurance benefits on Alvarado alone and $4,000,000 in insurance benefits on Earnest. They also recovered a total of $5,000,000 on the other six old men they killed.

Available as a Kindle book.

Available as a paperback.

“Arson for Profit: How an Attempt to use Arson & Fraud to Fund Terrorism Failed”

This story is based on a real case involving a member of Russian/Armenian organized crime, real insurers, investigators, lawyers, fire fighters, and insurance brokers. The names, descriptions, and identities of the people involved have been changed to protect both the guilty and the innocent. The report to the US Senate, after this case was decided by the California Courts, reveal that the threats made on MOM and lawyer Hazan were real and they are lucky that the threats were never fulfilled. The person identified in this story as Levonyan was described to the US Senate as the leader of a Russian/Armenian organized crime ring. It is important to take seriously threats from criminals. Insurance fraud and arson-for-profit are not victimless crimes. They are crimes of violence that cost everyone who lives in the U.S.]

Available as paperback.

Available as a Kindle Book.

“M.O.M. & The Taipei Fraud”

How an Experienced Adjuster Defeated a $7 Million Fake Burglary Claim

The problem is that each option the insurers have available have a down side and Feng is represented by a lawyer who has proved highly successful in suing insurers and collecting large compensatory and punitive damage awards. Since the claims exceed $6 million dollars, he can expect, applying the law set out by the U.S. Supreme Court in State Farm Mut. Automobile Ins. Co. v. Campbell and BMW of North America, Inc. v. Gore as much as $60 million in punitive damages. So I need to explain to the insurers that they face an exposure anywhere from their policy limits to ten times the policy limit. They need the courage of their convictions to reject this major claim.

Available as a paperback.

Available as a Kindle book.

“Arson-For-Profit Fire at the Cowboy Bar & Grill”

A true crime novel based on the experience of the author, Barry Zalma, who for more than 51 years has acted for insurers who were faced with arson-for-profit, one of the most dangerous insurance fraud schemes. The book explains how an insurance claims adjuster, working with a fire cause and origin expert, a forensic accountant and insurance coverage lawyer, were able to defeat an arson-for-profit scheme and obtain a judgment requiring the perpetrator to take nothing and repay the insurer all of its expenses in defeating the claim.

Available as a paperback.

Available as a Kindle book.

Read about these and other insurance claims books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/

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You Can Lead an Insured to Coverage Needed but you can’t Make it Buy

Agent that Advised Insured it was Underinsured is not Responsible for Coinsurance Penalty

The old saying that you can lead a horse to water but you can’t make him drink applies to insurance agents and brokers who give good advice to their clients who – for financial reasons – refuse to follow the advice and then suffer a loss as a result.  Flood insurance, although necessary, is often expensive. When a condominium association’s insurance agent advised them they were woefully underinsured and, if there was a loss, it would suffer a severe coinsurance penalty, only to have the association ignore the advice, when the penalty was assessed the association sued the agent because his warning came true.

In Bijou Villa Condominium Association, Inc. v. E.A. King, Inc. and Ed King, Docket No. A-4234-17T3, Superior Court of New Jersey Appellate Division (May 1, 2019), after sustaining damage to its property caused by flooding during Superstorm Sandy (Sandy), plaintiff Bijou Villa Condominium Association, Inc. filed a complaint against defendants, alleging they failed to obtain sufficient flood insurance coverage.

FACTS

Plaintiff manages and maintains the two-building seventy-unit condominium complex located next to the Shark River in Neptune, New Jersey.

Ed is licensed in New Jersey to sell life, health, property, and casualty insurance. In 1986, the plaintiff’s board asked Ed (a resident of the association) to help with their insurance needs. He remained plaintiff’s insurance broker for property and liability insurance until 2008, and handled the flood insurance policies until 2013.

In January 2004, Ed sent the property manager a letter advising that plaintiff’s flood insurance was set to renew the following month. The letter stated the amount of coverage at that time was $250,000 per building and warned “this is not nearly enough coverage should a serious flood do severe damage to the buildings. [Plaintiff] would be facing serious co-insurance penalties. Higher limits are available but they will be costly.” Kathy gave Ed’s letter to the board, explained to them what co-insurance penalties were, and offered to bring Ed to a board meeting to further explain his letter. The board did not ask Kathy any questions about the letter or request Ed’s attendance at a meeting. However, the board did increase the flood insurance coverage to $332,800 per building for the 2004-2005 policy period.

In 2006 Ed advised the board that under the property policy, the buildings are insured for slightly over $6,000,000 while the flood policies only have $250,000 on each of the buildings. He explained that the plaintiff should insure to at least [eighty percent] of the replacement cost which would be $4.8 million or $2.4 million on each building. To insure to the proper value, he explained, the entire flood premium would be approximately $10,300 — which is an increase of $5,900 over the current premium.

Because of the warning, agreed to increase the flood limits, but the Board only agreed to gradually increase the coverage due to financial constraints, as opposed to procuring the suggested $2.4 million for each building. For the 2010-2011 policy period, the board increased its flood coverage to $1.21 million per building, again through the insurer’s flood insurance renewal forms. This was the coverage in place when Sandy occurred in October 2012.

After the storm, the insurer determined both buildings were underinsured, as they were valued around $3.8 million and $3.6 million, but only insured for $1.2 million each. The insurer determined plaintiff should have insured each building for $3 million. As a result, plaintiff was subjected to a large co-insurance penalty, which reduced its claim payout by $450,000.

Consequently, plaintiff sued, alleging defendants failed to obtain full insurance coverage for its property, resulting in plaintiff incurring a co-insurance penalty and lessening the payout on its claim for damages caused by Sandy.

After hearing oral argument, Judge Jamie S. Perri issued a thorough and comprehensive oral opinion, granting defendants’ motion and denying plaintiff’s.

ANALYSIS

Kathy, although Ed’s wife, was not an employee or officer of the agency. Ed did not appoint her as an agent of the agency. Plaintiff did not present any evidence to contradict Ed’s statement that Kathy did not have any responsibilities, other than check signing authority, with the agency.

All of Kathy’s interactions with the board were in her capacity as plaintiff’s property manager. There was uncontroverted evidence that Kathy conveyed the board’s communications regarding flood coverage to Ed. In turn, she presented the board with Ed’s letters and premium quotes for the coverage. Kathy was not an insurance broker and did not procure insurance for plaintiff.

The record demonstrates Ed informed Kathy by letter in August 2006 that each building was insured for $250,000 in flood insurance, and if the board wanted maximum coverage, it needed to increase its flood policies to $2.4 million per building. Ed’s letter was provided to the board. In January 2007, defendants presented Kathy with a quote for $1 million coverage for each building. The board never increased its flood insurance policies to Ed’s recommended amount.

The material facts are that Kathy requested a quote for $1 million in coverage. In response to the provided quote, Kathy instructed defendants to acquire flood coverage of $1 million per building. Her note advised the increase in coverage was per the board’s instructions.

New Jersey has recognized certain limited circumstances that may create a special relationship between an agent and an insured. Specifically when an insurance broker assumes duties that invite the insured’s detrimental reliance and trust beyond those typically associated with the agent-insured relationship, additional duties may be imposed.

In this case the plaintiff has not demonstrated any additional relationship existed between the parties other than that of a traditional agency-insured dynamic. As to flood insurance, plaintiff disregarded Ed’s warnings that it was underinsured and subject to co-insurance penalties. Plaintiff also failed to heed Ed’s recommendations on the amount of coverage it should obtain. The argument that plaintiff relied on Ed’s advice is unsupported by the record.

ZALMA OPINION

Proving that no good deed goes unpunished Ed, and his wife in her capacity as property manager, found the advice to insure to value or suffer a coinsurance penalty was not followed by the Board of Directors who limited the coverage they purchased because of a shortfall of enough money to pay the premium for the needed coverage. They gambled that they would not have a major loss. Super Storm Sandy caused them to lose the gamble and rather than accepting the Board’s error they sued the agent for not forcing them to buy the insurance they needed. The effort, rightfully, failed.


© 2019 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. 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 51 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.

“Arson-For-Profit Fire at the Cowboy Bar & Grill”

A true crime novel based on the experience of the author, Barry Zalma, who for more than 51 years has acted for insurers who were faced with arson-for-profit, one of the most dangerous insurance fraud schemes. The book explains how an insurance claims adjuster, working with a fire cause and origin expert, a forensic accountant and insurance coverage lawyer, were able to defeat an arson-for-profit scheme and obtain a judgment requiring the perpetrator to take nothing and repay the insurer all of its expenses in defeating the claim.

Available as a paperback.

Available as a Kindle book.

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Tools Needed by Every Insurance Professional

“The Insurance Examination Under Oath,” “Rescission of Insurance,” “Ethics for the Insurance Professional,” “California SIU Regulations,” and “California Fair Claims Settlement Practices Regulations.”

Barry Zalma, Esq., CFE, an insurance coverage and claims expert, has created a library of insurance claims books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

For those who serve the insurance industry and its policyholders (whether as lawyers, adjusters, claims management, or public insurance adjusters) the ability to perform their duties appropriately in good faith it is absolutely necessary that they maintain insurance professionalism.

The books described in this post need a home in each law office, each insurance company. each independent adjuster’s claims office and in the offices of every public insurance adjusting firm.

Barry Zalma’s Insurance Claims Library will provide essential resources and will go a long way to create a staff of insurance claims professionals.  The books listed below are a small taste of the insurance law and insurance claims books written by Barry Zalma and available on amazon.com and at http://zalma.com/blog/insurance-claims-library/

Some of the books available to create or maintain insurance professionalism include:

“California Fair Claims Settlement Practices Regulations”

A Guide to Insureds, Public Insurance Adjusters, and Lawyers to Properly Investigate and Adjust Insurance Claims

This book was designed to assist insurance personnel who do business in the state of California. It will assist all insurance claims personnel, claims professionals, independent insurance adjusters, special fraud investigators, private investigators who work for the insurance industry, the management in the industry, the attorneys who serve the industry, public insurance adjusters, policyholders and counsel for policyholders working with insurers doing business in California. All insurers doing business in California must comply with the requirements of the Regulations or face the ire of, and attempts at financial punishment from, the CDOI. That punishment is now questionable and limited because some courageous insurers fought the CDOI and succeeded before an administrative law judge who limited the right to punish. Regardless of difficulties in assessing punishment the state of California requires all who are involved in the claims process — even if only tangentially — to be trained with regard claims handling in compliance with the Regulations and attest to completion of such training under oath. To avoid the annual training the claims person can submit a sworn document that avers that he or she has read and understood the Regulations. Reviewing this book and the Regulations set forth below should be sufficient to comply with the training requirements of the Regulations. It is necessary that insurance personnel who are engaged in any way in the presentation, processing, or negotiation of insurance claims in California be familiar with the Regulations. Counsel for insurers and policyholders should also be familiar with the Regulations since they set a minimum standard for claims handling in the state.

Available as a Kindle book.

Available as a paperback.

California SIU Regulations”

The State of California Imposes Control on the Investigation of Insurance Fraud

California SIU Regulations: The State of California Imposes Control on the Investigation of Insurance FraudCalifornia SIU Regulations is designed to assist California insurance claims personnel, claims professionals, independent insurance adjusters, special fraud investigators, private investigators who work for the insurance industry, the management in the industry, the attorneys who serve the industry, and all integral anti-fraud personnel working with California admitted insurers to comply with the requirements of California SIU Claims Regulations.

The state of California, by statute, requires all admitted insurers to maintain a Special Investigative Unit (an “SIU”) that complies with the requirements set forth in the Special Investigative Unit Regulations (the “SIU Regulations”) and train all integral anti-fraud personnel to recognize indicators of insurance fraud.

Available as a Kindle Book.

Available as a paperback.

“Ethics for the Insurance Professional”

Methods for Insurers and their Personnel to Act with the Utmost Good FaithProduct Details

Ethics is a process of systematically applying, using, defending and recommending concepts of right and wrong behavior. Ethical behavior is required of both parties to a contract of insurance for the system to work. Ethics is the essence of insurance. Ethical behavior is required of both parties to a contract of insurance for the system to work. If any party to the insurance contract acts unethically the ability of insurance to work effectively and profitably will fail. Ethics is the essence of insurance. Since insurance was first created it has been a business of utmost good faith. As a result, the insured and the insurer are expected to treat each other ethically.

Available as a paperback.

“Rescission of Insurance”

Product DetailsRescission is an equitable remedy as ancient as the common law of Britain. When the United States was conceived in 1776 the founders were concerned with protecting their rights under British common law. They adopted it as the law of the new United States of America modified only by the limitations placed on the central government by the U.S. Constitution approved in 1789. The viability and ability to enforce contracts was recognized as essential to commerce. Courts of law were charged with enforcing legitimate contracts. Courts of equity were charged with protecting contracting parties from mistake, fraud, misrepresentation and concealment since enforcing a contract based on mistake, fraud, misrepresentation or concealment would not be fair. The common law developed rules that courts could follow to refuse to enforce the terms of a contract that was entered into because of mutual mistake of material fact, a unilateral mistake of material fact, the breach of warranty (a presumptively material promise to do or not do something), a material concealment, or a material misrepresentation. The remedy – called rescission – created a method to apply fairness to the insurance contract and allow an insurer to void a contract and allowed courts to refuse to enforce such a contract entered into by misrepresentation or concealment of material facts.

Available as a paperback.

Available as a Kindle book.

“The Insurance Examination Under Oath”

Product DetailsThe 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.

Available as a Kindle book.

Available as a paperback.

Read about these and other insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/

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Lawyer Lied to Client to Allow for Bad Faith Suit

False Claim of Slow Payments Results in Judgment for Insurer

ULIE A. MACKINNEY v.  ALLSTATE FIRE AND CASUALTY INSURANCE COMPANY, No. 18-1437, UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT (May 6, 2019)

At trial, the insured’s sole claim was a state-law claim for bad faith based on the insurer’s unreasonable delay in paying underinsured-motorist benefits. On this claim, the jury found no liability and the district court entered judgment for the insurer.

The appeal involves the denial of the insured’s motion for a mistrial. The motion stemmed from questioning of the insured on cross-examination. This questioning involved the insurer’s earlier payments on the claims for underinsured-motorist coverage. The insured’s responses showed that when she sued, she hadn’t known about payments to her attorney.

After the insured testified, the bailiff notified the district court that one of the jurors had admitted possible bias in the case. The district judge inquired and learned that the juror believed, based on the insured’s testimony, that the insured’s attorney had been driving the entire lawsuit. The district court ultimately dismissed this juror, but the insured also moved for a mistrial. The district court declined to order a mistrial, concluding that the prejudice had been remedied through dismissal of the juror.

On appeal, the insured argued that the district court erred in refusing to declare a mistrial. The insured contended that the allegedly irrelevant and prejudicial cross-examination prevented her from receiving a fair trial.

The Tenth Circuit concluded that the court did not abuse its discretion in denying the motion for a mistrial. The insured’s statutory claim was that the insurer had taken too long to make these payments, and the questions asked on cross-examination apparently involved the timing of the insurer’s past payments to the insured’s attorney. The timing of the past payments appears relevant to a claim based on delays in making those payments, and the Tenth Circuit did not see why the questions would be unfairly prejudicial.  Since the insured has not told the Tenth Circuit why the questions were prejudicial and, therefore, the Tenth Circuit concluded that the district court acted within its discretion in declining to order a mistrial based on the cross-examination of the insured.

ZALMA OPINION

Many lawyers believe that filing a suit alleging bad faith and a claim for punitive damages will result in a quick offer of settlement from an insurer to avoid the cost of defending the suit. In this case, a suit for bad faith because of delay of payments by an insurer that actually made payments to the insured’s lawyer, who did not disclose that fact to the insured, is a contumacious act by the lawyer that put the client insured in a untenable position. The cross-examination complained of established that the bad faith case that was fraudulent on its face. The plaintiff argued, you caught me cheating, that’s not fair, it should be excluded. The judgment reached by the jury was appropriate and the plaintiff and the lawyer should be pleased they were not sanctioned or prosecuted for bringing a frivolous and false allegation.


© 2019 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. 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 51 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.

“Arson-For-Profit Fire at the Cowboy Bar & Grill”

A true crime novel based on the experience of the author, Barry Zalma, who for more than 51 years has acted for insurers who were faced with arson-for-profit, one of the most dangerous insurance fraud schemes. The book explains how an insurance claims adjuster, working with a fire cause and origin expert, a forensic accountant and insurance coverage lawyer, were able to defeat an arson-for-profit scheme and obtain a judgment requiring the perpetrator to take nothing and repay the insurer all of its expenses in defeating the claim.

Available as a paperback.

Available as a Kindle book.

 

 

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Books for the Working Adjuster

“Insurance Fraud & Weapons to Defeat Fraud,” “The Compact Book of Adjusting Property Insurance Claims – Second Edition,” and “The Compact Book of Adjusting Liability Claims – Second Edition.”

Barry Zalma, Esq., CFE, an insurance coverage and claims expert, has created a library of insurance claims books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

For those who serve the insurance industry and its policyholders (whether as lawyers, adjusters, claims management, or public insurance adjusters) the ability to perform their duties appropriately in good faith it is absolutely necessary that they maintain insurance professionalism.

The books described in this post need a home in each law office, each insurance company. each independent adjuster’s claims office and in the offices of every public insurance adjusting firm.

Barry Zalma’s Insurance Claims Library will provide essential resources and will go a long way to create a staff of insurance claims professionals.  The books listed below are a small taste of the insurance law and insurance claims books written by Barry Zalma and available on amazon.com and at http://zalma.com/blog/insurance-claims-library/

Some of the books available to create or maintain insurance professionalism include:

“Insurance Fraud & Weapons to Defeat Insurance Fraud”

In Two Volumes

Product DetailsInsurance fraud continually takes more money each year than it did the last from the insurance buying public. No one knows the actual amount with any certainty because most attempts at insurance fraud succeed. Estimates of the extent of insurance fraud in the United States range from $87 billion to more than $300 billion every year.

Insurers and government backed pseudo-insurers can only estimate the extent they lose to fraudulent claims. Lack of sufficient investigation and prosecution of insurance criminals is endemic. Most insurance fraud criminals are not detected. Those that are detected do

so because they became greedy, sloppy and unprofessional so that the attempted fraud becomes so obvious it cannot be ignored.

No one will ever be able to place an exact number on the amount lost to insurance fraud. Everyone who has looked at the issue knows – whether based on their heart, their gut or empirical fact determined from convictions for the crime of insurance fraud – that the number is enormous.

When insurers and governments put on a serious effort to reduce the amount of insurance fraud the number of claims presented to insurers and the pseudo-government-based or funded insurers drops logarithmically. Since the appointment of Attorney General Sessions, the effort to stop insurance fraud against Medicare and Medicaid has increased.

Insurance Fraud & Weapons to Defeat Fraud - Volume Two: A Manual for Those Working to Defeat Insurance Fraud by [Zalma, Barry]This book contains appellate decisions regarding insurance fraud from federal and state appellate courts across the country and full text of many insurance fraud statutes.

It is available as both a legal research tool and a product to assist insurers, insurance company personnel, independent insurance adjusters, special investigation unit investigators, state fraud investigators and insurance lawyers to become effective persons involved in the attempt to defeat or reduce the effect of insurance fraud.

Volume One available as a Kindle book and a paperback.

Volume Two Available as a Kindle book and a paperback

“The Compact Book of Adjusting Property Insurance Claims – Second Edition”

A Manual for the First Party Property Insurance Adjuster

The insurance adjuster is not mentioned in a policy of insurance. The obligation to investigate and prove a claim falls on the insured. Standard first party property insurance policies, based upon the New York Standard Fire Insurance policy, contain conditions that require the insured to, within sixty days of the loss, submit a sworn proof of loss to prove to the insurer the facts and amount of loss.

The policy allows the insurer to then, and only then, respond to the insured’s proof of loss. The insurer can then either accept or reject the proof submitted by the insured.

The Compact Book of Adjusting Property Claims -- Second Edition: A Primer For The First Party Property Claims Adjuster.Technically, if the wording of the policy was followed literally the insurer could sit back, do nothing, and wait for the proof. If the insured was late in submitting the proof the insurer could reject the claim. If the insured submits a timely proof of loss the insurer could either accept or reject the proof of loss. If the insurer rejected the proof of loss the insured could either send a new one or give up and gain nothing from the claim. Suit on the policy would be difficult because the policy contract limited the right to sue to times when the proof of loss condition had been met.

Insureds and insurers were not happy with that system. It made it too difficult for a lay person to successfully present a claim. The system, as written into the standard fire policy seemed to run counter to the covenant of good faith and fair dealing that had been the basis of the insurance contract for centuries. Most insurers understood that their insureds were mostly incapable of complying with the strict enforcement of the policy conditions. To fulfill the covenant of good faith and fair dealing insurers created the insurance adjuster to fulfill its obligation to deal fairly and in good faith with the insured.

The Second edition adds new material from 2018 and 2019, is easier to use and more compact than the original.

Available as a Kindle book.

Available as a paperback.

“The Compact Book on Adjusting Liability Claims, Second Edition”

A Handbook for the Liability Claims Adjuster

This Compact Book of Adjusting Liability Claims is designed to The Compact Book Of Adjusting Liability Claims Second Edition: A Handbook for the Liability Claims Adjusterprovide the new adjuster with a basic grounding in what is needed to become a competent and effective insurance adjuster. It is also available as a refresher for the experienced adjuster.

The liability claims adjuster quickly learns that there is little difficulty with a claimant (the person alleging bodily injury or property damage against a person insured) if the claim is paid as demanded. The insured may be unhappy if the claimant’s claim is paid as presented since most do not believe they did anything wrong or fear an increase in premiums charged for subsequent policies.

The adjuster must be prepared to salve the insured’s emotions, explain why in the law and the policy it was appropriate to pay the claimant and that the settlement is in the best interest of both the insured and the insurer the adjuster represents.
The adjuster knows, and must be prepared to explain to an insured, that if a claim is resisted or denied the claimant will be unhappy, will probably file suit. If not promptly settled the claimant’s lawyers will rake the insured over the coals to prove that the insured is liable for the claimant’s injuries. The litigation will take time, effort, and money to establish the extent of the injuries and who is responsible for the injuries. Failure to settle promptly can cost the insured his or her reputation and will certainly cost the insurer much more than the claim could have been resolved for had it been resolved before the claimant retained a lawyer.

Available as a Kindle book

Available as a paperback.

Read about these and other insurance claims books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/

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Who’s On First – Insurers Dispute Court Ruling

Which No Fault Insurer Must Pay Injured Person?

Multiple suits were filed seeking a determination of the priority of insurers under Michigan’s no-fault act.  A Michigan Court was asked to resolve the dispute in Waleed Youhanna, and Mendelson Orthopedics, PC and Omega Rehab Services, LLC v. Auto Club Insurance Association and Hudson Insurance Company, and Amerisure Insurance Company, Silver Pine Imaging, LLC v. Auto Club Insurance Association, and Hudson Insurance Company, and Amerisure Insurance Company, No. 342436, No. 342736, State of Michigan Court of Appeals (April 30, 2019).

FACTS

In 2015, plaintiff Waleed Youhanna purchased a commercial tractor-trailer and registered the truck in his name and the name of his business, Wally Transportation, Inc. (Wally). Wally purchased from Hudson a policy of no-fault insurance known as a “bobtail” policy. “Bobtailing” is trucking vernacular for driving a tractor without an attached trailer. The purpose of a “bobtail” policy generally is to provide insurance coverage when the tractor is being operated without a trailer.

On September 1, 2015, Wally leased the tractor-trailer to Safe Transport, LLC (Safe Transport), and thereafter plaintiff drove the tractor-trailer to deliver loads for Safe Transport. Safe Transport had purchased a policy of no-fault insurance issued by Amerisure. The Amerisure policy listed four tractor-trailers as “covered autos” under the policy, but did not include the tractor-trailer leased to Safe Transport by Wally. On September 14, 2015, plaintiff agreed to transport a load in the tractor-trailer for Safe Transport from Livonia to Louisiana. Early the next morning, while driving the tractor-trailer through Tennessee, plaintiff was injured in an accident that occurred when another tractor-trailer hit the back of his vehicle.

