Fraudulent Claim Voids Policy

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Making a Claim for Loss to Personal Property not Damaged is Fraud

To successfully commit arson-for-profit the perpetrator needs a modicum of intelligence and some knowledge of insurance. When the perpetrator is incompetent, makes claim for property removed from the subject of the insurance before setting it afire, he or she will be caught and will recover nothing from the crime. In Kenny Thomas v. Certain Underwriters At Lloyd’s, London, No. 4:20-CV-00275 BSM, United States District Court, E.D. Arkansas, Central Division (December 8, 2021) Kenny Thomas proved to be a totally incompetent arsonist and lost every opportunity to recover anything from his attempt to profit from his arson.

BACKGROUND

In June 2019, a fire occurred at Kenny Thomas’s home in Pine Bluff, Arkansas. Following the fire, Thomas submitted a insurance claim to Lloyd’s for the total loss of his home and for the loss of personal property, including furniture. At the time of the fire, Thomas was behind on his mortgage payments and the home was listed for sale.

When the Pine Bluff Fire Marshal inspected the property, he did not locate any remnants or debris to indicate furniture was destroyed in the fire. Lloyd’s also hired Midwest Fire Consulting Group (“Midwest Fire”) to investigate, and Midwest Fire concluded there was no evidence that furniture or personal items were destroyed in the fire. Midwest Fire further concluded that the fire was incendiary with the use of ignitable liquid to enhance the burning process, and that the ignition source was an open flame device held by a human hand.

In July 2019, Thomas prepared a proof of loss statement that included a couch, loveseat, and ottoman that he reported he purchased from Ashley Furniture. Thomas later testified at an examination under oath that the proof of loss he prepared was accurate, and that the furniture he reported as lost was his property and had been moved into the home prior to the fire.

Lloyd’s, faced with obvious false swearing and an attempt at fraud, denied coverage for Thomas’ claim. Lloyd’s, denied the claim after determining that he intentionally caused the fire and breached the policy’s concealment or fraud condition, which rendered the policy void. Following this denial, Thomas sued Lloyd’s for breach of contract and bad faith denial of insurance benefits.

The Arkansas Insurance Department (“AID”) subsequently began a criminal investigation of Thomas’s insurance claim. AID discovered that almost nine months after the fire, Thomas’s girlfriend submitted a claim under a furniture protection plan and obtained a replacement cushion for one of the sofas from Ashley Furniture that Thomas claimed had been destroyed. The replacement cushion was delivered to a home where Thomas and his girlfriend had both lived. AID obtained a search warrant for Thomas and his girlfriend’s current residence, and found that the Ashley Furniture items were present in the home and had not been destroyed in the fire as Thomas had represented throughout the investigation of the claim. Lloyd’s concluded that the evidence obtained by AID was conclusive evidence of fraud.

Lloyd’s moved for summary judgment claiming that Thomas’s false representations voided his homeowner’s insurance policy and that coverage for Thomas’s claim was properly denied. Thomas did not respond to Lloyd’s motion.

DISCUSSION

Summary judgment is appropriate because Lloyd’s properly denied Thomas’s homeowner’s insurance claim under the policy’s concealment or fraud condition. The relevant provision in Thomas’s policy with Lloyd’s states: “This entire policy is void when, either before or after a loss, there have been fraudulent acts or false statements made or material facts or circumstances concealed or misrepresented in regard to the insured property, the insurance coverage, or the loss.”

There is no genuine dispute that Thomas falsely represented he had lost certain furniture items in the fire. Law enforcement found the items Thomas claimed were lost in a different home where he and his girlfriend were living. Moreover, by not responding to Lloyd’s motion for summary judgment or filing his own statement of facts, Thomas’s misrepresentations are deemed admitted.

Thomas’s breach of the concealment or fraud condition unambiguously voided his homeowner’s insurance policy. Lloyd’s is also entitled to summary judgment on Thomas’s claim for bad faith denial of insurance benefits. Thomas can recover for bad faith only if Lloyd’s affirmatively engaged in dishonest, malicious, or oppressive misconduct in trying to avoid liability under the policy, without a good faith reason for doing so. This is a difficult standard to satisfy. Nothing in the record indicates Lloyd’s’ actions were dishonest, malicious, or oppressive. On the contrary, Lloyd’s’ denial of insurance benefits was consistent with the now overwhelming evidence that Thomas voided the policy through misrepresentations regarding his loss. Mere refusal to pay a claim does not constitute the first party tort of bad faith when a valid controversy exists with respect to liability on the policy.

CONCLUSION

Summary judgment was granted because Lloyd’s properly denied Thomas’s homeowner’s insurance claim under the policy’s concealment or fraud condition.

ZALMA OPINION

Thomas did not have the skill, intelligence or ability to cause an arson-for-profit fire or a fraudulent insurance claim. His inadequacy allowed Lloyd’s, and the AID, to establish that he attempted fraud. Even if the fire was covered the claim for non-damaged contents voided the entire contract and he lost his entire claim for an Ashley furniture sofa. He should be arrested, tried and convicted of the major intentional violent crime of arson and the crime of insurance fraud. Of course, his mortgage holder may have a claim.


© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

 

 

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A Video Explaining Hurricanes and Insurance Coverage

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Katrina Cases

See the full video at  https://rumble.com/vqlb7o-a-video-explaining-hurricanes-and-insurance-coverage.html and at https://youtu.be/kZZMwQGw-tI

The United States District Court for the Southern District of Mississippi, Southern Division, entered an important decision with regard to water damage and insurance policy coverages raised after Hurricane Katrina.

In Leonard v. Nationwide Mutual Insurance Co., 499 F.3d 419 (5th Cir. 08/30/2007), the first of the Katrina cases to go to trial, the court found that the Leonards’ residence was not covered by any policy of flood insurance at the time of the storm. Flood insurance is available to anyone, regardless of which flood zone their residence is situated in, yet the plaintiffs did not purchase it; they purchased only a common homeowner’s policy from Nationwide.

The evidence presented at trial conclusively established the following points:

  • That on August 29, 2005, the entire area surrounding Pascagoula, Mississippi, including the Leonard residence and its surrounding neighborhood, was subjected to violent winds in excess of 100 miles per hour. These winds increased gradually in the early morning hours and reached a peak of intensity between 9:00 a.m. and noon.
  • Water from the Mississippi Sound was driven ashore by the storm, and the water level in the Leonard neighborhood rose to a peak level between 11:00 a.m. and noon. At its highest point, this water inundated the Leonard residence to a depth of approximately five feet.
  • The Leonard residence is approximately 12 feet above sea level. This property is 515 feet from the beachfront to the south.
  • The inundation of the ground floor of the Leonards’ residence caused extensive damage to their floors, carpets, walls, and personal property. The second floor of the Leonards’ property was not damaged. The physical damage to the roof of the Leonards’ property consisted of a small number of broken shingles, and the watertight integrity of the roof was not breached during the storm. The attached garage on the Leonards’ property was also extensively damaged during the storm.
  • The only wind damage on the ground floor of the Leonards’ residence was a hole in one window that witnesses described as “golf-ball sized.” The exterior of the Leonards’ home and the attached garage were soiled by a combination of wind-driven materials and water-borne materials.

Based on the findings of fact established by evidence at trial, the court concluded:

The provisions of the Nationwide policy that exclude coverage for damages caused by water are valid and enforceable terms of the insurance contract. Similar policy terms have been enforced with respect to damage caused by high water associated with hurricanes in many reported decisions.

The judge did not totally deprive the insureds of coverage. He noted that under applicable Mississippi law, in a situation where the insured property sustains damage from both wind and water, the insured may recover that portion of the loss that he or she can prove to have been caused by wind. Nationwide is not responsible for that portion of the damage it can prove was caused by water. The final judgment, therefore, was for wind damage only and was less than $2,000.

After the trial, the case was appealed to the Fifth Circuit Court of Appeal, which affirmed the decision of the trial court yet disagreed with the methods used:

The fatal flaw in the district court’s rationale is its failure to recognize the three discrete categories of damage at issue in this litigation: (1) damage caused exclusively by wind; (2) damage caused exclusively by water; and (3) damage caused by wind “concurrently or in any sequence” with water. The classic example of such a concurrent wind-water peril is the storm-surge flooding that follows on the heels of a hurricane’s landfall. The only species of damage covered under the policy is damage caused exclusively by wind. But if wind and water synergistically caused the same damage, such damage is excluded. Thus, the Leonards’ money judgment was based on their roof damages solely caused by wind. Contrary to the court’s damage matrix, however, had they also proved that a portion of their property damage was caused by the concurrent or sequential action of water—or any number of other enumerated water-borne peril—the policy clearly disallows recovery.

This decision will make it more difficult for plaintiffs with damaged property to avoid the effect of concurrent cause exclusions when wind, water, storm surge, or mold concur with excluded causes to result in loss. [Interestingly, the plaintiffs’ trial lawyer, Richard “Dickie” Scruggs, is now serving a long sentence in federal prison for attempting to bribe a judge with regard to a dispute with his co-counsel relating to fees earned from other Katrina cases. Reported at United States of America v. David Zachary Scruggs, No. 3:07CR192-B-A (N.D.Miss. 08/03/2011); Barrett v. Jones, Funderburg, Sessums, Peterson & Lee, LLC, No. 2008-IA-00421-SCT (Miss. 11/12/2009); United States v. Whitfield, No. 07-60748 (5th Cir. 12/11/2009); United States of v. David Zachary Scruggs, No. 3:07CR192-B-A (N.D.Miss. 05/13/2011); United States ex rel Rigsby v. State Farm Insurance Co., No. 1:06CV0433 LTS-RHW (S.D.Miss. 05/19/2008). These cases and the prosecution of Richard and David Scruggs called into question the validity of all Katrina lawsuits and claims.]

In Tuepker v. State Farm, 507 F.3d 346 (5th Cir. 2007) the Fifth Circuit affirmed the majority of the trial court’s decision, an important and far-reaching conclusion interpreting insurance policy coverages in the wake of a catastrophe. Judge Senter, the trial judge, concluded:

As to the damage caused by wind, there is coverage under the provisions of the State Farm policy because destruction of the insured dwelling by a windstorm, including a hurricane, would constitute an accidental direct physical loss and would therefore be a covered peril. Thus, to the extent that the plaintiffs’ property was damaged by wind or by objects propelled by wind, the State Farm policy covers the loss. This is also true of damage to personal property inside the insured dwelling caused by rain that entered plaintiff’s home through breaches in walls or in the roof caused by hurricane winds.

Losses directly attributable to water in the form of a “storm surge” are excluded from coverage because this damage was caused by the inundation of plaintiffs’ home by tidal water from the Mississippi Sound driven ashore during Hurricane Katrina. This is water damage within the meaning of that policy exclusion. The exclusion found in the policy for water damage is a valid and enforceable policy prevision. Indeed, similar policy terms have been enforced with respect to damage caused by high water associated with hurricanes in many reported decisions.

Because the adjective “physical” is defined as “having material existence,” mold spores undoubtedly have a “material existence” even though they are not tangible or perceptible to the naked eye. Therefore, mold contamination constitutes a “physical loss” within the meaning of a policy and, assuming all other policy conditions are met, the cost of removing mold from a property, or of replacing personal property, may be recovered under a property policy. The Fifth Circuit found, however, that the anticoncurrent cause exclusion was enforceable and reversed the part of the trial court decision determining the exclusion did not apply.

Under Mississippi law, the judge concluded that where there is damage caused by “both wind and rain (covered losses) and water (losses excluded from coverage) the amount payable under the insurance policy becomes a question of which is the proximate cause of the loss.” This is, of course, subject to the evidence presented at trial.

ZALMA OPINION

Whether a claims is for water damage, wind damage, or resulting mold infestations as a result of water infestation it is important that the insurer conduct a thorough investigation into the causes, determine which are due to a covered peril and those which are clearly and unambiguously excluded by the policy. The video discusses the types of decisions that are rendered by the courts after a catastrophe like a hurricane.


© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

 

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Never Rely on a Certificate of Insurance

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A Certificate Conferred No Rights Upon The Holder, Did Not Amend, Alter, Or Extend The Coverage Afforded By The Policy

The plaintiffs relied on a certificate of insurance advising that Chipotle was an additional insured of a policy issued to a vendor. The insurer, RLI, proved that Chipotle was not named as an additional insured nor was it an additional insured by reason of a contract with the vendor. The trial court granted RLI’s motion for summary judgment and the plaintiffs appealed.

In Chipotle Mexican Grill, Inc., et al. v. RLI Insurance Company; Fireman’s Fund Insurance Company, Nos. 2018-11057, 2018-11361, 2018-14847, 2019-00473. Index No. 700712/16, Supreme Court of New York, Second Department (November 24, 2021) the issue of additional insured status devolved to a statement made in a certificate of insurance provided by the vendor to Chipotle.

FACTS

The plaintiffs hired the defendant Piece Management, Inc. (hereinafter PMI), to perform rodent prevention services at its restaurant located in the Roosevelt Field Mall. Afmat Wazadally was employed by PMI and was injured in the course of his work when he fell from a ladder. Wazadally commenced a personal injury action against the plaintiffs and others (hereianfter the underlying action). The plaintiffs sought to obtain insurance coverage from PMI’s insurer, RLI Insurance Company (hereinafter RLI), contending that they were additional insureds under the policy. RLI denied coverage.

Soon thereafter, the plaintiffs sued RLI and others for a judgment declaring that RLI is required to defend and indemnify them as additional insureds in the underlying action. The underlying action was settled for $2,675,000. The plaintiffs moved for summary judgment declaring that RLI is required to defend and indemnify them as additional insureds in the underlying action.

The trial court granted RLI’s cross motion and denied the plaintiffs’ motion, concluding that the plaintiffs were not additional insureds under the RLI policy since they were not named as additional insureds on the policy and they were not entitled to coverage under the additional insured endorsement since there was no written contract between the plaintiffs and PMI.

ANALYSIS & CONCLUSIONS

The trial court correctly determined that the plaintiffs were not additional insureds on the RLI policy. The policy contained an additional insured endorsement, which added to the insured persons covered under the subject policy “any person or organization for whom you are performing operations when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy.”

The four corners of an insurance agreement govern who is covered and the extent of coverage. Where a third party seeks the benefit of coverage, the terms of the policy must clearly evince such intent. The law in New York is well settled that whether a third party is an additional insured under a policy is determined from the intention of the parties to the policy, as determined from the four corners of the policy itself.

Here, as noted, the additional insured endorsement of the RLI policy afforded coverage to parties that PMI agreed in writing in a contract or agreement to add as an additional insured on the policy. There was no such written contract or agreement between the plaintiffs and PMI containing any requirement that PMI name the plaintiffs as additional insureds under the RLI policy. Therefore, RLI demonstrated its prima facie entitlement to judgment as a matter of law based upon its submissions

The Plaintiffs submitted a certificate of insurance in opposition to RLI’s motion. The Certificate listed the plaintiffs as additional insureds under the subject policy. However, the appellate court concluded that the Certificate was insufficient to alter the language of the policy itself, especially since the certificate recited that it was for informational purposes only, that it conferred no rights upon the holder, and that it did not amend, alter, or extend the coverage afforded by the policy. Moreover, the trial court correctly determined that PMI’s vendor profile which indicate that the client is typically listed as an additional insured, do not constitute agreements or contracts between Chipotle and PMI to name Chipotle as an additional insured.

The appellate court concluded that the trial court should have denied the cross motion with respect to the cause of action for a declaratory judgment, and instead should have declared that RLI is not obligated to defend or indemnify the plaintiffs as additional insureds in the underlying action. Since the court did not do so, the appellate court modified the judgment accordingly.

The appeal from the order entered July 17, 2018, was dismissed; and added to the judgment was a provision declaring that RLI Insurance Company is not obligated to defend or indemnify the plaintiffs as additional insureds in the underlying action.

ZALMA OPINION

This case is a perfect example of parties failing to read a certificate of insurance and relying on a statement in a certificate that did not exist in the policy. Since the Certificate, clearly and unambiguously stated that it was for informational purposes only, that it conferred no rights upon the holder, and that it did not amend, alter, or extend the coverage afforded by the policy. If a party wishes to be assured that it has been named as an additional insured it should obtain a copy of the policy and never rely on the Certificate. At best, if they could overcome the obvious disclaimer in the Certificate, the parties may have an action against the person or entity that issued the Certificate for negligence, misrepresentation or fraud that the Plaintiffs relied upon to their detriment.


© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

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Construction Basics That Result in Claims of Defects Defects

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A Video Explaining the Basics of Construction Footings & Foundations

See the full video at https://rumble.com/vqhcx6-construction-basics-that-result-in-claims-of-defects-defects.html  and at  https://youtu.be/H5zKA348V-I

To understand the construction defect claim and the litigation surrounding construction defects, it is necessary to first have a basic understanding of construction, what is proper and prudent and what can go wrong.

Building codes prescribe basic standards. When these standards are not followed, or not followed carefully enough, a building can fail. It may leak or lean or even fall down.

The following discussion offers a brief overview of the component parts of a standard dwelling built of wood framing using common construction methods used over the last century, and the problems that can arise when any part of the building fails.

To make things simple, the discussion below focuses on the single-family dwelling. Multi-family and commercial buildings are larger, have more parts, and are much more complex to construct. Newer building materials and techniques are not discussed, nor are factory-built homes.

Note that modern buildings may use steel in place of lumber in the framing, artificial rather than cement-based stucco, computer controls for electrical appliances and heating, ventilating and air-conditioning systems, and other modern materials and construction techniques. Regardless of the materials and techniques used in construction, the points at which the structure may fail are essentially the same.

Typical single-family homes built during the last century were constructed with a wood frame built on top of a concrete foundation. The foundations are either raised on piers or poured flat on grade. The lumber that makes up the wood frame is usually jacketed with lath (thin wood strips) or a moisture barrier paper with a wire covering that is covered with stucco (a durable porous concrete product), exterior insulation and finish systems (artificial stucco) or wood or vinyl siding. The interior walls are usually finished with drywall (gypsum covered in paper that, when finished, gives the appearance of lath and plaster) or, in older structures, wood lath and plaster.

Basic single-family dwellings are usually one to two stories in height and range from 900 to 3,500 square feet. Of course, there are also “mansions” where a single family may reside in a 20,000 square foot structure and “McMansions” that range from 3,500 to 10,000 square feet built on lots where most homes are the simple single family homes of 900 to 1,500 square feet. It is becoming common to remodel old dwellings of 900 – 1100 square feet into 5,000 to 10,000 square foot dwellings on small residential lots. These extreme remodeling efforts often run afoul of claims of code violations and construction defect.

All three varieties are available at https://amazon.com


© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

 

 

 

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To Obtain UM Coverage One Must be a Resident Relative

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Adult Child Not a Resident Relative if she Moves Out of Family Home

Kawaljit Bhatia challenged the district court’s grant of respondent insurer’s summary-judgment motion on an uninsured motorist claim. Bhatia argued that there is a genuine fact issue as to whether his daughter was a resident relative under his insurance policy when she was killed in a fall from a motorcycle. In  Kawaljit S. Bhatia, as Trustee for the next of kin of Ena M. Bhatia, deceased v. Owners Insurance Company, No. A21-0378, Court of Appeals of Minnesota (December 6, 2021) the Court of Appeals was asked to declare Ena Bhatia a resident relative contrary to the decision of the trial court.

FACTS

In 2016, 21-year-old Ena Bhatia fell off a moving motorcycle that her boyfriend was driving. She died at the scene.

Alleging that the motorcycle was an uninsured vehicle, Bhatia, who is Ena’s father and next-of-kin, sought UM benefits from his own insurance company, Owners Insurance Company (Owners). Bhatia’s insurance policy with Owners identifies the circumstances under which the policyholder may recover damages when the policyholder or a relative is injured or killed in an uninsured vehicle.

The policy defines “relative” as “a person who resides with you and who is related to you by blood, marriage or adoption.”

Owners denied Bhatia’s claim because Ena was not a resident relative of her father. Bhatia sued.

DECISION

Bhatia argued that the district court erred in determining that the undisputed record evidence established that Ena did not reside with him and was therefore not a “relative” under his insurance policy.

The record evidence follows.

  • Bhatia and his former spouse had two children, Ena and a son.
  • The couple divorced in 2003.
  • After the divorce, Bhatia continued to live in the marital home in Burnsville.
  • As a teenager, Ena maintained a bedroom in the Burnsville home, and she would often stay there, alternating between her father’s house and her mother’s residence.
  • Following her graduation from high school and emancipation, Ena remained close with her father. They saw each other every day.
  • Ena moved to an apartment.

Bhatia owns multiple businesses. One of these businesses is a retail store in St. Paul that sells gifts and other items. Bhatia owns the building that houses the St. Paul store. On the upper level of the building, there are four apartment units. At the time of Ena’s death, Bhatia occasionally stayed in one of these units although he continued to live in the Burnsville home. Bhatia’s son lived in a second unit. And, after graduating from high school, Ena lived separately in a third unit. The fourth unit was vacant and used by the family as needed.

Ena kept her bedroom in her father’s Burnsville home, and she occasionally stayed there as an adult. But Ena lived in the unit above the store.

At the time of her death, Ena was in the process of moving from Bhatia’s building to a new apartment with her boyfriend. Bhatia last saw her on November 16, 2016-two days before the motorcycle accident-and they discussed her move at that time. According to Bhatia, she was ecstatic to be moving. She told him that she had written a check on the business account to cover rent for her new apartment. Ena told Bhatia that she was moving some of her belongings into the new apartment that night, including a television that she had taken from the store. Bhatia did not know whether she had actually moved anything into the new residence or spent any time there before she died. But Bhatia “hoped” that Ena had spent the night of November 16 there because she had not stayed in her apartment in his building.

ANALYSIS

A party claiming insurance coverage bears the preliminary burden of proof to show a prima facie case of coverage. Once the party claiming coverage meets this burden, the party the burden of proof then shifts to the insurer to prove facts establishing avoidance of liability under the insurance policy as an affirmative defense. Whether the insured has demonstrated a prima facie case of coverage depends on the language of the insurance policy at issue.

Generally, the extent of an insurer’s liability is determined by its insurance contract with its insured. Insurance policy language “must be construed as a whole, and unambiguous language must be given its plain and ordinary meaning. If a contract is “clear and unambiguous,” a court should not rewrite, modify, or limit its effect by a strained construction.

Under Bhatia’s policy although Ena was related to Bhatia by blood the trial court found Ena did not reside with Bhatia so the policy did not apply to her.

The district court noted that Ena “maintained her own residence separate and apart from [Bhatia],” she did not “regularly sleep under the same roof as [Bhatia],” and she had no intention of returning to Bhatia’s Burnsville home because she “was in the process of moving to a new residence that was not owned by [Bhatia].”

Because the policy here requires a resident-relative to reside with the insured, the Court of Appeal agreed with the district court’s decision to focus on whether Bhatia and Ena lived under the same roof. The Court of Appeal’s independent review of the record evidence established that father and daughter had a close relationship. But there are no facts that would allow a reasonable fact finder to conclude that they lived together.

Although Ena maintained her childhood bedroom in Bhatia’s Burnsville home, had a key to the home, and would occasionally spend the night, she did not reside there. The undisputed evidence is that Ena resided in the St. Paul apartment. Moreover, there is no evidence that Ena ever planned to reside in the Burnsville home again. At the time of her death, she was in the process of moving to another apartment.

The evidence left the Court of Appeal no doubt that Bhatia loved his daughter and that he remained close and connected with her until she passed away.

Because there is no genuine factual dispute as to whether Ena resided with Bhatia, the district court did not err in determining that she did not qualify as a resident relative under Bhatia’s insurance policy and in granting Owners’ motion for summary judgment.

ZALMA OPINION

The Minnesota Court of Appeal read the policy and found that for coverage to apply Ena needed to reside in her father’s home where his auto policy was situated. She did not. She lived in an apartment with her boyfriend whose motorcycle she fell off causing her death. She was moving to another apartment that her father did not owe. To find coverage under the father’s policy the court would have needed to rewrite the policy and change the wording to cover close relatives regardless of where they lived. The court did not have the power to change the policy language and refused to do so even though the judges would have liked to have helped the bereaved father. Insurance is not an eleemosynary society it is a contractual relationship.


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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

He is available at http://www.zalma.com and zalma@zalma.com.

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

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

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

 

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Construction Defects and Insurance Volume I Second Edition

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A Video About Construction Defect Suits Proliferate Like Kudzu

Construction defects have grown into one of the most active areas of litigation in the United States.

The Second Edition of a multi-volume treatise is the newest addition to Barry Zalma’s insurance claims books that thoroughly explain how to identify construction defects, how to insure, investigate, prosecute, and defend cases that result from construction defect claims.

Written by nationally-renowned expert, Barry Zalma, Construction Defects & Insurance Second Edition is designed to help property owners, developers, builders, contractors, subcontractors, insurers, lenders, risk managers and lawyers avoid construction litigation, confidently and rapidly resolve claims associated with construction defect issues, or litigate construction defect litigation.

Construction Defects & Insurance Second Edition”

addresses a wide range of topics associated with this escalating and expensive problem. As you read through the various volumes you will find comprehensive insights into:

  • The construction process;
  • Risks to be managed;
  • What is required in an application for insurance seeking to protect the insured against the risks of loss anticipated from construction;
  • How to acquire the correct and complete construction insurance;
  • How insurers underwrite against construction defect claims;
  • How insurers decide to insure/not insure;
  • Confronting losses caused by construction defects; and
  • Litigation or alternative dispute resolution of construction defect claims.

Barry Zalma, has more than 55 years’ practical experience in this area. He is a highly sought after consultant and insurance claims handling expert witness nationally by both lawyers representing policyholders and lawyers representing insurers.

In this, the first volume of the eight volume treatise he has also provided checklists that walk the reader through an analysis of construction defects, the process of purchasing and later invoking construction defect insurance, and what is necessary to prosecute or defend a construction defect lawsuit. The books also include helpful sample forms to assist in the identification of defects and numerous case studies to illustrate the state of litigation.

Thorough, yet practical, this series of books form the ideal guide for any professional who works in or frequently interacts with the construction industry, construction defect claims, construction defect litigation, construction defect insurance or the practice of law with regard to construction defect litigation.

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

As you read through the various volumes of Construction Defects & Insurance Second Edition, you will find comprehensive — yet comprehensible — coverage of key topics, including:

  • What is a structure?
  • How is a structure built?
  • The building.
  • The construction contract.
  • Plans and Specifications
  • The Property Inspection.
  • The Defects
  • Understanding insurance and underwriting.
  • Construction Defect Policies.
  • Liability Insurance.
  • Insurance Bad Faith.
  • The Construction Defect Suit.
  • Tort Defenses.
  • The Trial.
  • Evaluation and Settlement.
  • Alternative Dispute Resolution.

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. [From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations.]

This product may include information which is proprietary to Insurance Services Office, Inc. ISO does not guarantee the accuracy or timeliness of the ISO information provided. ISO shall not be liable for any loss or damage of any kind and howsoever caused resulting from your use of the ISO information.

This, the first volume of Construction Defects & Insurance Second Edition, includes materials concerning:

  1. Overview
  2. The Structure,
  3. The Construction Contract
  4. Plans and Specifications
  5. The Property Inspections
  6. Construction Experts Used in Construction Defect Suits
  7. Ethics in Construction
  8. Commercial Leases
  9. Appendix 1 – Sample State Contract
  10. Appendix 2 – Sample Owners Association Contractor Rules and Regulations
  11. Checklist One – The Structure
  12. Checklist Two – Plans and Specifications
  13. Checklist Three – The Property Inspection
  14. Checklist Four – The Construction Contract

© 2022 by Barry Zalma and ClaimSchool, Inc.

4441 Sepulveda Blvd.

CULVER CITY CA 90230

310-390-4455

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the publisher.

Available Here


© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

He is available at http://www.zalma.com and zalma@zalma.com.

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

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

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

 


 

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Liars Never Prosper

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No Coverage for Loss at Unidentified Property

Dignity Housing West is a California nonprofit corporation that provides low-income housing. Describing itself as a housing developer and listing its only premises as 200 square feet of office space, it applied for and received a commercial general liability insurance policy from Atain Specialty Insurance In Atain Specialty Insurance Company v. Dignity Housing West, Inc., a California nonprofit corporation, No. 21-15127, United States Court of Appeals, Ninth Circuit (December 3, 2021) the Ninth Circuit dealt with a claim seeking defense and indemnity for a loss at a property not identified at the time the policy was acquired.

FACTS

Though the application asked whether Dignity conducted any “lodging operations including apartments,” Dignity did not disclose the three apartment buildings it owned or maintained.

After a deadly fire broke out at Dignity’s apartment building on San Pablo Avenue in Oakland, Dignity was named in several lawsuits by former tenants. Atain initially tendered defense to Dignity in those actions, but it subsequently withdrew.

Atain sued seeking a declaration that the policy did not cover the San Pablo building. The district court granted summary judgment in Atain’s favor, concluding that the policy did not cover the apartment building and that even if it did, omissions in Dignity’s application entitled Atain to rescind the policy

ANALYSIS

On Dignity’s insurance application, it disclosed only 200 square feet of office space and represented it was a tenant. The Commercial General Liability Supplemental Declarations page of the policy lists that space as the only premises that Dignity owns, rents, or occupies.

A Dignity officer stated in a deposition that Dignity actually owned the building where the office was located as well as the apartment where the fire occurred.

The Ninth Circuit made clear that information in policy declarations controls the scope of insurance coverage. If the declarations indicate that the policy does not provide coverage, “no further review of the policy is necessary.” [Fidelity &Deposit Co. v. Charter Oak Fire Ins. Co., 78 Cal.Rptr.2d 429, 432 (Cal.Ct.App. 1998).]

Because nothing in the Declaration supports the view that the policy applied to any of Dignity’s three undisclosed apartment buildings, the policy did not cover the San Pablo building.

The premium Dignity paid further supports the conclusion that coverage is limited to its office. Dignity paid $360 to receive commercial general liability coverage for a year. A $360 yearly premium could not reasonably be expected to pay for general liability insurance for dozens of apartments in three separate buildings.

Dignity also argues that Atain acted in bad faith when it refused to accept the tort plaintiffs’ settlement offer.

However, California law is clear that if there is no potential for coverage, there can be no action for breach of the implied covenant of good faith and fair dealing. [Waller v. Truck Ins. Exch., Inc., 900 P.2d 619, 639 (Cal. 1995).]

Because the policy did not cover the San Pablo building, Atain did not act in bad faith when it did not accept the settlement offer.

ZALMA OPINION

Even the Ninth Circuit found it easy to conclude that there could be no coverage for the liability exposure at an apartment building owned and operated by the insured that was neither disclosed nor identified at the time the policy was acquired. Although rescission was appropriate the Ninth Circuit found it easier to deny coverage on the contract. Attain should immediately, if the policy is still in effect, advise Dignity that the policy is rescinded and return the premium to avoid any further exposure. No insurer should insure any person or entity that has fraudulently obtained the policy.


© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

 

 

 

 

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A Video Explaining Grounds for Denying a Claim

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Misrepresentation or Concealment of a Material Fact

See the full video at https://rumble.com/vqdepg-a-video-explaining-grounds-for-denying-a-claim.html?mref=6zof&mrefc=2 and at https://youtu.be/N-70RoGOFbY

To constitute fraud, an insured must have concealed or misrepresented a material fact with the intention of inducing an insurer to pay a claim it would not, otherwise owe had it known the true facts. The facts that are deemed to be “material” for purposes of denying a claim or voiding a policy are not clearly defined and therefore each case must be evaluated separately.

Generally, a fact is material to the application for insurance if it might have influenced a reasonable insurer in deciding whether to accept or reject the risk on the same terms and conditions.  Material facts intentionally concealed or misrepresented with intent to mislead the insurer that result in damage to the insurer are fraudulent. Fraud, at the option of the insurer, allows the insurer to void the policy. A misrepresentation after a loss as to a single material fact will forfeit the entire insurance contract.

An insured cannot commit a “small” fraud any more than he can be just a little dead. Once caught in a small fraud, the insured cannot demand that he or she be paid the legitimate part of the claim and expect the insurer to forgive the attempted fraud.

Determining the existence of a “misrepresentation” is not always straightforward. In Suggs v. State Farm Fire and Casualty. Co., 833 F.2d 883 (10th Cir.1987), an initial investigation by an insurer and the state fire marshal concluded that a residential fire was the result of arson. The fire marshal further concluded that it was the insured who set the fire. The insured was arrested and charged with arson.

With criminal charges pending, the insured hired experts who concluded that the fire was probably caused by an electrical malfunction. Criminal proceedings were then dismissed. Another expert retained by the insurer later concluded that the fire was not of electrical origin, and the insurer denied the insured’s fire damage claim on the ground that the insured had intentionally set the fire. The insured responded by suing for benefits under the policy, as well as for bad faith. A jury found in favor of the insured on both causes of action.

On appeal, the Tenth Circuit reversed the bad faith judgment. The termination of the arson prosecution was found to be immaterial because the disposition of criminal cases require different criteria than civil cases. In any event, substantially conflicting evidence existed regarding the nature of the fire. Based on this conflict, the Suggs court held that the only reasonable conclusion the jury could have reached was that the insurer had not acted in bad faith. The insurer had good reason to believe that the insured, Suggs, misrepresented facts material to the claim by denying he set the fire. The insurer was unable to convince the jury that the insured lied but was able to convince the Tenth Circuit Court of Appeal that the denial was made in good faith.

Although this case resulted in a beneficial or partially beneficial verdict on behalf of the insurer, it reveals the need to deal fairly and in good faith with all insureds and even more so with insureds suspected of fraud. If the insurer treats the suspected fraud with the utmost of good faith, it will avoid unnecessary litigation, will have sufficient facts to deny a claim, and will explain to the insured all of the reasons for the denial.

Misrepresentation or Concealment in an Application

In some states, like California and New York, when misrepresentations as to material facts made in an application for insurance, existence of a fraudulent intent to deceive is not essential to the avoidance of the policy. In these states, applying what has been called the “marine rule” a policy can be rescinded (that is, declared void from its inception) for an innocent misrepresentation or concealment of a material fact.

In the presentation of a claim, however, the insured’s act must have been intended to defraud the insurer. Even a gross overvaluation of a claim will not permit an insurer to deny the entire claim or declare the policy void unless the insurer can prove that the overvaluation was not an honest mistake.

Fraudulent Intent

Courts in different states have difficulty with the concept of fraud and fraudulent intent. In Auto-Owners Ins. Co. v. Hansen Housing, Inc., 604 N.W. 2d 504, 514 (S.D. 2000), the Supreme Court of South Dakota confirmed that exaggerated claims for the purpose of gaining an advantage in settlement negotiations are considered attempts to defraud, even if insureds do not expect to ultimately obtain more than their actual loss. On the other hand, that Court recognizes that there may be an honest misstatement of some fact and that although, as a general rule, fraud and false swearing will void the policy, mere mistakes in stating facts that do not in themselves annul its conditions and do not appear to be willful misrepresentations will not defeat the action. It is up to the jury, with instructions from the court, to determine whether the misrepresentation is a “mere mistake” or an intentional attempt to deceive. The insurer can prove reliance in the application process by showing that it issued a policy based on the insured’s fraud that it would not otherwise have issued.

Under New York’s Penal Law § 176.05 (1), a fraudulent insurance act consists of the presentation with fraudulent intent of a false written statement in connection with a policy for either commercial or personal insurance. [People v. Boothe, 68 A.D.3d 402, 2009 NY Slip Op 8859, 890 N.Y.S.2d 484 (N.Y. App. Div. 2009)]

When Plaintiffs argued that the trial court erred in granting defendant summary disposition because a question of fact existed concerning whether the statement at issue in the application was made in good faith and without fraudulent intent. The Michigan Court of Appeal concluded that it is unnecessary for an insurer to show fraudulent intent in order to cancel an insurance policy where an applicant makes a material misstatement concerning prior medical history. [Wiedmayer v. Midland Mutual Life Ins. Co., 108 Mich.App. 96, 100, 310 N.W.2d 285 (1981); Legel v. American Community Mut. Ins. Co., 506 N.W.2d 530, 201 Mich.App. 617 (Mich. App. 1993)]

Fraudulent intent is rarely susceptible to direct proof and must ordinarily be established by circumstantial evidence and the legitimate inference arising therefrom. [Barkley v. United Homes, LLC, 2012 WL 2357295, at *8 (E.D.N.Y. June 20, 2012) (internal quotation omitted).] An inference of fraudulent intent can be established by a showing of a motive for committing fraud or by identifying conscious behavior by the accused party. [Enzo Biochem, Inc. v. Johnson & Johnson, 1992 WL 309613, at *11 (S.D.N.Y. Oct. 15, 1992) (internal quotation omitted) (alteration in original); Gov’t Emps. Ins. Co. v. Jacobson (E.D. N.Y. 2021)

Determination of Materiality

Materiality of false statements is determined by the result it would have on the insurer, its underwriter or claims person. Materiality is not determined by whether or not the statements deal with a subject later determined to be unimportant. If, for example, false statements are made about factors other than those that caused a loss, the false statements are nevertheless material.

Falsely sworn statements are always material. False statements are material if they might have affected the attitude and action of the insurer. They are equally material if they were calculated to discourage, mislead, or deflect the company’s investigation in any area. A fact is material to a claim if it concerns a subject relevant and germane to the insurer’s investigation of the claim.

Based on the evidence an insurer, GEICO, presented, a reasonable jury might conclude that the person seeking benefits from the insurer, acted with fraudulent intent. Courts have regularly held that a medical professional’s financial motive to obtain no-fault insurance benefits by making intentional misrepresentations to an insurance company is sufficient to demonstrate scienter, or evil intent. [Gov’t Emps. Ins. Co. v. Badia, 2015 WL 1258218, at *15 (E.D.N.Y. Mar. 18, 2015); Allstate Ins. Co. v. Etienne, 2010 WL 4338333, at *10 (E.D.N.Y. Oct. 26, 2010); Gov’t Emps. Ins. Co. v. Jacobson (E.D. N.Y. 2021)]

The term “material” means having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property. [Kungys v. United States, 485 U.S. 759, 770, 108 S.Ct. 1537, 99 L.Ed.2d 839 (1988)] This materiality requirement descends from common-law antecedents. The common law could not have conceived of “fraud” without proof of materiality. [Neder v. United States, 527 U.S. 1, 22, 119 S.Ct. 1827, 144 L.Ed.2d 35 (1999); Universal Health Servs., Inc. v. U.S. & Mass. ex rel. Escobar, 136 S.Ct. 1989, 195 L.Ed.2d 348 (2016).]

ZALMA OPINION

Before an insurer decides to deny a claim it must have conducted a thorough investigation that establishes, beyond a preponderance of all available evidence, that the claim is one that is not covered by the policy. In addition, if the claim includes evidence of fraud, it is essential that there is strong evidence sufficient to require the insurer to report to the state the suspicion that a fraud is being attempted or has succeeded.


© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

 

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Mold Exclusions — Conflicting Court Decisions

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A Video Explaining How Insurers Avoid Mold Litigation

See the full video at https://rumble.com/vqbcjq-mold-exclusionsconflicting-court-decisions.html and at https://youtu.be/Q1DnDWQE-xk

Insurance companies in most states have been permitted to exclude mold coverage from new and existing policies. There are hundreds (perhaps thousands) of pending cases against homeowner insurance carriers seeking coverage for losses incurred as a result of mold contamination. In many of these homeowner policies, damage “caused by” mold contamination is expressly excluded from coverage. In the face of this exclusion, homeowners often take the position that their claimed damages were not “caused by” mold, but rather that the damage was caused by some form of water intrusion which resulted in mold contamination, or some other covered peril, and therefore the loss is covered. Insurers often contend that the exclusion applies to any claimed damages concerning mold, arguing either that the damage itself was caused by mold or some other excluded cause or event.

State courts that have faced this issue cannot agree. Some have held that the “caused by” exclusion applies to all mold damage, while other courts have found an ambiguity in the exclusion. Summary judgment for either party is almost impossible because coverage decisions are determined by the facts presented at trial.

The most recent ISO forms, which are used by many insurers in their homeowner policies, contain the following exclusion regarding mold:

We will not pay for loss or damage caused directly or indirectly by [mold]. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss. But if [mold] results in a Covered Cause of Loss, we will pay for the loss or damage caused by that Covered Cause of Loss.

Courts across the country have reached different conclusions regarding its meaning and applicability. The video details some of the cases that deal with mold exclusions and the ensuing loss clauses.

ZALMA OPINION

Insurers, by carefully writing their policies, have been able to avoid most mold claims and the resulting litigation after the claim is denied. Some decided to provide coverage for mold claims but set low limits of liability while others drafted clear and unambiguous exclusions. Those insurers have avoided some litigation while most have found the new exclusions or limitations of liability to allow the insurer to successfully defend the suits.


© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

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Fraudster Cannot Obtain Cash Under the California Unclaimed Property Law

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Money Held by the State Can’t be Given to a Fraud

Golden State Pharmaceuticals LLC (Golden State), a cancelled limited liability corporation, filed claims with the California State Controller (the Controller) for money the Controller held under the California Unclaimed Property Law (UPL). When the Controller failed to act on the claims, Golden State brought a civil action under the UPL to recover the money. The trial court granted Golden State’s motion for summary judgment, awarding it $121,989.13. The Controller appealed. In Golden State Pharmaceuticals LLC v. Betty T. Yee, California State Controller, B308625, California Court of Appeals, Second District, Fifth Division (November 23, 2021) the trial court ordered the state to pay Golden State and the Controller appealed.

BACKGROUND

Marisa Schermbeck Nelson worked as a personal assistant to Doctor Munir Uwaydah from 2000 to June 2010. Uwaydah owned and controlled several companies that were held in other persons’ names to hide his ownership and control from creditors, insurance investigators, and government agencies. During Nelson’s employment with Uwaydah, Uwaydah directed her to put her name as owner, officer, or manager of various corporations or limited liability companies even though he owned and solely controlled the operation of those entities.

Uwaydah owned Golden State yet directed Nelson to put her name as Golden State’s owner. Nelson also was designated as the owner of a bank account associated with Golden State. At Uwaydah’s direction and until her employment with Uwaydah ended in June 2010, Nelson moved money in and out of the Golden State bank account.