Plaintiff sued Auto Club Insurance Association (Auto Club), from whom plaintiff had purchased a policy of no-fault insurance covering his personal vehicle, seeking payment of personal protection insurance (PIP) benefits for his injuries arising from the collision. Plaintiff’s medical providers, intervened.

The three insurers moved for summary disposition. The trial court granted summary disposition to Auto Club and Amerisure.

DISCUSSION

Hudson contends that the trial court erred in granting Amerisure summary disposition. Hudson argues that the trial court incorrectly determined that plaintiff’s tractor-trailer was not covered by the Amerisure policy at the time of plaintiff’s accident, and that Amerisure therefore was not liable for payment of plaintiff’s PIP benefits.

PRIORITY UNDER THE NO-FAULT ACT

The purpose of the Michigan no-fault act is to ensure compensation of persons injured in motor vehicle accidents. The sections of the act governing priority determine the party against whom a person injured in a motor vehicle accident may claim benefits. To determine the priority of insurers liable for PIP benefits under the no-fault act in this case, the court looked to the statute.

The question before the court, after review of the statute, was  who is the insurer of the furnished vehicle. Hudson argued that because Amerisure issued a policy of no-fault insurance to Safe Transport, Amerisure is the insurer of the vehicle from whom plaintiff is entitled to receive PIP benefits under the statute as an employee suffering accidental bodily injury while an occupant of a vehicle owned by Safe Transport.

Safe Transport never notified Amerisure that it wanted to add plaintiff’s tractor-trailer as a covered vehicle under the Amerisure policy. The Amerisure policy specifies that an automobile that was acquired after the policy went into effect will be covered under that policy “only if” two conditions are met, one condition being that Safe Transport notify Amerisure to add the newly acquired vehicle to the policy. The tractor-trailer in this case was an after-acquired vehicle. The effect the policy and statutory provisions is the same — coverage will not occur in the absence of notice.

The court rejected Hudson’s argument that the after acquired vehicle provision of the Amerisure policy is ambiguous because it is equally susceptible of meaning either that coverage was automatically extended for the newly acquired vehicle during the 30-day notice period, or that coverage was not provided unless Safe Transport notified Amerisure within 30 days to add the vehicle to the policy .

Contrary to the allegations of Hudson, the Amerisure policy provides that an automobile that is acquired after the policy becomes effective may be covered under that insurance policy “only if certain conditions are met.” Because the court perceived only one meaning of this language it declined to find it ambiguous and affirmed the trial court’s conclusion that since it received no notice there was no coverage.

ZALMA OPINION

Insurance companies who may insure particular risks should avoid suing each other. Insurers are professional litigators and professional adjusters who resolve disputes over insurance policy coverages and risks of loss. Settlement is usually more efficient than litigation and is always less expensive than litigation. Hudson litigated only to find it owed everything while the other insurers were found to owe nothing.  The costs of litigation and appellate practice probably exceeded the amount of PIP benefits in dispute.


© 2019 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. 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 51 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.

“Arson-For-Profit Fire at the Cowboy Bar & Grill”

A true crime novel based on the experience of the author, Barry Zalma, who for more than 51 years has acted for insurers who were faced with arson-for-profit, one of the most dangerous insurance fraud schemes. The book explains how an insurance claims adjuster, working with a fire cause and origin expert, a forensic accountant and insurance coverage lawyer, were able to defeat an arson-for-profit scheme and obtain a judgment requiring the perpetrator to take nothing and repay the insurer all of its expenses in defeating the claim.

Available as a paperback.

Available as a Kindle book.

 

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Insurance Claims Books for Everyone

Construction Defects and Insurance; Mold Claims and Time to Rescind the Tort of Bad Faith

Barry Zalma, Esq., CFE, an insurance coverage and claims expert, has created a library of insurance claims books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

For those who serve the insurance industry and its policyholders (whether as lawyers, adjusters, claims management, or public insurance adjusters) the ability to perform their duties appropriately in good faith it is absolutely necessary that they maintain insurance professionalism.

The books described in this post need a home in each law office, each insurance company. each independent adjuster’s claims office and in the offices of every public insurance adjusting firm.

Barry Zalma’s Insurance Claims Library will provide essential resources and will go a long way to create a staff of insurance claims professionals.  The books listed below are a small taste of the insurance law and insurance claims books written by Barry Zalma and available on amazon.com and at http://zalma.com/blog/insurance-claims-library/

Some of the books available to create or maintain insurance professionalism include:


Construction Defects and Insurance”

Construction Defects and Insurance Volume One: The Structure, The Construction Contract, and Construction Defect InsuranceBarry Zalma has updated and re-edited his seminal work Construction Defects Coverage Guide into is the latest addition to Barry Zalma’s insurance claims series of books and articles that will form the most thorough, up-to-date, expert-authored insurance claims guide available today eight Kindle or Paperback Volumes at reasonable prices.

Thorough, yet practical, this series of books form the ideal guide for any professional who works in or frequently interacts with the insurance industry.

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

The Eight volumes include:


Mold Claims”

This series of books is the latest addition to Barry Zalma’s insurance claims series of books and articles that will form the most thorough, up-to-date, expert-authored insurance claims guide available today.Mold Claims Volume One: Understanding insurance claims and litigation concerning mold, fungi, and bacteria infestations.

Written by nationally-renowned insurance coverage expert Barry Zalma, a semi-retired insurance coverage attorney, consultant, expert witness and blogger, Mold Claims provides in-depth explanations, analysis, examples, and detailed discussion of:

•Mold;
•FungMold Claims Volume Two: Understanding insurance claims and litigation concerning mold, fungi, and bacteria infestations.i;
•Bacteria;

•Mold, fungi and bacteria claims; and
•Mold, Fungi, Bacteria litigation.

Thorough, yet practical, this series of books form the ideal gMold Claims Volume Three: Understanding insurance claims and litigation concerning mold, fungi, and bacteria infestations.uide for any professional who works in or frequently interacts with the insurance industry or is involved in litigation. Claims professionals, risk managers, producers, underwriters, attorneys (both plaintiff and defense), and business owners will benefit greatly from the mold volumes. It is also the perfect resource for insurance educators, trainers, and students whose role requires an understanding of insurance law as it relates to mold, fungi and bacterial infestations.

TMold Claims Volume Four: Understanding insurance claims and litigation concerning mold, fungi, and bacteria infestations.he author has provided checklists, sample procedures, form letters, tables and information and references to model statutes, state statutes, administrative regulations, and requirements of insurance departments nationwide.

“Time to Rescind the Tort of Bad Faith”

Insurance and the Law of Unintended Consequences Paperback 

Insurance is, and always will be, a business of the utmost good faith. Time to Rescind the Tort of Bad Faith: Insurance and the Law of Unintended ConsequencesAll parties to the insurance contract agree, in good faith and fair dealing, to do nothing to deprive the other the benefits of the contract. Insurance is, and always be, nothing more than a contract.

The insurer makes a promise to the insured that if a contingent or unknown loss occurs caused by a peril or risk insured against and not excluded, to pay the insured indemnity as promised by the contract up to the limits provided.

The insured promises to truthfully disclose the risks of loss faced by the insured, property owned by the insured, the business of the insured and/or the insured’s liability exposures. The insured also promises to honestly present a claim, prove the claim, and cooperate with the insurer in its investigation. If the parties to the insurance contract deal with each other fairly and in good faith the policy remains viable, claims are paid promptly and to the satisfaction of the insurer and the insured.

Only if a true tort occurs can the insured waive the contract action and sue in tort. Breach of contract, by centuries old tradition, is not a tort and cannot and should not be considered a tort. The Tort of Bad Faith has served its purpose and is now causing more problems than it solves. It is time the courts and state legislatures rescind the tort and return to common law contract damages.

Read about these books and more insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/

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When a Court Proves Itself Ignorant of Construction Reality True Indemnity Suffers

Tennessee Supreme Court Finds Ambiguity in the term “Depreciation”

A building is made up of products: lumber, nails, steel, roofing, siding, plaster, dry wall, etc. Standing alone the products are useless piles of material standing on a piece of land. When they are taken up by human beings and put together to form a dwelling or other structure, it is by the labor of the people who put the structural parts together into a structure that it becomes a thing of value, a structure. The cost to repair or replace the structure will also require the labor of people. The value of the structure, therefore, includes both the cost of the materials and the labor putting those materials together to make it a structure.

In Gregory J. Lammert, et al. v. Auto-owners (Mutual) Insurance Company, No. M2017-02546-SC-R23-CV, Supreme Court of Tennessee at Nashville (April 15, 2019) the Tennessee Supreme Court decided that the labor putting together a structure is of no value and cannot, therefore, be depreciated to reach true actual cash value.

THE INSURANCE POLICY

The policy defined actual cash value as “the cost to replace damaged property with new property of similar quality and features reduced by the amount of depreciation applicable to the damaged property immediately prior to the loss” and stated that “actual cash value includes a deduction for depreciation.”

THE ISSUE PRESENTED BY THE USDC

The United States District Court for the Middle District of Tennessee submitted a certified question of law to Tennessee Supreme Court regarding the interpretation of two insurance policies: “Under Tennessee law, may an insurer in making an actual cash value payment withhold a portion of repair labor as depreciation when the policy (1) defines actual cash value as ‘the cost to replace damaged property with new property of similar quality and features reduced by the amount of depreciation applicable to the damaged property immediately prior to the loss,’ or (2) states that ‘actual cash value includes a deduction for depreciation?”‘

FACTS

In 2017, Petitioners Gregory J. Lammert, Jamie Lammert, Larry Reasons, and Susan Reasons (“the homeowners”) filed a putative class-action suit against Respondent Auto-Owners (Mutual) Insurance Company (“Auto-Owners”), their property insurance company, for breach of contract. The Lammerts owned a home and other structures in Nashville that were insured with Auto-Owners under a “Dwelling Insurance Policy.” Some of the Lammerts’ buildings were damaged in a hail storm on May 10, 2016.

The property was damaged twice, once by hail in November 2016 and again by wind in March 2017. They filed claims for each loss, which Auto-Owners accepted.

The parties disagree on the interpretation of the insurance policies, with the homeowners arguing that Auto-Owners should not have depreciated the cost of the labor to repair and replace the damaged property when calculating the actual cash value of the respective properties.

ANALYSIS

The question presented in this case concerns whether a portion of the cost of labor to repair and replace damaged property can be deducted from the total replacement cost when calculating the actual cash value of a property. The parties agreed that under both policies, the method used to calculate the actual cash value is replacement cost less depreciation. Neither policy specifically mentioned labor costs.

Central to the discussion in this opinion are the concepts of indemnity, actual cash value, and depreciation. The Supreme Court in Braddock v. Memphis Fire Insurance Corp., 493 S.W.2d 453, 459-60 (Tenn. 1973), explained that insurance contracts are contracts of indemnity, meaning that the purpose of the insurance contract “is to reimburse the insured; to restore him as nearly as possible to the position he was in before the loss.” Accordingly, if an insured were to make a profit on a loss by recovering the cost of a new roof for a damaged roof that was fifteen years old, then “[t]he ends of indemnity would not have been served.” On the other hand, if an insured were able to replace a loss “with a substitute identical in kind and quality” then “complete indemnity” would be accomplished. Because such a substitution is not generally possible when the damaged article is, for example, a fifteen-year-old roof, indemnity is instead accomplished through recovery of the actual cash value of a damaged property.

Replacement cost less depreciation has the advantage of relative definiteness. It is also easily ascertained. However, the Supreme Court found the method to be inflexible, and this characteristic often results in excessive recovery.  The problem of excessive recovery under the replacement cost less depreciation rule together with the occasional uncertainty of market value prompted development of what is now the most widely accepted rule, generally denominated as the “broad evidence rule,” which is defined as allowing the trier of fact to call to its aid, in order to effectuate complete indemnity, every fact and circumstance which would logically tend to the formation of a correct estimate of the loss. .

Depreciation is a reduction in the value or price of something; specifically a decline in an asset’s value because of use, wear, obsolescence, or age. Depreciation in insurance law is the actual deterioration of a structure by reason of age, and physical wear and tear, computed at the time of the loss.

The homeowners claim that applying depreciation to both materials and labor defeats the indemnity purpose of insurance by not making the homeowners whole, while Auto-Owners counters that applying depreciation only to materials results in a windfall to the homeowners, thus also defeating the purpose of indemnity.

The Supreme Court noted, and perhaps relied upon, the fact that California’s insurance regulations and the Vermont Department of Financial Regulation Insurance Bulletin No. 184 prohibits the depreciation of repair and replacement labor. On the other hand, it noted Mississippi Insurance Department Bulletin 2017-8 states that there is no statutory prohibition to labor depreciation in that state but that “the insurer should clearly provide for the depreciation of labor in the insurance policy.”

In the end, this case turns on the court’s standard for interpreting insurance contracts because both parties have presented what the court described as “plausible interpretations of the policies, neither of which explicitly states whether labor expenses are depreciable when calculating the actual cash value.”

Auto-Owners argues for a technical definition of depreciation that is not evident on the face of either policy. Taking the term in its ordinary sense, it applies to physical deterioration, which is the meaning attributed to it by the homeowners. Construing the policy language in favor of the insured, the Supreme Court concluded that “depreciation can only be applied to the cost of materials, not to labor costs.”

Ultimately, it was not necessary for the Supreme Court to reach the decision of whether labor can logically depreciate or whether indemnity is accomplished. It is enough that the court found that the contracts were ambiguous and that under its standard of review, the interpretation of the insured must prevail.

The language regarding depreciation in the policies in question is ambiguous. Under Tennessee law, ambiguities in insurance contracts are strictly construed against the insurance companies and in favor of the insured. Therefore, with the insured’s interpretation controlling, labor may not be depreciated when the insurance company calculates the actual cash value of a property using the replacement cost less depreciation method.

ZALMA OPINION

The Tennessee Supreme Court, contrary to its own declarations that insurance should not allow an insured to profit from a loss, uses a finding of ambiguity to allow insured’s to profit from a loss with an actual cash value policy. To use the court’s example, if it costs $10,000 to replace a damaged floor, $5000 of which is the cost of the materials and $5000 is the cost of the labor to install the floor, and it is depreciated 50% the insurer  should pay only $5000 if the full cost of replacement is depreciated. If only materials are depreciated then the insured would recover $7500 and gain a $2500 profit from the loss since he could not replace the floor for less than $10,000. That is why people buy replacement cost policies. Those insurers that issue policies in Tennessee should define actual cash value to be replacement cost less depreciation of materials and labor, the total value of the damaged property.


© 2019 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. 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 51 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.

“Arson-For-Profit Fire at the Cowboy Bar & Grill”

A true crime novel based on the experience of the author, Barry Zalma, who for more than 51 years has acted for insurers who were faced with arson-for-profit, one of the most dangerous insurance fraud schemes. The book explains how an insurance claims adjuster, working with a fire cause and origin expert, a forensic accountant and insurance coverage lawyer, were able to defeat an arson-for-profit scheme and obtain a judgment requiring the perpetrator to take nothing and repay the insurer all of its expenses in defeating the claim.

Available as a paperback.

Available as a Kindle book.

 

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Books Needed by Every Insurance Claims Person and Policyholder

The Homeowners Insurance Policy” and Ten Volumes of “Zalma On Insurance Claims

Barry Zalma, Esq., CFE, an insurance coverage and claims expert, has created a library of insurance claims books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

For those who serve the insurance industry and its policyholders (whether as lawyers, adjusters, claims management, or public insurance adjusters) the ability to perform their duties appropriately in good faith it is absolutely necessary that they maintain insurance professionalism.

The books described in this post need a home in each law office, each insurance company. each independent adjuster’s claims office and in the offices of every public insurance adjusting firm.

Barry Zalma’s Insurance Claims Library will provide essential resources and will go a long way to create a staff of insurance claims professionals.  The books listed below are a small taste of the insurance law and insurance claims books written by Barry Zalma and available on amazon.com and at http://zalma.com/blog/insurance-claims-library/

Some of the books available to create or maintain insurance professionalism include:

“THE HOMEOWNERS INSURANCE POLICY”

HOW TO BUY AN APPROPRIATE HOMEOWNERS POLICY AND SUCCESSFULLY MAKE A CLAIM TO THE INSURER

Insurance is a contract between a person seeking insurance and an insurer. It is obtained by making contact with the insurer as a prospective insured seeking insurance. The homeowners policy is a specialized policy of insurance that protects the homeowner from certain risks of loss to the real and personal property at the home, the exposure the insured faces for injury to a household employee, and the exposure the insured faces to liability for bodily injury or property damage caused to third parties. The book explains how to buy a homeowners policy and how to collect on any claim made to the homeowners insurer.

Paperback Book    Kindle Book

Ten Volumes Comprising A Comprehensive Group of Materials on Property & Casualty Insurance Claims

Insurance claims professional and expert witness Kevin Quinley said about the following ten volumes: “Zalma’s series of books is a terrific blend of both the legal underpinnings and the practical implications for the claim practitioner.

Insurance Maven Bill Willson said: “Zalma On Insurance Claims” is a tour de force, an indispensable tool that should be a part of every claims training program in America and in the library of every claims professional for quick and frequent reference. This comprehensive guide belongs in the library of every insurance defense AND policyholder law firm. It should be a part of every claims training program of carriers, independent adjusting firms, and public adjusters. Many of these parts should be part of the training or reference programs for non-claims personnel, from agents to underwriters to risk managers.”

Zalma on Insurance Claims Volume 101″

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

This series of ten books is the latest addition to Barry Zalma’s insurance claims series of books and articles that will form the most thorough, up-to-date, expert-authored insurance claims guide available today.

Written by nationally-renowned insurance coverage expert Barry Zalma, a semi-retired insurance coverage attorney, consultant, expert witness and blogger, Zalma on Insurance Claims provides in-depth explanations, analysis, examples, and detailed discussion of:

  • Property insurance claims;
  • Third-party liability claims;
  • Casualty claims; and
  • Insurance Fraud

Thorough, yet practical, this series of books form the ideal guide for any professional who works in or frequently interacts with the insurance industry. Claims professionals, risk managers, producers, underwriters, attorneys (both plaintiff and defense), and business owners will benefit greatly from the ten volume guide. It is also the perfect resource for insurance educators, trainers, and students whose role requires an understanding of insurance law. As you read through the various volumes of Zalma on Insurance Claims, you will find comprehensive—yet comprehensible—coverage of key topics, including:

  • What is Insurance?
  • The History of Insurance
  • The covenant of good faith and fair dealing.
  • The tort of Bad faith
  • Conditions,
  • Warranties,
  • Exclusions
  • Declaring a policy void
  • Duties of insured and insurer
  • Evaluation and settlement
  • Identifying insurance fraud
  • Investigation
  • Kinds of insurance policies
  • Other insurance clauses
  • Preparing a case for trial
  • Processing a claim
  • Responses to fraud
  • Subrogation and salvage
  • Underwriting and
  • Many more property and casualty insurance matters.

Zalma on Insurance Claims Part 102″

This, the second part of Zalma on Insurance Claims and includes materials concerning:

  • Other Insurance Clauses
  • Underwriting
  • Conditions, Warranties and Exclusions

Zalma on Insurance Claims Part 103

This is part 103 of Zalma on Insurance Claims and will deal with:

1.Duties of the Insured and the Insurer
2.Declaring a Policy Void
3.Processing a Claim

When read with Part 101 and Part 102, this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 104″

This, the fourth volume of Zalma on Insurance Claims and includes materials concerning:

  1. Investigation of First Party Property Claims
  2. Rescission
  3. The Mortgage Clause
  4. Fortuity & Other Issues
  5. Determine the Amount of the Loss
  6. The Claim File

When read with Part 101, Part 102, and Part 103, this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 105″

This, the fifth volume of Zalma on Insurance Claims and includes materials concerning:

  1. Investigation – Liability
  2. Claims Made and Reported Policies
  3. The Notice Prejudice Rule.
  4. Types of Torts
  5. The Liability Claims File
  6. Discovery of the Insurance Claims File
  7. Tests for Determining Duty to Defend
  8. Appendices – forms for the claims person

When read with Insurance 101, Insurance 102, Insurance 103 and 104, this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 106″

This is the sixth part of “Zalma on Insurance Claims” and will deal with:

Chapter 1 Property Insurance & the Tort of Bad Faith
Chapter 2 Grounds for Finding Bad Faith
Chapter 3 Avoiding Charges of Bad Faith
Chapter 4. Punitive Damages
Chapter 5.Bad Faith & Liability Insurance
Chapter 6.Defenses to the Tort of Bad Faith
Appendix 1 – California Civil Code Section 3294

When read with Part 101, Part 102, and Part 103, Part 104 and Part 105 this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 107

This is the seventh part of “Zalma on Insurance Claims” and will deal with:

1.Evaluation and Settlement – Property
2.Evaluation and Settlement – Liability
3.Subrogation
4.Salvage

When read with Part 101, Part 102, Part 103, Part 104, Part 105 and Part 106 this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 108″

This, the eighth part of Zalma on Insurance Claims, includes materials concerning:

1.Preparing a case for trial
2.Interviewing Techniques
3.The art of the Interview
4.Interview General Principles
5.The Interviewer
6.Preparing for the Interview
7.Beginning the Interview
8.Control Of The Interview
9.Dealing with Witness Types
10.Approaches the Work
11.Dealing with the Nervous Person
12.Bluffs
13.The Mutability Of Memory
14.The Examination Under Oath

When read with Part 101, Part 102, Part 103, Part 104, Part 105, Part 106 and Part 107 this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 109″

This, the ninth part of Zalma on Insurance Claims, includes materials concerning:

•Identifying Insurance Fraud
•Professional Conspiracies
•Multiple Types of Insurance Fraud
•How to Join the Fraud Fight
•Case Studies of Successful Fraud Investigations
•Checklist 1 – Types of Insurance Fraud
•Checklist 2 – Training Adjusters
•Checklist 3 – Red Flags of Fraud – Property Insurance
•Checklist 4 – Red Flags of Fraud – Liability Insurance
•Appendix A – Commonly Used Medical Acronyms and Abbreviations
•Appendix B – Glossary of Medical Terms

When read with Part 101, Part 102, Part 103, Part 104, Part 105, Part 106, Part 107 and Part 108 this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 110″

This, the tenth part of Zalma on Insurance Claims, includes materials concerning:

•Responses to Fraud
•Grounds for Rescission.
•The Fight Against Fraud
•Checklist 1—Responses to Fraud
•Checklist 2 – The Fight Against Fraud

When read with Part 101, Part 102, Part 103, Part 104, Part 105, Part 106, Part 107, Part 108 and Part 109 this volume works to take the reader to a complete understanding of insurance and insurance claims.

Read about these books and other insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/

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Crime/Fraud Exclusion

Criminal Conduct Defeats Claims on Malpractice Policy

Lawyers are expected to serve the interests of their clients. When they do the opposite, steal from their clients, they are not worthy of acting as a licensed attorney, and if convicted of a crime of moral turpitude, they must lose their license. The victims of a crooked lawyer can sue him and seek to recover from his malpractice insurer. However, most such policies contain a crime/fraud exclusion.

In Oklahoma Attorneys Mutual Insurance Company v. David A. Cox, Christopher Mansfield; Gayle Boyle; Sharon C. Hart; Kathryn R. Stewart; Jim Mcgough; Catherine Welsh, 2019 OK CIV APP 25, Case Number: 117480, Court of Civil Appeals of the State of Oklahoma, Division I (Mandate Issued: May 1, 2019) the court was asked to determine if, under the facts of the case, defeated a claim for coverage.

Plaintiff/Appellee Oklahoma Attorneys Mutual Insurance Company (Insurer) sought declaratory relief with regard to a former attorney, Defendant Christopher Mansfield (Mansfield), and some of his former clients (collectively “Defendants”), including Defendant/Appellant David A. Cox (Cox). Finding no factual dispute, the trial court granted Insurer’s motion.

FACTS

Mansfield was previously licensed as an attorney in the state of Oklahoma. The Oklahoma Bar Association filed a complaint against Mansfield, alleging misconduct by Mansfield with regard to his management of, among others, the Cox Estate. Adopting the recommendation of the Professional Responsibility Tribunal, the Supreme Court of Oklahoma found that Mansfield violated the Oklahoma Rules of Professional Conduct by diverting funds from the Cox Estate without authorization. Mansfield entered into agreed judgments in at least five disputes regarding other estates he defrauded, totaling in excess of $1 million in judgments against him. The Supreme Court avoided the need to disbar Mansfield who accepted Mansfield’s resignation from the Oklahoma Bar.