On March 16, 2017, the Los Angeles County District Attorney filed a complaint against Nelson and others for, among other crimes, conspiring to commit insurance fraud in violation of Penal Code sections 182, subdivision (a)(1) and 550, subdivision (a)(6). The complaint alleged the insurance fraud was committed between November 15, 2004, and February 20, 2015, and was based, in part, on the operation of Golden State. On July 26, 2017, Nelson pleaded guilty to that charge as stated in a third amended felony complaint.

Nelson testified that Uwaydah, who “was the true owner of Golden State . . . created a list of prescription medications and insisted that each patient seen at Frontline [a medical clinic also controlled by Uwaydah] be prescribed all medications on the list or at least a certain dollar amount . . . . The billing reflected that each patient was essentially prescribed the same medication.” She added that “[p]rescriptions would often be returned to the clinic or pharmacy and these medications would be relabeled with different patient names and the insurance company would be re-billed for the same medication. Nelson also testified that Golden State operated under a fraudulent scheme from its founding to her departure from Uwaydah’s employment in June 2010.

On January 17, 2019, a Criminal Grand Jury of Riverside County indicted Uwaydah, Hunt, and others for, among other crimes, conspiring to knowingly make false or fraudulent claims for payment of health care benefits in violation of Penal Code sections 182, subdivision (a)(1) and 550, subdivision (a)(6).

The Insurance Claims

Between May 2015 and June 2016, the Controller received 37 submissions from insurance companies and other entities for insurance claim benefits, insurance claim reimbursements, and workers’ compensation benefits that identified Golden State as the owner of the submission proceeds.

On March 9, 2017, Hunt, on behalf of Golden State, filed claim forms with the Controller concerning the 37 submissions. From October 2017 to February 2018, Zachary Peccianti, the Controller’s Bureau Chief, communicated with Hunt and Steven Gardner, Golden State’s attorney, concerning documents necessary to “complete the claim.

On August 30, 2018, Golden State filed its complaint against the Controller to recover its claimed money under the UPL. It moved for summary judgment. The trial court granted the motion and, on August 3, 2019, entered judgment for Golden State in the amount of $121,989.13.

DISCUSSION

The UPL governs the state’s handling and disposition, generally through the Controller, of property such as bank accounts and securities, held by entities such as banks, brokerage firms, and insurance companies, the owners of which have not acknowledged or claimed their interest in for several years, generally three. Such property by statute escheats (becomes the property of the state), nonpermanently, and the holder must transfer it to the controller. The UPL is not a permanent or “true” escheat statute. Instead, it gives the state custody and use of unclaimed property until such time as the owner claims it. Its dual objectives are to protect unknown owners by locating them and restoring their property to them and to give the state rather than the holders of unclaimed property the benefit of the use of it, most of which experience shows will never be claimed.

The trial court impliedly ruled that Golden State did not file its complaint within the time prescribed in section 1541, but expressly ruled that the statute of limitations was equitably tolled. The Controller contended that the court erred in applying equitable tolling because Golden State failed to provide the Controller with notice of its intent to litigate and failed to conduct itself reasonably and in good faith.

Golden State filed its complaint on August 30, 2018, over 270 days after March 9, 2017, and outside the statute of limitations. Thus, for Golden State to proceed with its time-barred claim, it had to satisfy the elements of equitable tolling.

Equitable tolling is a judge-made doctrine which operates independently of the literal wording of the Code of Civil Procedure to suspend or extend a statute of limitations as necessary to ensure fundamental practicality and fairness. Equitable tolling has three elements: timely notice, and lack of prejudice, to the defendant, and reasonable and good faith conduct on the part of the plaintiff.

The Controller Demonstrated a Triable Issue of Material Fact Concerning Golden State’s Ownership of the Claimed Money

The Controller concedes that the insurance companies and other entities that delivered the contested money to the Controller listed Golden State as the owner of that money.

There is a triable issue of material fact as to whether Golden State was formed and operated as part of a criminal conspiracy to commit insurance fraud. Nelson, who was designated for some period as Golden State’s sole manager, pleaded guilty to conspiring to commit insurance fraud in connection with Golden State’s operation. Golden State operated under a fraudulent scheme from its founding to her departure from Uwaydah’s employment in June 2010.

This evidence supported an inference that a criminal conspiracy generated the insurance payments that were the submissions to the Controller. There was a question of material fact whether Golden State owned those check proceeds as the person who had legal right to the property before its escheat it would have had no legal right to money criminally obtained.

The judgment was reversed. The Controller was awarded its costs on appeal.

ZALMA OPINION

The UPL, logically, does not allow the state to pay to a fraud perpetrator funds the state controlled.  The fraud was obvious and established. If anyone had a right to the funds were the insurers who were defrauded and paid claims that they did not owe. It should be axiomatic that neither a state agency nor a court should do anything to allow a fraud perpetrator to profit from his crime.


© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

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What is Mold?

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A Video Explaining Mold & its Effects on Humans

See the full video at https://rumble.com/vq7txy-what-is-mold.html and at https://youtu.be/QCHKDO5leXc

The term “mold” is a defined as “a simple microscopic organism that is found everywhere, indoors and outdoors. Mold belongs to the Fungi Kingdom. (All molds are fungi, but not all fungi are molds).” [Managing Microbial Problems in Buildings, A Teaching Glossary by Patrick J. Moffett & Environmental Management & Engineering, Inc., 2003.] Mold is a microscopic version of a mushroom. Like mushrooms, most molds consist of a fruiting body, a root system, and very small seeds known as spores. The filaments are the root system that micro-fungi send into whatever material they are growing on, so that they can soften and digest the material.

Mold is everywhere. It is a living thing that is neither animal nor what is usually considered a plant. It grows naturally outdoors. The spores, which mold create in order to reproduce, are present in the air. When mold moves indoors it grows rapidly in environments that contain an excessive amount of moisture.

Homeowners unintentionally create good conditions for mold growth through moisture collected from a leaky roof, broken pipe, clogged drainage system, or lack of waterproofing materials in a shower stall. Any one of these things can initiate the process of mold growth.

In addition to the presence of moisture, mold needs a nutrient source to develop and spread. The necessary nutrients are present in most homes and commercial structures. Nutrients that are consumed by molds include wallpaper, cardboard, ceiling tiles, wood, wood products, newspapers, carpeting, or any product containing cellulose.

Many molds are benign. Some are edible, such as mushrooms and the fungi that convert milk to cheese. Other molds, called mycotoxins, are claimed to produce toxins harmful to human health. Mycotoxins can be absorbed into the human body through the intestinal lining, airway paths, and skin. Human exposure to mold can be very dangerous.

Mycologists have estimated that there are hundreds of thousands of species of mold, each having its own preference for moisture, temperature, and food source. Mold grows on all live plants, dead plants, animal matter, and in soil. Spores are blown about by the wind and are almost always found in indoor and outdoor air. They are a normal component of house dust.

Mold spores are hardened containers, which possess all the DNA instructions needed to create new mold creatures. If they bump into dry walls they simply rebound and continue floating. When they bump into wet walls, however, they stick. When the shell of a mold spore is broken, mold is created by the emergence of several groping, arm-like structures called hyphae. These hyphae are used by molds to obtain nourishment from sulfur grains in concrete, metals in paint, or, for one especially abundant species found at some time in almost every house in northern temperate climates, the antibiotic produced when they land on wood. The hyphae excrete enzymes that break down complex organic materials.

Mold typically grows on organic materials that remain moist for more than 24 hours. Materials exposed to high humidity can become moist enough to support mold growth. Good housekeeping requires, therefore, a reduction in humidity and the drying out of any moisture that might exist in organic compounds that could support mold growth. If proper maintenance is not followed then the volatile organic compounds (VOCs) released by some molds that are toxic and associated with Sick Building Syndrome (SBS) may grow and cause injury.


© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

 

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Lawyers Suffer from Florida’s Problems with Assignment of Claim Suits

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When a Lawyer Represents a Fraud It is Essential to Clearly Withdraw on that Ground

Kovar Law Group, PLLC (KLG), represented Benchmark Consulting, Inc. d/b/a Castle Roofing (Castle) in more than 90 lawsuits against insurers based on assignments of benefits assigning its claims to Castle. KLG sued to recover contingent fees it claimed it earned after it withdrew from representation of Castle because it claimed withdrawal was mandatory after it learned Castle was involved in presenting fraudulent insurance claims.

In Kovar Law Group, PLLC v. Benchmark Consulting, Inc., D/B/A Castle Roofing And Construction, Inc., a Florida Corporation, a/a/o James Nunley, No. 2D21-885, Florida Court of Appeals, Second District (December 1, 2021) resolved the lawyers claim for fees.

Castle alleged that KLG filed charging liens in each of the ninety matters it represented Castle in prior to its withdrawal of representation and that it would be unfair to Castle, and an unnecessary burden on the courts, to allow repeated litigation of the same issue when each lien involves what is essentially the same controversy.

FACTUAL BACKGROUND

KLG began representing Castle in insurance-related matters sometime around 2017 or 2018 pursuant to an oral contingency fee agreement. It also represented Castle’s principal, Jim Lathrop, in personal legal cases. The litigation between the parties over KLG’s charging lien on Castle’s insurance cases began in the United States District Court for the Middle District of Florida. In both that federal case and the current case, KLG attempted to enforce a charging lien on Castle following KLG’s termination of representation on all of Castle’s matters.

To enforce a charging lien, an attorney must show

  1. that there was an express or implied contract between the attorney and the client;
  2. that the parties had an express or implied understanding that the attorney fees would be paid out of the recovery;
  3. that the client avoided making payment or there was a dispute as to the amount of fees; and
  4. that the attorney provided timely notice of his charging lien. [Daniel Mones, P.A. v. Smith, 486 So.2d 559, 561 (Fla. 1986).]

Proceedings in the Federal Case

The federal case, like the case on appeal, began in state court as a standard breach of insurance contract case between Castle and an insurer. KLG withdrew from representation and filed a charging lien, claiming that it had not received full payment from Castle for the legal services it had rendered and the costs it had advanced.

Specifically, KLG believed Castle was engaging in fraud because Castle hired and utilized an in-house attorney and Castle was waiving insurance deductibles and fraudulently claiming to have completed interior work it had not actually performed in violation of Florida insurance law. Because KLG was filing complaints on Castle’s behalf based on allegedly phony insurance claims, KLG argued that its services were being used to facilitate the fraud and as a result of state rule of professional conduct it was required to withdraw.

At the hearing, Kovar testified that the “irreconcilable differences” to which he referred in the last email pertained to Castle’s use of KLG’s services to commit insurance fraud, which prevented KLG from continuing to serve as Castle’s counsel under rule 4-1.16(a)(4).

The federal court entered an eighteen-page order thoroughly covering the elements at dispute in the enforcement of the charging lien and held that KLG could satisfy the requirement of an express or implied contract between it and Castle but not that there was an understanding that the fees would be paid out of the recovery.

The federal court cited Faro v. Romani, 641 So.2d 69, 71 (Fla. 1994), for the proposition that an attorney’s voluntary withdrawal from representation before the occurrence of the contingency contemplated by the parties’ agreement forfeits that attorney’s claim to compensation. It then concluded that KLG failed to meet its burden of demonstrating that its withdrawal was involuntary.

Proceedings in the Instant Case

Castle, as assignee of James Nunley, retained KLG to represent it in a breach of contract action against Citizens Property Insurance. On June 12, 2019, KLG filed a Notice of Attorney’s Charging Lien, alleging that Castle did not pay for the legal services KLG had provided and requesting that KLG be advised of any settlement, trial, or judgment in the case. On June 20, 2019, a Joint Stipulation for Substitution of Counsel was filed, indicating that the law firm of Smith Thompson Law would be substituted as Castle’s counsel of record.

Castle, through its new counsel, moved to strike and/or discharge KLG’s charging lien a few months later, on October 24, 2019.  On January 6, 2020, KLG filed a motion to enforce the charging lien, claiming that Castle and Citizens had settled the underlying breach of contract lawsuit in September 2019 and that KLG had not been consulted about its fees or the satisfaction of its lien prior to the settlement. KLG claimed an entitlement to attorney fees and reimbursement for expenses it had advanced in its initial representation of Castle in the matter. Citing rule 4-1.16(a)(4), which states that a lawyer must terminate representation of a client if “the client persists in a course of action involving the lawyer’s services that the lawyer reasonably believes is criminal or fraudulent, unless the client agrees to disclose and rectify the crime or fraud,”

The trial court ultimately entered an order granting Castle’s motion to discharge and denying KLG’s motion to enforce the lien because collateral estoppel applied in this case.

ANALYSIS

Collateral estoppel generally “comes into play in a case when, in an earlier proceeding involving a different cause of action, the ‘same parties’ litigated the ‘same issues’ that are presented once again for decision.” M.C.G. v. Hillsborough Cnty. Sch. Bd., 927 So.2d 224, 226 (Fla. 2d DCA 2006) (quoting Cook v. State, 921 So.2d 631, 634 (Fla. 2d DCA 2005)).

Collateral estoppel applies if the following elements are met:

  • an identical issue must have been presented in the prior proceeding;
  • the issue must have been a critical and necessary part of the prior determination;
  • there must have been a full and fair opportunity to litigate that issue;
  • the parties in the two proceedings must be identical; and
  • the issues must have been actually litigated.

On appeal, the only element KLG does not contest is number two, that the issue must have been a critical and necessary part of the prior determination

While the parties to the underlying breach of contract lawsuits in the federal and instant cases are not identical because the defendant insurers are different insurance companies, the parties litigating the charging lien dispute are the same-KLG and Castle. The federal court ruled that KLG voluntarily withdrew from representation before the occurrence of the contingency contemplated by the parties’ agreement and thus forfeited its claim to compensation.

Judgment of the federal case is conclusive on the issue of whether KLG voluntarily withdrew from its representation of Castle. Therefore, because the enforcement of a charging lien requires the satisfaction of all elements and the federal case’s determination is given preclusive effect, KLG cannot meet its burden for enforcing the charging lien. Accordingly, we affirm the order on appeal.

ZALMA OPINION

When a law firm represents an insurance litigant in more than 90 separate matters and only learns of what it believed to be insurance fraud after filing more than 90 lawsuits and then withdraws without an explanation as to why and how the law firm concluded its client was committing fraud strains credulity. The federal court that first heard the issue concluded that the withdrawal was voluntary and not due to the discovery of fraud which would have made the withdrawal mandatory. Lawyers are, by definition, detail oriented. To not paper the withdrawal of representation clearly and then file 90 liens and attempt to litigate them separately after losing in the federal court is the reason for collateral estoppel. KLG’s liens failed because it did not advise Castle clearly of the reasons why it had to withdraw and because, after it lost in one of the 90 cases it tried the same issue over again in the remaining 89.


© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

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The Jewelers Block Policy

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A Video About The Jewelers Block Conditions

See the full video at https://rumble.com/vq4biu-a-video-about-the-jewelers-block-conditions.html?mref=22lbp&mrefc=2 and at https://youtu.be/8RgV83YHMqM

Inadequate Books

The jewelers block policy is an inland marine policy that covers against the risk of loss of highly valuable movables, jewelry, gold and gemstones. Since most gemstones and valuable metals are fungibles – there is no way to identify one diamond from another without a laser engraved serial number, theft and fraud is fairly easy. As a general condition a jeweler’s block policy will contain, as a material condition precedent and subsequent, an “iron safe clause” that requires the insured to maintain records sufficient to establish the exact amount of loss.

The records clause is often referred to as the “iron safe” clause because the original version of the clause required that the records be kept in a “fire proof iron safe.”

Commonly, jewelers maintain a perpetual inventory on index cards, in loose leaf books, in ledger books or on computer data base software and then take a physical inventory annually to reconcile the perpetual inventory. Problems generally arise when the perpetual inventory is not reconciled on a regular schedule and the jeweler fails to reconcile errors in recording purchases or sales, expected shrinkage or undiscovered thefts.

When an insured fails to reconcile the perpetual inventory regularly, errors in entry and shoplifting losses will continue to be carried on the books of the insured as if the gemstones still exist in the inventory although they were sold or were stolen. The insured will inadvertently present an inflated loss to the insurer or will be carrying an inflated inventory on his books. At the time of loss, it will be impossible to determine exactly what was taken since the records are unreliable.

A New Jersey court found no support in the record for the trial court’s conclusion that plaintiffs “substantially complied with the requirements of the policy” because the case before it was not simply a case where policyholders maintained an inventory list which was sloppy or deficient in some respect not material to the claim. Rather, plaintiffs maintained no records at all that could be fairly described as an “itemized inventory” or “detailed listing of travelers stock.” Therefore, plaintiffs could recover under the policy for the alleged theft at the trade show only if the court completely disregarded the record-keeping requirements of the policy or found them to be unenforceable. Therefore, the court in Sherwood Prods. v. Conn. Indem., 820 A.2d 685, 359 N.J. Super. 510 (N.J. Super., 2002)

Entrustments Exclusion

The plain language of the dishonest entrustment exclusion, confirms that the exclusion applies to the present case: The loss of plaintiff’s jewelry resulted from theft or an act of dishonest character on the part of the persons to whom the jewelry was entrusted. It is irrelevant to whom or for what purpose the jewelry was actually or intended to be entrusted. Entrustment is to be determined by the state of mind of the insured rather than that of the recipient.

Mysterious Disappearance

A New York court found that a claim is outside the ambit of coverage on the basis of the policies’ exclusionary clause for “unexplained loss, mysterious disappearance or loss or shortage disclosed on taking inventory.” [Chadwick v. Aetna Ins. Co., 9 N.C.App. 446, 176 S.E.2d 352); Maurice Goldman & Sons, Inc. v. Hanover Ins. Co., 578 N.Y.S.2d 551, 179 A.D.2d 388 (N.Y. App. Div., 1992)]

Lack of Protective Safeguards

Security has always been an important aspect of underwriting a jewelers block policy. Failure to have any of the devices promised in operational order simply causes the policy to be void during the lack of such protection.

Lloyd’s added interesting exclusions to the 1995 O(L) policy that should be carefully studied. For example, having the combination to the safe or alarm written down anywhere in the store can cause a claim to be denied. This and other new exclusions deal with adding protection to the merchandise and give the insured more incentive to protect his, her, or its property.

In Phoenix Insurance Company v. Ross Jewelers, Inc., U.S.C.A., 5th Cir., 362 F.2d 985 (1966), the court found that the provision of a standard ‘jewelers’ block policy’ that the assured would maintain the protective devices described in the proposal was a promissory warranty as well as a condition.” [Great Am. Ins. Co. v. Lang, 416 S.W.2d 541 (Tex. Ct. App. 1967)]

ZALMA OPINION

The reason Jewelers Block policies have many warranties and conditions precedent is the fact that they present a very high risk of a major loss by robbery or burglary and a serious exposure to fraud by an insured who is willing to manipulate the business records. See the story “The Great Jewel Robbery” in my book, the Insurance Fraud Costs Everyone  other books, like Zalma on Insurance Claims here.


© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

 

Posted in Zalma on Insurance | 2 Comments

Defendants Claimed Their Fraud Was Obvious so Insurer was not Damaged

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GEICO Proactively Fights Fraud by Suing Providers for Damages

When health care providers admit that they defrauded an insurer but claimed they were not liable because the fraud was so obvious the insurer could not prove the reliance element of common law fraud, their defense and appeal is contumacious. In Government Employees Insurance Co., GEICO Indemnity Company, GEICO Casualty Company, GEICO General Insurance Company v. Quality Diagnostic Health Care, Inc., et al., Jorge E. Martinez, Luis Anibal Queral, M.D., Moulton Keane, M.D., Ivelis Garcia, Michel Viera, LMT, No. 21-10297, United States Court of Appeals, Eleventh Circuit (November 5, 2021) the Eleventh Circuit refused to buy the ridiculous defense that it was GEICO’s fault that they successfully defrauded GEICO.

BACKGROUND

Th appeal arose from claims – submitted by Defendants to GEICO – for reimbursement under the Florida Motor Vehicle No-Fault Law, Fla. Stat. §§ 627.730-627.7405. Florida’s No-Fault Law requires automobile insurance policies to include personal-injury protection (“PIP”) coverage to provide persons injured in automobile accidents with benefits for medical treatment. Pursuant to a valid assignment of PIP benefits by the insured, the healthcare provider may submit claims directly to the insurance company to receive payment for medical services rendered.

In Florida an insurance company is not required to pay a claim for reimbursement under certain circumstances, including to a “person who knowingly submits a false or misleading statement relating to the claim or charges,” “[f]or any treatment or service that is up-coded, ” or for charges that do “not substantially meet the applicable” statutory requirements. Florida’s No-Fault Law also prohibits reimbursement for services – including physical therapy services – performed by massage therapists.

GEICO contended that the Defendants were involved in fraudulent billing practices through Quality Diagnostic Health Care, Inc. (“Quality”), a Florida health care clinic that purported to provide patient examinations and physical therapy services to patients injured in car accidents. GEICO says Defendants submitted or caused to be submitted fraudulent insurance claims that were nonreimbursable under Florida’s No-Fault Law.

GEICO sought to recover insurance payments already made to Quality (about $145,000) and sought a declaration that GEICO owed no legal obligation to pay the remaining outstanding claims submitted by Quality (about $79,000). In pertinent part, GEICO asserted against Defendants claims for declaratory judgment, common law fraud, unjust enrichment, and for violation of the Florida’s Deceptive and Unfair Trade Practices Act (“FDUTPA”).

The district court granted GEICO’s motion for summary judgment. The district court found to be undisputed these facts:

  1. Defendants submitted bills to GEICO that inflated falsely the level of service provided during initial and follow-up patient examinations and, thus, were upcoded;
  2. all physical therapy services billed to GEICO had been performed by an unsupervised massage therapist not licensed to practice physical therapy (Defendant Viera); and
  3. the bills submitted to GEICO represented falsely that physical therapy services had been provided by or under the direct supervision of a licensed physician (Defendant Keane).

In the light of these facts, the district court determined that none of Quality’s bills to GEICO were eligible for reimbursement under Florida’s No-Fault Law. Given Defendants’ knowing false representations the district court also granted summary judgment on GEICO’s claims for common law fraud and for violation of FDUTPA.

DISCUSSION

Under Florida law, a plaintiff asserting a claim for fraud must show:

  • a false statement of fact;
  • known by the person making the statement to be false at the time it was made;
  • made for the purpose of inducing another to act in reliance thereon;
  • action by the other person in reliance on the correctness of the statement; and
  • resulting damage to the other person. [Gandy v. Trans World Comput. Tech. Grp., 787 So.2d 116, 118 (Fla. Dist. Ct. App. 2001)].

Much to the surprise of the trial court and GEICO, the defendants admitted the claims billed to GEICO inflated falsely the level of service provided and, thus, were upcoded and represented falsely that the physical therapy services had been provided by or under the direct supervision of a licensed physician.

Regardless of the admission of fraud, the defendants contended that GEICO could not show justifiable reliance because GEICO knew or should have known that Defendants’ claims misrepresented the nature and extent of the patient examinations. According to Defendants, the billing deficiencies were “obvious” from the underlying treatment records and accident reports (to which GEICO had access) and, thus, GEICO was on notice that Defendants’ representations on their invoices for reimbursement were false.

The district court properly rejected these arguments. Under Florida law, a person “may rely on the truth of a representation, even though its falsity could have been ascertained had he made an investigation, unless he knows the representation to be false or its falsity is obvious to him.” [Besett v. Basnett, 389 So.2d 995, 998 (Fla. 1980)]

A falsity is “obvious” when “a mere cursory glance would have disclosed the falsity of the representation” or when a “cursory examination or investigation” would make “patent” the falsity. In the insurance context, we have said that – absent “some circumstance which directs attention to them” – information somewhere in an insurer’s records is insufficient to put an insurer on notice of the falsity of representations made to it. See Schrader v. Prudential Ins. Co., 280 F.2d 355, 362 (5th Cir. 1960) that explained that an “insurer is entitled to rely on the representations of an insured, without checking all its files to determine if the insured is committing a fraud.”

The Eleventh Circuit was unable to determine that the falsity of Defendants’ misrepresentations were “obvious”. The falsity was not readily observable upon a cursory examination. GEICO was entitled to rely on Defendants’ misrepresentations made in their invoices for reimbursement, even if a more thorough investigation of the full treatment records and accident reports might have uncovered the falsity of Defendants’ statements.

UNJUST ENRICHMENT & FDUTPA

To state a claim for unjust enrichment under Florida law, a plaintiff must prove three elements:

  • the plaintiff has conferred a benefit on the defendant;
  • the defendant voluntarily accepted and retained that benefit; and
  • the circumstances are such that it would be inequitable for the defendants to retain it without paying the value thereof.

A cause of action for unjust enrichment exists when an entity accepts and retains benefits that it is not legally entitled to receive in the first place.  GEICO paid Defendants over $145,000 as reimbursement for patient examinations and for physical therapy services purportedly rendered by Quality. That Defendants’ claims – as submitted – were non-reimbursable under Florida’s No-Fault Law is undisputed. Because Defendants had no legal entitlement to the reimbursement payments, the district court committed no error in granting GEICO summary judgment on its claim for unjust enrichment.

To establish a claim for violation of the FDUTPA, a plaintiff must show “(1) a deceptive act or unfair trade practice; (2) causation; and (3) actual damages.” [See Dolphin LLC v. WCI Cmtys., Inc., 715 F.3d 1243, 1250 (11th Cir. 2013).] The district court concluded that GEICO was entitled to summary judgment because Defendants admittedly engaged in “deceptive acts” or “unfair trade practices” when they upcoded charges and represented falsely that Dr. Keane performed or directly supervised the physical therapy services and (2) a causal connection existed between Defendants’ deceptive acts and GEICO’s payment of the PIP claims.

ZALMA OPINION

It takes a great deal of unmitigated gall to appeal an adverse judgment after admitting that the conduct that resulted in a summary judgment in favor of GEICO was contumacious since they admitted that they had defrauded GEICO and raised the silly argument that GEICO should not have paid the fraudulent billing since they were obviously fraudulent. I can only wonder why the defendants or their lawyers were not sanctioned for bringing such a frivolous appeal.


© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

 

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Types of Warranties in Insurance Policies

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A Video Explaining Types of Warranties

See the full video at https://rumble.com/vq2iv2-a-video-explaining-types-of-warranties.html and at https://youtu.be/S0J9rmHB4dw

Express Warranty

Express warranties relate to the present or past existence of particular facts relating to the risk upon the truth of which, the validity of the contract depends. [California Insurance Code § 440.]

A statement of fact becomes an express warranty when the insurer and the insured comply with California Insurance Code section 443. Section 443 provides:

Every express warranty made at or before the execution of a policy shall be contained in the policy itself, or in another instrument signed by the insured and referred to in the policy, as making a part of it.

Some examples of express warranties include the following statements:

  • “My business is a partnership.”
  • “My building is reinforced brick.”
  • “I have never been canceled by any insurer.”
  • “I am 45 years old and have never smoked cigarettes.”

The California Insurance Code further explains the concept of the express warranty by saying:

A statement in a policy of a matter relating to the person or thing insured, or to the risk, as a fact, is an express warranty thereof. [California Insurance Code § 441].

The violation of an express warranty will void a policy in its entirety. [ See Aguirre v. Citizens Cas. Co. of N.Y., 441 F.2d 141 (5th Cir. 1971); Saskatchewan Gov’t Ins. Office v. Spot Pack, Inc., 242 F.2d 385, 388 (5th Cir.1957).] In the British case, A C Ward & Sons Ltd v. Catlin (Five) Ltd & Ors [2009] Commercial Court, the insurers attempted to avoid coverage on the failure of an alarm system, warranted by the insured to work. The court concluded that the warranty was not limited to the particular “protections” specified in the proposal form, nor was the Alarm Warranty confined to such alarm systems as might have been identified in the schedule.

As a matter of commercial common sense, the warranties referred to whatever protections or alarms actually existed, whether identified in the policy documentation or not. As to knowledge, the court adopted the view that a breach of warranty could occur only in the event of a defect of which the insured was, or should reasonably have been, aware, and which it had then failed to remedy promptly. However, even though the alarm warranty was not effective the insured also promised that theft coverage for cigarettes & tobacco in a warehouse was not operative outside of business hours unless the stock was kept within the special secure store on the ground floor. Since they were not on the first floor the insured was not allowed to recover.

Federal admiralty law requires strict construction of express warranties in maritime insurance contracts. [Travelers Prop. Cas. Co. of Am. v. Ocean Reef Charters, LLC, 396 F.Supp.3d 1170 (S.D. Fla. 2019)]

Admiralty law requires the strict construction of express warranties in marine insurance contracts; breach of the express warranty by the insured releases the insurance company from liability. [Lexington Ins. Co. v. Cooke’s Seafood, 835 F.2d 1364, 1367-38 (11th Cir. 1988) that affirmed a judgment in favor of the insurer based on breach of a navigational warranty).

Affirmative Warranty

An affirmative warranty asserts an existing fact or condition which appears on the face of the policy or “is attached thereto and made a part thereof.” It is limited in time to the moment of the application. The following statements are examples of an existing fact or condition:

  • “The property is protected by a fire sprinkler system.”
  • “The roof is composition tile.”
  • “There is a silent, central station burglar alarm system.”
  • “I have been treated for high blood pressure.”
  • “There is a watchman on duty at all times the business is closed.”
  • “All business records are kept, when not in use, in a fireproof iron safe.”

When an insurance policy’s full-time work eligibility requirement is an “affirmative warranty.’“ a breach of an affirmative warranty cannot be a ground for rescission of the policy unless the insurer relies on the affirmative warranty and the affirmative warranty is either material or made with the intent to deceive; or, the fact falsely warranted contributes to the loss. Plaintiff states that Wisconsin law limits an insurance company’s ability to void coverage and argued that undisputed facts do not satisfy these limits. [Stanczyk v. Prudential Ins. Co. of Am. (N.D. Iowa, 2017)]An affirmative warranty is one which asserts the existence of a fact at the time the policy is entered into, and appears on the face of said policy, or is attached thereto and made a part thereof. [Hicks v. Mennonite Mut. Ins. Co., 2011 Ohio 499 (Ohio App. 2011)]

In Reid v. Hardware Mut. Ins. Co. of Carolinas (1969), 252 S.C. 339, 166 S.E.2d 317, which held that designating a residence as “owner-occupied” is an affirmative warranty, rather than a continuing warranty, and does not preclude the named insured from recovering under the policy after the premises is sold to another party. Because the insurance contract contained a description of the dwelling insured as being “owner occupied” the provision was an affirmative warranty, not a continuing warranty that the dwelling was so occupied by him at the time the contract of insurance was made. [Hicks v. Mennonite Mut. Ins. Co., 2011 Ohio 499 (Ohio App., 2011)]

ZALMA OPINION

Fulfillment of insurance warranties by those insured or by the insurer are important to every insurance claim investigation. It is important that every claims person or insurance coverage lawyer understand the effect of warranties and establish that every warranty made was fulfilled at the time of inception or at the time of the loss.


© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

 

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Insurer that Acts in the Custom & Practice of Industry Acts in Good Faith

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No Good Deed Goes Unpunished

After a car accident, Zhaojin Ke filed a claim with Liberty Mutual, his insurer, for repairs to his van. Because the cost of the repairs would have reached the market value of the van itself, if not exceeded the value, Liberty Mutual offered him the van’s market value instead. Not content, Mr. Ke demanded that Liberty Mutual pay for the repairs. When it refused Mr. Ke sued, claiming that Liberty Mutual had tricked him into buying insurance, violated the insurance policy, and handled his claim in bad faith. In Zhaojin David Ke v. Liberty Mutual Insurance Company, Civil Action No. 20-1591, United States District Court, E.D. Pennsylvania (November 9, 2021) the USDC resolved the claims while giving extra concern to the claims of Mr. Ke who sued in propia persona.

BACKGROUND

Driving through Philadelphia, Mr. Ke was rear-ended on an icy road, causing him to bump into the car in front of him. His right headlight and right corner of his bumper were damaged. Following Liberty Mutual’s instructions, Mr. Ke dropped his car off at a body shop for a repair estimate.

That day, Liberty Mutual’s claims adjuster authorized repairs on the van, but quickly backtracked. The body shop estimated that repairs would cost at least $3,389.17. Liberty Mutual’s appraiser valued the car at $3,725.00. Because the repair estimate was nearly the van’s value, Liberty Mutual labeled the van a “total loss.” So Liberty Mutual offered Mr. Ke $3,613.04, or the van’s cash value ($3,725) plus taxes and fees ($388.04), minus the policy’s $500 deductible.

Mr. Ke disagreed that the van was “totaled,” and demanded that Liberty Mutual pay for the repairs. Mr. Ke did not accept Liberty Mutual’s proffered payout. Instead, he took his vehicle back from the repair shop, without salvage title. He then sued Liberty Mutual.

Mr. Ke sued for breach of contract and unjust enrichment. He also accused Liberty Mutual of handling his claim in bad faith and engaging in unfair trade practices. The parties filed cross-motions for summary judgment on all claims. Also, Mr. Ke moved to exclude the expert report of Kevin M. Quinley, Liberty Mutual’s expert in “insurance handling.”

DISCUSSION

Liberty Mutual’s Expert May Testify To Industry Practices But Not Opine On Bad Faith

To show that it handled Mr, Ke’s claim in good faith, Liberty Mutual offers an expert report from Kevin M. Quinley, an expert in insurance claims who presumably would testify along the same lines as his report, namely that Liberty Mutual handled Mr. Ke’s claim in line “with … industry norms, customs, and practices.” Mr. Ke moves to exclude this report. He did not claim that Mr. Quinley was not qualified. Given that Mr. Quinley has over 40 years of experience in insurance claims and so has “specialized knowledge” he was eminently qualified.

In forming his opinion, Mr. Quinley used what he describes as a qualitative methodology: he compared Liberty Mutual’s actions here to what he has seen happen with other insurance claims over the past four decades to decide if Liberty Mutual followed industry standards. Experts need not be scientists or mathematicians. The Rules of Evidence permit experts with “scientific, technical, or other specialized knowledge.” Fed.R.Evid. 702(a); see Kumho Tire Co. v. Carmichael, 526 U.S. 137, 150 (1999) Mr. Quinley’s methodology is how experts typically testify about industry customs and practices

Mr. Quinley’s Testimony Is Relevant

Expert testimony that Liberty Mutual followed industry standards can be Evidence That An Insurer Acted In Good Faith, And Vice Versa.

No Reasonable Juror Could Find That Liberty Mutual Breached Its Contract

Parties are bound by the written terms of their insurance policy. If those terms are “clear and unambiguous,” the Court gives them their plain meaning. Mr. Ke purchased collision insurance. To him, that means that Liberty Mutual must pay to repair his vehicle, no matter the cost. But that is not what his policy says, or ever said.

Per the policy, Liberty Mutual had the option to pay the “actual cash value” of the van or “the amount necessary to repair or replace” it. In other words, Liberty Mutual does not have to pay for the repairs if it will cost the same or more than the vehicle is worth. The van was worth $3,725.00. In comparison, the repairs were valued at $3,389.17. But that was just a “preliminary estimate based on visible damage.” Once the van was “taken apart,” the mechanics might find “additional damage” requiring “additional repairs.” After all, Mr. Ke’s car was almost 14 years old. Mr. Ke even recognized that the initial quote likely would not cover all the necessary repairs. By offering Mr. Ke the value of his van rather than repairing it, Liberty Mutual did not breach the contract.

To try to get around this plain language, Mr. Ke points to an advertisement from Liberty Mutual explaining that “Collision Insurance is an add-on coverage that pays the cost of repairing or replacing [a vehicle], minus the amount of [the] deductible.” But this advertisement from Liberty Mutual’s website is not itself a part of the insurance contract. Instead, it is “an invitation to [Mr. Ke] to … purchase” this additional coverage. Even if it had been part of the contract, Liberty Mutual would have adhered to the terms of the advertisement. The advertisement promised to pay for “the cost of repairing or replacing” his van. Liberty Mutual chose to replace, not repair.

Despite the policy’s plain language, Mr. Ke insists that the sales agent promised otherwise. Mr. Ke asserts that Liberty Mutual’s sales agent promised him on the phone that Liberty Mutual would provide “full insurance.” But promising “full insurance” is, at most, a promise to put Mr. Ke in a situation comparable to where he was before the accident. It is not a promise to pay for repairs, no matter the cost. No reasonable juror could find that Mr. Ke reasonably expected for Liberty Mutual to pay for repairs free of terms, conditions or exclusions-especially when his insurance contract contained plenty. Liberty Mutual complied with the contract by offering to replace Mr. Ke’s van. No reasonable juror could find that Mr. Ke reasonably expected otherwise. Thus, the Court grants Liberty Mutual summary judgment on this claim.

Moreover, Mr. Ke has produced no proof that the sales agent knew his promise was false or intended to mislead Mr. Ke. Because Mr. Ke has not pointed to evidence in the record to show fraudulent conduct his claim cannot stand.

Liberty Mutual Did Not Have To Pay For Repairs, Rather Than A Replacement

In Pennsylvania, a vehicle is an economic “total loss” if it costs more to repair it than the vehicle is worth. His van was valued at $3,725.00; the repairs were estimated at $3,389.17, and likely to be even higher. Because the “cost of repairing” the van equals or “exceeds its appraised value less [its] salvage value,” or the price for which the damaged van could be sold, the van was a total economic loss.

Once Mr. Ke said that he wanted to keep his van, Liberty Mutual told him that he could do so “and still receive a payout”- the entire $3,613.04-but he “would need to get a salvage title from Pennsylvania DMV on the van and provide [Liberty Mutual] with a copy.”

Because Mr. Ke has not carried his burden, and Liberty Mutual has, the Court granted Liberty Mutual’s motion for summary judgment. The USDC concluded that no reasonable juror could find that Liberty Mutual did any of the things Mr. Ke charged. Neither the insurance policy nor good faith required Liberty Mutual to arrange for the repair of Mr. Ke’s van, rather than pay him the van’s value.

ZALMA OPINION

This case is evidence of the old saying that “no good deed goes unpunished.” Here, Liberty Mutual agreed to pay the value of the van, an amount in excess of the estimated cost of repair and waive its right to reduce its loss by selling the salvage. For that good deed, on a dispute of less than $2,000, Liberty needed to defend the pro-per lawsuit, hire counsel and an excellent expert witness. In that way Mr. Ke managed to punish Liberty for adjusting his claim fairly and in good faith and in accordance with the clear and unambiguous language of the policy. If a lawyer brought the action there is a high probability that counsel would have been sanctioned by the court.


© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

 

 

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Zalma’s Insurance Fraud Letter – December 1, 2021

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ZIFL – Volume 25, Number 23

See the full video summary at https://rumble.com/vq0rym-zalmas-insurance-fraud-letter-december-1-2021.html  and at https://youtu.be/Y7awRS5xNGE

The full .pdf version is available here.

Admitted Crop Insurance Fraud Perpetrator Tries to ZIFL-12-01-2021Limit Restitution

Crooked Farmer Goes to Jail and Must Pay $2.5 Million in Restitution

Defendant Ronnie Jolly pleaded guilty to crop insurance fraud, money laundering, and conspiring to defraud the United States and to commit mail or wire fraud. The Government sought restitution of monies paid by the crop insurance program and Jolly moved to avoid or limit the orders of restitution.

In United States of America v. Ronnie Jolly, CRIMINAL No. 5:18-32-KKC, United States District Court, E.D. Kentucky, Central Division, Lexington (November 1, 2021) the court dealt with the restitution order.

ZIFL OPINION

Insurance criminals have no shame. After admitting the extensive nature of his fraud Jolly had the unmitigated gall to try to limit, or eliminate, the restitution ordered. He succeeded in limiting what was to be paid to the private insurer to only indemnity payments and failed on his obligation to repay the crop insurance program he admittedly defrauded. The government should take all of Jolly’s assets up to the amount he stole and he should be required to spend all of the time ordered in the grey-bar-hotel.

Pyrrhic Victory – Partial Win Makes Conviction for Insurance Fraud Easier

Since Insurance Fraud is a Felony Charging Misdemeanors Wasteful

Following a preliminary hearing, Sanjoy Banerjee, a physician, was charged with two counts of presenting a false or fraudulent health care claim to an insurer, a form of insurance fraud and three counts of perjury. The superior court denied Banerjee’s motion to dismiss the information as unsupported by reasonable or probable cause and he sought a writ of prohibition to eliminate the charges. In Sanjoy Banerjee v. The Superior Court of Riverside County, The People, Real Party in Interest, E076291, California Court of Appeals, Fourth District, Second Division (October 5, 2021) the Court of Appeals prohibited the perjury counts and allowed the insurance fraud charges to go forward.

INTRODUCTION

Banerjee petitioned for a writ of prohibition, directing the superior court to vacate its order denying his Penal Code section 995 motion and to issue an order setting aside the information. The People claim the evidence supports a strong suspicion that Banerjee committed two counts of insurance fraud and three counts of perjury.

Between 2014 and 2016, Banerjee billed a workers’ compensation insurer for services he rendered to patients through his professional corporation and through two other legal entities he owned and controlled. The insurance fraud charges are based on Banerjee’s 2014-2016 billings to the insurer through the two other entities. The perjury charges are based on three instances in which Banerjee signed doctor’s reports, certifying under penalty of perjury that he had not violated “section 139.3.”

ZIFL OPINION

The crime of insurance fraud is a simple, direct, crime to prove. If a fraudulent bill is sent to an insurance company the crime may be proved. Since the evidence showed that by using the two additional entities Banerjee was able to bill $9,000 more than if he billed it directly can cause a jury to conclude he issued the bills with the intent to defraud the insurer. The Court of Appeal, by eliminating the perjury charges made the case simple, clean and direct instead of complicating the trial with difficult to prove and less than clear statutes. Banerjee succeeded partially, and in so doing, made it easier for the state to convict him of insurance fraud.

Department Issues Cease and Desist Order to Protect California Consumers from Illegal Extended Car Warranties Sales

Good News for All of Us Who Get RoboCalls Selling Warranties

The California Department of Insurance issued Orders to Cease and Desist and to Show Cause effective immediately upon Opulent Marketing, Inc. doing business as Infinite Auto Protection (Infinite Auto) for allegedly selling illegal Vehicle Service Contracts (VSCs) to 25 California consumers across the state.

Health Insurance Fraud Convictions

Seven Plead Guilty to Health Care Fraud

Wrights Care Services, LLC, a North Carolina-based provider of rehabilitative behavioral health services engaged in health care fraud and seven of its owners and employees pleaded guilty to charges related to a Medicaid fraud conspiracy arising from the false billing of behavioral health services for children.