The United States brought criminal charges against Mansfield for his conduct in managing one of the estates, alleging bank fraud and unlawful monetary transaction. In response to the charges, Mansfield pleaded guilty and agreed to a forty-one-month prison sentence. A criminal judgment was entered against Mansfield March 16, 2017.

Cox filed suit against Mansfield September 12, 2014, alleging negligence, gross negligence, breach of duty by personal representative, deceit/fraud, unjust enrichment, and seeking punitive damages. The Cox suit is ongoing.

Prior to the allegations of misconduct Mansfield had purchased a “Lawyers Professional Liability Claims-Made Policy” from Insurer for the period of July 13, 2013 to July 13, 2014 (Policy 1). Policy 1 was canceled when Mansfield’s law license was suspended. Mansfield then purchased a “Three Year Extended Reporting Endorsement” beginning June 1, 2015 (Policy 2). Insurer was notified of the Cox suit during Policy 1, and of the McGough suit during Policy 2 (hereinafter referenced jointly as “the Policies”).

The insurer sued Mansfield seeking a declaratory judgment that it has no duty to defend or cover Mansfield in the Cox or McGough suits. The insurer moved for summary judgment alleging there was no dispute as to material fact and it was entitled to judgment as a matter of law.

The insurer asserted the “crime/fraud exclusion” in the Policies defeated coverage. The trial court granted summary judgment in favor of the insurer. Cox appealed.

THE ISSUE

The sole question on appeal is whether the trial court erred by granting summary judgment and holding that Insurer was entitled to judgment as a matter of law because Cox’s claims were excluded from coverage under the crime/fraud exclusion in the Policies.

In Oklahoma, the guiding principle in an insurance coverage dispute is that an insurance policy is a contract. Accordingly, the parties to the contract may agree to such terms as they see fit and the court is not at liberty to rewrite those terms. The terms of an insurance policy should be construed according to their plain meaning, so long as the language is not ambiguous and the construction does not bring about an absurd result. An insurer may limit its own risk via the terms of the policy. An “exclusion” is a policy term eliminating coverage where it otherwise would have existed under the general declaration.

The “Insuring Agreement” stated a broad agreement to protect Mansfield subject to conditions and exclusions. Insurer alleged that Mansfield’s conduct giving rise to the claims falls under the crime/fraud exclusion. This exclusion states that the Policies do not apply “to any claim arising out of any dishonest, fraudulent, criminal, malicious or knowingly wrongful act or omission…”

The court concluded that the language of the crime/fraud exclusion is not ambiguous on its face. In order to withstand summary judgment, Cox needed to present evidence indicating he sustained damages from Mansfield’s negligent conduct which are separate from those sustained as a result of Mansfield’s fraudulent and/or criminal conduct.

The evidence presented at summary judgment failed to demonstrate that Cox suffered an injury from Mansfield’s conduct that was separate from that which has been deemed fraudulent or criminal by the suspension of Mansfield’s law license and his criminal conviction. In his petition in the Cox suit, Cox alleges that Mansfield negligently mismanaged the Cox Estate, breached his duty as personal representative by failing to act in the best interest of the Estate, and was unjustly enriched in his role as personal representative.

In rendering judgment, the criminal court ordered that Mansfield pay restitution to the other victim estates, including $5,225.53 to the Cox Estate.

These findings of professional culpability and criminal guilt by the Oklahoma Supreme Court and the federal court are highly probative on the issue of whether Mansfield’s conduct giving rise to the Cox suit comes within the purview of the crime/fraud exclusion in the Policies.

In order to withstand summary judgment, Cox needed to present evidence that would show that he suffered a harm separate from that incurred as a result of the conduct for which Mansfield was disbarred and criminally convicted, i.e. that Cox was harmed from some negligent conduct apart from his conversion of estate assets. Cox made no such showing, and instead relied solely on his own allegations and the findings in the aforementioned proceedings against Mansfield. Cox therefore did not meet his burden.

Because the record fails to indicate that the claims in the Cox suit arise from conduct separate from that which has already been deemed knowingly wrongful or criminal, Cox’s claims are excluded from coverage under the crime/fraud exclusion in the Policies.

ZALMA OPINION

There is no way that an insurer should, if there is to be justice, be required to pay for the criminal and fraudulent acts of the lawyer insured. The injured parties are not without a remedy, they can sue and take all of the assets the lawyer gained from his criminal conduct or be indemnified by orders of restitution from the criminal court. The insurer, who did not agree to insure against the criminal acts of the lawyer insured, was forced to protect itself with a declaratory relief action, that should have been – and was – obvious to the trial and appellate court.


© 2019 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. 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 51 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.

“Arson-For-Profit Fire at the Cowboy Bar & Grill”

A true crime novel based on the experience of the author, Barry Zalma, who for more than 51 years has acted for insurers who were faced with arson-for-profit, one of the most dangerous insurance fraud schemes. The book explains how an insurance claims adjuster, working with a fire cause and origin expert, a forensic accountant and insurance coverage lawyer, were able to defeat an arson-for-profit scheme and obtain a judgment requiring the perpetrator to take nothing and repay the insurer all of its expenses in defeating the claim.

Available as a paperback.

Available as a Kindle book.

 

 

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New Books from Major Publishers by Barry Zalma

Books from Full Court Press: “Zalma on Property and Casualty Insurance;” “Insurance Law Deskbook;” “California insurance Law Deskbook,” and “Insurance Bad Faith and Punitive Damages Deskbook.”  Books from the American Bar Association and a book from Thompson Reuters

Barry Zalma, Esq., CFE, an insurance coverage and claims expert, has created a library of insurance claims books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

For those who serve the insurance industry and its policyholders (whether as lawyers, adjusters, claims management, or public insurance adjusters) the ability to perform their duties appropriately in good faith it is absolutely necessary that they maintain insurance professionalism.

The books described in this post need a home in each law office, each insurance company. each independent adjuster’s claims office and in the offices of every public insurance adjusting firm.

Barry Zalma’s Insurance Claims Library will provide essential resources and will go a long way to create a staff of insurance claims professionals.  The books listed below are a small taste of the insurance law and insurance claims books written by Barry Zalma and available on amazon.com and at http://zalma.com/blog/insurance-claims-library/

Some of the books available to create or maintain insurance professionalism include:

New Books from Full Court Press

Full Court Press continues to publish expert secondary content. This time it’s a new collection of insurance law treatises from consultant, expert witness, arbitrator, and mediator Barry Zalma.

Barry Zalma practiced law in California for more than 44 years as an insurance coverage and claims-handling lawyer, and has spent more than 51 years in the insurance business. Full Court Press welcomes his deskbooks as the first published under our Full Court Press imprint. Four titles are available in ePub and MOBI format, as well as on the Fastcase legal research platform.

“Zalma on Property and Casualty Insurance”

The earnings of almost every civil lawyer in the United States are funded by the insurance industry. Insurance can best be described as the mother’s milk of the law profession. The civil defense lawyer is paid by an insurer for each hour he or she works. The civil plaintiffs’ lawyer is usually paid by taking a percentage of any judgment entered in favor of the plaintiff, which judgment is usually paid by the defendant’s insurer.

In almost every situation in which a civil lawyer practices law the funds for that work come, either directly or indirectly, from insurance. Consequently, lawyers must use their wits and energies to avoid or to pursue litigation to the benefit of the client. Both sides understand that an insurer will eventually pay one or both sides in the dispute. Insurance is important to every civil dispute and even some that fall within the criminal courts.

Every lawyer retained to prosecute or defend a civil suit should begin the representation with a serious effort to find insurance coverage for the benefit of the client or the defendant the client is suing. Without that knowledge, the lawyer will find he or she is litigating with duct tape firmly self-placed across his or her mouth.

“Insurance Law DeskbookZalma

Learn the insurance basics that are essential to every civil practitioner.

“California Insurance Law Deskbook”

California has long led the way when it comes to insurance jurisprudence in the United States, and few know more about California insurance law than Barry Cal LawZalma.

“Insurance Bad Faith and Punitive Damages Deskbook”

Understand the relationship between insurance, the tort of bad faith, and why punitive damages are awarded to punish insurers.

An annual subscription to secondary content on the Fastcase BadFaithplatform includes new editions and updates published by the author as they are rolled out, so you can rest assured that your research is up to date. Go to fastcase.com for more detail and how to use the material on-line as part of your legal or insurance research or as stand-alone e-books.

All available at fastcase.com.

Books from the American Bar Association

“The Commercial Property Insurance Policy Deskbook”

How to Acquire a Commercial Property Policy and Present and Collect a First-Party Property Insurance Claim

By Barry Zalma

The Commercial Property Insurance Policy Deskbook is a comprehensive resource on acquiring a commercial property policy and presenting and collecting first-party property insurance claims. The book looks at the fundamentals of insurance and a wealth of topics including rules of construction of a policy of commercial property insurance, the commercial first party property insurance policy, different types of property losses, conditions and limitations,specific and blanket coverages, mortgage clauses, the need for a prompt notice of claim, the commercial property claim, adjusting the commercial property loss, the sworn statement in proof of loss, the adjustment of the commercial property loss, subrogation and salvage, and common law bad faith.

Also included are five appendixes of forms, letters, and other documents.

Available from the American Bar Association at: http://shop.americanbar.org/eBus/Default.aspx?TabID=251&productId=214624; or  orders@americanbar.org, or 800-285-2221.

“The Insurance Fraud Deskbook”

Author: Barry Zalma

Sponsor(s):  Tort Trial and Insurance Practice Section, Publisher(s):   ABA Book Publishing

ISBN: 978-1-62722-676-9
Product Code: 5190506
2014, 638 pages, 7 x 10

Product DetailsThis book is written for individuals who are focused on the effort to reduce expensive and pervasive occurrences of insurance fraud. Lawyers who represent insurers, claims personnel, prosecutors and their investigators can all benefit from this exhaustive resource.

The Insurance Fraud Deskbook is a valuable resource for those who are engaged in the effort to reduce expensive and pervasive occurrences of insurance fraud. It explains the elements of the crime and the tort to claims personnel, and it provides information for lawyers who represent insurers, so they can adequately advise their clients. Prosecutors and their investigators can use this book to determine what is required to prove the crime and win their case.

The full text of decisions from courts of appeal and supreme courts across the country are provided so the reader can understand what happens after the investigation is completed and can apply that information to undertake their own thorough investigations. It allows claims personnel and their lawyers to understand what errors would cause a defeat or a not-guilty verdict.

The effort to reduce insurance fraud requires the assistance of both civil and criminal courts. The Insurance Fraud Deskbook can help the prudent fraud investigator, insurance adjuster, insurance attorney, insurance Special Investigation Unit, and insurance company management to attain the information needed to deal with state investigators and prosecutors.

Available from the American Bar Association at: http://shop.americanbar.org/eBus/Default.aspx?TabID=251&productId=214624; or  orders@americanbar.org, or 800-285-2221.

“Diminution in Value Damages”

How to Determine the Proper Measure of Damage to Real and Personal Property

ISBN: 978-1-63425-295-8
Product Code: 5190524
2015, 235 pages, 7 x 10, Paperback

This book was written to provide sufficient information to those who became interested in the issue since the Georgia Supreme Court decided State Farm Mutual Automobile Insurance Co. v. Mabry, 274 Ga. 498, 556 S.E.2d 114 (Ga. 11/28/2001) and includes cases dealing with the use of diminution in value as a method of determining the amount of loss incurred by a plaintiff seeking indemnity for damage to real or personal property.

Because confusion has reigned across the United States concerning the proper measure of damages for property damage to property that has been repaired, Diminution In Value Damages assists the reader in answering the questions concerning the proper measure of damage in each of the fifty United States and federal United States jurisdictions

This edition has been totally rewritten and expanded, providing the most extensive and detailed coverage of the issue and a thorough explanation of how to apply diminution in value damages to losses to property.

From Thompson Reuters

Co-Author(s):Property Investigation Checklists: Uncovering Insurance Fraud, 12th Michael H Boyer  &  Barry Zalma

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

• Recognizing suspicious claims

• Proper investigation procedures

• Analysis of laws concerning fraudulent personal and real property claims

• Evaluating and settling claims.

The book also examines recent developments in areas such as arson investigation procedures, bad faith, and extracontractual damages. The appendix includes the NAIC Insurance Information and Privacy Protection Model Act.

Read about these and other insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/

 

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Sex Alone is Dangerous

Autoerotic Asphyxiation is an Intentional Act Causing Injury

People often cause injury to themselves. Some do it as a result of a mental illness. Others do it in search of sexual gratification. When a person intentionally injures himself or herself, he or she may be deprived of insurance coverage if the policy contains an appropriate exclusion.

In Letran Tran v. Minnesota Life Insurance Company, No. 18-1723, United States Court of Appeals For the Seventh Circuit (April 29, 2019) Tran’s husband died after engaging in an act of autoerotic asphyxiation trying to obtain sexual gratification. The attempt may have succeeded but the gratification was short lived because he died. His wife sought insurance coverage for his death under an Accidental Death & Dismemberment (AD&D).

BACKGROUND

Ms. Tran’s husband, Llenos, hung a noose from a basement ceiling beam, stood on a stool with the noose around his neck, and stepped off. Llenos died as a result. When Tran came home, she found her husband’s body. Though his death was initially reported as suicide, the medical examiner concluded from sexual paraphernalia on Llenos’s body that he died performing autoerotic asphyxiation, a sexual practice by which a person purposefully restricts blood flow to the brain to induce a feeling of euphoria.

The pleasurable feeling experienced during autoerotic asphyxiation derives from cerebral hypoxia, or brain cell death from deprivation of oxygen. Acute to severe hypoxia can lead to loss of consciousness in ten to twenty seconds, permanent brain damage in three minutes, and death in four to five minutes.

Llenos was covered by basic and supplemental life insurance policies, providing $517,000 in coverage, and including Accidental Death & Dismemberment (AD&D) policy riders providing an additional $60,000 in coverage. Minnesota Life paid $517,000 but denied Tran’s claim for the additional $60,000 in AD&D coverage, concluding that Llenos’s death was not “accidental” and fell under an exclusion for intentionally self-inflicted injury. The insurer also took the position that Llenos’s death fell under an exclusion for intentionally self-inflicted injury, which stated: “In no event will we pay the accidental death or dismemberment benefit where an insured’s death or dismemberment results from or is caused directly by any of the following: … intentionally self-inflicted injury or any attempt at self-inflicted injury, whether sane or insane…”

Tran sued seeking the AD&D coverage payouts. After reviewing the stipulated facts from both parties, the district court awarded judgment in favor of Tran. Because all policy ambiguities must be construed in favor of coverage, the district court ruled that the exclusion for intentional injuries did not apply to autoerotic asphyxiation and entered judgment in favor of Tran. Minnesota Life filed this appeal.

DISCUSSION

An ordinary person would consider choking oneself by hanging from a noose to be an injury, even if that strangulation is only “partial.” For example, if Llenos had partially strangled another person, there would be no debate he had inflicted an injury. Partial strangulation, even when not intended to cause death, is an injury.

Even considering the sexual nature and pleasurable aim of autoerotic asphyxiation the fact that Llenos performed the act on himself and enjoyed the accompanying euphoria does not make partial strangulation less of an injury. Autoerotic asphyxiation has been clinically described as a subset of sexual masochism disorder. Some people enjoy harming themselves. That harm is still an injury, regardless of its popularity or the pleasure some people may derive from it.

Autoerotic asphyxiation was the ultimate and the proximate cause of Llenos’s death. According to the language of the exclusion in the AD&D riders, then, the act of autoerotic asphyxiation was the “injury” that killed Llenos.

Whether an act was accidentally or intentionally done—as required by the “intentionally self-inflicted” exclusion in the AD&D the court must determine whether an expectation of injury was objectively reasonable. Llenos’s subjective intent was clear. Llenos intentionally performed autoerotic asphyxiation. Because that act itself is an injury, Llenos’s death falls under the policy exclusion for intentionally self-inflicted injuries.

Strangling oneself to cut off oxygen to one’s brain is an injury. When that injury kills, it is “an intentionally self-inflicted injury which resulted in death,” regardless of whether it was done recreationally or with an intent to survive. Under the plain and ordinary meaning of Llenos’s AD&D riders, his death is excluded from coverage.

Even assuming Llenos’s death were accidental, Tran is not entitled to AD&D coverage and an additional $60,000 payment.

ZALMA OPINION

Although this case was sexually charged the interpretation of the exclusion was easy. The act Llenos performed was done with the intent to cause himself sexual pleasure but could, and did, also cause his death. Even if he had no intention to die he intended to do the act that caused him to die.  What he did was clearly an “intentionally self-inflicted injury.” Tran was lucky that the life insurance policy did not have the same exclusion.


© 2019 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. 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 51 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.

“Arson-For-Profit Fire at the Cowboy Bar & Grill”

A true crime novel based on the experience of the author, Barry Zalma, who for more than 51 years has acted for insurers who were faced with arson-for-profit, one of the most dangerous insurance fraud schemes. The book explains how an insurance claims adjuster, working with a fire cause and origin expert, a forensic accountant and insurance coverage lawyer, were able to defeat an arson-for-profit scheme and obtain a judgment requiring the perpetrator to take nothing and repay the insurer all of its expenses in defeating the claim.

Available as a paperback.

Available as a Kindle book.

 

 

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Insurance Fraud for Fun & Profit – True Crime Stories

Names, Places and Facts Changed to Protect the Guilty

Barry Zalma, Esq., CFE, an insurance coverage and claims expert, has created a library of insurance claims books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

For those who serve the insurance industry and its policyholders (whether as lawyers, adjusters, claims management, or public insurance adjusters) the ability to perform their duties appropriately in good faith it is absolutely necessary that they maintain insurance professionalism.

The books described in this post need a home in each law office, each insurance company. each independent adjuster’s claims office and in the offices of every public insurance adjusting firm.

Barry Zalma’s Insurance Claims Library will provide essential resources and will go a long way to create a staff of insurance claims professionals.  The books listed below are a small taste of the insurance law and insurance claims books written by Barry Zalma and available on amazon.com and at http://zalma.com/blog/insurance-claims-library/

Some of the books available to create or maintain insurance professionalism include:

Fictionalized True Insurance Crime Books

“Arson-For-Profit Fire at the Cowboy Bar & Grill”

In this, the newest fiction from Barry Zalma, a true crime novel based on the experience of the author who for more than 51 years has acted for insurers who were faced with arson-for-profit, one of the most dangerous insurance fraud schemes. The book explains how an insurance claims adjuster, working with a fire cause and origin expert, a forensic accountant and insurance coverage lawyer, were able to defeat an arson-for-profit scheme and obtain a judgment requiring the perpetrator to take nothing and repay the insurer all of its expenses in defeating the claim.

Available as a paperback.

Available as a Kindle book.

“HEADS I WIN, TAILS YOU LOSE”

Product DetailsA collection of columns originally published in the magazines “Insurance Journal,” “Insurance Week,” and “The John Cooke Insurance Fraud Report” insurance trade publications serving the insurance community in the United States that have been updated and revised.

The title, “Heads I Win, Tails You Lose” is meant to describe insurance fraud as it works in the Unites States. It means that whenever a person succeeds in perpetrating an insurance fraud everyone who buys insurance is the loser.

Available as a Kindle Book.

Available as a paperback.

“Candy and Abel: Murder for Insurance Money

How a young lawyer and wise old investigator defeated an attempt at life insurance fraud.

Product DetailsAvailable as a Kindle Book.

Available as a paperback.

 

 

“Murder And Insurance Fraud Don’t Mix”

My name is Marion Orpheus Montague. My friends, and some enemies, call me “MOM.” It is not a designation of my ability to nurture my clients. I have never been, nor will I Product Detailsever be, maternal. I accept the play on my initials because it causes adversaries to underestimate me.

I am 66-years-old. My grayish blond hair is thin and my full beard is a bit scraggly. My face is round and often tinged with red. My nose is full, my eyes green and my cheeks bulge out to the sides trying to emulate the belly that precedes every other part of my body as I walk. People see me and do not believe that I am a private investigator. Seeing me they often think that I am on leave from my winter work as a Macy’s Santa Claus.

I like being underestimated. It makes my job as an investigator easier.

See how a fake robbery at a jewelry store led to murder and prison.

Available as a Kindle book.

Available as a paperback

“Murder & Old Lace: Solving Murders Performed for Insurance Money”

 

Product Details

When the women first met – 20 years ago at a Santa Monica health spa – Magogassasanian appeared taken with Gogolivesky. The women moved Alvarado into an apartment, then started applying for life insurance policies on him. They jointly took out four policies, each as 50% beneficiaries in addition to the individual policies they bought from my client. Gogolivesky also took out three more policies on her own while Magogassasanian only took out a single individual policy on Earnest. The two women pocketed nearly $6,000,000 in insurance benefits on Alvarado alone and $4,000,000 in insurance benefits on Earnest. They also recovered a total of $5,000,000 on the other six old men they killed.

Available as a Kindle book.

Available as a paperback.

“Arson for Profit: How an Attempt to use Arson & Fraud to Fund Terrorism Failed”

This story is based on a real case involving a member of Russian/Armenian organized crime, real insurers, investigators, lawyers, fire fighters, and insurance brokers. The names, descriptions, and identities of the people involved have been changed to protect both the guilty and the innocent. The report to the US Senate, after this case was decided by the California Courts, reveal that the threats made on MOM and lawyer Hazan were real and they are lucky that the threats were never fulfilled. The person identified in this story as Levonyan was described to the US Senate as the leader of a Russian/Armenian organized crime ring. It is important to take seriously threats from criminals. Insurance fraud and arson-for-profit are not victimless crimes. They are crimes of violence that cost everyone who lives in the U.S.]

Available as paperback.

Available as a Kindle Book.

“M.O.M. & The Taipei Fraud”

How an Experienced Adjuster Defeated a $7 Million Fake Burglary Claim

The problem is that each option the insurers have available have a down side and Feng is represented by a lawyer who has proved highly successful in suing insurers and collecting large compensatory and punitive damage awards. Since the claims exceed $6 million dollars, he can expect, applying the law set out by the U.S. Supreme Court in State Farm Mut. Automobile Ins. Co. v. Campbell and BMW of North America, Inc. v. Gore as much as $60 million in punitive damages. So I need to explain to the insurers that they face an exposure anywhere from their policy limits to ten times the policy limit. They need the courage of their convictions to reject this major claim.

Available as a paperback.

Available as a Kindle book.

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A Joint Custody Order Does not Create a Residency

Residence – in Wyoming – is an Ambiguous Term

Federal courts follow the law of the state where a case was brought, at least, when interpreting an insurance policy. Because the state’s courts conclude that the term “residence” is ambiguous it must necessarily be construed to favor the insured and against the insurer that drafted the policy, even when the incident is cold-blooded-murder by the insured’s son who just happened to be staying at his divorced father’s house when the murder happened.

In American National Property And Casualty Company v. David James Burns; Robin Burns, as personal representative of Tyler Burns, and Dora Sam, No. 18-8006, (D.C. No. 2:16-CV-00301-ABJ) United States Court of Appeals Tenth Circuit (April 23, 2019) David James Burns and Robin Burns (as representatives of Tyler Burns) (collectively, the “Burnses”) asked the Tenth Circuit to reverse the trial court’s decision in favor of American National Property and Casualty Company (“American National”).

FACTUAL BACKGROUND

On October 2014, then-sixteen-year-old Phillip Sam shot and killed Tyler Burns. The Burnses brought a wrongful death action in state court against, among others, Phillip’s mother, Dora Sam, alleging that she had negligently stored the handgun used in the shooting. Dora was a named policyholder of an American National homeowner’s policy (the “Policy”) effective at the time of the shooting, and she demanded that American National indemnify and defend her in the wrongful death action. American National then sued in federal court seeking a declaration that there was no coverage.

The district court concluded first that Phillip was a “resident” of Dora’s home at the time of the shooting. Because the Policy defines “insureds” to include relatives who were “resident[s]” of a named insured’s home, and excludes personal liability coverage for intentional and criminal actions by “any insured,” the district court determined that there was no coverage as to Dora for the shooting.