Other Insurance Fraud Convictions

Individuals In LA-Based Organized Fraud Ring Sentenced to Prison for Staging Auto Collisions to Collect Insurance Money

Drivers caused 15 crashes involving 21 victims – some resulting in severe injuries

Victor Valle-Diaz, 55, Eduardo Retana, 25, and Ausencio Gomez, 46, were sentenced to serve in state prison after pleading no contest to charges of insurance fraud and assault for their involvement in the organized auto fraud ring. The three defendants were involved in 15 staged collisions involving 21 victims, some of who were severely injured, in a scheme to fraudulently collect nearly $330,000 from insurance companies.

“Chutzpah” To Appeal a Conviction Where Overwhelming Evidence Established A $31 Million Fraud

Properly Convicted of Health Care Fraud

“Chutzpah” is Yiddish for “unmitigated gall.” It has been defined as a request for mercy from a defendant convicted of murdering his parents because he is an orphan.

In United States of America v. Patrick Tonge, Serge Francois, No. 18-11165, United States Court of Appeals, Eleventh Circuit (November 22, 2021) the defendants asserted a series of spurious claims on appeal of their conviction for running a fraudulent conspiracy and scheme to defraud government sponsored health insurance programs.

Patrick Tonge and Serge Francois were convicted of federal crimes arising out of their work at Atlantic Pharmacy & Compounding, a Florida pharmacy that collected over thirty-one million dollars in fraudulent claims from federal insurance programs.

Barry Zalma, Esq., CFE

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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

Over the last 54 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Barry Zalma, Inc., 4441 Sepulveda Boulevard, CULVER CITY CA 90230-4847, 310-390-4455;

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome. Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; I publish daily articles at https://zalma.substack.com, Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/ Read posts from Barry Zalma at Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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A Video About the Voluntary Payments Clause

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The Notice Prejudice Rule & Voluntary Payments

See the full video at https://rumble.com/vpyva4-a-video-about-the-voluntary-payments-clause.html and at https://youtu.be/Yy9jg2Gq2Ag

The Colorado Supreme Court refused to apply the notice-prejudice rule to a policy provision prohibiting the insured from making voluntary payments on, or settling, a claim without the insurer’s consent. The court reasoned that “the no-voluntary-payments clause of the contract at issue here actually goes to the scope of the policy’s coverage.”

“The policies at issue also contain a voluntary payments clause, which provides that the insured will not incur any expense without prior approval except at his own cost. Indiana law provides that an insurer is not liable when an insured breaches a voluntary payment clause by not obtaining the insurer’s consent prior to incurring the expense.”

On the other hand, the North Carolina Court of Appeals requires a material prejudice requirement to insurance disputes concerning the voluntary payments clause in a liability policy.  A school system made a $49,200 claim against the insured roofing contractor for water damage to school property in the building. The insured allegedly agreed with the school system to be responsible for payment of the water damage claim prior to the insurer’s decision on the claim. At some point the insurer denied coverage for the claim. The insured filed a declaratory judgment action to determine whether the claim was covered.

Where the insured has breached the voluntary payments clause of the policy but the insurer has not demonstrated that the insured’s actions prevented the insurer from investigating or litigating a claim, summary judgment for the insurer must be denied. In reaching its decision the court said:

[W]e conclude an insurer must show prejudice where the insured has breached the voluntary payments clause of the parties’ insurance contract. Defendant has not demonstrated that plaintiff’s actions prevented defendant from investigating or litigating the claim.

Insurers must, even when they have evidence that establishes that an insured has breached a material condition of the policy, also collect evidence that establishes that the breach prejudiced the rights of the insurer in those states requiring a showing of prejudice.

ZALMA OPINION

Conditions are an important part of every insurance contract. Conditions like the Voluntary Payments Condition, the prompt reporting condition, and the proof of loss condition will void coverage in most states. In some states the courts will apply the notice prejudice rule so it is important, before making a decision on a breach of a material condition, it is prudent to seek the advice of a competent insurance coverage lawyer in the state where the loss occurred, before making a decision on the claim and if the loss is in a state that applies the notice prejudice rule, whether there was actual prejudice as a result of the breach.


© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

 

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Properly Convicted of Health Care Fraud

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“Chutzpah” to Appeal a Conviction Where Overwhelming Evidence Established a $31 Million Fraud

“Chutzpah” is Yiddish for “unmitigated gall.” It has been defined as a request for mercy from a defendant convicted of murdering his parents because he is an orphan.

In United States Of America v. Patrick Tonge, Serge Francois, No. 18-11165, United States Court of Appeals, Eleventh Circuit (November 22, 2021) the defendants asserted a series of spurious claims on appeal of their conviction for running a fraudulent conspiracy and scheme to defraud government sponsored health insurance programs. Patrick Tonge and Serge Francois were convicted of federal crimes arising out of their work at Atlantic Pharmacy & Compounding, a Florida pharmacy that collected over thirty-one million dollars in fraudulent claims from federal insurance programs.

BACKGROUND

The defendants’ convictions, and thus these appeals, begin and end with Atlantic Pharmacy, a pharmaceutical business that manufactured and sold custom medications. Serge Francois opened Atlantic in 2009, owned the business, and was the pharmacist-in-charge. Atlantic’s business operations largely involved non-sterile compounding, specifically the creation of compound prescription creams (“CPCs”) from scratch using various raw materials. Francois hired Patrick Tonge, his former used car dealer and personal trainer, to manage Atlantic’s CPC business, despite Tonge having no pharmaceutical training. In total, Atlantic collected over thirty-one million dollars in claims for CPCs from TRICARE and the Federal Employee Health Benefits Program (“FEHBP”), two federal insurance programs.

The government alleged that Tonge and Francois stole millions of dollars from federal healthcare programs by

  • making misrepresentations about Atlantic that allowed the pharmacy to obtain access to federal insurance networks;
  • filing fraudulent claims based on invalid CPC prescriptions; and
  • paying illegal kickbacks to “marketers” who then paid doctors and patients to fuel Atlantic’s CPC business.

The jury returned a verdict convicting Tonge and Francois of many of the charged offenses while acquitting each defendant of at least some counts.

Atlantic’s Misrepresentations to Gain Admission to a Federal Insurance Networkand Obtain a DEA Registration

TRICARE and the FEHBP contracted with a pharmacy benefit manager, Express Scripts International, to establish a network of healthcare providers for use by the programs’ beneficiaries. Membership in Express Scripts’s network was a requirement for submitting a claim to either TRICARE or the FEHBP. In obtaining these privileges for Atlantic, Francois made substantial misrepresentations to Express Scripts and the DEA.  If Francois had been truthful, Express Scripts would never have credentialed Atlantic as an in-network provider, walling it off from TRICARE and FEHBP claims.

Francois also lied during Atlantic’s DEA registration by asserting that his DEA license had never been suspended when in fact, it had been. Were it not for this lie, the DEA would have never granted Atlantic a registration allowing the pharmacy to fill and dispense CPC prescriptions involving controlled substances.

Atlantic’s Fraudulent CPC Business

To receive payment from Express Scripts on any given claim, an in-network pharmacy had to satisfy two requirements: (1) the prescription underlying the claim had to be valid and (2) the patient had to have been charged a co-payment. For a prescription to be valid, a physician had to have examined the patient, the prescription needed to have been medically necessary, and the pharmacy needed to have been licensed in the patient’s home state. Although Francois and Tonge processed, certified, and submitted Atlantic’s CPC claims to Express Scripts, those claims systematically failed to meet either requirement.

Over the life of the business, Atlantic contracted with several different “marketers” to promote its CPCs: DIRIV, PGRX, and RX.

Atlantic’s Attempts to Conceal its Fraud

Perhaps unsurprisingly, many patients contacted Atlantic to try to return medications that they knew nothing about and neither needed nor wanted. To minimize losses from repayment obligations and conceal the number of attempted returns, Francois and Tonge adopted a policy to try to convince reluctant patients to keep their CPCs. Francois directed Tonge and another Atlantic employee, Amanda Lee, to tell patients that their medications were free because Atlantic was not charging any co-payment. Tonge knew that co-payment reduction policies violated federal law because he had written himself an email explaining as much. Francois also lied to investigators during their search of Atlantic’s offices. Tonge deleted emails from an account he used to conduct pharmacy business when it became clear that Atlantic was under suspicion.

DISCUSSION

Tonge and Francois challenge their convictions on a number of grounds, some raised by both defendants and some only by Francois.

The court concluded that Counts One through Thirteen were sufficient as a matter of law because it used language nearly identical the anti-kickback statute almost word for word. In addition, Counts Fifteen through Nineteen charted relevant information for each Count, including the approximate date and amount of the charged kickback payments. Therefore, the indictment was legally sufficient and that the district court did not abuse its discretion by declining to grant Francois’s motion to dismiss.

Prosecutorial Misconduct

Because none of the challenged remarks were misconduct and the district court properly addressed Francois’s witness intimidation allegations, the district court did not plainly err.

Even if the prosecution’s remarks had been improper, they would not have been reversible error because they did not prejudice Francois’s substantial rights. On balance, three isolated remarks, largely cumulative of other properly admitted evidence, cannot be said to have “permeated the entire atmosphere” of a lengthy jury trial on plain error review.

The Jury Instructions

The district court’s jury instruction accurately conveyed the requisite criminal state of mind under the U.S. Courts’ healthcare fraud precedents. The district court did not abuse its discretion in denying Tonge and Francois’s proposed modifications to the pattern jury instruction.

Sufficiency of the Evidence

Because the government presented overwhelming evidence that both defendants were knowing and willful participants in a complex scheme to defraud federal insurance programs by paying healthcare kickbacks the court concluded the evidence at trial was more than sufficient.

Circumstantial evidence alone can prove agreement, including where the circumstances surrounding a person’s presence at the scene of conspiratorial activity are so obvious that knowledge of its character can fairly be attributed to him and the defendant commits acts in furtherance of the conspiracy.

Each claim to TRICARE or the FEHBP had to satisfy three requirements:

  1. the claim had to come from an in-network pharmacy;
  2. the beneficiary had to be charged a co-payment; and
  3. the underlying prescription had to be valid, meaning that the prescribing physician must have examined the patient, the prescription must have been medically necessary, and the patient must have received the prescription in a state where the pharmacy was licensed to do business.

Although none of Atlantic’s CPC claims satisfied these requirements, Francois and Tonge’s misrepresentations enabled it to collect over thirty-one million dollars in claims based on fraudulent prescriptions. Throughout their time at Atlantic, Tonge and Francois took numerous steps to minimize their losses and conceal their fraud. Atlantic implemented a policy to convince troubled patients that they should keep the medications Atlantic had sent them by waiving mandatory co-payments. Tonge knew that this practice was illegal and made a written record memorializing that knowledge but participated in the scheme regardless.

Despite the defendants’ attempts at concealment, the fraud at Atlantic was open and obvious.

Multiple employees understood that something was rotten in South Florida, and at least one pharmacist quit rather than be party to what he viewed as obviously criminal conduct. Finally, Francois testified that he did not know that the claims were false or that Atlantic was paying kickbacks. The jury was within its rights to disbelieve his testimony as to both assertions. The jury received sufficient evidence to convict Tonge and Francois on each of the challenged counts.

ZALMA OPINION

Perhaps because, for years, the defendants defrauded the government for amounts exceeding $32 million they had the funds to appeal their convictions. However, the Eleventh Circuit saw the appeal to be nothing more than “chutzpah” and disposed of the multiple charges of error with alacrity. It is essential that these conspirators who take advantage of innocent people entitled to TRICARE and Medicare benefits to prevent the defendants to profit from their crime. Their conviction was affirmed and they will, hopefully, serve their full sentences and make restitution to the government.


© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

 

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The Need for Damage or Loss to Tangible Property

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A Video Explaining Pandemic & Direct Physical Damage

See the full video at https://rumble.com/vpynys-a-video-explaining-pandemic-and-direct-physical-damage.html  and at https://youtu.be/G8deTukr-XA

The Covid-19 Pandemic has resulted in multiple cases dealing with the need for actual tangible damage. For example, in a Class Action attempt failed for lack of direct physical damage.

Caribe Restaurant & Nightclub, Inc. (“Caribe”) initiated a class action against Defendant Topa Insurance Company (“Topa”) alleging breach of contract and seeking declaratory judgment for insurance coverage.

The USDC ruled on a Covid 19 business interruption claim in Caribe Restaurant & Nightclub, Inc., Individually and On Behalf of All Others Similarly Situated v. Topa Insurance Company, Case No. 2:20-cv-03570-ODW (MRWx), United States District Court Central District of California (April 9, 2021) as have almost every court in the country.

Caribe owned and operated La Luz Ultralounge (“La Luz”), a restaurant and nightclub located in Bonita, California. Caribe purchased an insurance policy (“Policy”) from Topa.

In March 2020, due to the COVID-19 pandemic, the State of California and County of San Diego ordered “the closure of bars” and “bann[ed] onsite dining.” In May 2020, San Diego County “permitted the resumption of onsite dining” subject to restrictions. Caribe alleged that, as a result of these civil authority orders, it was forced to “suspend or reduce business” at La Luz. Caribe also alleges that COVID-19 “impaired Caribe’s property by making it unusable in the way that it had been used before.”

Caribe alleged that its losses were covered under the Policy and identified four specific provisions: “Business Income”; “Extra Expense”; “Civil Authority”; and “Duties in the Event of Loss” (referred to as the “Sue and Labor” provision). Caribe filed claims for coverage under these provisions, which Topa denied. Accordingly, Caribe sued Topa asserting that denial of coverage was a breach of contract and seeking declaratory judgment.

Because Caribe did not allege direct physical loss or damage, its claims were not covered and its causes of action for breach of contract and declaratory judgment fail. Therefore, the Court granted Topa’s Motion to Dismiss without leave to amend.

As sad as the Covid 19 losses are a court has no right to, nor will it, change the wording of the policy. The damage done to Caribe and those similarly situated was done by the state of California. Failing to obtain insurance benefits perhaps some creative lawyer will find a way to sue the state for its wrongful and allegedly unconstitutional orders depriving Caribe of the right to do business.

The Supreme Court of California, in Kazi v. State Farm Fire & Cas. Co., 24 Cal. 4th 871, 15 P. 3d 223, 103 Cal. Rptr. 2d 1, 15 P. 3d 223 (2001) found that a CGL insurer only owes a duty to indemnify if there is damage to tangible property. The court stated:

A standard general liability insurer has a duty to defend and indemnify for a loss to tangible property only. The property loss section of these policies provides coverage for physical injury, loss, or destruction of tangible property, and the focus of the property damage coverage is the property itself. (Waller v. Truck Ins. Exchange, Inc., 11 Cal. 4th 1, 17 (1995) (Waller).

For our purposes, it is important to note that the policies are not intended to cover intangible property losses, including loss of an investment, loss of goodwill or loss of intangible property use. (Id. at pp. 17-18; Gunderson, supra, 37 Cal. App. 4th at p. 1109.)

The court found that an easement is intangible, so there was no obligation to defend or indemnify an insured for such intangible losses. The Kazis had purchased land (Parcel A) adjacent to Parcel B, which was purchased by the Tollaksons. Sale documents indicated that the two parcels shared a common driveway 20 feet in width that straddled the boundary line. The Tollaksons assumed the existence of an implied easement. The Kazis subsequently graded an access road on Parcel A near the boundary line. The Tollaksons filed suit, alleging that the Kazis’ access road obstructed the Tollaksons’ implied easement over Parcel A.

In Mraz v. Canadian Universal Insurance Co., 804 F. 2d 1325 (4th Cir. 11/04/1986) he Court of Appeal for the Fourth Circuit concluded, with regard to response costs resulting from government orders to clean up hazardous waste, that:

Response costs are not themselves property damages. An examination of CERCLA’s provisions defining response, § 9601 (23)-(25), and authorizing the president to take response action, § 9604, makes it clear that property damage and response are independent; for example, the government may take response action in cases of a substantial threat of a release of hazardous substances before any damage ever occurs.

One cannot equate response costs with “injury to or destruction of tangible property,” this policy’s definition of property damage. Instead, response costs are an economic loss.

Since the court concluded that response costs were not “property damage” to tangible property, the insurer had no duty to defend or indemnify.

ZALMA OPINION

Although Covid-19 has brought on most of the litigation concerning the requirement for damage to tangible property, this video explains that it has been an issue over many years and has been upheld as a requirement by the courts that have considered the issue. Of course, an insurer could, if it desired, write coverage for damage to intangible property but, if it did, it would find it almost impossible to resolve claims because calculating losses to intangibles is necessarily speculative and difficult to determine with certainty.


© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

 

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A Bad Faith Claim in a Vacuum is not Actionable.

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The Insured Has no Right to Control Settlements Made by Insurer

Moses Taylor Foundation on behalf of Moses Taylor Hospital (“Moses Taylor”), to recover damages for the alleged breach of contract by Defendants, Coverys and Proselect Insurance Company (“Coverys”) for failure to negotiate a desirable settlement in a previous lawsuit (“the underlying suit”). In Moses Taylor Foundation O/B/A Moses Taylor Hospital v. Coverys and Proselect Insurance Company, CIVIL No. 3:20-CV-00990, United States District Court, M.D. Pennsylvania (November 22, 2021) the USDC was faced with a claim that the damages alleged by the plaintiff was speculative because it had not been damaged. The court allowed the plaintiffs one chance to amend and then ruled on the motion to dismiss the amended complaint.

FACTS

According to its amended complaint, Moses Taylor Hospital is a hospital in Lackawanna County, Pennsylvania and the Moses Taylor Foundation is a not-for-profit corporation with the authority to represent Moses Taylor Hospital. Defendant Coverys is a medical professional liability insurance provider. Proselect Insurance Company is an underwriting company for Coverys which supplies insurance protection to healthcare facilities. Moses Taylor maintained a medical professional liability insurance policy with Coverys.

The Pennsylvania Trust Company, as guardian ad litem for a minor plaintiff, filed a professional negligence action against Moses Taylor after the minor plaintiff allegedly sustained “severe, permanent, disabling birth injuries” while receiving treatment at the hospital. Coverys, as the insurer for Moses Taylor, “provided a defense and legal representation” for this lawsuit, during which Coverys “directed, controlled, monitored, over[saw], funded, [and] strategized” about the action, “including making, participating in and/or advising and counseling [Moses Taylor Hospital] about whether . . . to settle the action prior to the verdict.”

In February 2019, the minor plaintiff made a demand for the policy limits of the insurance coverage that Coverys provided to Moses Taylor. A few days after the demand, Moses Taylor claims that it informed Coverys of the need to settle the case within its policy limits at the scheduled March 1, 2019 pre-trial conference. Moses Taylor alleges that it persuaded Coverys to engage in a high-low arbitration after Moses Taylor agreed to contribute $500,000 of its own funds. The “low” limit was set at $2,500,000 and the “high” limit was set at $7,750,000.

After Coverys’ presentation at the arbitration, the minor plaintiff made a final demand for $6,000,000 to settle the case in full. Moses Taylor asserts that it directed Coverys to settle, or attempt to settle, the controversy for such amount. Moses Taylor claims that Coverys once again failed to settle the case or reasonably engage in settlement discussions. The arbitrator awarded the minor plaintiff “a substantial verdict, grossly in excess of the settlement figures, and well . . . in excess of the agreed upon ‘high’ limit.” Coverys’ paid the $7,750,000.

Moses Taylor claims that this settlement left it with $1,750,000 less in its available insurance coverage than if Coverys had settled the suit for the minor plaintiff’s $6,000,000 demand as directed by Moses TaylorSpecifically, Moses Taylor asserts that if the settlement had been for $6,000,000, then it would have $2,250,000 remaining in coverage as opposed to the $500,000 currently remaining available to settle other cases.

Moses Taylor sued. It claimed the insurer breached the contract, in bad faith, and sought damages of $1,750,000. After losing Moses Taylor, with the court’s permission, and Moses Taylor filed an amended complaint.

The amended complaint is nearly identical to the originally filed complaint. Separately docketed is a stipulation between the parties agreeing that the State Action has settled within policy limits.  Coverys filed a second to motion to dismiss on identical grounds to the first.

DISCUSSION

In this case, Coverys argues that the amended complaint should be dismissed for these reasons:

  • Moses Taylor’s claim for breach of contract should be dismissed for failure to allege non-speculative damages as required by Pennsylvania law;
  • in the event that the court dismisses Moses Taylor’s claim for breach of contract, its claim for bad faith should also be dismissed because a bad faith claim under 42 Pa. Con. Stat. § 8371 requires a predicate cause of action which disappears if the court dismisses the breach of contract claim;
  • Moses Taylor’s claim for vicarious liability should likewise be dismissed because vicarious liability cannot be brought as a stand-alone claim for relief under Pennsylvania law; and
  • if the court declines to accept the stipulation, the motion to dismiss should be converted to a motion for summary judgment.

Moses Taylor’s Claim For Breach Of Contract Must Be Dismissed.

Coverys moves to dismiss Moses Taylor’s claim for breach of contract because Coverys asserts that Moses Taylor has failed to assert cognizable non-speculative damages. Moses Taylor seeks damages based on the depletion in available insurance coverage “for the settlement of additional existing and/or future cases” that would have been available if Coverys had settled the underlying suit at Moses Taylor’s request.