The Burnses argued that Phillip was not a resident of Dora’s household at the time of the shooting because he had been staying with his father, Nathan Sam, at that time and, relatedly, had expressed an intent or desire to live with Nathan.

After Dora and Nathan divorced in 2013, a decree gave them joint legal custody of their minor children, including Phillip, with Dora listed as the “primary residential custodian.” In deference to Nathan’s itinerant work schedule, Nathan was to have physical custody of the children when he was in Cheyenne, Wyoming; Dora was to have the children “all other times.” Consistent with the decree, Dora testified that Phillip lived with her and “sometimes lived with his dad.”

On October 5, Nathan dropped Phillip off at Dora’s house for five or six minutes so Phillip could pick up his work uniform. While he was inside, Phillip did not just grab his work uniform; he also stole Dora’s boyfriend’s semi-automatic pistol from the master bedroom closet.

Early the following morning, Phillip shot and killed Tyler Burns with the pistol he took from Dora’s house. When he was subsequently booked into jail, Phillip provided Nathan’s address as his residence. Phillip was ultimately convicted of first-degree murder and related crimes.

In September 2016, following Phillip’s conviction, the Burnses brought a wrongful death and survival action against Dora, Dora’s boyfriend, and Phillip in Wyoming state court for damages associated with Tyler’s death.

American National thereafter sued naming Dora and the Burnses as defendants and seeking a declaration that insurance coverage did not exist.

The district court granted American National’s motion, ruling first that Phillip was a “resident” of Dora’s home at the time of the shooting because, inter alia, Dora was the “primary residential parent”; a person can have more than one residence at a time and can temporarily leave home without changing residences; and it is unclear whether a minor can form the intent to change residences, if such intent is necessary. Because Phillip was a “resident” of Dora’s household and also her relative, he was an insured under the Policy, and there was thus no coverage as to Dora for Phillip’s intentional or criminal actions.

DISCUSSION

Under Wyoming law—the substantive law the Tenth Circuit must apply in a diversity action, the language of an insurance policy is ambiguous if it is capable of more than one reasonable interpretation.

To determine whether Phillip was a “resident” of Dora’s household within the meaning of the Policy at the time of the shooting, we first consider whether the term “resident” is ambiguous under Wyoming law. The term “resident” is ambiguous and subject to more than one reasonable interpretation. Because the Tenth Circuit concluded that the term “resident” in the Policy is ambiguous, the appellate court then asked whether that term is “fairly susceptible” to an interpretation under Wyoming law that would be consistent with providing Dora Sam coverage in this case.

First, “resident” may be interpreted such that an individual cannot simultaneously hold multiple residences. If the court reads “resident” in the Policy to allow for only one residence at a time — that term can be further read such that Phillip had two alternating residences, with his residence at any time being a function of which parent he was staying with.

Nathan was in town at the time the gun was stolen and Phillip had been staying with him. When a child spent time in both of his parents’ households (but primarily his mother’s) pursuant to a divorce decree, that the home the child was at “on the day of the accident” was relevant to determining the child’s residence under an insurance policy.

Furthermore, Phillip’s actions both shortly before and shortly after the shooting help confirm that, to the extent that Phillip only had one residence at the time, that residence was Nathan’s home.  Another manifestation of Phillip’s understanding of his residence is the fact that Phillip wrote down Nathan’s home as his residence when he was booked immediately following the shooting.

The interpretation of this term here reflects the court’s adherence to Wyoming law’s command for courts to construe ambiguities in insurance policies strictly in favor of coverage.

In that regard, the Tenth Circuit’s reading of the Policy term “resident” — to the effect that an individual may only have one residence at a time, and further that an individual periodically alternating between his parents’ homes would be, at a given point in time, a resident of the home he or she is staying at — is a fair and reasonable one. It is an interpretation that in fact favors coverage for Dora: because Phillip was not a “resident[] of [Dora’s] household” under the Policy at the time of the shooting, he was not a Policy “insured,” and his intentional, criminal actions would thus not fall within the “any insured” exclusion when determining Dora’s coverage eligibility. Under this reasoning, the district court reached the wrong result in interpreting the Policy.

Because Phillip was not a “resident” of Dora’s household at the time of the shooting, the district court’s entry of summary judgment was reversed,

ZALMA OPINION

Since Wyoming considers the term “resident” to be ambiguous, the court was able to choose where Phillip resided at the time of the shooting. He would not be covered under a similar policy issued to his father nor would he be covered under his mother’s policy for his intentional conduct if he was a resident of her house at the time of the murder. His mother, who was sued for her negligence in failing to lock up the gun, was entitled to defense and indemnity under her policy.


© 2019 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. 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 51 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.

“Arson-For-Profit Fire at the Cowboy Bar & Grill”

A true crime novel based on the experience of the author, Barry Zalma, who for more than 51 years has acted for insurers who were faced with arson-for-profit, one of the most dangerous insurance fraud schemes. The book explains how an insurance claims adjuster, working with a fire cause and origin expert, a forensic accountant and insurance coverage lawyer, were able to defeat an arson-for-profit scheme and obtain a judgment requiring the perpetrator to take nothing and repay the insurer all of its expenses in defeating the claim.

Available as a paperback.

Available as a Kindle book.

 

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Failure to Appear for EUO is a Breach of a Material Condition

Staged Accident Can Never Be a Covered Event

In 21st Century Insurance/21st Century Advantage Insurance Company/21st Century National Insurance Company v. Marie Baptisye et al., Index No.: 156199/2013, 2019 NY Slip Op 30781(U), Supreme Court of the State of New York County of New York: Part 63 (March 29, 2019) the insurer sought summary judgment against the answering Defendants, Doctor Goldshteyn Chiropractic, P.C., Mind & Body Acupuncture P.C., One to One Rehab pt, P.C., Remedial Medical Care P.c., Skillman Medical Diagnostic, P.C., Sharp View Diagnostic Imaging, P.C., and Easy Care Acupuncture P.C., for a declaration that: (a) Defendants Ralph Magny (Magny), Daphne Rympel (Rympel), and Hans Deetjen (Deetjen) because they breached a material condition precedent to coverage by refusing and failing to appear for an Examination Under Oath (EUO).

In addition Plaintiff asked for a ruling that it is not obligated to pay, honor, or reimburse any of the answering Defendants for any claims that were submitted for any No-Fault reimbursement on behalf of Magny, Rympel, and Deetjen; and (b) the incident of April 7, 2011 because the reported accident was staged and not a covered event, such that Plaintiff is not required to pay any sums arising out of the alleged incident.

BACKGROUND

Plaintiff insurer issued a motor vehicle insurance policy to Magny, which covered a 1995 Plymouth Neon Highline 4P. Sixteen days following the policy inception date the 1995 Plymouth Neon Highline 4P, which Magny operated, was allegedly involved in a collision at the intersection of Avenue W and 86th Street, Brooklyn, New York at 11:50 p.m. with a vehicle that was operated by Defendant Stanislaw Zhitkov (Zhitkov). Defendants Rympel and Deetjen were passengers in the 1995 Plymouth Neon Highline 4P vehicle at the time of the collision.

Magny, Rympel, and Deetjen all filed claims for no-fault benefits under the policy issued to Magny. Plaintiff submitted an affidavit from Investigative Analyst, Sandra Keane (Keane), which avers that Plaintiff’s investigation of the claim determined that the April 7, 2011 incident was staged.

The investigation considered the following red flags or indicators of fraud:

• that Magny, Rympel, and Deetjen were unrelated occupants who received treatment at the same multi-specialty facility;
• the loss occurred late at night when few persons were present;
• the incident occurred sixteen days after the policy’s inception and involved an older vehicle;
• the existence of common addresses, phone numbers and emails; and
• the claim was linked to multiple staged losses and at least four declaratory judgment action.

Plaintiff sought additional verification in the form of an EUO of Magny, Rympel, and Deetjen to determine the veracity of their claims and submitted the supporting affidavit of paralegal Stacey Peluso.

Magny, Rympel, and Deetjen all failed to appear for the first scheduled EUO. Peluso mailed a second EUO notice letter to Magny and counsel by first class mail and by certified mail, return receipt requested and mailed a second and third EUO notice letter to Rympel, Deetjen, and counsel by first class mail and by certified mail, return receipt requested; letters of representation for Magny, Rympel, and Deetjen. However, neither individual responded to the additional notices nor appeared for their respective EUOs.

Plaintiff moved for summary judgment, maintaining that an appearance at an EUO is a condition precedent to coverage and that the failure to appear constitutes a breach of the policy, which vitiates coverage. Plaintiff further maintains that it is entitled to summary judgment because the admissible evidence presented establishes that the incident was intentional and that the alleged injury does not arise out of an insured accident.

Defendants Sharp View Diagnostic Imaging, P.C. (Sharp View) and Easy Care Acupunture, P.C. (Easy Care) both argue in opposition that Plaintiff failed to establish that the April 7 incident was staged and that the EUOs were not properly noticed. Both Defendants also argue that the Plaintiff’s denials are untimely and Defendant Easy Care further challenges the qualifications of Plaintiff’s investigator (Keane) and paralegal (Peluso).

DISCUSSION

Once the person moving for summary judgment meets its burden, the opposing party must produce evidentiary proof in admissible form sufficient to raise a triable issue of material fact.

The appearance of an eligible injured person at an EUO is a condition precedent to coverage and the failure to appear vitiates coverage. Sharp View and Easy Care correctly contend that an insurer may deny all claims retroactively to the date of loss, regardless of whether the denials were timely issued since the right to conduct a EUO constitutes a condition precedent to coverage. Neither Sharp View nor Easy Care has submitted an affidavit from a party with personal knowledge controverting Plaintiff’s proof.

Therefore, the Court granted that branch of Plaintiff’s summary judgment motion for a declaration that Magny, Reympel, and Deetjen breached a material condition of the insurance policy by failing to appear for an EUO and that Plaintiff is not obligated to pay, honor, or reimburse any of the answering Defendants for any claims that were submitted for any No-Fault reimbursement on their behalf.

Plaintiff also established that the April 7 incident was not a covered event, but rather a staged and intentional act through presenting admissible evidence that Magny, Rympel, and Deetjen were unrelated occupants who received treatment at the same multi-specialty facility; that the loss occurred late at night when few persons were present; that the incident occurred within sixteen days from the policy’s inception and involved an older vehicle; the existence of common addresses, phone numbers and emails; and that the claim was linked to multiple staged losses and at least four declaratory judgment actions.
Plaintiff established that the incident was staged, which is not covered by no-fault insurance and, thus, is entitled to summary judgment regardless of the timeliness of its denial. Therefore, the Court granted the remaining branch of the Plaintiff’s motion for summary judgment that the claimed accident was staged and not a covered event, such that Plaintiff is not required to pay any sums arising out of the alleged incident.

ZALMA OPINION

This case explains the importance of an EUO when red flags indicate a potential fraudulent staged accident claim and that the demands for appearance at EUO are capable of proof. The red flags identified were sufficient to lead to a conservative conclusion that the alleged accident was staged sufficient to refuse to pay the claim and, adding to the rights of the insurer, was the fact that the claimants breached a material condition of the policy by refusing to appear at an EUO.


© 2019 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. 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 51 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.

“Arson-For-Profit Fire at the Cowboy Bar & Grill”

A true crime novel based on the experience of the author, Barry Zalma, who for more than 51 years has acted for insurers who were faced with arson-for-profit, one of the most dangerous insurance fraud schemes. The book explains how an insurance claims adjuster, working with a fire cause and origin expert, a forensic accountant and insurance coverage lawyer, were able to defeat an arson-for-profit scheme and obtain a judgment requiring the perpetrator to take nothing and repay the insurer all of its expenses in defeating the claim.

Available as a paperback.

Available as a Kindle book.

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Zalma’s Insurance Fraud Letter – May 1, 2019

Happy Law Day

Zalma’s Insurance Fraud Letter 

 Rescission and Fraud  

Rescission of an insurance policy, by definition, means the policy never existed and the parties are returned to the status quo. The insured gets the premium back and the insurer gets the policy back with no obligation under the policy.
In Citizens United Reciprocal Exchange v. Perez, 432 N.J.Super. 526, 75 A.3d 1233, N.J.Super.A.D., September 13, 2013 a New Jersey Appellate court proved the truth of the prediction made by George Orwell in his classic “Animal Farm” that all litigants in the United States are equal but some are more equal than others. Insurers, even when victims of fraud, must pay more than they would have been required to pay had they not voided the policy and the fraud perpetrators profit from their fraud by having their obligation to an injured person paid by the defrauded insurer.
FACTS
Plaintiff Citizens United Reciprocal Exchange (CURE) filed a civil complaint seeking a declaration that an automobile insurance policy it issued based on a fraudulent application was void from its inception and that it had no financial obligation under the policy. The trial judge affirmed the voiding of the policy but found that, for purposes of innocent third parties, the voided policy should be reformed to the mandatory minimum liability insurance coverage under New Jersey statutes of $15,000 per person and $30,000 per occurrence.
The parties stipulated to the underlying facts giving rise to the controversy here. Defendant Luis Machuca, while driving with defendant Jonathan Quevedo in a car owned by defendant Sabrina A. Perez, was involved in an auto accident with a car driven by defendant Dexter Green. Green claimed he was injured as a result of the accident and made a personal injury claim against Perez’s policy.
Perez insured her automobile under a basic policy with the optional $10,000 liability coverage. When she applied for insurance, she did not list Machuca, the father of her two children, as a resident of her household. In a recorded statement five days after the accident, Perez acknowledged that Machuca lived with her. After a fraud investigation by the Bureau of Fraud Deterrence, Perez entered into a consent order admitting that she “knowingly presented false and misleading information to [] CURE by failing to disclose her boyfriend, Luis Machuca, on her application . . . .”
Due to Machuca’s extremely poor driving record, CURE would not have issued Perez a policy if she had disclosed that Machuca was a household member. CURE also denied Green’s personal injury claim, and by letter dated May 27, 2010, informed Perez that the insurance policy was being retroactively voided ab initio (from inception) due to the fraudulent information supplied in the application.
CURE filed a declaratory action seeking an order that the policy was void ab initio due to a material misrepresentation, that Perez and Machuca were liable to CURE for compensatory damages due to the fraudulent application, and that the reformed voided policy provided no liability coverage to innocent third parties.
The trial judge granted CURE’s first two requests for relief. In reference to the issue of the mandatory minimum liability amount, the judge, relying on New Jersey Manufacturers Insurance Co. v. Varjabedian, 391 N.J.Super. 253 (App. Div.), certif. denied, 192 N.J. 295 (2007), held: “I conclude that the only mandated or compulsory liability coverage limits in our statutes are the $15,000 per injury and $30,000 per accident. I conclude as well that the alternative coverage provided by the basic policy … mandates no minimum amount of liability coverage. It simply provides for optional liability coverage. Accordingly, this Court finds that the amount of CURE’s policy limits available to Dexter Green with regard to his personal injury claim is a compulsory minimum liability coverage limits in our statutes of $15,000 per injury, $30,000 per accident as prescribed…” under New Jersey statutes.
DISCUSSION
On appeal, CURE argues that in determining that the liability coverage for an innocent third party under a voided policy was $15,000/$30,000, the court’s reasoning in Varjabedian, supra, 391 N.J.Super. at 258-60, was flawed. Instead, CURE urged the appellate court to adopt the reasoning in Mannion v. Bell, 380 N.J.Super. 259 (Law Div. 2005), which Varjabedian specifically overruled. CURE maintains that, as the court held in Mannion, because the basic policy had no mandatory minimum liability coverage, an innocent third party is not entitled to any liability coverage under any automobile insurance policy.
Both CURE and amicus curiae The Insurance Council of New Jersey argue that compelling any amount of liability coverage to innocent third parties rewards insurance fraud violators and frustrates the 1998 legislative reform of automobile insurance that led to the creation of the basic policy. Amicus further argues that the fallacious reasoning in Varjabedian can be seen here where under the basic policy the insured only opted for $10,000 liability coverage, but, by committing fraud, the insurer must pay claims up to $15,000.
New Jersey’s no-fault system of first-party recovery for injuries sustained in automobile accidents encourages the prompt distribution of personal injury protection (PIP) benefits to accident victims. The no-fault legislation is designed to provide a minimum amount of protection to the public for injuries caused by automobiles. The protection of innocent third parties is a primary concern of New Jersey’s personal injury no-fault system.
The appellate court noted that when the named insured makes affirmative misrepresentations or material omissions in an application for insurance coverage, the insurer has the right to void an automobile insurance policy ab initio. The appellate court concluded, however incongruously, even when a policy is rescinded, PIP benefits may nevertheless remain payable to innocent third parties. The court of appeal concluded that to hold otherwise would undermine the legislative purpose of the No-Fault Law.
Where an insurance policy is void as to the maker of the fraud, the potential recovery under a retroactively revoked policy is the minimum compulsory insurance required by law. New Jersey’s insurance scheme of mandating automobile insurance expresses a legislative policy of assuring at least some financial protection for innocent accident victims. The New Jersey Supreme Court has consistently followed the principle of reforming an auto insurance contract to protect innocent third parties up to the minimum compulsory limits.
We recognize that the automobile insurance law continues to provide for mandatory minimum liability coverage and also provide for optional liability coverage. To the extent that this creates an anomalous situation, it may be appropriate for the Legislature to address.
New Jersey is not alone in making the victim of insurance fraud – the insurance company – who would never have issued an insurance policy had it been told the truth, must be punished by the courts and made to pay the innocent victim of the fraud perpetrators more than it agreed to pay had it not been defrauded. This reasoning is the height of sophistry.
The appellate court concluded that protection of innocent third parties is a primary concern of New Jersey’s personal injury no-fault system. In this case there were two innocent third parties:
        Mr. Green, injured in the automobile accident, and CURE, forced to pay Mr. Green on a void policy obtained by fraud reformed to add $5,000 in coverage more than they agreed to pay. This case reaches the ridiculous result that asserting its right to void the policy for fraud cost more than accepting liability and ignoring the fraud. The only person who profits from the fraud are the fraud perpetrators.
_____________________
Florida’s Anti-Assignment of Benefits Statute
 
Is the Cure Worse than the Disease
Because of abuse by contractors, public insurance adjusters, and lawyers in the state of Florida by taking assignments of claims from an insured whose claims were not paid as demanded, the state has created a new statute that is designed to eliminate the abuse. Whether it will work depends on how individuals and courts will deal with the new statute since every person has the right, under the common law, to assign the benefits of an insurance contract to anyone the person owed the benefits desires.
Some of the Proposals by the new Statute that the Governor Has Agreed to Sign
The statute attempts to control the issue by requiring that every assignment agreement:
        1.    Be in writing and executed by and between the assignor and the assignee.
        2.    Contain a provision that allows the assignor to rescind the assignment agreement without a penalty or fee by submitting a written notice of rescission signed by the assignor to the assignee within 14 days after the execution of the agreement, at least 30 days after the date work on the proeprty is scheduled to commence if the assignee has not substantially performed…
        3.    Contain a provision requiring the assignee to provide a copy of the executed assignment agreemen to the insurer within 3 business days after the date on which the assignment agreement is executed …
    * * *
4.    Contain a written, itemized, per-unit cost estimate of the services to be performed by the assignee.
        5.    Relate only to work to be performed by the assignee…
        6.    Contain the following notice in 18-point uppercase and boldfaced type:
YOU ARE AGREEING TO GIVE UP CERTAIN RIGHTS YOU HAVE UNDER YOUR 111 INSURANCE POLICY TO A THIRD PARTY, WHICH MAY RESULT IN LITIGATION AGAINST YOUR INSURER. PLEASE READ AND UNDERSTAND THIS DOCUMENT BEFORE SIGNING IT. YOU HAVE THE RIGHT TO CANCEL THIS AGREEMENT WITHOUT PENALTY WITHIN 14 DAYS AFTER THE DATE THIS AGREEMENT IS EXECUTED, AT LEAST 30 DAYS AFTER THE DATE WORK ON THE PROPERTY IS SCHEDULED TO COMMENCE IF THE ASSIGNEE HAS NOT SUBSTANTIALLY PERFORMED, OR AT LEAST 30 DAYS AFTER THE EXECUTION OF THE AGREEMENT IF THE AGREEMENT DOES NOT CONTAIN A COMMENCEMENT DATE AND THE ASSIGNEE HAS NOT BEGUN SUBSTANTIAL WORK ON THE PROPERTY. HOWEVER, YOU ARE OBLIGATED FOR PAYMENT OF ANY CONTRACTED WORK PERFORMED BEFORE THE AGREEMENT IS RESCINDED. THIS AGREEMENT DOES NOT CHANGE YOUR OBLIGATION TO PERFORM THE DUTIES REQUIRED UNDER YOUR PROPERTY INSURANCE POLICY.
        7.    Contain a provision requiring the assignee to indemnify and hold harmless the assignor from all liabilities, damages, losses, and costs, including, but not limited to, attorney fees, should the policy subject to the assignment agreement probit, in whole or in part, the assignment of benefits.
The statute also contains prohibitions against an agreement that contains a penalty or fee for rescission, a check or mortgage processing fee, a penalty or fee for cancellation or an administrative fee.
As a precondition to filing suit, the assignee must provide the named insured, insurer, and the assignor, if not the named insured, a detailed written invoice or estimate of services, including itemized information on equipment, materials, and supplies; the number of labor hours; and, in the case of work performed, proof that the work has been performed in accordance with accepted industry standards. An insurer must respond in writing to the notice within 10 business days after receiving the notice specified in paragraph (a) by making a presuit settlement offer or requiring the assignee to participate in appraisal or other method of alternative dispute resolution under the policy. An insurer must have a procedure for the prompt investigation, review, and evaluation of the dispute stated in the notice and must investigate each claim contained in the notice in accordance with the Florida Insurance Code.
The statute also allows an insurer to restrict the assignment of benefits pursuant to section 627.7153. To do so it must charge less for the policy than one that allows assignment of benefits and include on its face the following warning:
THIS POLICY DOES NOT ALLOW THE UNRESTRICTED ASSIGNMENT OF POST-LOSS INSURANCE BENEFITS. BY SELECTING THIS POLICY, YOU WAIVE YOUR RIGHT TO FREELY ASSIGN OR TRANSFER THE POST-LOSS PROPERTY INSURANCE BENEFITS AVAILABLE UNDER THIS POLICY TO A THIRD PARTY OR TO OTHERWISE FREELY ENTER INTO AN ASSIGNMENT AGREEMENT AS THE TERM IS DEFINED IN SECTION 627.7152 OF THE FLORIDA STATUTES.
Query
I’m not sure this is a cure. It includes a great deal of busy work for both the insured, the assignee and the insurer. It does not penalize fraudulent assignments nor fraudulent conduct since they are already part of Florida’s law. I would prefer serious investigations by the insurer’s SIU and the state’s fraud investigators who can then prosecute those who abuse the right to obtain an assignment of benefits. Further, section 627.7152 and 627.7153 require the insurer to give a discount to the insured who waives its right to assign benefits.

The Current Issue Contains the Following  

The Zalma on Insurance blog has posted over 2550 digests of insurance appellate decisions and other important insurance materials and articles published five days or more a week and are available at http://zalma.com/blog
I have completed a video blog called
Zalma’s Insurance 101 that consists of 1022 three to four minute videos starting with “What is Insurance” and moving forward to insurance fraud investigations explaining the basics of insurance and insurance claims handling in a painless fashion that can be viewed every morning with the first cup of coffee at  Zalma’s Insurance 101.
If you start at Volume 1 at the bottom of the blog’s first page and view one or two videos a day you will have approximately 12 to 24 hours of training a year until you get to the last video.
The videoblog is adapted from my book, Insurance Claims: A Comprehensive Guide available at the Zalma Insurance Claims Library

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Remedies Available to Every Insurance Policyholder and Insurer

Rescission of Insurance; Random Thoughts on Insurance, The Insurance Examination Under Oath

Barry Zalma, Esq., CFE, an insurance coverage and claims expert, has created a library of insurance claims books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

For those who serve the insurance industry and its policyholders (whether as lawyers, adjusters, claims management, or public insurance adjusters) the ability to perform their duties appropriately in good faith it is absolutely necessary that they maintain insurance professionalism.