Coverys argues that these damages are speculative because Moses Taylor has not yet had to pay out of pocket for any settlement because of the insurance coverage that was depleted.

Under Pennsylvania law, a breach of contract claim includes three elements:

  1. the existence of a contract, including its essential terms,
  2. a breach of a duty imposed by the contract, and
  3. resultant damages.

The only new information Moses Taylor provides in the amended complaint is related to the State Action. According to the stipulation provided by the parties and signed by the court, the State Action “has settled within the per claim and aggregate coverage limits” of the policy. Because it is established that the State Action settled within policy limits, there is no damage to Moses Taylor.

Beyond the State Action, the amended complaint only alleges that the depleted coverage may affect additional existing and/or future cases. This is not a proper pleading of cognizable damages. While Moses Taylor discusses the ten-year statute of limitations which could expose Moses Taylor to liability from other plaintiffs, it is possible that such potential plaintiffs may never file suit. As a result, any damages are speculative because there are no pending suits or damages suffered.

Moses Taylor’s Claim For Bad Faith MustBe Dismissed.

Coverys argued that if Moses Taylor has failed to properly plead a breach of contract claim, then there is no predicate cause of action for the bad faith claim. There must be a predicate contract claim for a statutory bad faith claim to proceed. A breach of contract claim can serve as one such predicate action.

While Moses Taylor has alleged a breach of contract claim along with its  bad faith claim, the court’s dismissal of the breach of contract claim removes the predicate cause of action otherwise required to proceed on the bad faith claim. A bad faith claim in a vacuum is not actionable.

Moses Taylor’s Claim For Vicarious Liability Must Be Dismissed.

Under Pennsylvania law, a claim for vicarious liability requires a separate claim for which liability is asserted. Vicarious liability allows a principal to be held liable for the actions of its agent. A principal/agent relationship can be established through employment where the employee is the agent and the employer the principal and the act was committed within the course and scope of employment.

Since the court dismissed the breach of contract claim and the bad faith claim, there is no predicate cause of action for which the principal, Coverys, may be liable. Given the lack of a predicate action, Moses Taylor’s claim for vicarious liability will be dismissed.

The Amended Complaint Must Be Dismissed With Prejudice.

Moses Taylor’s amended complaint will be dismissed with prejudice because it would be futile to allow another amendment when no damages have been suffered, and Plaintiffs have already had an opportunity to amend.

The court found that Moses Taylor has failed to rectify the defects specified with respect to the initial complaint, and has continued to plead speculative damages. The court further found that the claims for bad faith and vicarious liability required a valid predicate cause of action, and without a valid breach of contract claim they are not actionable. Therefore, the court will grant the motion to dismiss the amended complaint with prejudice.

ZALMA OPINION

Almost every liability policy, including those covering a hospital’s alleged malpractice, provides control of the payment of claims or the settlement of law suits to the insurer regardless of the demands made by the insured. The insurer, in this case, refused to settle, agreed to participate in a high/low arbitration and when the arbitrator entered an award higher than the high limit it paid the high limit agreed which was less than the available limits in its policy for Moses Taylor. Since Moses Taylor suffered no loss – claiming it might have a loss in the future because of the depletion of the policy limits, is speculative since it might never be sued. There was, therefore no harm and no damage to the insured.


© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

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The Perfect Gift for Your Insurance Company & Insurance Claims Clients

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The Insurance Claims Library

Over the last 54 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

If you or your business serves the insurance industry: insurance claims departments, independent insurance adjusters, public insurance adjusters, insurance defense law firms, or insurance coverage lawyers and insurance policyholders’ lawyers a gift of a book or a series of books is the perfect gift. It is a gift meant to help the client be better at what he or she or it does rather than cookies, cakes or parties that just suggest they need your services.

To best serve your clients consider California SIU Regulations 2020; The California Fair Claims Settlement Practices Regulations 2020; The Insurance Examination Under Oath Second Edition; Zalma on Insurance Claims Third Edition, Ten Volumes Comprising A Comprehensive Group of Materials on Property & Casualty Insurance Claims; The Compact Book of Adjusting Property Insurance Claims – Third Edition; or The Compact Book on Adjusting Liability Claims, Third Edition.

The Insurance Claims Library has many other books and resources from Amazon.com, The American Bar Association, TomsonReuters, and Full Court Press and videos on YouTube and Rumble.com.

Give a gift that will last and be used by your clients throughout the year rather limited the one day the traditional gifts are appreciated as they are consumed.

Go to https://zalma.com/blog/insurance-claims-library and to https://www.zalma.com and https://www.claimschool.com for additional resources.

 


© 2021 – Barry Zalma

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

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

Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at https://www.rumble.com/zalma ; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/ 

 

 

 

 

 

 

 

 

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The Effect of the Insured’s Breach of a Material Condition

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A Video Explaining Conditions Precedent and Subsequent

See the full video at https://rumble.com/vpqnfu-a-video-explaining-conditions-precedent-and-subsequent.html?mref=6zof&mrefc=2 and at https://youtu.be/Gl8gNfb8CfQ

As early as 1897, the Supreme Court of Pennsylvania, in Early v. Hummelstown Mut. Fire Ins. Co, 178 Pa 631, 36 A. 195 (1897) held that it is beyond all question that the plaintiff had forfeited all right of recovery on his policy at the time of the fire, by breaches of material conditions of the insurance contract.

A provision forbidding or limiting additional insurance is intended as a condition upon which the company assumes liability; and the law is well settled that, upon the breach of such a condition, there can be no recovery upon the contract in which it is contained. [Hiatt v. American Ins. Co., 109 S.E.2d 185, 250 N.C. 553 (N.C. 1959)]

Whether a condition precedent or subsequent, the courts of Missouri, in a number of decisions, have held uniformly that a stipulation restricting concurrent insurance is a warranty presumed in law to be material to the risk and that any substantial breach of such warranty ipso facto would work a forfeiture. [Harwood v. National Union Fire Ins. Co., 156 S.W. 475, 170 Mo. App. 298 (Mo. App. 1913)]

Under Louisiana law, an insured’s compliance with the provisions of an insurance policy is a condition precedent to recovery. Therefore, an insured’s failure to cooperate may be held to be a material breach of the policy and a defense to an insured’s lawsuit on the policy. More particularly, an insured’s failure to submit to an examination under oath or its refusal to produce requested documentation may violate the policy’s cooperation clause. A failure to cooperate precludes recovery when the insured engages in a “protracted, willful, and apparently bad faith refusal” to comply with a cooperation clause. [LeBlanc v. Davis, 254 La. 439, 445-446 (1969); Lee v. United Fire & Cas. Co., 607 So.2d 685, 688 (La. App. 4th Cir. 1992); Kerr v. State Farm Fire & Cas. Co., 511 Fed. App’x 306, 307 (5th Cir. 2013); Hamilton v. State Farm Fire & Cas. Ins. Co., 477 Fed. App’x at 165; Lee v. United Fire & Cas. Co., 607 So.2d at 688).

The failure to appear for a duly scheduled Independent Medical Exam or Examination Under Oath (EUO) voids no-fault coverage under the policy ab initio. [Unitrin Advantage Ins. Co. v Dowd, 143 NYS3d 543 [1st Dept 2021] The failure to appear for an EUO that was requested in a timely fashion by the insurer is a breach of a condition precedent to coverage and voids the policy ab initio. [Unitrin Advantage Ins. Co., 82 AD3d at 560; Alsaad Med., P.C. v. State Farm Mut. Auto. Ins. Co., 2021 NY Slip Op 50532(U) (N.Y. Civ. Ct. 2021)]

In Motiva Enterprises, LLC v. St. Paul Fire and Marine Insurance Co., 445 F.3d 381 (5th Cir. 03/28/2006), the Fifth Circuit Court of Appeal found that Texas requires a finding of prejudice for denial even when an insured breaches a material condition of a policy.

The Fifth Circuit noted the Texas Supreme Court’s decision in State Farm Lloyds Ins. Co. v. Maldonado, 963 S.W.2d 38 (Tex. 1998) where the issue of prejudice was never mentioned. In Maldonado, State Farm tendered a defense with a reservation of rights to its insured, Robert, who had been sued for defamation by a former employee, Maldonado. When State Farm would not pay Maldonado’s settlement demand, Maldonado and Robert entered into a private agreement in which Maldonado discharged Robert from further personal liability for Maldonado’s damages. Robert, no longer having any incentive to contest the defamation claim at trial, failed to actively defend the claim through his attorney provided by State Farm. He did not present any evidence, cross-examine any witnesses, or present opening or closing arguments.

ZALMA OPINION

As I have said many times, an insurance policy is a contract. It contains multiple conditions, both precedent and subsequent, which are promises made by the insured to the insurer to act in good faith when obtaining the policy or presenting a claim. If they fail to fulfill a condition or a warranty the insured, by breaking the promises made, they give up the right to any of the benefits of the policy.

© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

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Admitted Crop Insurance Fraud Perpetrator Tries to Limit Restitution

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Crooked Farmer Goes to Jail and Must Pay $2.5 Million in Restitution

Defendant Ronnie Jolly pleaded guilty to crop insurance fraud, money laundering, and conspiring to defraud the United States and to commit mail or wire fraud. The Government sought restitution of monies paid by the crop insurance program and Jolly moved to avoid or limit the orders of restitution.

In United States Of America v. Ronnie Jolly, CRIMINAL No. 5:18-32-KKC, United States District Court, E.D. Kentucky, Central Division, Lexington (November 1, 2021) the court dealt with the restitution order.

FACTS

In his plea agreement, Jolly agreed that he owned and rented certain farmland. He agreed that, from 2010 to early 2016, he made material misrepresentations on paperwork regarding the federal crop insurance policies that covered his crops and that he also procured federal crop insurance policies in the names of other people. He agreed that he did all of this to obtain money from the federal government to which he was not entitled. He also agreed that, from 2014 to 2016, he made material misrepresentations to private crop insurance companies to obtain money to which he was not entitled.

After a sentencing hearing conducted on August 13, 2021, the Court entered a judgment sentencing Jolly to a prison term of 36 months. Prior to the sentencing hearing, the government filed a motion seeking restitution of $2,955,163.

The government has identified two victims of Jolly’s fraudulent conduct. It asks the Court to order restitution in the amount of $2,365,214 payable to the United States Department of Agriculture-Risk Management Agency (“USDA RMA”) and $589,949 payable to Sompo International. Sompo was formerly named ARMtech Insurance Services, Inc. The parties have referred to Sompo as ARMtech in their briefs, and the Court will do the same in this opinion.

As to the restitution requested for USDA RMA, the amount requested represents the indemnity payments received by Jolly on the federal crop insurance policies at issue less any premiums paid on policies that were held in the names of actual farmers.

Jolly argued that he should be ordered to pay restitution of only $238,937 to ARMtech and nothing to USDA RMA. Jolly made clear at the restitution hearing that he does not contest the government’s calculations as to the indemnity payments he received or the premiums paid. Instead, he makes three legal arguments that any amount above $238,937 to ARMtech should be excluded from his restitution obligation.

The victims, the USDA Risk Management Agency and ARMtech Insurance Services, Inc., have suffered compensable losses. ARMtech Insurance Services submitted a request for restitution in the amount of $238,937 for lost income and $350,289 for necessary other expenses. The request for restitution in its entirety will be provided to the Court.

By its plain language the MVRA does not prohibit the Court from ordering more restitution than that identified in the Presentence Report (PSR). Instead, if the PSR does not set forth sufficient information for the Court to fashion a restitution order, the Court may request additional information. The Court permitted briefing on the restitution issue and conducted a hearing on the government’s restitution request. Jolly argued that he should not be ordered to pay back all indemnity payments he received because some of those payments “may have been legitimate.” Pursuant to the crop insurance regulations, however, the policies were voided due to Jolly’s admittedly material misrepresentations regarding the policies.

Since, Jolly conceded that he misrepresented material facts relating to all the policies at issue. Thus, the relevant crop insurance policies are void, and Jolly is entitled to nothing from the insurance.

The MVRA provides that a restitution order must require the defendant to reimburse the victim for lost income and certain necessary expenses including “expenses incurred during participation in the investigation or prosecution of the offense or attendance at proceedings related to the offense.” 18 U.S.C.A. § 3663A(b)(4).

There is no information from which this Court could determine whether ARMtech incurred the claimed expenses as part of the government’s investigation or criminal proceedings or whether the expenses were incurred at the government’s invitation or request. Accordingly, the Court could not order that Jolly pay this amount in restitution.

The MVRA explicitly prohibits the Court from considering the economic circumstances of the defendant when determining the full amount of each victim’s losses. To the extent that Jolly asks the Court to consider his economic circumstances in determining the full amount of restitution owed, the Court must deny that request.

Since the Court could not find that Jolly is financially incapable of paying any amount of restitution. The Court, therefore, ordered that Jolly pay the full amount of restitution immediately.  When Jolly’s supervised release commences, Jolly must pay any unpaid portion of his restitution at a rate to be determined by his probation officer taking into account Jolly’s financial circumstances at that time.

Finally, the government requests that certain defendants in other cases involving crop insurance fraud be made jointly and severally liable with Jolly for a portion of the restitution owed by him. Defendant Michael McNew was Jolly’s insurance agent. Defendants Douglas Chad Snedegar and Timothy Douglas Snedegar were Jolly’s insurance adjusters. The government asserts that these defendants were Jolly’s coconspirators. It asks that the Court order that these defendants be jointly and severally liable with Jolly for the restitution owed by him and ordered that those defendants be made respondents in this action and will grant them the opportunity to respond to the government’s request for joint and several liability. The court ordered the alleged co-conspirators to appear and defend whether they are obligated to pay restitution to the government concurrently with Jolly.

ZALMA OPINION

Insurance criminals have no shame. After admitting the extensive nature of his fraud Jolly had the unmitigated gall to try to limit, or eliminate, the restitution ordered. He succeeded in limiting what was to be paid to the private insurer to only indemnity payments and failed on his obligation to repay the crop insurance program he admittedly defrauded. The government should take all of Jolly’s assets up to the amount he stole and he should be required to spend all of the time ordered in the grey-bar-hotel.


© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

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My Thanksgiving Wishes for My Family and Yours

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I am Thankful

See the full video at https://rumble.com/vposoi-my-thanksgiving-wishes-for-my-family-and-yours.html and at https://youtu.be/bJmB5vqw6Yg

My family and I have much to be thankful for this year, not the least of which are the care provided by our cardiologist who cares for me and my wife, Thea. I am personally in good health, walking four to five miles a day, and in retirement working only six to eight hours a day doing what I love the most, writing about insurance, insurance claims, insurance law and acting as an insurance claims consultant and expert witness.

To me, I am thankful for you, my friends, clients and readers of “Zalma’s Insurance Fraud Letter,” my blog “Zalma on Insurance,” and my books and other writing including the new Third Edition of the ten volumes of my treatise, “Zalma on Insurance Claims.”

As a first generation American I am honored to join with all Americans the ability to celebrate Thanksgiving that started when the United States was a dream and just a colony of Great Britain to give thanks for the good things in life at least once a year. It took Abraham Lincoln, our greatest President to make it an official holiday. The Thanksgiving holiday gives me and my family the opportunity to consider the blessings my family and I have received and to thank all who have made it possible.

Please allow me this opportunity to explain to you all the things I, and my family, can give thanks for:

1. I have loved my wife of 54 years since we first met when she was nine and I was twelve.
2. I am thankful that she still loves me and lets me make clear every day that I love her more now than I did when she ignored me when I was 12.
3. My three adult children who are successes in their own right.
4. That my three children, my almost five-year-old granddaughter live nearby, put up with my wife and I, and are healthy, successful, and mostly happy in what they do.
5. That my grandson is now a successful college student at Puget Sound University in Washington state.
6. My clients who, for the more than 54 years have allowed me to earn a living doing what I love: practicing law until I let my license go inactive, acting as a consultant, testifying as an expert witness and writing materials to help others provide excellence in claims services as members of the insurance profession.
7. My publishers the American Bar Association, Full Court Press, Fastcase.com, Thomson Reuters and Amazon.com.
8. My dearly departed parents and grandparents for having the good sense to leave the Ottoman Empire at the beginning of the 20th Century so we could avoid the Holocaust and I could be born American.
9. My country for giving me a place to live and work in peace and complain about it without fear.
10. The state of California, where I was born, and have lived for 79 years, for allowing me to have my home and grow my family, and the ability to pay the high taxes for the privilege.
11. Those of you who read what I write and gain something from it.
12. Seventy nine years of mostly good health, but for a small heart attack and clogged arteries, that gave me the ability to continue to work – albeit at a reduced rate.
13. Allowing me the health and ambition to avoid my cardiologist by walking every day and working on my garden and bonsai.
14. The hundreds of friends I have never met but with whom the Internet has allowed me to communicate in parts of the world I have never visited.
15. The wonder of the Internet that allows me to publish E-books, ZIFL and my blog instantly on line.
16. That my family can get together to express our thanks for each other and our happiness this year again without a need for anything but enjoying each other’s company.
17. That most of you who I know only by my publications can also gather with your families to express your thanks.

When I enlisted in the U.S. Army in 1967 to avoid the draft I volunteered to serve anywhere in the world other than Viet Nam and was sent, with the wisdom only the U.S. Army Intelligence Corps could understand, to Peoria, Illinois where I became a Special Agent in Charge of an office investigating people who sought security clearances. I was trained to be an investigator and enjoyed every minute of the job. Until the Army I had never seen a river without a concrete bottom only to see the mighty Mississippi as my first real river. I had never seen snow other than in the distance on mountains only to find myself shoveling the snow off the driveway in the small half-of-a-house I rented from an old couple who could not do it themselves. My investigative assignments required me to travel throughout Central Illinois from the Iowa to the Indiana borders. I stopped at court houses along the way, all of which had signs that Abraham Lincoln practice law there.

Those experiences with the courts, law enforcement officers, and court personnel probably gave me the incentive to become a lawyer.

When I finished my three year enlistment I returned home, proposed marriage to the love of my life. I began the study of law at night and found my first real job where I could use the skills I learned in the Army.

I was hired as a claims trainee at the Fireman’s Fund Insurance Company who spent the time to train me to be a claims adjuster. The training was, unlike what is done at modern insurers, thorough. I was required to read a treatise on insurance and insurance claims handling. I was sent out with experienced adjusters in all types of insurance Fireman’s Fund wrote, and eventually allowed to deal with the public under close supervision. Contrary to what was done in the insurance industry at the time, allowed me to study at night while I worked as a full-time insurance adjuster with the Fireman’s Fund. I was fortunate enough to work for a claims manager – Coleman T. Mobley – who did not require me to go out of state to adjust major storm claims if it interfered with my law school studies. Since I was in law school 50 weeks a year the only storm duty I was required to work was a fire storm that burned from the San Fernando Valley to the ocean at Malibu. Because of Mr. Mobley and the Fireman’s Fund I was able to complete my studies and pass the California Bar in 1971 and allowed me to be admitted to the California Bar on January 2, 1972.

I took a cut in pay to get my first job as an Associate Attorney with a law firm that was willing to teach me to be a lawyer handling every kind of problem a new lawyer could face from wills, tort claims, divorce, drunk driving, trials, depositions, and dozens of orders to show cause in multiple courts around the Inland Empire of California. By doing so, when I started practicing law in 1972, I became a lawyer who could deal with any issue brought to me.

I was fortunate enough to move to an insurance law firm in Century City where I was assigned to a coverage lawyer who was trying to deal with over 500 active matters who, when I arrived, assigned me 250 of the matters and pointed me to the firm’s library to learn what to do. At the time new technology was an IBM Selectrict typewriter that could erase errors from the keyboard without the need to use white-out paint. I did legal research in the firm’s large library which, when it was inadequate for the task, I had to drive to the County Law Library in downtown Los Angeles. Research in a large library took days to find support for an issue. I needed three professional legal secretaries to keep up with my dictation.

Now, using modern technology, I can do the same legal research in 30 minutes on Fastcase.com, need no secretary, and can operate my consulting, writing, training and publishing businesses with no employees In 1979 I decided it was time to be my own boss. I started a law firm called Barry Zalma, Inc. with a secretary who came from my last firm and brought an IBM Selectrict typewriter with her into a small windowless office. I had obtained a line of credit from a bank that I hoped would carry us until the practice started since the only case I had was my sister’s rear-ender from which I could not take a fee. The office was furnished with a file cabinet from my father-in-law’s dental practice and a dining room table from my wife’s grandmother who had passed away.

I received my first call at 8:10 a.m. on the first day, October 1, 1979, and my practice began. I had nothing to do on October 3, 1979 so I wrote an article for publication. After that I had no peace and the firm quickly grew to 9 lawyers and a staff to serve them all defending people who were insured and acting as coverage counsel for insurers who needed advice and defense of bad faith suits. I was more successful than I ever expected. I, whose experience was limited to Los Angeles County and Central Illinois, found a need to travel to Taipei, Taiwan and London, England on behalf of my clients. I worked, as I had learned from my father who survived the Depression, 16 hours a day six or seven days a week. When I became 75 years old my firm had been reduced to a sole practice and I decided it was time to stop practicing law and become a consultant and fulfill my childhood dream to be an author.

I am a very lucky and happy man. I do work that I love. I fulfilled my childhood dreams. I Live in a home I have owned for more than 45 years that my wife and I adapted and increased as children were born to meet our needs, have the love of my life with me and look forward to celebrating our 55th wedding anniversary next month. I am honored that my eldest daughter has come back to live with us and care for my wife and I who are not able to do everything we used to do. I have three wonderful children, two great grandchildren and all live close. My son shares my office building and has time to visit with me as allowed by his busy schedule.

I hope, on this Thanksgiving weekend, that you can join my family and me remembering that it is more important to think about our blessings and those things that we have to be thankful for than to get in line for “Black Friday” to buy an inexpensive flat screen t.v. or tablet.

Enjoy the holiday and your family as I will enjoy the holiday and my family.

 

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Acquisition of the Policy

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A Video Explaining How to Acquire a Policy of Insurance

See the full video at https://rumble.com/vpohte-acquisition-of-the-policy.html and at https://youtu.be/OrKrMIemM58

The person buying insurance may only acquire insurance from an insurer by one of three methods:

By Meeting With An Agent of The Insurer

The agent is a person appointed by the insurer to transact insurance business with and on behalf of the insurer. The agent usually has the right to bind insurance in the name of the insurer without first obtaining permission from the insurer. The prospective insured presents his or her needs to the agent who will either accept or reject the proposed insurance. If accepted, the prospective insured is immediately an insured of the insurer.

California Insurance Code Section 31 defines insurance agent as “Insurance agent” means a person authorized, by and on behalf of an insurer, to transact all classes of insurance other than life, disability, or health insurance, on behalf of an admitted insurance company.”

By Dealing With A Broker

An insurance broker is a person who transacts insurance with, but not on behalf of, an insurer. The broker’s only duty is to the prospective insured, so he or she shops for the broadest coverage available at the lowest possible price. The broker cannot bind an insurer without first obtaining a commitment in writing to insure the potential insured.

California Insurance Code Section 33 defines the term as follows: “’Insurance broker’ means a person who, for compensation and on behalf of another person, transacts insurance other than life, disability, or health with, but not on behalf of, an insurer.”

Through A Direct Writer.

Some insurers, known as direct writers, refuse to deal with agents or brokers. They will accept proposals for insurance directly from a prospective insured who will speak—usually by telephone—with an employee of the insurer who has the authority to accept a particular risk.

The agent is compensated solely by a commission from the insurer. The broker is usually compensated by a commission from the insurer plus a fee charged to the client policyholder, insurance applicant or insured.

The direct writer pays a salary to the person who meets (usually by telephone) with a prospective insured and can accept certain risks directly or with the permission of the insurer’s underwriting department.

In simple language the agent transacts insurance with a prospective insured on behalf of an insurer while the broker transacts insurance with but not on behalf of an insurer and only represents the prospective insured.

In Superior Dispatch, Inc. v. Insurance Corp. of New York, 181 Cal. App. 4th 175 (2010), the California Court of Appeal concluded that:

          Representations in an insurance application prepared by an insurance broker on behalf of an insured are attributed to the insured as a matter of law. (LA Sound USA, Inc. v. St. Paul Fire & Marine Ins. Co. (2007) 156 Cal.App.4th 1259, 1268.)

Insureds are, therefore, accountable for all statements made on their behalf by brokers who are their agents as opposed to agents of insurers. When a broker prepares an application for insurance, therefore, it is imperative for the prospective insured to carefully review the application to verify the accuracy of the statements made in it. Otherwise, insureds face the possibility that insurers may attempt to void coverage if there is a misrepresentation or concealment of a material fact made by the broker. On the other hand, information known to an agent – even if not transmitted to the insurer – is considered to be known to the insurer.

The Underwriter

The person who makes the decision to insure or not insure a prospective insured, in modern practice, is called an underwriter.  Unlike the original underwriters at Lloyd’s who invested his or her own money in the policy of insurance, the person with the title “underwriter” in modern American insurance, is usually an employee of an insurer who was employed to evaluate risks the insurer employer is willing to take.

The agent or broker deals directly with the insurer’s underwriter or an agent appointed by the insurer to act as its underwriter. The agent and broker try to present the risk to the insurer and underwriter best suited for the risk.

The underwriter is the risk taker. At Lloyd’s the underwriter risks his or her own funds. In modern insurance company practice the underwriter is the person who risks the funds of the insurer for whom he or she works.

The underwriter decides whether the risk presented by the broker or agent is the type of risk that the insurer is willing to take. Each insurer has specialized underwriters who look at risks differently, and different risks, and use their own criteria to evaluate them.

The Loss Prevention Engineer

If the risk the prospective insured proposes is large, he or she will often be visited by a loss prevention engineer. This person, employed by the insurer, is obligated to inspect the prospective insured’s real and personal property and interview him or her to ascertain that the insured and the property meet the requirements the insurer insists upon before it will accept a risk for insurance. Often, the risk inspection takes place after the insurance is agreed, but within 60 days of inception so if the risk does not qualify the policy can be effectively cancelled.

The Pre-Risk Inspection Service

If the risk is residential or a specialty type of business the insurer will have it inspected by a specialized company called a “pre‑risk inspection service.” Its inspectors are often experienced claims adjusters who understand the types of hazards faced by prospective insureds and their prospective insurers. The pre‑risk inspection service seeks much the same information for the insurer as the loss prevention engineer. In addition, it determines if there is any specialized information needed by the insurer because of the type of risk.

The pre-risk inspection service will conduct a different inspection for a residence in a middle-class neighborhood than one in a wealthy neighborhood where the dwelling is filled with fine art and antiques; likewise, inspection of a convenience store will differ from inspection of an antique store or jewelry store.

The pre-risk inspection service is versatile and entails much more active participation from the prospective insured than do the activities of the loss prevention engineer. After it completes its inspection, as with the loss prevention engineer, it recommends changes to the insurer. The insured will usually be required to make these changes as a condition of coverage before insurance takes effect.

ZALMA OPINION

The key to analyzing every claim presented to an insurer requires an analysis of the acquisition of the insurance policy, the representations made by the insurer to obtain the policy and the insurance that was agreed to by the insurer.


© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

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Pyrrhic Victory – Partial Win Makes Conviction for Insurance Fraud Easier

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Since Insurance Fraud is a Felony Charging Misdemeanors Wasteful

Following a preliminary hearing, Sanjoy Banerjee, a physician, was charged with two counts of presenting a false or fraudulent health care claim to an insurer, a form of insurance fraud and three counts of perjury. The superior court denied Banerjee’s motion to dismiss the information as unsupported by reasonable or probable cause and he sought a writ of prohibition to eliminate the charges. In Sanjoy Banerjee v. The Superior Court Of Riverside County, The People, Real Party in Interest, E076291, California Court of Appeals, Fourth District, Second Division (October 5, 2021) the Court of Appeals prohibited the perjury counts and allowed the insurance fraud charges to go forward.

INTRODUCTION

Banerjee petitioned for a writ of prohibition, directing the superior court to vacate its order denying his Penal Code section 995 motion and to issue an order setting aside the information. The People claim the evidence supports a strong suspicion that Banerjee committed two counts of insurance fraud and three counts of perjury.

Between 2014 and 2016, Banerjee billed a workers’ compensation insurer for services he rendered to patients through his professional corporation and through two other legal entities he owned and controlled. The insurance fraud charges are based on Banerjee’s 2014-2016 billings to the insurer through the two other entities. The perjury charges are based on three instances in which Banerjee signed doctor’s reports, certifying under penalty of perjury that he had not violated “section 139.3.”

BACKGROUND

Banerjee is charged with violating Penal Code section 550, subdivision (a)(6), a form of insurance fraud. The statute makes it a crime to “[k]nowingly make or cause to be made any false or fraudulent claim for payment of a health care benefit.” The elements of the crime are (1) the knowing presentation of a false claim for payment of a health care benefit, (2) with the intent to defraud the recipient. Insurance fraud is a specific intent crime; the defendant must specifically intend to defraud a person with a false or fraudulent claim. The crime is complete upon the presentation of the claim, regardless of whether anyone is defrauded by or anything of value is taken or received in consideration for the claim.

A physician who refers to or seeks consultation from an organization in which the physician has a financial interest must disclose this interest to the patient in writing at the time of the referral.

Banerjee’s Formation of Three Service Provider Entities

Banerjee is a licensed physician, specializing in pain management.  He formed his professional corporation, Sanjoy Banerjee, M.D., Inc., in 2005, and in 2010, he began operating the corporation under the fictitious name, PPCC. Kensington and Rochester were formed in 2014. The articles of organization for Kensington and Rochester state that they were to be managed by their members and identify Banerjee as their sole member. Statements of information for Kensington and Rochester, filed in 2014, identify Kensington’s type of business as a “clinical diagnostic and reference laboratory” and Rochester’s as an “ambulatory surgical center.”

BHHC’s Investigation of Banerjee

Gordon Oard, an investigator for BHHC, was the only witness who testified at the preliminary hearing. Oard was tasked with investigating “suspicious” claims and service providers for BHHC, and he began investigating Banerjee in 2017. Oard discovered that Banerjee had been billing BHHC through three legal entities, namely, PPCC, Kensington, and Rochester, which Banerjee owned and operated from the Wildomar location.

The insurance fraud charges in counts 1 and 2 are based on Banerjee’s aggregate billings to BHHC, through Kensington and Rochester, between 2014 and 2016. The prosecutor argued that these billings were false and fraudulent because Banerjee violated section 139.3(a) by referring the patients to Kensington and to Rochester-entities in which he had a financial interest-without informing BHHC that he had a financial interest in Kensington and Rochester. In sum, defense counsel argued that Banerjee did not violate section 139.3(a) and was therefore not guilty of insurance fraud or perjury.

DISCUSSION

It is a settled principle of statutory construction that, where exceptions to a general rule are specified by statute, other exceptions are not to be implied or presumed.

A physician’s disclosure to a patient that the physician has a financial interest in an organization to which the physician refers the patient or seeks a consultation makes perfect sense as a means of informing the patient that the physician has a conflict of interest with the organization, regardless of whether the services for which the patient is referred make the referral unlawful under section 139.3(a).

The government violates a person’s Fifth Amendment right to due process of law “by taking away someone’s life, liberty, or property under a criminal law so vague that it fails to give ordinary people fair notice of the conduct it punishes, or so standardless that it invites arbitrary enforcement.” (Johnson v. U.S. (2015) 576 U.S. 591, 595.)

Section 139.31(e) provides: “The prohibition of section 139.3 shall not apply to any services for a specific patient that is performed within, or goods that are supplied by, a physician’s office….” Banerjee claims that section 139.31(e) is unconstitutionally vague because it does not specify what “ ‘within… a physician’s office’ ” means, and because other parts of section 139.31 do not provide guidance.

Our interpretation of the physician’s office exception of section 139.31(e) means that the exception applied to Banerjee’s referrals of patients to Kensington and Rochester (§ 139.3(a)), and that Banerjee did not violate section 139.3(a) by referring patients for services specified in section 139.3(a) to Kensington and Rochester. Thus, Banerjee’s acts of signing three doctor’s reports, under penalty of perjury, certifying to BHHC that he had complied with “section 139.3” was not false (§ 118).

Insurance Fraud

The People’s theory for the insurance fraud charges is that Banerjee presented false and fraudulent billings to BHHC for services described in Labor Code section 139.3(a), after he referred the patients to Kensington and Rochester for the services, in violation of Labor Code section 139.3(a). Penal Code section 550, subdivision (a)(6), a form of insurance fraud, is committed when the defendant knowingly makes or causes to be made any false or fraudulent claim for a health care benefit. Insurance fraud is a specific intent crime; the defendant must specifically intend to defraud a person with a false or fraudulent claim. The evidence adduced at the preliminary hearing shows that the superior court had probable cause to believe that Banerjee was guilty of the insurance fraud charges.

The evidence showed that, between 2014 and 2016, Banerjee presented false and fraudulent claims for health care benefits to BHHC through Kensington and Rochester, with the specific intent to defraud BHHC. Banerjee’s billings through Kensington and Rochester were for substantially higher amounts than Banerjee had previously billed BHHC for the same or similar services that he provided solely through PPCC, and that BHHC had been billed by the group practice with whom Banerjee had formerly practiced. Banerjee did not inform BHHC that he owned and operated Kensington and Rochester; and in one instance, Banerjee double billed BHHC for two epidural injections provided to the same patient on the same day, through PPCC and Rochester. The Rochester billing for the two epidural injections was approximately $9,000 higher than the total billing for the patient through PPCC.

The record also supports a strong suspicion that Kensington and Rochester were sham entities, and that Banerjee formed Kensington and Rochester with the specific intent to defraud BHHC through his Kensington and Rochester billings.

The Kensington and Rochester billings gave the appearance that the entities were not part of Banerjee’s medical practice but were stand alone, diagnostic testing and surgical centers, operating independently of any physician’s office. But when BHHC’s investigator, Oard, visited Banerjee’s Wildomar location, he discovered that Banerjee was operating Kensington from “a small closet-type room,” and that Banerjee was operating Rochester from a “converted treatment room.” The evidence supported a strong suspicion that Banerjee had no business reason for forming Kensington and Rochester, other than to use them to present highly inflated billings for his diagnostic and surgical services to BHHC. The information cannot be set aside as to the insurance fraud charges because the evidence demonstrates that there is some rational ground for assuming the possibility that those offenses have been committed and the defendant is guilty of them.

DISPOSITION

Further proceedings may continue, and the court’s previous order staying further proceedings on the information was lifted and the matter may go to trial on the two insurance fraud charge.

ZALMA OPINION

The crime of insurance fraud is a simple, direct, crime to prove. If a fraudulent bill is sent to an insurance company the crime may be proved. Since the evidence showed that by using the two additional entities Banerjee was able to bill $9,000 more than if he billed it directly can cause a jury to conclude he issued the bills with the intent to defraud the insurer. The Court of Appeal, by eliminating the perjury charges made the case simple, clean and direct instead of complicating the trial with difficult to prove and less than clear statutes. Banerjee succeeded partially, and in so doing, made it easier for the state to convict him of insurance fraud.


© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

 

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Zalma on Insurance Claims – Third Edition Now Available

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All Ten Volumes of Zalma On Insurance Claims Third Edition Now Available

Zalma on Insurance Claims – Third Edition is series of books that provides a terrific blend of both the legal underpinnings and the practical implications for the claim practitioner. 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. The ten volume treatise is the perfect Christmas or Hanukah gift for every insurance claims lawyer, insurance claims department, insurance claims person, adjuster, public adjuster, insurer, insurance broker or insurance agent.

Over the last 54 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it for insurers and their claims staff to become insurance claims professionals.

Zalma on Insurance Claims – Third Edition

Ten Volumes Comprising A Comprehensive Group of Materials on Property & Casualty Insurance 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. Now in its third edition the thorough, yet practical, 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. A Comprehensive Review of insurance, insurance claims, the law of insurance policy interpretations, the practicalities of Property, Casualty and Liability Insurance Claims now updated, better organized and created to help bring about excellence in claims handling by insurance claims professionals.

The Third Edition is Now Available

The Ten Volumes Cover everything that is needed for an insurance claims professional dealing with insurance claims including, but not limited to:

  1. WHAT IS INSURANCE?
  2. THE HISTORY OF INSURANCE,
  3. ACQUISITION OF THE POLICY,
  4. CLAIMS PERSONNEL,
  5. KINDS OF INSURANCE POLICIES,
  6. CASUALTY INSURANCE,
  7. THE LIABILITY POLICY,
  8. THE FIRST PARTY PROPERTY POLICY
  9. OTHER INSURANCE CLAUSES.
  10. TRIGGER OF COVERAGE/PROPERTY DAMAGE
  11. UNDERWRITING
  12. CONDITIONS
  13. WARRANTIES
  14. COINSURANCE AND DEDUCTIBLES
  15. EXCLUSIONS
  16. DUTIES OF THE INSURED AND THE INSURER
  17. DUTIES OF THE PUBLIC ADJUSTER
  18. LIABILITY INSURANCE CLAIMS
  19. DECLARING A POLICY VOID
  20. RESCISSION
  21. INVESTIGATION OF FIRST PARTY PROPERTY CLAIMS
  22. THE MORTGAGE CLAUSE
  23. FORTUITY & OTHER ISSUES
  24. CLAIMS MADE AND REPORTED POLICIES
  25. THE NOTICE PREJUDICE RULE.
  26. TYPES OF TORTS
  27. THE HISTORY OF INSURANCE
  28. BAD FAITH
  29. CONDITIONS,
  30. WARRANTIES,
  31. PREPARING A CASE FOR TRIAL
  32. THE ART OF THE INTERVIEW
  33. THE INSURANCE EXAMINATION UNDER OATH
  34. IDENTIFYING INSURANCE FRAUD
  35. PROFESSIONAL CONSPIRACIES
  36. MULTIPLE TYPES OF INSURANCE FRAUD
  37. HOW TO JOIN THE FRAUD FIGHT

© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

 

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Evidence Needed to Prove Fraud

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A Video Explaining Direct & Circumstantial Evidence and The Proof Required

See the full video at https://rumble.com/vpmdg8-evidence-needed-to-prove-fraud.html?mref=6zof&mrefc=2 and at https://youtu.be/ChhfxqPsUWQ

To properly prepare a case for trial an adjuster or SIU investigator must understand evidence and that evidence is broken into two major categories: direct and circumstantial.

Direct Evidence

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

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

As important as direct evidence is to the proof of fraud or attempted fraud, courts have noted that it can be difficult to obtain direct evidence of something so internal as intent to commit fraud. [United States v. Washington, 715 F.3d 975, 980 (6th Cir. 2013)]. Jurors are therefore free to consider circumstantial evidence and draw reasonable inferences from it.  In United States v. Hawkins (6th Cir., 2019) circumstantial evidence was sufficient to allow a jury to convict. Courts are often called upon to rule what direct evidence may be admitted. In one case the Government was allowed to introduce tax evidence, the asset transfer evidence and the ‘salacious acts’ evidence as direct evidence to prove a crime. In addition, the Government was allowed to introduce, under Rule 404(b), evidence concerning Mr. Brooks’ alleged insurance fraud and the stock purchases by Mr. Brooks’ family members. [United States v. Hatfield, 685 F.Supp.2d 320 (E.D. N.Y. 2010)]

A court stated it was mindful that there was no direct evidence that any of the plaintiffs here knowingly participated in any insurance fraud scheme, or even suspected one. But where a loss is caused by the fraud of a third party, in determining the liability as between two innocent parties, the loss should fall on the one who enabled the fraud to be committed. [Fidelity Natl. Tit. Ins. Co. of N.Y. v Consumer Home Mtge., 272 AD2d 512, 514 [2d Dept 2000].] Although any fraudulent conduct of the assignors might not be “properly imputed” to plaintiffs plaintiffs would be among the primary beneficiaries of the fraud [Chubb & Son v Consoli, 283 AD2d 297, 299 [1st Dept 2001]). [A.B. Med. Servs v. State Farm, 7 Misc.3d 822, 795 N.Y.S.2d 843, 2005 NY Slip Op 25089 (N.Y. Civ. Ct. 2005)]

Circumstantial Evidence

If direct evidence does not exist for any reason, circumstantial evidence must be produced to prove the fraud. It is direct evidence if a witness sees a jet plane fly across the sky and it is circumstantial evidence if the witness sees a jet’s contrail but not the jet itself. [People v. Rios (Cal. App. 2015)]

Circumstantial evidence is all evidence of an indirect nature when the existence of the principal fact is deduced from evidentiary facts by a process of probability reasoning.  The investigator takes circumstantial evidence and uses deductive reasoning to reach a conclusion.  Circumstantial evidence and the deductions of a professional investigator are often more reliable than direct evidence like eye-witness testimony.  Circumstantial evidence is sufficient to establish proof of arson and other criminal activities.  [Hoosier Insurance Company, Inc. v. Mangino, 419 N.E. 2d 978, 986 (Ind. App. 1981)].

Many fraud cases are proved entirely by circumstantial evidence, or by a combination of circumstantial and direct evidence, but seldom by direct evidence alone.  Fraudulent intent, the most difficult element to prove in many fraud cases, is usually proven circumstantially, and necessarily so, because it is impossible to produce direct evidence of the defendant’s state of mind, absent a confession or the testimony of a co-conspirator.

In a circumstantial case, the court may instruct the jury that the prosecution or the insurer must exclude all inference from the facts other than its determination of fraud.  If the trier of fact can infer a legitimate rather than fraudulent explanation for a series of events, the insurer’s defense or the prosecution will fail.  Even if no such instruction is given, the investigator and adjuster should apply the same standard when preparing a circumstantial case for trial.

It is clear the elements of the offense, including intent to defraud and deceive, may be proved by circumstantial evidence. [Bryant v. State, 982 S.W.2d 46, 49; Beets v. State, 767 S.W.2d 711, 734-39 (Tex. Crim. App. 1987)] holding circumstantial evidence was sufficient to sustain conviction for murder for remuneration where defendant allegedly committed murder to obtain insurance proceeds. A culpable mental state is nearly always proven by circumstantial evidence. [Dillon v. State, 574 S.W.2d 92, 94 (Tex. Crim. App. 1978); Parrish v. State, 950 S.W.2d 720, 722 (Tex. App.-Fort Worth 1997, no pet.)]; Obigbo v. State, 6 S.W.3d 299 (Tex. App. 1999)]

Occasionally, as in the Indiana case of Hicks v. State of Indiana, 510 N.E. 2d 676 (1987), a thief will attempt to defeat a burglary claim by claiming it was part of an insurance fraud scheme. If the victim instigated the crime as part of an insurance fraud, there can be no conviction of burglary.  However, adjusters, like the prosecutor in the Hicks case, should be leery of such “confessions” as they may often be fabricated.  An insured should never be accused of fraud based on an accused felon’s statement unless independent, innocent witnesses corroborate the felon’s charges.