The books described in this post need a home in each law office, each insurance company. each independent adjuster’s claims office and in the offices of every public insurance adjusting firm.

Barry Zalma’s Insurance Claims Library will provide essential resources and will go a long way to create a staff of insurance claims professionals.  The books listed below are a small taste of the insurance law and insurance claims books written by Barry Zalma and available on amazon.com and at http://zalma.com/blog/insurance-claims-library/

Some of the books available to create or maintain insurance professionalism include:

“Rescission of Insurance”

Product DetailsRescission is an equitable remedy as ancient as the common law of Britain. When the United States was conceived in 1776 the founders were concerned with protecting their rights under British common law. They adopted it as the law of the new United States of America modified only by the limitations placed on the central government by the U.S. Constitution approved in 1789. The viability and ability to enforce contracts was recognized as essential to commerce. Courts of law were charged with enforcing legitimate contracts. Courts of equity were charged with protecting contracting parties from mistake, fraud, misrepresentation and concealment since enforcing a contract based on mistake, fraud, misrepresentation or concealment would not be fair. The common law developed rules that courts could follow to refuse to enforce the terms of a contract that was entered into because of mutual mistake of material fact, a unilateral mistake of material fact, the breach of warranty (a presumptively material promise to do or not do something), a material concealment, or a material misrepresentation. The remedy – called rescission – created a method to apply fairness to the insurance contract and allow an insurer to void a contract and allowed courts to refuse to enforce such a contract entered into by misrepresentation or concealment of material facts.

Available as a paperback.

Available as a Kindle book.

“The Insurance Examination Under Oath”

Product DetailsThe 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.

Available as a Kindle book.

Available as a paperback.

“Random Thoughts on Insurance”

Product DetailsAfter more than 50 years acting as a claims person and insurance coverage lawyer I enjoy reading court decisions concerning insurance. The idea of this blog is to find new cases that are interesting to me and then write a summary. Some of the cases reviewed will be important. Some may be of first impression. Others will be totally unimportant. All will be interesting.

The case digests and articles from 2010 to the present, in the six volumes summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Read about these and other insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/


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Intentional Acts, Domestic Abuse and False Imprisonment Excluded

No Excuse, No Coverage, for Intentional and Criminal Abusive Conduct

Bad people do bad things. Forcing a woman to have an abortion; beating that woman, and imprisoning her while threatening to kill her mother, cut off her fingers and force her to act against her doctor’s recommendations are all intentional and abusive conduct that is excluded by almost every policy.

Even after pleading guilty to a domestic abuse crime, Nikos Hecht had the unmitigated gall to sue his insurer for not providing a defense and indemnity brought against him by the abused woman.

In Nikos Hecht v. Great Northern Insurance Company, d/b/a Chubb, No. 18-1244, United States Court of Appeals for the Tenth Circuit (April 18, 2019) Nikos Hecht appealed the district court’s grant of summary judgment in favor of his insurer, Great Northern Insurance Company (Chubb), which denied Hecht’s claims based on policy exclusions for intentional acts and abuse committed by its insured.

FACTS

This case stems from a civil suit brought against Hecht by his ex-girlfriend, Brooke Warfel. According to the Warfel complaint, Hecht was physically and emotionally abusive, exhibiting behavior “indicative of the typical patterns of domestic violence and abuse.” Her allegations principally focused on two factual events in which he coerced her to have an abortion against her physician’s advice and falsely imprisoned her in a remote cabin.

Warfel allegedly agreed to have the abortion in Mexico by the individual known to Hecht, though this person turned out to be “closer to a nurse practitioner, . . . not an ob/gyn as promised by Hecht”. Although this provider gave Warfel drugs to terminate the pregnancy, causing “excruciating abdominal pain,” the procedure resulted in a failed abortion.

Regarding the cabin incident, the Warfel complaint alleges that in July 2015, while Warfel recovered from a second abortion that she underwent at Hecht’s insistence, the couple spent three nights in a remote cabin. On the last night, Hecht allegedly lost his temper, prompting her to start packing her clothes. He “became irate,” threw her clothes all over the room, refused to let her leave, and “threatened to punch her in the face.” As the situation escalated, Hecht allegedly threatened to kill her mother and “to get[] a big black n***er to cut off [her] ring on her finger and knock her teeth out.”  He also “pushed her so hard that she fell and hit her head on the concrete floor” and physically prevented her from leaving the cabin until the next day.

After Warfel was able to leave the cabin, her injuries were documented at a hospital; Hecht eventually pleaded guilty in Colorado state court to a domestic violence charge.  Warfel asserted claims for assault, battery, negligent and intentional infliction of emotional distress, false imprisonment, and negligence.

Hecht submitted the Warfel complaint to Chubb for defense. In a letter denying coverage Chubb concluded there was no duty to defend or indemnify because the Warfel allegations fell within policy exclusions for “Intentional Acts” and “Molestation, misconduct or abuse.”

Hecht settled his lawsuit with Warfel and subsequently sued Chubb. Eventually motions for summary judgment were made and the district court ruled there was no duty to defend and thus no basis for claiming an unreasonable delay or denial of payment. The court thus granted summary judgment to Chubb on the outstanding claims, and Hecht appealed.

ANALYSIS

The threshold—and dispositive—inquiry of the Tenth Circuit was whether Chubb had a duty to defend, because absent a duty to defend, Hecht cannot prevail on any other claim. Under Colorado law, an insurer’s duty to defend is broader than the duty to indemnify. If there is no duty to defend, then there is no duty to indemnify. In Colorado, if the underlying complaint asserts more than one claim, a duty to defend against all claims asserted arises if any one of them is arguably a risk covered by the pertinent policy.

Although the Chubb policies provide broad liability coverages, the policies contain a list of exclusions, including the two relied upon by Chubb to deny coverage:

“Intentional acts. We do not cover any damages arising out of a willful, malicious, fraudulent or dishonest act or any act intended by any covered person to cause personal injury or property damage, even if the injury or damage is of a different degree or type than actually intended or expected. But we do cover such damages if the act was intended to protect people or property unless another exclusion applies. An intentional act is one whose consequences could have been foreseen by a reasonable person ….”

 “Molestation, misconduct or abuse. We do not cover any damages arising out of any actual, alleged or threatened: sexual molestation;  sexual misconduct or harassment; or abuse.”

In particular, the court determined the factual allegations relating to the abortion evinced intentional conduct that fell under the exclusion for intentional acts, while the events at the cabin qualified as abuse under the molestation, misconduct, or abuse exclusion. The Tenth Circuit agreed with the district court’s analysis.

The Allegations Relating to the Abortion Reflect Intentional Conduct

The district court correctly determined that the factual allegations relating to the abortion reflect Hecht’s intentional conduct. Although the Warfel complaint alleges Hecht was negligent in subjecting her to an unqualified abortion provider, the district court recognized that damages from covered and excluded conduct may become so intertwined as to render them inseparable, and beyond coverage based upon an exclusion. The Tenth Circuit determined the false imprisonment and the sexual assault occurred in such close temporal and spatial proximity as to render them inseparable; thus, any potential coverage under the insured’s policy for the false imprisonment was defeated by exclusions for the sexual assault, which constituted a willful and malicious act.

As the district court aptly observed, “the single negligent choice of selecting a medical provider was merely another link in the chain of otherwise intentional actions [Hecht] took when he forced Warfel to get an abortion.”

The Allegations Relating to the Cabin Reflect Abuse

The Warfel complaint alleged Hecht falsely imprisoned Warfel at an isolated cabin, where he lost his temper and threatened to kill her mother, cut off her finger, and knock her teeth out. Hecht later pleaded guilty to domestic violence and admitted the factual basis for his crime.

Contrary to Hecht’s demands the Tenth Circuit refused to adopt a strained reading of the policies or ignore the facts alleged to defeat the purpose of the exclusions. Hecht pleaded guilty to domestic violence as a consequence of his abuse. The exclusion plainly bars coverage for his conduct.

The Tenth Circuit agreed with the district court’s conclusion that the intentional and negligent conduct were inseparably intertwined. There was no duty to defend.

ZALMA OPINION

This suit against Chubb was abusive. Hecht had pleaded guilty to domestic abuse, an act that was proved beyond a reasonable doubt. The actions of Hecth were clearly and unambiguously excluded. The allegation of Warfel’s complaint, although it claimed some of Hecht’s acts were negligent, the use of a Mexican nurse practitioner to attempt an abortion, those acts were totally intertwined with the abusive and intentional acts so that the negligent acts were part and parcel of the intentional criminal conduct.


© 2019 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. 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 51 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.

Construction Defects and Insurance

Construction Defects and Insurance Volume One: The Structure, The Construction Contract, and Construction Defect InsuranceBarry Zalma has updated and re-edited his seminal work Construction Defects Coverage Guide into is the latest addition to Barry Zalma’s insurance claims series of books and articles that will form the most thorough, up-to-date, expert-authored insurance claims guide available today eight Kindle or Paperback Volumes at reasonable prices.

Thorough, yet practical, this series of books form the ideal guide for any professional who works in or frequently interacts with the insurance industry.

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

The Eight volumes include:

 

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How to Adjust Insurance Claims With the Utmost Good Faith

Ethics for the Insurance Professional; California SIU Regulations; California Fair Claims Settlement Practices Regulations; The Compact Book on Adjusting Liability Claims, Second Edition; and The Compact Book of Adjusting Property Insurance Claims, Second Edition

Barry Zalma, Esq., CFE, an insurance coverage and claims expert, has created a library of insurance claims books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

For those who serve the insurance industry and its policyholders (whether as lawyers, adjusters, claims management, or public insurance adjusters) the ability to perform their duties appropriately in good faith it is absolutely necessary that they maintain insurance professionalism.

The books described in this post need a home in each law office, each insurance company. each independent adjuster’s claims office and in the offices of every public insurance adjusting firm.

Barry Zalma’s Insurance Claims Library will provide essential resources and will go a long way to create a staff of insurance claims professionals.  The books listed below are a small taste of the insurance law and insurance claims books written by Barry Zalma and available on amazon.com and at http://zalma.com/blog/insurance-claims-library/

Some of the books available to create or maintain insurance professionalism include:

“The Compact Book of Adjusting Property Insurance Claims – Second Edition”

A Manual for the First Party Property Insurance Adjuster

The insurance adjuster is not mentioned in a policy of insurance. The obligation to investigate and prove a claim falls on the insured. Standard first party property insurance policies, based upon the New York Standard Fire Insurance policy, contain conditions that require the insured to, within sixty days of the loss, submit a sworn proof of loss to prove to the insurer the facts and amount of loss.

The policy allows the insurer to then, and only then, respond to the insured’s proof of loss. The insurer can then either accept or reject the proof submitted by the insured.

The Compact Book of Adjusting Property Claims -- Second Edition: A Primer For The First Party Property Claims Adjuster.Technically, if the wording of the policy was followed literally the insurer could sit back, do nothing, and wait for the proof. If the insured was late in submitting the proof the insurer could reject the claim. If the insured submits a timely proof of loss the insurer could either accept or reject the proof of loss. If the insurer rejected the proof of loss the insured could either send a new one or give up and gain nothing from the claim. Suit on the policy would be difficult because the policy contract limited the right to sue to times when the proof of loss condition had been met.

Insureds and insurers were not happy with that system. It made it too difficult for a lay person to successfully present a claim. The system, as written into the standard fire policy seemed to run counter to the covenant of good faith and fair dealing that had been the basis of the insurance contract for centuries. Most insurers understood that their insureds were mostly incapable of complying with the strict enforcement of the policy conditions. To fulfill the covenant of good faith and fair dealing insurers created the insurance adjuster to fulfill its obligation to deal fairly and in good faith with the insured.

The Second edition adds new material from 2018 and 2019, is easier to use and more compact than the original.

Available as a Kindle book.

Available as a paperback.

“The Compact Book on Adjusting Liability Claims, Second Edition”

A Handbook for the Liability Claims Adjuster

This Compact Book of Adjusting Liability Claims is designed to The Compact Book Of Adjusting Liability Claims Second Edition: A Handbook for the Liability Claims Adjusterprovide the new adjuster with a basic grounding in what is needed to become a competent and effective insurance adjuster. It is also available as a refresher for the experienced adjuster.

The liability claims adjuster quickly learns that there is little difficulty with a claimant (the person alleging bodily injury or property damage against a person insured) if the claim is paid as demanded. The insured may be unhappy if the claimant’s claim is paid as presented since most do not believe they did anything wrong or fear an increase in premiums charged for subsequent policies.

The adjuster must be prepared to salve the insured’s emotions, explain why in the law and the policy it was appropriate to pay the claimant and that the settlement is in the best interest of both the insured and the insurer the adjuster represents.
The adjuster knows, and must be prepared to explain to an insured, that if a claim is resisted or denied the claimant will be unhappy, will probably file suit. If not promptly settled the claimant’s lawyers will rake the insured over the coals to prove that the insured is liable for the claimant’s injuries. The litigation will take time, effort, and money to establish the extent of the injuries and who is responsible for the injuries. Failure to settle promptly can cost the insured his or her reputation and will certainly cost the insurer much more than the claim could have been resolved for had it been resolved before the claimant retained a lawyer.

Available as a Kindle book

Available as a paperback.

“California Fair Claims Settlement Practices Regulations”

A Guide to Insureds, Public Insurance Adjusters, and Lawyers to Properly Investigate and Adjust Insurance Claims

This book was designed to assist insurance personnel who do business in the state of California. It will assist all insurance claims personnel, claims professionals, independent insurance adjusters, special fraud investigators, private investigators who work for the insurance industry, the management in the industry, the attorneys who serve the industry, public insurance adjusters, policyholders and counsel for policyholders working with insurers doing business in California. All insurers doing business in California must comply with the requirements of the Regulations or face the ire of, and attempts at financial punishment from, the CDOI. That punishment is now questionable and limited because some courageous insurers fought the CDOI and succeeded before an administrative law judge who limited the right to punish. Regardless of difficulties in assessing punishment the state of California requires all who are involved in the claims process — even if only tangentially — to be trained with regard claims handling in compliance with the Regulations and attest to completion of such training under oath. To avoid the annual training the claims person can submit a sworn document that avers that he or she has read and understood the Regulations. Reviewing this book and the Regulations set forth below should be sufficient to comply with the training requirements of the Regulations. It is necessary that insurance personnel who are engaged in any way in the presentation, processing, or negotiation of insurance claims in California be familiar with the Regulations. Counsel for insurers and policyholders should also be familiar with the Regulations since they set a minimum standard for claims handling in the state.

Available as a Kindle book.

Available as a paperback.

California SIU Regulations”

The State of California Imposes Control on the Investigation of Insurance Fraud

California SIU Regulations: The State of California Imposes Control on the Investigation of Insurance FraudCalifornia SIU Regulations is designed to assist California insurance claims personnel, claims professionals, independent insurance adjusters, special fraud investigators, private investigators who work for the insurance industry, the management in the industry, the attorneys who serve the industry, and all integral anti-fraud personnel working with California admitted insurers to comply with the requirements of California SIU Claims Regulations.

The state of California, by statute, requires all admitted insurers to maintain a Special Investigative Unit (an “SIU”) that complies with the requirements set forth in the Special Investigative Unit Regulations (the “SIU Regulations”) and train all integral anti-fraud personnel to recognize indicators of insurance fraud.

Available as a Kindle Book.

Available as a paperback.

“Ethics for the Insurance Professional”

Methods for Insurers and their Personnel to Act with the Utmost Good FaithProduct Details

Ethics is a process of systematically applying, using, defending and recommending concepts of right and wrong behavior. Ethical behavior is required of both parties to a contract of insurance for the system to work. Ethics is the essence of insurance. Ethical behavior is required of both parties to a contract of insurance for the system to work. If any party to the insurance contract acts unethically the ability of insurance to work effectively and profitably will fail. Ethics is the essence of insurance. Since insurance was first created it has been a business of utmost good faith. As a result, the insured and the insurer are expected to treat each other ethically.

Available as a paperback.

Read about these and other insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/
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Insurer’s Actions so wrong Court Finds Bad Faith as a Matter of Law

Summary Judgment Entered for Insured finding Insurer’s Conduct Tortious Bad Faith

It is almost impossible to obtain a summary judgment finding an insurer acted in bad faith allowing an insured to recover tort damages. However, it is not impossible, and the facts stated by the court in Shawnee Tabernacle Church and AZ Learning Day Care v. GuideOne Insurance, Civil Action No. 16-5728, the United States District Court for the Eastern District of Pennsylvania (April 23, 2019) should teach an important lesson to insurers who fail to maintain a staff of professional, well trained insurance adjusters. Failure to do so can, as it was for GuideOne, devastating.

DECISION

With respect to a period between mid-June and mid-December, however, the facts are undisputed. During that time, Defendant GuideOne acted in bad faith as a matter of law by ignoring the claim and withholding coverage when it possessed all of the necessary information to determine coverage. But as to the delays before and after this period of time, there are factual disputes and issues of causation.

FACTUAL BACKGROUND

This case centers on a loss that resulted from water damage on the property of Plaintiffs Shawnee Tabernacle Church and AZ Learning Daycare. The property in question was covered by an insurance policy that Defendant GuideOne Mutual Insurance Company (“GuideOne”) issued. The policy’s provisions spelled out the obligations of the insurance company and the insured in the event of a loss. Of particular relevance to this case, a vacancy provision precluded water damage coverage if less than 31% of the building was rented or used for customary operations, unless the property was under construction or renovation.

The loss in this case occurred on January 13, 2015, and on the same day, Plaintiffs reported the claim to GuideOne. GuideOne assigned adjuster Brian Baskin. Baskin received an initial report, spoke with Pastor Bloom of Shawnee Tabernacle Church, and made a preliminary estimate of damages prior to inspecting the property. Mr. Baskin inspected the property on January 15, 2015.

Baskin in his deposition stated he “didn’t see any evidence that there was activity in the school side of the structure,” and he knew a school that previously rented the building had vacated the property in October 2014. In the same deposition he admitted to seeing some renovation work during the inspection, he claimed it was limited to “one room in the back top second level” and maintained that he “did not see that to be renovations of the building.”

Plaintiffs contended that GuideOne knew that at the time of the loss the church was in the process of fixing damage the previous school tenants had caused, making the renovation exception to the vacancy provision applicable. Additionally, the GuideOne claim log notes indicate that, immediately after the inspection, Baskin received information and documentation about the church and daycare’s continued use of the property in November and December 2014.

Baskin sent no status letters to the insured as required by the policy and Pennsylvania law and he just stopped communicating. Adjuster Baskin’s next step in the coverage investigation was to arrange for examinations under oath (EUOs), which the policy allowed for “at such times as may be reasonably required.” The EUOs occurred on June 12, 2015. On June 15, Baskin made a claim log note that GuideOne’s counsel had informed him the EUOs were complete, and on June 16, he wrote, “Okay to set precautionary reserve [redacted] awaiting review of EUO’s and decision of coverage.” The claim log contains no subsequent notes of activity in June, and no notes at all from July or August 2015.

Baskin’s supervisor, Mike Ellison, specifically instructed him to resolve the case with a compromise settlement. Rather than comply with this instruction, however, Baskin waited two more months before reviewing the EUOs. Ellison again instructed Baskin to do so and told him he should have done better. During this time, it is undisputed that Baskin also failed to send the status letters required by Pennsylvania law to notify the insured of the reasons for the delay. On October 5, 2015, the claim was reassigned to a new adjuster, Larry Brown, to be handled on the merits.

In practical terms, GuideOne further delayed progress toward resolution of the claim by seeking to negotiate without first having to concede it was obligated under the terms of the policy to cover the loss. On December 11, 2015—11 months after the initial water damage and 6 months after the EUOs were completed—GuideOne conceded that the claim was covered. The information in GuideOne’s file when it acknowledged coverage as of December 11, 2015 was exactly the same as it had on June 16, 2015, after the examinations under oath had been completed.

DISCUSSION

With respect to breach of contract, GuideOne agrees that it is obligated to provide coverage. Its disagreement is with the scope and amount of the loss, issues as to which there are multiple factual disputes. With respect to bad faith, although the ultimate issue requires resolution by a jury, as noted above, there are no factual disputes as to one critical six-month period, and GuideOne’s inactivity and delay during that time frame can only be described as bad faith.

The required analysis is inherently fact specific and centers on the conduct of the insurer in relation to the insured. For that reason, it would go too far to decide all of the claims as a matter of law, because many of the allegations turn on disputed facts and the credibility of the individuals involved. But during that period of time where the facts are undisputed, the sole question is how GuideOne’s actions are properly characterized. As a matter of law, the District Court found that GuideOne acted in bad faith when it abandoned the investigation and resolution of Plaintiffs’ claim between June 16, 2015 and October 5, 2015, and then further delayed a determination of coverage until December 11, 2015, despite the fact that it possessed all relevant information about the vacancy provision once the EUOs were complete.

The undisputed facts show that work on the claim was virtually nonexistent after June 16, 2015. The new adjuster did not ignore the file in the same way but still failed to address the existence of coverage, even though GuideOne’s investigation was effectively completed as of mid-June and despite the fact that his first instruction with respect to the claim was a note to “[h]andle on merits.” Given that these material facts from June 16 through December 11, 2015 are undisputed, the court concluded that Defendant GuideOne acted in bad faith.

Proof of ill-will or self-interest is not required to show that an insurer knew of or recklessly disregarded the absence of a reasonable basis to deny or delay benefits. Bad faith may include lack of good faith investigation into facts, and failure to communicate with the claimant, both of which certainly occurred in this case between June and December. When Baskin halted forward progress on the claim, it had already been pending for five months, with an insured that was dependent on rental income to support the property, unable to rent it until the claim was resolved, and facing foreclosure proceedings. GuideOne then permitted an additional six months to elapse, despite possessing of all the information it deemed necessary to decide the issue of coverage.

With respect to that six-month period, the court concluded, as a matter of law, that GuideOne acted in bad faith in the abandonment of the claim from June 16 through October 5, and in failing to make a coverage decision between October 5 and December 11, 2015.

ZALMA OPINION

The court was right, there was simply no excuse for the conduct of GuideOne’s adjuster who not only ignored the insured and its claim, he ignored the instructions of his supervisor who became so upset that he eventually assigned a new adjuster to resolve the claim who also acted with the alacrity of a tree sloth. Such inadequate, useless, and unprofessional claims handling resulted in this most unusual ruling that the insurer breached the implied covenant of good faith and fair dealing as a matter of law. The trial judge will so instruct the jury and leave them free to assess damages with a decision that the insurer acted wrongfully. GuideOne and its counsel will be well advised to enter into a quick settlement with the church and hope to be able to hold the settlement down to the amount demanded.


© 2019 – Barry Zalma

GuideOne and its adjusters could have avoided the verdict had they provided all their adjusters – and required them to read it — my book:

The Compact Book of Adjusting Property Insurance Claims – Second Edition”

A Manual for the First Party Property Insurance Adjuster

The insurance adjuster is not mentioned in a policy of insurance. The obligation to investigate and prove a claim falls on the insured. Standard first party property insurance policies, based upon the New York Standard Fire Insurance policy, contain conditions that require the insured to, within sixty days of the loss, submit a sworn proof of loss to prove to the insurer the facts and amount of loss.

The policy allows the insurer to then, and only then, respond to the insured’s proof of loss. The insurer can then either accept or reject the proof submitted by the insured.

The Compact Book of Adjusting Property Claims -- Second Edition: A Primer For The First Party Property Claims Adjuster.Technically, if the wording of the policy was followed literally the insurer could sit back, do nothing, and wait for the proof. If the insured was late in submitting the proof the insurer could reject the claim. If the insured submits a timely proof of loss the insurer could either accept or reject the proof of loss. If the insurer rejected the proof of loss the insured could either send a new one or give up and gain nothing from the claim. Suit on the policy would be difficult because the policy contract limited the right to sue to times when the proof of loss condition had been met.

Insureds and insurers were not happy with that system. It made it too difficult for a lay person to successfully present a claim. The system, as written into the standard fire policy seemed to run counter to the covenant of good faith and fair dealing that had been the basis of the insurance contract for centuries. Most insurers understood that their insureds were mostly incapable of complying with the strict enforcement of the policy conditions. To fulfill the covenant of good faith and fair dealing insurers created the insurance adjuster to fulfill its obligation to deal fairly and in good faith with the insured.

The Second edition adds new material from 2018 and 2019, is easier to use and more compact than the original.

Available as a Kindle book.

Available as a paperback.

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. 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 51 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.

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Books Needed by Everyone Interested in Insurance

Insurance Fraud & Weapons to Defeat Fraud; Time to Rescind the Tort of Bad Faith; Mold Claims; and Construction Defects and Insurance

Barry Zalma, Esq., CFE, an insurance coverage and claims expert, has created a library of insurance claims books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

For those who serve the insurance industry and its policyholders (whether as lawyers, adjusters, claims management, or public insurance adjusters) the ability to perform their duties appropriately in good faith it is absolutely necessary that they maintain insurance professionalism.

The books described in this post need a home in each law office, each insurance company. each independent adjuster’s claims office and in the offices of every public insurance adjusting firm.

Barry Zalma’s Insurance Claims Library will provide essential resources and will go a long way to create a staff of insurance claims professionals.  The books listed below are a small taste of the insurance law and insurance claims books written by Barry Zalma and available on amazon.com and at http://zalma.com/blog/insurance-claims-library/

Some of the books available to create or maintain insurance professionalism include:

Construction Defects and Insurance

Construction Defects and Insurance Volume One: The Structure, The Construction Contract, and Construction Defect InsuranceBarry Zalma has updated and re-edited his seminal work Construction Defects Coverage Guide into is the latest addition to Barry Zalma’s insurance claims series of books and articles that will form the most thorough, up-to-date, expert-authored insurance claims guide available today eight Kindle or Paperback Volumes at reasonable prices.

Thorough, yet practical, this series of books form the ideal guide for any professional who works in or frequently interacts with the insurance industry.

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

The Eight volumes include:


Mold Claims

This series of books is the latest addition to Barry Zalma’s insurance claims series of books and articles that will form the most thorough, up-to-date, expert-authored insurance claims guide available today.Mold Claims Volume One: Understanding insurance claims and litigation concerning mold, fungi, and bacteria infestations.

Written by nationally-renowned insurance coverage expert Barry Zalma, a semi-retired insurance coverage attorney, consultant, expert witness and blogger, Mold Claims provides in-depth explanations, analysis, examples, and detailed discussion of:

•Mold;
•Fungi;Mold Claims Volume Three: Understanding insurance claims and litigation concerning mold, fungi, and bacteria infestations.
•Bacteria;

•Mold, fungi and bacteria claims; and
•Mold, Fungi, Bacteria litigation.

Thorough, yet practical, this series of books form the ideal guide for any professional who works in or frequently interacts with the insurance industry or is involved in litigation. Claims professionals, risk Mold Claims Volume Two: Understanding insurance claims and litigation concerning mold, fungi, and bacteria infestations.managers, producers, underwriters, attorneys (both plaintiff and defense), and business owners will benefit greatly from the mold volumes. It is also the perfect resource for insurance educators, trainers, and students whose role requires an understanding of insurance law as it relates to mold, fungi and bacterial infestations.

TMold Claims Volume Four: Understanding insurance claims and litigation concerning mold, fungi, and bacteria infestations.he author has provided checklists, sample procedures, form letters, tables and information and references to model statutes, state statutes, administrative regulations, and requirements of insurance departments nationwide.


Time to Rescind the Tort of Bad Faith

Insurance and the Law of Unintended Consequences Paperback 

Insurance is, and always will be, a business of the utmost good faith. Time to Rescind the Tort of Bad Faith: Insurance and the Law of Unintended ConsequencesAll parties to the insurance contract agree, in good faith and fair dealing, to do nothing to deprive the other the benefits of the contract. Insurance is, and always be, nothing more than a contract.

The insurer makes a promise to the insured that if a contingent or unknown loss occurs caused by a peril or risk insured against and not excluded, to pay the insured indemnity as promised by the contract up to the limits provided.

The insured promises to truthfully disclose the risks of loss faced by the insured, property owned by the insured, the business of the insured and/or the insured’s liability exposures. The insured also promises to honestly present a claim, prove the claim, and cooperate with the insurer in its investigation. If the parties to the insurance contract deal with each other fairly and in good faith the policy remains viable, claims are paid promptly and to the satisfaction of the insurer and the insured.

Only if a true tort occurs can the insured waive the contract action and sue in tort. Breach of contract, by centuries old tradition, is not a tort and cannot and should not be considered a tort. The Tort of Bad Faith has served its purpose and is now causing more problems than it solves. It is time the courts and state legislatures rescind the tort and return to common law contract damages.


“Insurance Fraud & Weapons to Defeat Insurance Fraud”

In Two Volumes

Product DetailsInsurance fraud continually takes more money each year than it did the last from the insurance buying public. No one knows the actual amount with any certainty because most attempts at insurance fraud succeed. Estimates of the extent of insurance fraud in the United States range from $87 billion to more than $300 billion every year.

Insurers and government backed pseudo-insurers can only estimate the extent they lose to fraudulent claims. Lack of sufficient investigation and prosecution of insurance criminals is endemic. Most insurance fraud criminals are not detected. Those that are detected do

so because they became greedy, sloppy and unprofessional so that the attempted fraud becomes so obvious it cannot be ignored.

No one will ever be able to place an exact number on the amount lost to insurance fraud. Everyone who has looked at the issue knows – whether based on their heart, their gut or empirical fact determined from convictions for the crime of insurance fraud – that the number is enormous.

When insurers and governments put on a serious effort to reduce the amount of insurance fraud the number of claims presented to insurers and the pseudo-government-based or funded insurers drops logarithmically. Since the appointment of Attorney General Sessions, the effort to stop insurance fraud against Medicare and Medicaid has increased.

Insurance Fraud & Weapons to Defeat Fraud - Volume Two: A Manual for Those Working to Defeat Insurance Fraud by [Zalma, Barry]This book contains appellate decisions regarding insurance fraud from federal and state appellate courts across the country and full text of many insurance fraud statutes.

It is available as both a legal research tool and a product to assist insurers, insurance company personnel, independent insurance adjusters, special investigation unit investigators, state fraud investigators and insurance lawyers to become effective persons involved in the attempt to defeat or reduce the effect of insurance fraud.

Volume One available as a Kindle book and a paperback.

Volume Two Available as a Kindle book and a paperback

Read about these and more insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/

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A Binder is an Insurance Contract

Once Coverage is Bound Cancellation Requires Compliance with Statutory Requirements

Insurance agents and brokers like to write insurance business. They will often bend over backwards to collect a premium and place a policy. When an insured is offered coverage, accepts the coverage, even without payment, a binder (evidence of insurance to be issued in the future) is evidence that a contract of insurance has been formed. The agent might try to say there is no coverage until the premium is paid but to do so it must make sure the binder issued says it is not effective until the premium is collected.

In James Allen Insurance Brokers and Certain Underwriters at Lloyd’s, London, Subscribing to Certificate No. FRO-100944 v. First Financial Bank, NO. 2018-IA-00307-SCT, Supreme Court of Mississippi (April 18, 2019) James Allen Insurance Brokers (JAIB) and Certain Underwriters at Lloyd’s, London, Subscribing to Certificate No. FRO-100944 (Lloyd’s) petitioned the Supreme Court of Mississippi for review of the trial court order granting partial summary judgment in favor of First Financial Bank (FFB). The trial court held that FFB is entitled to insurance proceeds from a fire loss that occurred at Luther and Freda Feazell’s poultry farm, because JAIB and Lloyd’s failed to comply with Mississippi law requiring notice of cancellation of property insurance.

FACTS

The Feazells borrowed money from FFB secured by, among other things, four poultry houses on the Feazells’ farm, valued at $231,750, $231,750, $150,000, and $150,000 that became the subject of insurance with Lloyd’s.

The Underwriters advised the Feazells that they required before they would issue the policy they must provide the premium, among other things, within 10 days. Feazells were advised that if all items are not received they will cancel the policy flat with no coverage afforded at anytime and all premium, less the policy fee will be returned. In so saying the Underwriters did not believe the statutory requirements of 30 days notice for cancellation of an insurance policy.

On January 5, 2014, three days after the final premium payment deadline, the Feazells’ poultry farm caught fire. All four of the chicken houses used to secure FFB’s loan to the Feazells were either destroyed or rendered inoperable. According to FFB, due to the extensive fire damage, the Feazells’ poultry operation came to a halt, effectively resulting in complete casualty loss.

The actual binder that was issued with effective dates of coverage from December 13, 2013 through December 13, 2014 contained no deadline for the payment of the premium and did not contain any terms regarding automatic cancellation or withdrawal of coverage.

DISCUSSION

JAIB and Lloyd’s claimed that the trial court misinterpreted those facts and the applicable law when it granted partial summary judgment in favor of FFB. They contend that the sole issue is a legal one—whether FFB was owed a statutory notice of cancellation when the policy never was cancelled because the binding terms never were satisfied. They maintain no coverage was in place at the time of the fire loss; without effective coverage, the notice requirements of the Mississippi Code were not triggered.

Mississippi statutes require all fire policies include a standard mortgage clause that provides that “This company reserves the right to cancel this policy at any time as provided by its terms, but in such case this policy shall continue in force for the benefit only of the mortgagee (or trustee) for thirty (30) days after notice to the mortgagee (or trustee) of such cancellation and shall then cease, and this company shall have the right on like notice to cancel this agreement.”

The evidence in the record showed that an insurance binder was issued by JAIB and Lloyd’s with an effective date of coverage for the Feazells’ chicken farm beginning on December 13, 2013, through December 13, 2014. The binder listed FFB as a mortgagee/loss payee and included FFB’s mailing address. Although temporary, a binder is nonetheless a contract of insurance and it is sufficient to trigger statutory notification requirements.

First, the claim asserted by JAIB and Lloyd’s that coverage never went into effect because JAIB did not receive the premium timely has no merit.  It is not essential that the premiums on the policies be paid, or that the policies be actually delivered to the insured, before the contract becomes effective. This includes insurance binders.

Here, while JAIB and Lloyd’s certainly could have contracted to require that the premium be paid before the binder went into effect, they did not do so. Instead, they agreed to issue a binder with an effective date of coverage from December 13, 2013, through December 13, 2014, with the full premium due within ten days of the binding effective date.

Coverage having gone into effect on December 13, 2013, under the terms of the binder, and FFB having been listed in the binder as a mortgagee/loss payee triggered the statute’s notification requirements for purposes of FFB. JAIB and Lloyd’s failed to comply with those notification requirements; therefore, they are liable to FFB for its loss.

Accordingly, the trial court correctly granted partial summary judgment in favor of FFB.

ZALMA OPINION

Insurers like the Underwriters at Lloyd’s and brokers who place insurance with them should know what a contract is and that a binder is an insurance contract with all the terms and conditions to be provided later. If they wanted to limit what they did to come into effect only after the premium is actually received all the Underwriters needed to do was to make a conditional offer and not issue a binder including effective dates without stating the conditions it intended. Hopefully the Underwriters and the broker have learned a hard lesson when it pays the bank its losses.


© 2019 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. 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 51 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.

Time to Rescind the Tort of Bad Faith

Insurance and the Law of Unintended Consequences Paperback 

Insurance is, and always will be, a business of the utmost good faith. Time to Rescind the Tort of Bad Faith: Insurance and the Law of Unintended ConsequencesAll parties to the insurance contract agree, in good faith and fair dealing, to do nothing to deprive the other the benefits of the contract. Insurance is, and always be, nothing more than a contract.

The insurer makes a promise to the insured that if a contingent or unknown loss occurs caused by a peril or risk insured against and not excluded, to pay the insured indemnity as promised by the contract up to the limits provided.

The insured promises to truthfully disclose the risks of loss faced by the insured, property owned by the insured, the business of the insured and/or the insured’s liability exposures. The insured also promises to honestly present a claim, prove the claim, and cooperate with the insurer in its investigation. If the parties to the insurance contract deal with each other fairly and in good faith the policy remains viable, claims are paid promptly and to the satisfaction of the insurer and the insured.

Only if a true tort occurs can the insured waive the contract action and sue in tort. Breach of contract, by centuries old tradition, is not a tort and cannot and should not be considered a tort. The Tort of Bad Faith has served its purpose and is now causing more problems than it solves. It is time the courts and state legislatures rescind the tort and return to common law contract damages.

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More Insurance Claims Books by Barry Zalma Available at Amazon.com

The Homeowners Insurance Policy and Ten Volumes of Zalma on Insurance Claims

Barry Zalma, Esq., CFE, an insurance coverage and claims expert, has created a library of insurance claims books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

For those who serve the insurance industry and its policyholders (whether as lawyers, adjusters, claims management, or public insurance adjusters) the ability to perform their duties appropriately in good faith it is absolutely necessary that they maintain insurance professionalism.

The books described in this post need a home in each law office, each insurance company. each independent adjuster’s claims office and in the offices of every public insurance adjusting firm.

Barry Zalma’s Insurance Claims Library will provide essential resources and will go a long way to create a staff of insurance claims professionals.  The books listed below are a small taste of the insurance law and insurance claims books written by Barry Zalma and available on amazon.com and at http://zalma.com/blog/insurance-claims-library/

Some of the books available to create or maintain insurance professionalism include:

Ten Volumes Comprising A Comprehensive Group of Materials on Property & Casualty Insurance Claims

Insurance claims professional and expert witness Kevin Quinley said about the following ten volumes: “Zalma’s series of books is a terrific blend of both the legal underpinnings and the practical implications for the claim practitioner.

Insurance Maven Bill Willson said: “Zalma On Insurance Claims” is a tour de force, an indispensable tool that should be a part of every claims training program in America and in the library of every claims professional for quick and frequent reference. This comprehensive guide belongs in the library of every insurance defense AND policyholder law firm. It should be a part of every claims training program of carriers, independent adjusting firms, and public adjusters. Many of these parts should be part of the training or reference programs for non-claims personnel, from agents to underwriters to risk managers.”

Zalma on Insurance Claims Volume 101

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

This series of ten books is the latest addition to Barry Zalma’s insurance claims series of books and articles that will form the most thorough, up-to-date, expert-authored insurance claims guide available today.

Written by nationally-renowned insurance coverage expert Barry Zalma, a semi-retired insurance coverage attorney, consultant, expert witness and blogger, Zalma on Insurance Claims provides in-depth explanations, analysis, examples, and detailed discussion of:

  • Property insurance claims;
  • Third-party liability claims;
  • Casualty claims; and
  • Insurance Fraud

Thorough, yet practical, this series of books form the ideal guide for any professional who works in or frequently interacts with the insurance industry. Claims professionals, risk managers, producers, underwriters, attorneys (both plaintiff and defense), and business owners will benefit greatly from the ten volume guide. It is also the perfect resource for insurance educators, trainers, and students whose role requires an understanding of insurance law. As you read through the various volumes of Zalma on Insurance Claims, you will find comprehensive—yet comprehensible—coverage of key topics, including:

  • What is Insurance?
  • The History of Insurance
  • The covenant of good faith and fair dealing.
  • The tort of Bad faith
  • Conditions,
  • Warranties,
  • Exclusions
  • Declaring a policy void
  • Duties of insured and insurer
  • Evaluation and settlement
  • Identifying insurance fraud
  • Investigation
  • Kinds of insurance policies
  • Other insurance clauses
  • Preparing a case for trial
  • Processing a claim
  • Responses to fraud
  • Subrogation and salvage
  • Underwriting and
  • Many more property and casualty insurance matters.

Zalma on Insurance Claims Part 102

This, the second part of Zalma on Insurance Claims and includes materials concerning:

  • Other Insurance Clauses
  • Underwriting
  • Conditions, Warranties and Exclusions

Zalma on Insurance Claims Part 103

This is part 103 of Zalma on Insurance Claims and will deal with:

1.Duties of the Insured and the Insurer
2.Declaring a Policy Void
3.Processing a Claim

When read with Part 101 and Part 102, this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 104

This, the fourth volume of Zalma on Insurance Claims and includes materials concerning:

  1. Investigation of First Party Property Claims
  2. Rescission
  3. The Mortgage Clause
  4. Fortuity & Other Issues
  5. Determine the Amount of the Loss
  6. The Claim File

When read with Part 101, Part 102, and Part 103, this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 105

This, the fifth volume of Zalma on Insurance Claims and includes materials concerning:

  1. Investigation – Liability
  2. Claims Made and Reported Policies
  3. The Notice Prejudice Rule.
  4. Types of Torts
  5. The Liability Claims File
  6. Discovery of the Insurance Claims File
  7. Tests for Determining Duty to Defend
  8. Appendices – forms for the claims person

When read with Insurance 101, Insurance 102, Insurance 103 and 104, this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 106

This is the sixth part of “Zalma on Insurance Claims” and will deal with:

Chapter 1 Property Insurance & the Tort of Bad Faith
Chapter 2 Grounds for Finding Bad Faith
Chapter 3 Avoiding Charges of Bad Faith
Chapter 4. Punitive Damages
Chapter 5.Bad Faith & Liability Insurance
Chapter 6.Defenses to the Tort of Bad Faith
Appendix 1 – California Civil Code Section 3294

When read with Part 101, Part 102, and Part 103, Part 104 and Part 105 this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 107:

This is the seventh part of “Zalma on Insurance Claims” and will deal with:

1.Evaluation and Settlement – Property
2.Evaluation and Settlement – Liability
3.Subrogation
4.Salvage

When read with Part 101, Part 102, Part 103, Part 104, Part 105 and Part 106 this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 108

This, the eighth part of Zalma on Insurance Claims, includes materials concerning:

1.Preparing a case for trial
2.Interviewing Techniques
3.The art of the Interview
4.Interview General Principles
5.The Interviewer
6.Preparing for the Interview
7.Beginning the Interview
8.Control Of The Interview
9.Dealing with Witness Types
10.Approaches the Work
11.Dealing with the Nervous Person
12.Bluffs
13.The Mutability Of Memory
14.The Examination Under Oath

When read with Part 101, Part 102, Part 103, Part 104, Part 105, Part 106 and Part 107 this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 109 

This, the ninth part of Zalma on Insurance Claims, includes materials concerning:

•Identifying Insurance Fraud
•Professional Conspiracies
•Multiple Types of Insurance Fraud
•How to Join the Fraud Fight
•Case Studies of Successful Fraud Investigations
•Checklist 1 – Types of Insurance Fraud
•Checklist 2 – Training Adjusters
•Checklist 3 – Red Flags of Fraud – Property Insurance
•Checklist 4 – Red Flags of Fraud – Liability Insurance
•Appendix A – Commonly Used Medical Acronyms and Abbreviations
•Appendix B – Glossary of Medical Terms

When read with Part 101, Part 102, Part 103, Part 104, Part 105, Part 106, Part 107 and Part 108 this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 110

This, the tenth part of Zalma on Insurance Claims, includes materials concerning:

•Responses to Fraud
•Grounds for Rescission.
•The Fight Against Fraud
•Checklist 1—Responses to Fraud
•Checklist 2 – The Fight Against Fraud

When read with Part 101, Part 102, Part 103, Part 104, Part 105, Part 106, Part 107, Part 108 and Part 109 this volume works to take the reader to a complete understanding of insurance and insurance claims.

THE HOMEOWNERS INSURANCE POLICY

HOW TO BUY AN APPROPRIATE HOMEOWNERS POLICY AND SUCCESSFULLY MAKE A CLAIM TO THE INSURER

Insurance is a contract between a person seeking insurance and an insurer. It is obtained by making contact with the insurer as a prospective insured seeking insurance. The homeowners policy is a specialized policy of insurance that protects the homeowner from certain risks of loss to the real and personal property at the home, the exposure the insured faces for injury to a household employee, and the exposure the insured faces to liability for bodily injury or property damage caused to third parties. The book explains how to buy a homeowners policy and how to collect on any claim made to the homeowners insurer.

Paperback Book    Kindle Book

Read about these and more insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/

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No Damage, No Case or Controversy, No Right to Sue in Federal Court

Assignee has no more Right to Sue than Assignor

No fault insurance was designed to save insurers and insureds money by removing automobile accident damages from the tort law system. Like all seemingly good ideas the no fault insurance systems, like Florida’s PIP system, were victims of the law of unintended consequences. One of those unintended consequences was the proclivity of health care providers to take assignments of the claims of the patients and then litigating to seek benefits plus tort damages. Often they succeeded. In the case that follows they forgot to sue for a case or controversy.

In A&M Gerber Chiropractic LLC, as assignee of Conor Carruthers, on behalf of itself and all others similarly situated v. GEICO General Insurance Company, No. 17-15606, United States Court of Appeals for the Eleventh Circuit (April 19, 2019) a chiropractor took an assignment from a patient, Conor Carruthers, who was involved in a car accident after which he sought medical services from A&M Gerber Chiropractic LLC.

At the time, Carruthers was covered under an automobile insurance policy issued by GEICO General Insurance Company. Pursuant to Florida’s Motor Vehicle No-Fault Law, the policy provided him with $10,000 in personal injury protection (PIP) benefits. To be entitled to the full $10,000, however, the statute required that Carruthers—like all PIP beneficiaries—be diagnosed by an authorized health care provider with an “emergency medical condition” (EMC); without such a diagnosis, he was limited to $2,500 in benefits.

Despite the lack of an EMC finding, GEICO paid Carruthers/Gerber $7,311 in PIP benefits pre-suit, well in excess of the $2,500 cap. Even though Carruthers received almost triple the amount in PIP benefits that he was entitled to, Gerber believed that GEICO had misinterpreted certain language in its automobile policies and that this misinterpretation resulted in GEICO consistently underpaying PIP benefits as a “general business practice.”

Carruthers assigned his rights to his treating chiropractic clinic, Gerber, which later filed a declaratory judgment class action suit in Florida state court. The complaint sought certification of a class (with Gerber as the class representative) along with a declaration (a) that GEICO’s interpretation of its policy language was wrong, and (b) that the misinterpretation “constitutes a breach of the insurance Policy.” Although the complaint sought a declaration that GEICO had breached the policy, the complaint stated that “there is no claim for monetary relief” in the case.

GEICO removed the case to the United States District Court. The District Court appointed Gerber as class representative and it certified the class to include all health care providers that received an assignment of benefits from a claimant and thereafter, pursuant to that assignment, submitted claims for no-fault benefits under GEICO PIP policies.

ANALYSIS

On cross motions for summary judgment, GEICO argued, inter alia, that Gerber lacked standing at the outset of the lawsuit because it was undisputed that GEICO had paid Gerber more than $2,500 before the case was filed, even though he had not been diagnosed with an EMC at that time. GEICO appealed arguing that Gerber lacked standing to bring this case.

If, as GEICO argued, there is no standing the court must end its analysis. Simply put, once a federal court determines that the plaintiff has no standing, the court is powerless to continue.

The case-or-controversy requirement of the U.S. Constitution sets fundamental limits on federal judicial power. Standing cannot be waived or conceded by the parties, and it may be raised (even by the court sua sponte) at any stage of the case. The party who invokes a federal court’s authority must show, at an irreducible minimum, that at the time the complaint was filed, he has suffered some actual or threatened injury resulting from the defendant’s conduct, that the injury fairly can be traced to the challenged action, and that the injury is likely to be redressed by favorable court disposition.

In order to demonstrate that there is a case or controversy the plaintiff must allege facts from which it appears that there is a substantial likelihood that he will suffer injury in the future. To obtain declaratory relief the plaintiffs must assert a reasonable expectation that the injury they have suffered will continue or will be repeated in the future.

In this case, Gerber, as assignee, stands in Carruthers’ shoes. It necessarily follows, then, that if Carruthers had no standing to file this case against GEICO, Gerber has no standing either.

Because GEICO paid much more than than it owed Carruthers/Gerber didn’t suffer harm as a result of GEICO’s alleged misapplication of its policy. When an insurance company has paid all benefits in full there is no case or controversy.

The district court erred by treating insurance coverage issues under the Policy as standing issues. Gerber argued—directly contrary to what it previously argued—that there is a risk of future injury. Whether and to what extent Gerber might be injured is beside the point because the proper inquiry in this case must focus on the potential future injury to Carruthers, not to Gerber or other members of the class.

In the absence of a claim for money damages or substantial likelihood that Carruthers will suffer a future injury—both of which Gerber was careful to avoid alleging—Gerber has no standing to pursue this case.

In the absence of standing, a federal court, like the Eleventh Circuit, is not free to opine in an advisory capacity about the merits of a plaintiff’s claims. Standing is perhaps the most important jurisdictional doctrine, and, as with any jurisdictional requisite, the appellate court is powerless to hear a case when it is lacking the decision is reversed and the case is dismissed.

ZALMA OPINION

Gerber picked the wrong patient to bring its class action. By so doing it, as the assignee, it had no standing because its assignor could not be damaged by the action of GEICO applying the terms and conditions of its policy. Class actions can be a major profit center for the law firm that brings it. This one failed because, regardless of a deep pocket defendant, it failed to establish standing and the U.S. Constitution prevented the court from deciding the issues raised.


© 2019 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. 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 51 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.

Time to Rescind the Tort of Bad Faith

Insurance and the Law of Unintended Consequences Paperback 

Insurance is, and always will be, a business of the utmost good faith. Time to Rescind the Tort of Bad Faith: Insurance and the Law of Unintended ConsequencesAll parties to the insurance contract agree, in good faith and fair dealing, to do nothing to deprive the other the benefits of the contract. Insurance is, and always be, nothing more than a contract.

The insurer makes a promise to the insured that if a contingent or unknown loss occurs caused by a peril or risk insured against and not excluded, to pay the insured indemnity as promised by the contract up to the limits provided.

The insured promises to truthfully disclose the risks of loss faced by the insured, property owned by the insured, the business of the insured and/or the insured’s liability exposures. The insured also promises to honestly present a claim, prove the claim, and cooperate with the insurer in its investigation. If the parties to the insurance contract deal with each other fairly and in good faith the policy remains viable, claims are paid promptly and to the satisfaction of the insurer and the insured.

Only if a true tort occurs can the insured waive the contract action and sue in tort. Breach of contract, by centuries old tradition, is not a tort and cannot and should not be considered a tort. The Tort of Bad Faith has served its purpose and is now causing more problems than it solves. It is time the courts and state legislatures rescind the tort and return to common law contract damages.

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Insurance Claims Books by Barry Zalma

Property Investigation Checklists; Diminution in Value Damages; The Insurance Fraud Deskbook; The Commercial Property Insurance Policy Deskbook; Insurance Claims a Comprehensive Guide; Construction Defects Coverage Guide; Mold Claims Coverage Guide; and Insurance Law

Barry Zalma, Esq., CFE, an insurance coverage and claims expert, has created a library of insurance claims books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

For those who serve the insurance industry and its policyholders (whether as lawyers, adjusters, claims management, or public insurance adjusters) the ability to perform their duties appropriately in good faith it is absolutely necessary that they maintain insurance professionalism.

The books described in this post need a home in each law office, each insurance company. each independent adjuster’s claims office and in the offices of every public insurance adjusting firm.

Barry Zalma’s Insurance Claims Library will provide essential resources and will go a long way to create a staff of insurance claims professionals.  The books listed below are a small taste of the insurance law and insurance claims books written by Barry Zalma and available on amazon.com and at http://zalma.com/blog/insurance-claims-library/

Some of the books available to create or maintain insurance professionalism include:

Books from ClaimSchool, Inc.

“Insurance Law”

Insurance Law is the most comprehensive, and yet practical, Product Detailsinsurance law authority available today. Written by nationally-renowned insurance coverage expert Barry Zalma, an insurance coverage attorney, consultant, expert witness and blogger, Insurance Law introduces the new insurance professional to the fundamental principles of insurance and provides the experienced litigator analyses of today’s leading insurance law decisions nationwide.

Insurance Law is the most comprehensive, and yet practical, insurance law authority available today.

This book is ideal for any professional who works in or frequently interacts with the insurance industry. Claims professionals, risk managers, producers, underwriters, attorneys (both plaintiff and defense), business owners, and students will benefit greatly from this all-inclusive reference. It is also the perfect resource for educators and trainers whose role requires an understanding of insurance law.

In addition to case law, the author has provided countless citations to relevant statutory, regulatory, and judicial sources which are guaranteed to kickstart your research.

Price Reduced from $196- Send Check for $75.00 to ClaimSchool, Inc., 4441 Sepulveda Blvd., Culver City, Ca 90230 and the book will be mailed to you.

Mold Claims Coverage Guide

Today, mold claims are common, but they continue to grow in complexity, involving not only property damage but bodily injury as well. Mold-related lawsuits have dramatically increased over the past few years, and tProduct Detailshe numbers continue to rise. Coverage requirements—and related issues—can be complicated and confusing.  This resource will remove the complexity and allow the insurer, insured, property owner or developer and their counsel to deal with mold quickly and effectively and, if possible, avoid unnecessary litigation.

Price Reduced – Send Check for $50.00 to ClaimSchool, Inc., 4441 Sepulveda Blvd., Culver City, Ca 90230 and the book will be mailed to you.

Construction Defects Coverage Guide

This insightful and practical two volume resource was envisioned anProduct Detailsd written by nationally renowned expert Barry Zalma, and it thoroughly explains how to identify construction defects and how to insure, investigate, prosecute, and defend cases that result from construction defect claims.

Construction Defects Coverage Guide was designed to help property owners, developers, builders, contractors, subcontractors, insurers, and lenders, as well as their risk managers and lawyers rapidly resolve construction defect claims when they arise and avoid construction litigation.  If litigation becomes necessary it will help the prosecution or defense of construction defect suits effectively.

Price Reduced from $196 – Send Check for $75.00 to ClaimSchool, Inc., 4441 Sepulveda Blvd., Culver City, Ca 90230 and the book will be mailed to you.

Insurance Claims: A Comprehensive Guide

Insurance contracts and clauses are specific in nature—but the manner in which insurance claims are pursued and resolved can be remarkably different.  Mistakes in handling a claim can undermine the outcome—and ultimate value—of the claim itself.

Insurance Claims: A Product DetailsComprehensive Guide is the one resource that enables insurance professionals, producers, underwriters, attorneys, risk managers, and business owners to successfully handle insurance claims from start to finish—employing proven, practical techniques and best practices every step of the way.

Price Reduced from $196 – Send Check for $75.00 to ClaimSchool, Inc., 4441 Sepulveda Blvd., Culver City, Ca 90230 and the book will be mailed to you.


Books from the American Bar Association

The Commercial Property Insurance Policy Deskbook

How to Acquire a Commercial Property Policy and Present and Collect a First-Party Property Insurance Claim

By Barry Zalma

The Commercial Property Insurance Policy Deskbook is a comprehensive resource on acquiring a commercial property policy and presenting and collecting first-party property insurance claims. The book looks at the fundamentals of insurance and a wealth of topics including rules of construction of a policy of commercial property insurance, the commercial first party property insurance policy, different types of property losses, conditions and limitations,specific and blanket coverages, mortgage clauses, the need for a prompt notice of claim, the commercial property claim, adjusting the commercial property loss, the sworn statement in proof of loss, the adjustment of the commercial property loss, subrogation and salvage, and common law bad faith.

Also included are five appendixes of forms, letters, and other documents.

ABOUT THE AUTHOR

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 has worked more than 50 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.

Mr. Zalma’s books are available as Kindle books or paperbacks at Amazon .com and from other publishers, reached at http://zalma.com/zalma-books/ Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/bzalma on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma.

Available from the American Bar Association at: http://shop.americanbar.org/eBus/Default.aspx?TabID=251&productId=214624; or  orders@americanbar.org, or 800-285-2221.

The Insurance Fraud Deskbook

Author: Barry Zalma

Sponsor(s):  Tort Trial and Insurance Practice Section, Publisher(s):   ABA Book Publishing

ISBN: 978-1-62722-676-9
Product Code: 5190506
2014, 638 pages, 7 x 10

Product DetailsThis book is written for individuals who are focused on the effort to reduce expensive and pervasive occurrences of insurance fraud. Lawyers who represent insurers, claims personnel, prosecutors and their investigators can all benefit from this exhaustive resource.

The Insurance Fraud Deskbook is a valuable resource for those who are engaged in the effort to reduce expensive and pervasive occurrences of insurance fraud. It explains the elements of the crime and the tort to claims personnel, and it provides information for lawyers who represent insurers, so they can adequately advise their clients. Prosecutors and their investigators can use this book to determine what is required to prove the crime and win their case.

The full text of decisions from courts of appeal and supreme courts across the country are provided so the reader can understand what happens after the investigation is completed and can apply that information to undertake their own thorough investigations. It allows claims personnel and their lawyers to understand what errors would cause a defeat or a not-guilty verdict.

The effort to reduce insurance fraud requires the assistance of both civil and criminal courts. The Insurance Fraud Deskbook can help the prudent fraud investigator, insurance adjuster, insurance attorney, insurance Special Investigation Unit, and insurance company management to attain the information needed to deal with state investigators and prosecutors.

Available from the American Bar Association at: http://shop.americanbar.org/eBus/Default.aspx?TabID=251&productId=214624; or  orders@americanbar.org, or 800-285-2221.

Diminution in Value Damages: How to Determine the Proper Measure of Damage to Real and Personal Property

ISBN: 978-1-63425-295-8
Product Code: 5190524
2015, 235 pages, 7 x 10, Paperback

This book was written to provide sufficient information to those who became interested in the issue since the Georgia Supreme Court decided State Farm Mutual Automobile Insurance Co. v. Mabry, 274 Ga. 498, 556 S.E.2d 114 (Ga. 11/28/2001) and includes cases dealing with the use of diminution in value as a method of determining the amount of loss incurred by a plaintiff seeking indemnity for damage to real or personal property.

Because confusion has reigned across the United States concerning the proper measure of damages for property damage to property that has been repaired, Diminution In Value Damages assists the reader in answering the questions concerning the proper measure of damage in each of the fifty United States and federal United States jurisdictions

This edition has been totally rewritten and expanded, providing the most extensive and detailed coverage of the issue and a thorough explanation of how to apply diminution in value damages to losses to property.


Co-Author(s):Property Investigation Checklists: Uncovering Insurance Fraud, 12th Michael H Boyer  &  Barry Zalma

Property Investigation Checklists: Uncovering Insurance Fraud provides detailed guidance and practical information on the four primary areas of any investigation of suspicious claims:
• Recognizing suspicious claims
• Proper investigation procedures
• Analysis of laws concerning fraudulent personal and real property claims
• Evaluating and settling claims.
The book also examines recent developments in areas such as arson investigation procedures, bad faith, and extracontractual damages. The appendix includes the NAIC Insurance Information and Privacy Protection Model Act.
Read about these and more insurance books at http://zalma.com/blog/insurance-claims-library/
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Why is it not Obvious that a Motocross Raceway is Not a Home?

Liability Policy Limited to Insured Residence Premises

Houses are often homes. Not all houses are homes. Not all properties with a house are residences or residence premises.

Insurance policies never cover every conceivable potential exposure the insured faces. By their terms the policy limits its exposure based on the requirements and needs of the insured and the willingness of an insurer to take on that risk.

FACTS

In Shelley Lynn Yocom v. RAM Mutual Insurance Company, A18-1320, State of Minnesota in Court of Appeals (April 15, 2019) a person seeking indemnify from an insurer claimed that a motocross raceway was part of a residence premises entitling the owner of the property to liability protection although the injury occurred at Midway Recreation Park.

Yocum was struck from behind by a golf cart driven by Jamey Swanson. The property on which the raceway is located is jointly owned by Jack and Cynthia Stamschror, who also serve as officers of the raceway corporation. In addition to the raceway, there is a home on the Stamschrors’ 40-acre property.

THE POLICY

At the time of the accident, Swanson had homeowner’s insurance with respondent RAM Mutual Insurance Company. The policy’s Incidental Liability Coverages include: “Motorized Vehicle Coverage. We pay for the bodily injury or property damage which: a. occurs on the insured premises and is a result of the ownership, operation, maintenance, use, loading or unloading of: (1) a motorized vehicle if it is not subject to motor vehicle registration because of its type or use; or (2) a recreational motor vehicle.”

The policy defines “insured premises” to include “that part of residential premises not owned by an insured while temporarily used by an insured.” “Recreational motor vehicle” is defined as “a motorized vehicle . . . , trailer or attached apparatus designed or used for recreation, vacation or leisure-time activities.”

THE LITIGATION

Following the accident, Yocom sued Swanson, the Stamschrors, Midway Recreation Park, Inc., and the entity that leased Midway Recreation Park for the race. Yocom alleged various acts of negligence with regard to use, maintenance, and oversight of the raceway. She settled her claims against Swanson for his $300,000 liability limit pursuant to a Miller-Shugart agreement. She then sued the insurer to recover that amount from RAM Mutual.

Both parties moved for summary judgment on the issue whether the policy affords coverage to Swanson. In support of her motion, Yocom submitted a 2013 county property tax statement showing the Stamschrors’ property is classified as agricultural homestead and residential homestead for tax purposes.

The district court determined that the policy does not provide incidental-liability coverage because Midway Recreation Park is not a “residential premises . . . used by the insured.” Accordingly, the district court granted summary judgment to RAM Mutual.

DECISION

The interpretation of an insurance policy is a question of law as applied to the facts presented. Insurance policies, like other contracts, are governed by the language used, which is given its usual and accepted meaning. Because insurers draft insurance policies, any ambiguity is construed in favor of the insured, but the court has no right to read an ambiguity into plain language of an insurance policy in order to construe it against the one who prepared the contract.

Yocom asserted that the district court erred by interpreting “residential premises” to exclude the property on which she was injured. She contended that the district court erred by “ignoring” evidence that the county classified the entire property as residential.

The Accident Did Not Occur on “Residential Premises.”

It is undisputed that the golf cart Swanson was driving at the time of the accident is a “recreational motor vehicle” for purposes of incidental-liability coverage. Accordingly, the sole coverage issue is whether Swanson was operating the golf cart on “that part of residential premises not owned by an insured while temporarily used by an insured.”

The policy does not define “residential premises.” But it defines “residence” as “a building used principally for family residential purposes.” When read together, “residential premises” refers to a building in which someone lives.

The policy generally defines “insured premises” as “the residence shown on the declarations as the described location” and “related private structures and grounds at that location.” The incidental liability coverages extend this definition to residential premises owned by someone other than the insured, but do not alter the general “insured premises” definition. In other words, the policy contemplates coverage for injuries that occur at private family homes.

Applying this meaning of “residential premises,” the Minnesota appellate court could only conclude that Swanson is not entitled to incidental liability coverage in connection with this accident. Yocom provides no evidence that the area Swanson was using—the raceway—was “part of residential premises.” She does not allege that the raceway area was residential in nature; the accident occurred while she and Swanson were attending a public motocross event. She offers no evidence that any person actually lived at the house located on the 40-acre property or the house’s proximity to the raceway. And in all of her submissions to the district court, Yocom fails to even suggest that Swanson used the property for residential purposes. Therefore, the court of appeals concluded the policy does not cover Yocom’s injuries.

County Tax Records Do Not Create Genuine Issues of Material Fact.

Yocom urged the court to treat county tax records as conclusive evidence that her injuries occurred while Swanson was temporarily using another’s residential premises. Alternatively, she asserted the records create a fact issue precluding summary judgment.

The county records do not purport to describe how any part of the property is actually used, let alone the raceway portion where the public motocross event took place. Merely creating a metaphysical doubt as to a factual issue is not sufficiently probative with respect to an essential element of the case to permit reasonable persons to draw different conclusions and will not defeat summary judgment.

The undisputed material facts show Swanson and Yocom were both at the raceway, for a public motocross race, when the accident occurred. There is no evidence that either party was at or near a house. And even if we credit Yocom’s argument that a property can simultaneously be used for both residential and non-residential purposes, she offers no evidence of such use by the Stamschrors. In sum, RAM Mutual’s policy does not cover Yocom’s claims against Swanson.

ZALMA OPINION

Only a lawyer would have the gall to argue that a raceway is a residence premises. Since the accident took place while both participants were attending a motocross event and were not in, on, upon or even near a house, the policy language defeated coverage. It is amazing that even after losing at trial the parties were willing to go forward with an appeal on such slim claims of coverage.


© 2019 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. 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 51 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.

Time to Rescind the Tort of Bad Faith

Insurance and the Law of Unintended Consequences Paperback 

Insurance is, and always will be, a business of the utmost good faith. Time to Rescind the Tort of Bad Faith: Insurance and the Law of Unintended ConsequencesAll parties to the insurance contract agree, in good faith and fair dealing, to do nothing to deprive the other the benefits of the contract. Insurance is, and always be, nothing more than a contract.

The insurer makes a promise to the insured that if a contingent or unknown loss occurs caused by a peril or risk insured against and not excluded, to pay the insured indemnity as promised by the contract up to the limits provided.

The insured promises to truthfully disclose the risks of loss faced by the insured, property owned by the insured, the business of the insured and/or the insured’s liability exposures. The insured also promises to honestly present a claim, prove the claim, and cooperate with the insurer in its investigation. If the parties to the insurance contract deal with each other fairly and in good faith the policy remains viable, claims are paid promptly and to the satisfaction of the insurer and the insured.

Only if a true tort occurs can the insured waive the contract action and sue in tort. Breach of contract, by centuries old tradition, is not a tort and cannot and should not be considered a tort. The Tort of Bad Faith has served its purpose and is now causing more problems than it solves. It is time the courts and state legislatures rescind the tort and return to common law contract damages.

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Barry Zalma’s Books from Full Court Press & Fastcase.com

Full Court Press: Zalma on Property and Casualty Insurance, Insurance Law Deskbook, California Insurance Law Deskbook, and Insurance Bad Faith and Punitive Damages Deskbook

Barry Zalma, Esq., CFE, an insurance claims expert, has created a library of insurance claims books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

For those who serve the insurance industry and its policyholders (whether as lawyers, adjusters, claims management, or public insurance adjusters) the ability to perform their duties appropriately in good faith it is absolutely necessary that they maintain insurance professionalism.

The books described in this post need a home in each law office, each insurance company. each independent adjuster’s claims office and in the offices of every public insurance adjusting firm.

Barry Zalma’s Insurance Claims Library will provide essential resources and will go a long way to create a staff of insurance claims professionals.  The books listed below are a small taste of the insurance law and insurance claims books written by Barry Zalma and available on amazon.com and at http://zalma.com/blog/insurance-claims-library/

Some of the books available to create or maintain insurance professionalism include:

New Books from Full Court Press

Full Court Press continues to publish expert secondary content. This time it’s a new collection of insurance law treatises from consultant, expert witness, arbitrator, and mediator Barry Zalma.

Barry Zalma practiced law in California for more than 44 years as an insurance coverage and claims-handling lawyer, and has spent more than 51 years in the insurance business. Full Court Press welcomes his deskbooks as the first published under our Full Court Press imprint. Four titles are available in ePub and MOBI format, as well as on the Fastcase legal research platform.

Zalma on Property and Casualty Insurance

The earnings of almost every civil lawyer in the United States are funded by the insurance industry. Insurance can best be described as the mother’s milk of the law profession. The civil defense lawyer is paid by an insurer for each hour he or she works. The civil plaintiffs’ lawyer is usually paid by taking a percentage of any judgment entered in favor of the plaintiff, which judgment is usually paid by the defendant’s insurer.

In almost every situation in which a civil lawyer practices law the funds for that work come, either directly or indirectly, from insurance. Consequently, lawyers must use their wits and energies to avoid or to pursue litigation to the benefit of the client. Both sides understand that an insurer will eventually pay one or both sides in the dispute. Insurance is important to every civil dispute and even some that fall within the criminal courts.

Every lawyer retained to prosecute or defend a civil suit should begin the representation with a serious effort to find insurance coverage for the benefit of the client or the defendant the client is suing. Without that knowledge, the lawyer will find he or she is litigating with duct tape firmly self-placed across his or her mouth.

Insurance Law Deskbook Zalma

Learn the insurance basics that are essential to every civil practitioner.

CalifCal Lawornia Insurance Law Deskbook

California has long led the way when it comes to insurance jurisprudence in the United States, and few know more about California insurance law than Barry Zalma.

 

Insurance Bad Faith and Punitive Damages Deskbook

Understand the relationship between insurance, the tort of bad faith, and why punitive damages are awarded to punish insurers.

An annual subscription to secondary content on the Fastcase BadFaithplatform includes new editions and updates published by the author as they are rolled out, so you can rest assured that your research is up to date. Go to fastcase.com for more detail and how to use the material on-line as part of your legal or insurance research or as stand-alone e-books.

All available at fastcase.com.


Read about these and other insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/

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The Four Corners Rule Strikes Again to Require Defense Not Owed

Careful Pleading Requires Defense When Evidence Does Not

Courts like those in Florida that apply the four corners rule of insurance contract interpretation of the duty to defend allow a plaintiff’s lawyer to skillfully draw a complaint that will require the defendant’s insurer to defend even when it is clear from existing evidence that there is no coverage. Although Florida allows an insurer to bring extrinsic evidence to the court when seeking to defeat an obligation to defend, that ability is severely limited by Florida law.

In Advanced Systems, Inc., etc. v. Gotham Insurance Company, etc., No. 3D18-1744, Third District Court of Appeal State of Florida (April 17, 2019) careful – perhaps devious – pleading was the support used by Advanced Systems, Inc. to obtain review of the trial court’s determination that Gotham Insurance Company had no duty to defend or indemnify Advanced Systems under a commercial general liability policy.

BACKGROUND

This case arose after a foam fire suppressant system in an aircraft hangar failed and  resulted in damage to several airplanes.  Orion Jet Center LLC, the hangar’s owner, filed suit against Moss & Associates, LLC, the general contractor that constructed the aircraft hangar. Moss brought a third-party complaint against Advanced Systems, the subcontractor that installed the hangar’s fire suppression system. Advanced Systems, in turn, tendered defense to Gotham, its insurer.

Gotham insured Advanced Systems with a commercial general liability policy under its Fire Suppression Insurance Program (the “Policy”). The policy excluded liability for pollution caused damage. The Policy defined “pollutants” as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.” The Policy did not define “irritant,” “contaminant,” or “chemicals.”

Because Gotham did not respond to the tender of defense, Advanced Systems filed a complaint for declaratory judgment against Gotham. Both filed motions for partial summary judgment on the issue of Gotham’s duty to defend and indemnify.

In support of its motion, Gotham attached the declaration of Christopher Ward, a claims specialist. Mr. Ward attached a copy of the Material Safety Data Sheet (“MSDS”) for Chemguard C2, which Gotham claims is the name of the foam fire suppressant that was released into the aircraft hangar. Based on the MSDS, which details Chemguard C2’s chemical composition, Gotham argued that the fire suppressant foam was a “pollutant” and therefore excluded from coverage under the Policy.

Over Advanced Systems’ objection, Gotham relied on the MSDS submitted with its motion for summary judgment stating the material was discussed on the internet as a pollutant. The trial court entered an order granting Gotham’s motion for summary judgment, specifically relying on the MSDS to conclude that the Total Pollution Exclusion operated as a bar to coverage and any duty to defend because the released foam constituted a “pollutant” within the meaning of the Policy.

ANALYSIS

Under Florida law, an insurer’s duty to defend is separate and distinct from its duty to indemnify, and it is more extensive. A liability insurer’s obligation, with respect to its duty to defend, is not determined by the insured’s actual liability but rather by whether the alleged basis of the action against the insurer falls within the policy’s coverage. In Florida the court only looks to the allegations in Moss’s third-party complaint against Advanced Systems to determine whether Gotham has a duty to defend. An insurer’s duty to defend a complaint depends solely on the allegations in the complaint filed by a third party against the insured.

The insurer must defend even if the allegations in the complaint are factually incorrect or meritless.  As such, an insurer is obligated to defend a claim even if it is uncertain whether coverage exists under the policy. Once a court finds that there is a duty to defend, the duty will continue even though it is ultimately determined that the alleged cause of action is groundless and no liability is found within the policy provisions defining coverage. Finally, because Gotham relies on an exclusion to deny coverage, it has the burden of demonstrating that the allegations of the complaint are cast solely and entirely within the policy exclusion and are subject to no other reasonable interpretation.

Although Gotham agrees that the general rule in Florida is that an insurer’s duty to defend is determined from the allegations in the complaint, it argues that the trial court properly considered extrinsic evidence of Chemguard C2’s chemical composition because an exception to the general rule applies where an insurer’s claim that there is no duty to defend is based on factual issues that would not normally be alleged in the underlying complaint.

Florida courts have, in “special circumstances,” considered extrinsic facts, such cases are best viewed as exceptional cases in which courts have crafted an equitable remedy when it is manifestly obvious to all involved that the actual facts placed the claim outside the scope of coverage. In exceptionally rare cases, however, where the complaint omits a reference to an uncontroverted fact that, if pled, would have clearly placed the claim outside the scope of coverage, equity may relieve an insurer from its duty to defend.

Regardless of the provisions of the policy, it also contained an exception to the pollution exclusion with specific timing and notice requirements. The court can permit evidence beyond the complaint showing that the insured was unable to satisfy the timing and notice requirements.

Here the extrinsic evidence was not uncontroverted or manifestly obvious to all so as to preclude coverage. The appellate court’s review of the transcript of the summary judgment hearing reveals that Advanced Systems consistently contested the nature and composition of the released fire suppression foam. Similarly, Advanced Systems repeatedly objected to the use of evidence not in the record and beyond the scope to determine whether a duty to defend existed.

The record before the court contained no objective fact that is manifestly obvious to all involved, nor are there uncontroverted facts that simply were not pled in the Underlying Action or in Moss’s third-party complaint.

Therefore, the court concluded that the alleged facts in Moss’s third-party complaint fairly and potentially bring Moss’s suit within policy coverage and that the trial court erred in relying on extrinsic evidence to determine that a duty to defend did not arise below.

ZALMA OPINION

It is time that the four corners rule, or the eight corners rule, where the court only reads the complaint and the policy to determine coverage, be removed from any appellate jurisprudence. It creates a disservice to litigants and allows a plaintiff to carefully draft a complaint that will compel coverage where the facts and the law require a finding of no coverage for defense or draw a complaint to punish the defendant by alleging facts that could never be covered by the policy. It is for that reason that many states allow an insurer to use facts extrinsic to the pleading to determine the existence or non-existence of coverage requiring an insurer to defend. To do otherwise is provides a plaintiff with an unfair advantage over a defendant or its insurer.


© 2019 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. 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 51 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.

Time to Rescind the Tort of Bad Faith

Insurance and the Law of Unintended Consequences Paperback 

Insurance is, and always will be, a business of the utmost good faith. Time to Rescind the Tort of Bad Faith: Insurance and the Law of Unintended ConsequencesAll parties to the insurance contract agree, in good faith and fair dealing, to do nothing to deprive the other the benefits of the contract. Insurance is, and always be, nothing more than a contract.

The insurer makes a promise to the insured that if a contingent or unknown loss occurs caused by a peril or risk insured against and not excluded, to pay the insured indemnity as promised by the contract up to the limits provided.

The insured promises to truthfully disclose the risks of loss faced by the insured, property owned by the insured, the business of the insured and/or the insured’s liability exposures. The insured also promises to honestly present a claim, prove the claim, and cooperate with the insurer in its investigation. If the parties to the insurance contract deal with each other fairly and in good faith the policy remains viable, claims are paid promptly and to the satisfaction of the insurer and the insured.

Only if a true tort occurs can the insured waive the contract action and sue in tort. Breach of contract, by centuries old tradition, is not a tort and cannot and should not be considered a tort. The Tort of Bad Faith has served its purpose and is now causing more problems than it solves. It is time the courts and state legislatures rescind the tort and return to common law contract damages.

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Insurance, Insurance Fraud, and Fun Stories

Random Thoughts on Insurance and Fictionalized True Insurance Crime Books

Barry Zalma, Esq., CFE, an insurance claims expert, has created a library of insurance claims books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

For those who serve the insurance industry and its policyholders (whether as lawyers, adjusters, claims management, or public insurance adjusters) the ability to perform their duties appropriately in good faith it is absolutely necessary that they maintain insurance professionalism.

The books described in this post need a home in each law office, each insurance company. each independent adjuster’s claims office and in the offices of every public insurance adjusting firm.

Barry Zalma’s Insurance Claims Library will provide essential resources and will go a long way to create a staff of insurance claims professionals.  The books listed below are a small taste of the insurance law and insurance claims books written by Barry Zalma and available on amazon.com and at http://zalma.com/blog/insurance-claims-library/

Some of the books available to create or maintain insurance professionalism include:

“Random Thoughts on Insurance”

Product DetailsAfter more than 50 years acting as a claims person and insurance coverage lawyer I enjoy reading court decisions concerning insurance. The idea of this blog is to find new cases that are interesting to me and then write a summary. Some of the cases reviewed will be important. Some may be of first impression. Others will be totally unimportant. All will be interesting.

The case digests and articles from 2010 to the present, in the six volumes summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.


Fictionalized True Insurance Crime Books

“HEADS I WIN, TAILS YOU LOSE”

Product DetailsA collection of columns originally published in the magazines “Insurance Journal,” “Insurance Week,” and “The John Cooke Insurance Fraud Report” insurance trade publications serving the insurance community in the United States that have been updated and revised.

The title, “Heads I Win, Tails You Lose” is meant to describe insurance fraud as it works in the Unites States. It means that whenever a person succeeds in perpetrating an insurance fraud everyone who buys insurance is the loser.

Available as a Kindle Book.

Available as a paperback.

“Candy and Abel: Murder for Insurance Money

How a young lawyer and wise old investigator defeated an attempt at life insurance fraud.

Product DetailsAvailable as a Kindle Book.

Available as a paperback.

 

 

“Murder And Insurance Fraud Don’t Mix”

My name is Marion Orpheus Montague. My friends, and some enemies, call me “MOM.” It is not a designation of my ability to nurture my clients. I have never been, nor will I Product Detailsever be, maternal. I accept the play on my initials because it causes adversaries to underestimate me.

I am 66-years-old. My grayish blond hair is thin and my full beard is a bit scraggly. My face is round and often tinged with red. My nose is full, my eyes green and my cheeks bulge out to the sides trying to emulate the belly that precedes every other part of my body as I walk. People see me and do not believe that I am a private investigator. Seeing me they often think that I am on leave from my winter work as a Macy’s Santa Claus.

I like being underestimated. It makes my job as an investigator easier.

See how a fake robbery at a jewelry store led to murder and prison.

Available as a Kindle book.

Available as a paperback

“Murder & Old Lace: Solving Murders Performed for Insurance Money”

 

Product Details

When the women first met – 20 years ago at a Santa Monica health spa – Magogassasanian appeared taken with Gogolivesky. The women moved Alvarado into an apartment, then started applying for life insurance policies on him. They jointly took out four policies, each as 50% beneficiaries in addition to the individual policies they bought from my client. Gogolivesky also took out three more policies on her own while Magogassasanian only took out a single individual policy on Earnest. The two women pocketed nearly $6,000,000 in insurance benefits on Alvarado alone and $4,000,000 in insurance benefits on Earnest. They also recovered a total of $5,000,000 on the other six old men they killed.

Available as a Kindle book.

Available as a paperback.

“Arson for Profit: How an Attempt to use Arson & Fraud to Fund Terrorism Failed”

This story is based on a real case involving a member of Russian/Armenian organized crime, real insurers, investigators, lawyers, fire fighters, and insurance brokers. The names, descriptions, and identities of the people involved have been changed to protect both the guilty and the innocent. The report to the US Senate, after this case was decided by the California Courts, reveal that the threats made on MOM and lawyer Hazan were real and they are lucky that the threats were never fulfilled. The person identified in this story as Levonyan was described to the US Senate as the leader of a Russian/Armenian organized crime ring. It is important to take seriously threats from criminals. Insurance fraud and arson-for-profit are not victimless crimes. They are crimes of violence that cost everyone who lives in the U.S.]

Available as paperback.

Available as a Kindle Book.

M.O.M. & The Taipei Fraud: How an Experienced Adjuster Defeated a $7 Million Fake Burglary Claim

 

The problem is that each option the insurers have available have a down side and Feng is represented by a lawyer who has proved highly successful in suing insurers and collecting large compensatory and punitive damage awards. Since the claims exceed $6 million dollars, he can expect, applying the law set out by the U.S. Supreme Court in State Farm Mut. Automobile Ins. Co. v. Campbell and BMW of North America, Inc. v. Gore as much as $60 million in punitive damages. So I need to explain to the insurers that they face an exposure anywhere from their policy limits to ten times the policy limit. They need the courage of their convictions to reject this major claim.

Available as a paperback.

Available as a Kindle book.

Read about these and other insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/

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No Good Deed by an Insurer Goes Unpunished

Recommendation of Contractor by Insurer not Employment of Contractor

I’ve been involved in insurance claims for more than 51 years and it is invariable that even when an insurer does everything required of it by a policy of insurance the person insured is seldom totally pleased, the person insured wants more than the policy promises, and will often sue to profit from a property loss.

In Barbara C. Lyon, Individually and as Trustee of the Donald F. and Barbara C. Lyon Revocable Living Trust v. Service Team of Professionals (Eastern Carolina), LLC d/b/a 24/restore and United Services Automobile Association v. Service Team of Professionals (Eastern Carolina), LLC d/b/a 24/store, Third Party Plaintiff, v. Coastal Restoration Service, Inc. d/b/a Servpro of Pitt/Greene & Craven/Pamlico Counties, No. Coa18-627, Court of Appeals of North Carolina (April 16, 2019) Barbara C. Lyon (“plaintiff”) was unsatisfied with a claim adjustment, sued, and then appealed from an order granting summary judgment in favor of United Services Automobile Association (“defendant USAA” or “USAA”) on all of plaintiff’s claims against USAA.

BACKGROUND

The Trust owned a house in Arapahoe that plaintiff and her family used as a second home (“the house”). Plaintiff’s husband and their daughter discovered a water leak that caused extensive water damage and mold growth in the house. Ms. Stone contacted USAA, the insurer of the property, to report the leak and resulting damage.

Plaintiff elected to participate in USAA’s Property Direct Repair Program (“PDRP”) to restore the house. When an insured participates in PDRP, USAA recommends a contractor to assist with repairs. The insured is under no obligation to hire the recommended contractor, and may hire a contractor of their own choosing instead. If the insured selects the recommended contractor, USAA reviews and approves that contractor’s estimate, and then mails a check to the contractor as the claims payment. Significantly, this check requires the insured’s endorsement to release the funds to the contractor, and the insured is not required to endorse the check until the work is completed to his or her satisfaction.

Ms. Stone contacted USAA in December 2013 and January 2014, expressing concerns with 24/Restore’s workmanship and the payments plaintiff made to 24/Restore. USAA agreed to assist with disputes related to the covered repairs. On 20 February 2014, USAA spoke with plaintiff and Ms. Stone, who told USAA they no longer wanted to work with 24/Restore. An independent adjuster inspected the house and determined 24/Restore should reimburse plaintiff $8,446.71 for work that was either incomplete or incorrect.

Ms. Stone asked Pamlico Home Builders & Supplies, Inc. (“Pamlico Home Builders”) to prepare an estimate for the repairs and upgrades to the house that 24/Restore was unable to complete to plaintiff’s satisfaction. She submitted the Pamlico Home Builders’ estimate, for $13,377.81, to USAA. However USAA told Ms. Stone that it could not proceed with Pamlico Home Builders’ estimate because it was not itemized. USAA explained it needed an itemized estimate to enable it to determine whether it owed additional funds for Pamlico Home Builders’ work. Ms. Stone never submitted an itemized version of the estimate, or the final invoice from Pamlico Home Builders, to USAA, even though she knew USAA needed this information to process the claim.

Plaintiff sued seeking from USAA damages for (1) breach of contract, (2) bad faith, (3) unfair claims settlement practices and (4) negligent hiring.

USAA moved for summary judgment on all four of plaintiff’s claims. The trial court granted summary judgment in USAA’s favor on all of plaintiff’s claims.

DISCUSSION

First, plaintiff contends USAA failed to meet its obligations under the dwelling coverage because: (1) USAA did not pay for Pamlico Home Builders’ work, (2) USAA did not compensate plaintiff for the subsequently discovered mold contamination and remediation, and (3) USAA failed to compensate for work 24/Restore erroneously labeled as an “upgrade” instead of a “repair.”

The Court of Appeals concluded that USAA did not violate the terms of the policy by failing to pay Pamlico Home Builders’ quote. Plaintiff never provided information needed. This inaction is in clear violation of the policy, which provides that USAA does not have a duty to cover a loss when a policyholder fails to comply with the material conditions to  cooperate in an investigation of a claim, prepare an inventory of damaged personal property, and  show the property and provide records and documents as long as USAA reasonably required it of the insured.

Personal Property Coverage

Plaintiff argued USAA denied plaintiff the opportunity to personally inventory, inspect, attempt to salvage, or discard the property because 24/Restore assumed possession and control of the personal property. However the policy excludes coverage for “faulty, inadequate, or defective . . . [d]esign, specifications, workmanship, repair, construction, renovation, remodeling, grading, [or] compaction[.]” Thus, because this allegation is based on 24/Restore’s actions, this argument is without merit as a matter of law.

Alternative Living Expenses

Finally Plaintiff argues that whether she is entitled to payment for alternative living expenses is a triable issue of fact because it is undisputed that USAA never tendered payment under this provision of the policy.  Although USAA’s claims logs show plaintiff inquired about this provision, plaintiff never submitted a claim for, or produced documentation to support, reimbursement for alternative living expenses. Because USAA is not required to make payments when a plaintiff fails to submit a claim for reimbursement, this argument is without merit.

Bad Faith

In order to recover punitive damages for the tort of an insurance company’s bad faith refusal to settle, the plaintiff must prove (1) a refusal to pay after recognition of a valid claim, (2) bad faith, and (3) aggravating or outrageous conduct.

Because plaintiff cannot demonstrate an issue of material fact that USAA refused to pay after recognition of a valid claim, plaintiff cannot recover punitive damages for the tort of an insurance company’s bad faith refusal to settle as a matter of law.

Unfair and Deceptive Trade Practices

Plaintiff also argues the trial court erred by granting summary judgment on her claim for unfair and deceptive trade practices. To prevail on a claim for unfair and deceptive trade practices, a claimant must demonstrate the existence of three factors: (1) an unfair or deceptive act or practice, or unfair method of competition, (2) in or affecting commerce, and (3) which proximately caused actual injury to the plaintiff or his business.

At the outset, there is no evidence that the payments made by USAA were not fair and equitable, including USAA’s failure to pay Pamlico Home Builders and costs related to the second mold remediation, as discussed supra with regard to plaintiff’s breach of contract claim.

Negligent Hiring

Plaintiff cannot proceed on this claim because USAA did not employ 24/Restore. USAA only recommended the business as a “preferred contractor.” As the work authorizations for the repairs explicitly show, the decision to hire both 24/Restore and Servpro belonged to plaintiff. Thus, USAA did not hire 24/Restore as an independent contractor or otherwise, and summary judgment was proper on this claim.

The trial court’s order granting summary judgment in USAA’s favor on all of plaintiff’s causes of action was affirmed.

ZALMA OPINION

Plaintiff failed to recognize that when seeking the benefits of a first party property policy the insured is obligated to prove a loss to the insurer. Failure to do so excuses the insurer from further action. USAA required production of evidence with regard to many of the claims made by the Plaintiff (a condition precedent) and she refused or just failed to comply. The suit against the insurer was spurious and impossible to sustain. USAA did what was required of it only to be punished with a suit with no basis in fact or law.


© 2019 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. 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 51 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.

Time to Rescind the Tort of Bad Faith

Insurance and the Law of Unintended Consequences Paperback 

Insurance is, and always will be, a business of the utmost good faith. Time to Rescind the Tort of Bad Faith: Insurance and the Law of Unintended ConsequencesAll parties to the insurance contract agree, in good faith and fair dealing, to do nothing to deprive the other the benefits of the contract. Insurance is, and always be, nothing more than a contract.

The insurer makes a promise to the insured that if a contingent or unknown loss occurs caused by a peril or risk insured against and not excluded, to pay the insured indemnity as promised by the contract up to the limits provided.

The insured promises to truthfully disclose the risks of loss faced by the insured, property owned by the insured, the business of the insured and/or the insured’s liability exposures. The insured also promises to honestly present a claim, prove the claim, and cooperate with the insurer in its investigation. If the parties to the insurance contract deal with each other fairly and in good faith the policy remains viable, claims are paid promptly and to the satisfaction of the insurer and the insured.

Only if a true tort occurs can the insured waive the contract action and sue in tort. Breach of contract, by centuries old tradition, is not a tort and cannot and should not be considered a tort. The Tort of Bad Faith has served its purpose and is now causing more problems than it solves. It is time the courts and state legislatures rescind the tort and return to common law contract damages.

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Permissive Driver has no Right to Accept or Reject UM Coverage

Rejection of UM/UIM Coverage by Named Insured Binding on Driver

Every state requires insurers to offer uninsured motorist (UM) and underinsured motorist (UIM) coverage when issuing a liability insurance policy. The statutes do not require the insured to buy the coverage and allows the named insured the right to reject UM/UIM coverages.

In Lester Beeman v. ACCC Insurance Company, 2171114, Alabama Court of Civil Appeals (April 12, 2019) Lester Beeman sought UM/UIM coverage although he was injured while driving a car owned and insured by his mother who had rejected UM/UIM coverage. The insurer, ACCC refused to pay Beeman’s claim for UM/UIM coverage because the named insured of its policy had rejected the coverage in accordance with Alabama law.

FACTS

In January 2017, Lester Beeman was injured in an automobile accident. At the time of the accident, Beeman was driving an automobile insured under a policy of insurance (“the policy”) purchased by Renada Reese from ACCC Insurance Company (“the insurer”). The operator of the other automobile involved in the accident, Kimberly LaChance, was allegedly uninsured.

Beeman sued the uninsured and ACCC to obtain uninsured-motorist (“UIM”) benefits from the insurer. The insurer moved to dismiss Beeman’s claim against it arguing that Reese was the “named insured” in the policy and that she had rejected UIM coverage, as permitted by the Alabama Code.

After a hearing on the insurer’s motion, the trial court granted the motion and dismissed the claim against the insurer. The case proceeded to trial against LaChance, who failed to appear at trial, and the trial court entered a default judgment against her on August 13, 2018.

ANALYSIS

The appropriate standard of is on appeal of a summary judgment is to view the evidence most strongly in the pleader’s favor if it appears that the pleader could prove any set of circumstances that would entitle her to relief. A dismissal is proper only when it appears beyond doubt that the plaintiff can prove no set of facts in support of the claim that would entitle the plaintiff to relief.

The initial application for insurance, which was executed in June 2013, indicates that Reese is the sole applicant; in the initial application, Reese specifically rejected UIM coverage. The renewal certificate for the period from January 2017 to July 2017 indicates that the “policyholder” is Reese. Nothing in the initial application, the renewal certificate, or the policy defines the term “named insured” or indicates specifically that Reese is the “named insured” under the policy. Moreover, neither the initial application, which does not list Beeman at all, nor the renewal certificate indicate that Beeman is a “named insured.” The renewal certificate reflects that Beeman is listed on the declarations page as a “driver.” He is an “insured person” under the policy because he is Reese’s son, living in her household, and endorsed on the policy.

Beeman argues on appeal, as he did below, that he is a “named insured” on the policy and that, therefore, Reese’s rejection of UIM coverage is not binding on him. Caselaw makes clear that each named insured must reject UIM coverage for himself or herself.

Beeman contends that consideration of the policy language in the “UIM section” of the policy, which defines “insured person” as “you, a relative, or a resident” and “any other person occupying your insured auto,” results in the definitive conclusion that he is, in fact, an “insured person” under the policy and that he is, therefore, entitled to UIM coverage because he did not personally reject that coverage.

Beeman’s reliance on the definitions contained in the “UIM section” of the policy is disingenuous in light of the fact that the issue in the present case is whether Beeman is entitled to such coverage. Furthermore, there is no authority indicating that a person known or anticipated to be an “insured person” under a policy is, in fact, a “named insured” of the policy and therefore entitled to UIM coverage unless he or she specifically rejects it.

The fact that the terms “you” and “your” are defined to include both the named insured – the person named on the declarations page of the policy – and the named insured’s spouse actually makes clear that the named insured’s spouse is not a named insured nor is the named insured’s child.

The renewal certificate clearly identifies Reese as the named insured. Beeman is listed on the renewal certificate only as a “driver.” Although no Alabama court has directly considered the question whether being listed on a declarations page as a “driver” equates with being a “named insured” or “policyholder” under the policy, the courts of several of our sister states have.

The Alabama court found persuasive the decision of the Eleventh Circuit Court of Appeals in Rimas v. Progressive Specialty Insurance Co., 292 F. App’x 833 (11th Cir. 2008), in which the court affirmed a summary judgment in favor of the insurance company on Mark Rimas’s claim that he was entitled to UIM benefits under a policy of insurance executed by Wendell Robinson. Like Beeman in the present case, Rimas was listed as a “driver” on the policy, but he was not listed as a “named insured.” The Eleventh Circuit Court of Appeals concluded that only a named insured is entitled to specifically reject UIM coverage under a policy.

Beeman was added to the policy as a driver. The renewal certificate continues to list only Reese as the policyholder. Thus, the court of appeal concluded that Beeman does not provide a convincing argument that his inclusion on the renewal certificate as a “driver” resulted in his being made a named insured or a policyholder and, therefore, that he did not have a right to reject UIM coverage.

Although the language in the application does not specifically mention that it is binding on “additional insureds” or other persons covered by the policy, the language in the policy does indicate that the rejection of UIM coverage by the policyholder rejects such coverage for those insured under the policy. The only party with the right to reject UIM coverage is the named insured or the policyholder, which, in the present case, was Reese. Her rejection of UIM coverage is binding on Beeman.

Reese’s rejection of UIM coverage was effective as to Beeman. Accordingly, because Beeman has presented no set of facts under which he would be entitled to recover UIM benefits, we affirm the judgment of the trial court dismissing Beeman’s claim against the insurer.

ZALMA OPINION

As a famous economist once said: “There is no such thing as a free lunch.” Reese made a financial decision to reject UM/UIM coverage. As a result she paid no premium for UM/UIM coverage. Beeman, as just a driver of a vehicle insured by Reese who had nothing to do with the purchase of the insurance, had no right to require an insurer to provide him with UM/UIM coverage without paying a premium or even making contact with the insurer until after a loss. Since UM/UIM was properly rejected he had no right to recover UM/UIM benefits. He has a judgment against the other driver and will hopefully collect some of the judgment.


© 2019 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. 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 51 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.

Zalma on Insurance Claims Volume 101

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

This is the first in a series of ten books as the latest addition to Barry Zalma’s insurance claims series of books and articles that will form the most thorough, up-to-date, expert-authored insurance claims guide available today.

Written by nationally-renowned insurance coverage expert Barry Zalma, a semi-retired insurance coverage attorney, consultant, expert witness and blogger, Zalma on Insurance Claims provides in-depth explanations, analysis, examples, and detailed discussion of:

  • Property insurance claims;
  • Third-party liability claims;
  • Casualty claims; and
  • Insurance Fraud

Thorough, yet practical, this series of books form the ideal guide for any professional who works in or frequently interacts with the insurance industry. Claims professionals, risk managers, producers, underwriters, attorneys (both plaintiff and defense), and business owners will benefit greatly from the ten volume guide. It is also the perfect resource for insurance educators, trainers, and students whose role requires an understanding of insurance law. As you read through the various volumes of Zalma on Insurance Claims, you will find comprehensive—yet comprehensible—coverage of key topics, including:

  • What is Insurance?
  • The History of Insurance
  • The covenant of good faith and fair dealing.
  • The tort of Bad faith
  • Conditions,
  • Warranties,
  • Exclusions
  • Declaring a policy void
  • Duties of insured and insurer
  • Evaluation and settlement
  • Identifying insurance fraud
  • Investigation
  • Kinds of insurance policies
  • Other insurance clauses
  • Preparing a case for trial
  • Processing a claim
  • Responses to fraud
  • Subrogation and salvage
  • Underwriting and
  • Many more property and casualty insurance matters.
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