“Clear and Convincing” Standard of Evidence

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

“This court has previously addressed the nature of the arson defense and the quality of the evidence necessary to support that defense.  See Italian Fisherman, Inc. v. Commercial Union Assurance Co., 215 N.J. Super. 278 (App. Div.), cert. denied, 107 N.J. 152 (1987); Olesak v. Central Mutual Ins. Co., 215 N.J. Super. 155, 160 (App. Div. 1987) (“The arson defense is most accurately viewed as an allegation that the insured purposely created the loss and therefore should not benefit from it.”)  See also Alexander v. Tennessee Farmers Mut. Ins. Co., 905 S.W. 2d 177, 179 (Tenn. Ct. App. 1995) (“To succeed on a defense of arson, an insurance company must show by a preponderance of the evidence (1) that the loss was due to a fire of incendiary origin, (2) that the insured had an opportunity to set the fire, and (3) that he had a motive to do so.”)  It matters not whether the jury determines that the insured personally set the fire or did so through the acts of another.  The key is that the insured caused the fire to be set.  See Don Burton, Inc. v. Aetna Life and Cas. Co., 575 F. 2d 702 (9th Cir. 1978); Crossley, supra, 362 N.W. 2d at 762.  In Don Burton, the Ninth Circuit explicitly rejected “the notion that a defense of arson can be defeated by a failure to prove that the insured himself was the incendiarist. . ..”  575 F. 2d at 705.  Rena Inc. v. Brien, 310 N.J. Super. 304, 708 A. 2d 747 (N.J. Super. App. Div., 1998).”

If sufficient facts are present, it is easier to prove rescission than an accusation that the insured committed the criminal act of insurance fraud.  Rescission, in many states, can be had even if the insured had no intent to defraud the insurer.  To prove the crime of fraud, on the other hand, the prosecutor is required to prove an evil or criminal intent.


© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

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It is Fatal to Your Claim to Lie to Your Insurer

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Lie to an Insurer and Lose Everything

See the full video at https://rumble.com/vpfk7c-it-is-fatal-to-your-claim-to-lie-to-your-insurer.html and at https://youtu.be/_R3hItia8E4

False swearing is a special category of misrepresentation or concealment because it is made under oath.  In criminal law, false swearing is called perjury.

If there was any false swearing as to the property that was the subject of the insurance, it vitiated that policy; if there was false swearing as to the meat and corn, it vitiated the policy taken out upon those articles. The instruction, in effect, told the jury, that if they believed there was false swearing with respect to the meat and corn, the result would be to vitiate policy and that the plaintiff would not be entitled to recover the policy benefits. [Williams v. Va. State Ins. Co, 55 S.E. 680, 106 Va. 259 (1906)]

In order for a “false swearing” to void an insurance policy, the false swearing must have been willful, made with respect to a material matter, and made with the intent to deceive the insurer. [Gould v. M.F.A. Mutual Insurance Company, 331 S.W.2d 663, 669 (Mo.App.1960); Joiner v. Auto-Owners Mut. Ins. Co., 891 S.W.2d 479 (Mo. App. 1994)]

Where an insurance policy provides that an insured’s concealment, misrepresentation, fraud, or false swearing voids the policy, the insured must have actually intended to defraud the insurer. [West v. Farm Bureau Mutual Insurance Co. of Michigan, 402 Mich. 67, 259 N.W.2d 556 (1977)]

Under Michigan law, fraud must be proved by clear and convincing evidence, [Disner v. Westinghouse Electric Corp., 726 F.2d 1106, 1109-11 (6th Cir. 1984)], even when raised as an affirmative defense. Therefore, under Michigan law, the insured’s intent in making a misrepresentation in a proof of loss is a material fact because it is a falsely sworn statement. [Madkins v. State Farm Fire & Cas. (E.D. Mich., 2019)]

Mississippi has a different understanding when there is more than one part to an insurance policy. A policy insuring various items and fixing the amount of insurance to be paid on each, is separable, although the premium is fixed as an entirety; and that because the policy is void as to one item, that fact does not render it unenforceable as to the others. [Darden v. Liverpool & London & Globe Ins. Co., 109 Miss. 501, 68 So. 485; Scottish Union & National Ins. Co. v. Warren Gee Lumber Co., 118 Miss. 740, 80 So. 9, 12, and National Union Fire Ins. Co. v. Provine, 148 Miss. 659, 114 So. 730.]

On the other hand, in Michigan, even when viewed in a light most favorable to plaintiff, the evidence presented the trial court established that plaintiff’s claims for no-fault benefits were based upon fraud and false swearing. Reasonable minds could not differ that plaintiff engaged in fraud for the purpose of recovering no-fault benefits. Because she did so, Farm Bureau had the contractual right to void the policy and deny her no-fault benefits. [Parker v. Farm Bureau Gen. Ins. Co. (Mich. App., 2019)]

Under Oklahoma law, an insurer claiming that the insured violated a fraud and false swearing provision in an insurance policy must prove it by “a fair preponderance of the evidence” and not “clear and convincing evidence” required in other states. [Transp. Ins. Co. v. Hamilton, 316 F.2d 294, 296 (10th Cir. 1963); Century Sur. Co. v. Shayona Inv., LLC, 840 F.3d 1175 (10th Cir., 2016)]

A concealment and fraud provision of an insurance policy makes clear that the general rule of insurance law requiring good faith and fair dealing applies to fraudulent statements and false swearing made by an assured after a loss. [Domagalski v Springfield Fire & Mar. Ins. Co., 218 App Div 187, 189 [1926]). This provision is breached if an insured tenders a fraudulent proof of loss as the basis for a recovery under the policy. [Saks & Co. v Continental Ins. Co., 23 NY2d 161, 165 [1968]; Kantor Silk Mills, Inc. v Century Ins. Co., Ltd., 253 NY 584 [1930]) and Gray v. Tri-State Consumer Ins. Co., 2015 NY Slip Op 32522(U) (N.Y. Sup. Ct., 2015)]

In Mutual of Enumclaw v. Cox, 757 P. 2d 499 (1988), the Washington Supreme Court was asked to interpret a homeowners policy that stated the entire policy would be void if “There has been fraud or false swearing.” Even though the insured’s fraud involved only his unscheduled personal property, the court held that the entire policy was void and the insured was not entitled to any recovery. This appears to be the majority position that one cannot commit a little fraud any more than one can be a little dead.

An insured’s ulterior motive in misrepresenting material facts to the insurer is irrelevant in determining whether a fraud and concealment provision provides a defense to the insured’s claim. In the following case, the insured presented a fraudulent vandalism claim for damage caused intentionally by her son. The insured felt compelled to lie as she had been threatened with physical injury by her son, who had a previous conviction for violent behavior, and who had caused the damage. The California Court of Appeal stated:

First, plaintiff admits that she knew she was lying to the defendant and did so with the intent that defendant not find out the actual facts. Second, under Claflin, the intent to defraud the insurer is necessarily implied when the misrepresentation is material and the insured willfully makes it with knowledge of its falsity. Thus, plaintiff’s intent to deceive was established as a matter of law Cummings v. Farmers Ins. Exchange, 202 Cal. App. 3d 1407, 249 Cal. Rptr. 568 (Cal. App. 2 Dist. 1988). (Emphasis added.)

This conclusion is in no way avoided by the plaintiff’s contention that the motivation for the false statements was her very reasonable fear of her son. As expressed by the US Supreme Court in Claflin, an insured’s ulterior motive in misrepresenting material facts to the insurer is irrelevant. In the context of the Cummings case, the plaintiff’s motive of fear of her son’s violence was irrelevant to the question of whether she intended to deceive the insurer. Cummings, supra.

If Mrs. Cummings’ son was her spouse or an insured of the policy, she may have recovered half of the loss had she not lied about the actions of the insured who caused the damage. It is not fraud to negligently damage property and admit your negligence. It is also not fraud if, in a fit of insanity, an insured destroys the property and, with the aid of pharmaceuticals, comes back into control and admits what was done while incompetent. It is the lie that gets the insured into trouble with special investigative unit (SIU) investigators and the courts.

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

The Mississippi Supreme Court explained the reason for the “false swearing” defense that “[i]t would be unjust to allow a claimant to misrepresent facts which might lead to a valid defense and then to allow him to escape the consequences of the falsehood simply because he had succeeded so well that the company was unable to establish the defense,” Edmiston v. Schellenger, 343 So. 2d 465, 467 (Miss. 1977), cited with approval in Duke v. Hartford Fire Insurance Co., 617 F.2d 509, 510 (8th Cir. 1980) (per curiam) (applying Arkansas law).

In North Carolina, the Court of Appeal recognized that:

It is a basic principle of insurance law that the insurer may avoid his obligation under the insurance contract by a showing that the insured made representations in his application that were material and false. Pittman v. First Protection Life Insurance Co., 72 N.C. App. 428, 433, 325 S.E. 2d 287, 291 (1985).

Misrepresentations on an insurance application are material if the knowledge or ignorance of it would naturally influence the judgment of the insurer in making the contract and accepting the risk. [Bryant v. Nationwide Mut. Fire Ins. Co., 67 N.C. App. 616, 621, 313 S.E.2d 803, 807 (1984), Revd On Other Grounds, 313 N.C. 362, 329 S.E.2d 333 (1985).]

In order to void the policy pursuant to G.S. 58-44-15, defendant must show that the insured made statements that were:

  • false;
  • knowingly and willfully made; and
  • [Bryant v. Nationwide Mut. Fire Ins. Co., 313 N.C. 362, 370, 329 S.E. 2d 333, 338 (1985). Bell v. Nationwide Insurance Co., No. COA00-1464 (N.C. App., 11/06/2001).]

False swearing is a crime in all states if it amounts to perjury. If it does not amount to perjury it is still a defense to a false claim. To establish that an insured intended to deceive an insurer under Missouri law, the insurer must show that the insured:

  • knew the representation was false or did not know whether the representation was true or false, and
  • intended that the insurer rely on the representation.

In Young v Allstate Ins. Co 759 F.3d 836, 841 (8th Cir.2014) the Eighth Circuit, concluded that during an examination under oath, the Youngs admitted that the initial inventory listed many items that were not damaged or destroyed in the fire. They gave various explanations for the discrepancies. The Youngs both denied that they had intentionally overstated the claim to Allstate. The district court granted summary judgment for Allstate on the ground that the Youngs, by signing the initial inventory, were deemed to have knowledge of its contents, and that “no reasonable juror could conclude that [the Youngs] did not materially misrepresent their property claim.

An insurer can assert false swearing as an affirmative defense to an action brought by an insured. To constitute such a defense, the false statement must have been made under oath with the knowledge that it is false and with the intent that the person to whom the statement is made will rely on it. Actual reliance is not necessary.

In Parasco v Pacific Indemnity, 920 F. Supp. 647 (D.D. Pa., 1996), false swearing was important where the insurer suspected arson and denied the insureds’ fire loss claim. Although the insurer could not prove arson by the insureds, there was a legitimate question as to whether the fire was incendiary in nature. The insurer also had clear proof of misrepresentations made by the insureds under oath regarding, among other things, their active attempt to sell the property at the time of the fire. The court held that the materiality of false statements is to be determined at the time of investigation. The court further held that the insurer’s investigation into the insureds possible motive to commit arson was entirely reasonable and prudent, and inquiries into the insureds financial condition were, therefore, material to the issue of motive.

As both the proof of loss and the testimony at examination under oath are sworn to by the insured, any material falsehood is sufficient to establish the defense of false swearing. The same is true of any difference between the facts testified to during the examination under oath or stated in the proof of loss, and the facts developed from an audit of the insured’s books and records or an insurer’s investigation.

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

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

ZALMA OPINION

Insurance is a business of utmost good faith. That means neither party to the contract of insurance may do anything to deprive the other of the benefits of the contract. Therefore, when an insured lies to the insurer to convince it to insure, or to convince it to pay more than is owed, he or she breaches the covenant of good faith and fair dealing and under the terms of the contract of insurance voids coverage. It’s not nice to lie to your insurer. It is fatal to any claim to lie to your insurer.


© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

 

 

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Anti-Suit Injunction Must be Carefully Drafted

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Seeking the Same Remedy Against the Same Parties in a Different Jurisdiction is Improper

In St. Paul Fire And Marine Insurance Company v. Amerisourcebergen Drug Corporation, and Bellco Drug Corporation v. ACE American Insurance Company and ACE Property And Casualty Insurance Company, No. 21-0036, Supreme Court of Appeals of West Virginia (November 15, 2021) insurers sought to reverse an order of a West Virginia Trial court enjoining them from pursuing a suit in California.

An anti-suit injunction is an order barring parties to an action in this state from instituting or prosecuting substantially similar litigation in another state. Whether the foreign state action is substantially similar involves assessing (1) the similarity of the parties; (2) the similarity of the issues; and (3) the capacity of the action in this state to dispose of the foreign state action. An anti-suit injunction is appropriate when equity compels the circuit court:

  1. to address a threat to the court’s jurisdiction;
  2. to prevent the evasion of an important public policy;
  3. to prevent a multiplicity of suits that result in delay, inconvenience, expense, inconsistency, or will be a “race to judgment”; or
  4. to protect a party from vexatious, inequitable or harassing litigation.

OPINION

Over the last two decades, the United States has experienced an epidemic of overdose deaths involving prescription and illicit opioid medications. Governments, businesses and individuals have sued the pharmaceutical distributors that sold prescription opioid medicines and “seek to recover billions in governmental and economic costs allegedly incurred in providing a wide array of public services in response to the influx of opioids into their communities.

The circuit court entered an “anti-suit injunction” prohibiting the insurance companies sued in West Virginia from pursuing parallel litigation against the distributor in California.

Factual and Procedural Background

Plaintiff AmerisourceBergen Drug Corporation (“ABDC”) is a wholesale distributor of prescription opioid medication in West Virginia and across the United States. This case derives from ABDC’s efforts to establish that these prescription opioid lawsuits, nationwide and in West Virginia, are covered under primary, umbrella, and excess commercial general liability policies purchased by ABDC (or its predecessors or affiliates).

ABDC’s insurance coverage lawsuit specifically sought a declaratory judgment from the circuit court construing primary, umbrella and excess comprehensive general liability policies issued by defendant St. Paul Fire & Marine Insurance Company (“St. Paul”) and by defendants Ace American Insurance Company and Ace Property and Casualty Insurance Company (“Ace American”).

After three years of discovery St. Paul filed a competing insurance coverage action in California state court against ABDC and its corporate subsidiaries and affiliates. St. Paul’s California complaint alleged that St. Paul issued various insurance policies to ABDC, but sought a declaratory judgment that St. Paul had no duty to defend or indemnify ABDC in any opioid lawsuit filed against ABDC nationwide. Alternatively, St. Paul’s complaint named as defendants seventy insurance companies (including companies such as ACE American) “who, on information and belief, issued insurance policies to [ABDC] Affiliates covering periods between 1995 and 2018[.]” The complaint asked the California court to issue a declaratory judgment that, if St. Paul had some obligation to provide coverage for any opioid lawsuit, established the scope and amount of coverage required to be provided by each insurance company to ABDC.

On November 19, 2020, ABDC filed a motion with the West Virginia circuit court seeking an “anti-suit injunction.”  After months of supplemental briefing, the circuit court entered an order denying St. Paul’s motion for summary judgment.

In an order dated January 7, 2021, the circuit court granted ABDC’s motion for an anti-suit injunction and prevented all of the parties from pursuing collateral insurance litigation involving ABDC, in California or elsewhere.

Discussion

St. Paul and Ace American contend that the circuit court erred in issuing an anti-suit injunction precluding the prosecution of the California action. When, however, the parties before the circuit court initiate parallel litigation in another court a circuit court may enjoin a party from pursuing a parallel case in the courts of another state. An anti-suit injunction applies only to the parties before the circuit court, not to the other court or other judge presiding over the parallel case.

The injunction is directed, not to the court, but to the litigant parties, and in no manner denies the jurisdiction of the legal tribunal.

Comity compels a court to act cautiously and with restraint. Stated broadly, when considering whether to issue an anti-suit injunction, the principle of comity requires that courts exercise the power to enjoin foreign suits sparingly and only in very special circumstances where a clear equity is presented requiring the interposition of the court to prevent manifest wrong and an irreparable miscarriage of justice. Comity is a principle under which the courts of one state give effect to the laws of another state not as a rule of law, but rather out of deference or respect.

State courts have granted anti-suit injunctions after identifying equitable concerns about interference with the court’s jurisdiction, duplicative suits, and vexatious litigation. An anti-suit injunction is an order barring parties to an action in this state from instituting or prosecuting substantially similar litigation in another state.

The record shows that, in the three-and-a-half year course of discovery, ABDC informed St. Paul of 165 specific opioid-related lawsuits in West Virginia for which ABDC sought defense or indemnity costs from St. Paul. The Supreme Court found the circuit court’s conclusion that St. Paul instituted competing, parallel litigation in California was correct because both the West Virginia action and the California action involve, not merely similar parties, but identical parties. Every single one of the plaintiffs and defendants in the West Virginia action are parties in the California action.

The circuit court found its ability to successfully resolve the West Virginia suit was threatened by St. Paul’s California action.  The circuit court fairly concluded that St. Paul’s parallel suit in California was filed for improper purposes, namely forum shopping and the disruption of the orderly resolution of the West Virginia suit.

The anti-suit injunction order enjoins all parties to the West Virginia action from instituting or prosecuting any legal proceeding concerning ABDC’s insurance coverage.  Our concern is that ABDC’s West Virginia complaint is limited in scope and seeks a declaratory judgment concerning only sixteen insurance policies issued by five insurance companies. As ABDC’s complaint is cast, it asks the circuit court for a judgment regarding whether those sixteen policies provide coverage for the growing number of West Virginia-based opioid lawsuits. The circuit court was within its rights to protect its jurisdiction to resolve the dispute as presented by ABDC.

However, as it is written, the circuit court’s order impairs the parties’ ability to litigate, against each other or with third parties, over policies separate from the sixteen policies identified by ABDC. Therefore, the Supreme Court concluded that the circuit court’s order was overbroad and, as currently drafted, constituted an abuse of the court’s discretion. The order must therefore be reversed, and the case remanded for reconsideration.

Although the circuit court clearly had the authority to enter an anti-suit injunction. The circuit court’s decision to enter an injunction was affirmed. The Supreme Court reversed the circuit court’s January 7, 2021, order, and remanded the case for clarification of the order or such other proceedings as are necessary.

ZALMA OPINION

Insurance disputes over a multiplicity of lawsuits against an insured in multiple jurisdictions raises serious problems for the courts where the suits are brought. West Virginia’s courts spent a great deal of time and trouble to resolve the suits before it and obviously became concerned when a party tried to go to another forum to receive a “better” result against the same parties. The injunction was proper but it needs to be more carefully drafted to be fair to the parties.


© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

 

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The False Claims Act and the Qui Tam Suit

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A Video Explaining An SIU Profit Center

See the full video at https://rumble.com/vpauwm-the-false-claims-act-and-the-qui-tam-suit.html and at https://youtu.be/ZelMetlHing

The False Claims Act, also known as the “Lincoln Law,” dates back to the Civil War. President Lincoln signed the act into law in 1863 because war profiteers were selling the Union Army shoddy supplies at inflated prices. The original law included qui tam[1] provisions that allowed a private person (plaintiff) to sue those who defrauded the federal government. If the suit was successful the plaintiff would receive 50% of any recovery from the defendant.

Qui tam” is an abbreviation of the Latin phrase “qui tam pro domino rege quam pro si ipso in hac parte sequitur” meaning “Who sues on behalf of the King as well as for himself.”  There are a number of pronunciations of the Latin abbreviation qui tam.  The simplest is key tam (rhymes with “ham.”) Black’s Law Dictionary suggests kweye (rhymes with “eye”) tam.

The False Claims Act makes it unlawful to knowingly (1) present or cause to be presented to the United States a false or fraudulent claim for payment or approval, 31 U.S.C. § 3729(a)(1) (2006); (2) make or use a false record or statement material to a false or fraudulent claim, § 3729(a)(1)(B); or (3) use a false record or statement to conceal or decrease an obligation to pay money to the United States, § 3729(a)(7) (2006). Under the Act, private individuals …, referred to as “relators,” may file civil actions known as qui tam actions on behalf of the United States to recover money that the government paid as a result of conduct forbidden under the Act. Glaser v. Wound Care Consultants, Inc., 570 F.3d 907, 912 (7th Cir. 2009). As an incentive to bring suit, a prevailing relator may collect a substantial percentage of any funds recovered for the benefit of the government.  To establish civil liability under the False Claims Act, a relator generally must prove (1) that the defendant made a statement in order to receive money from the government; (2) that the statement was false; and (3) that the defendant knew the statement was false. E.g., United States Ex Rel. Gross v. Aids Research Alliance–Chicago, 415 F.3d 601, 604 (7th Cir. 2005); USA and the State of Wisconsin v ACACIA Mental Health Clinic, USCA, 2016 WL 4555648 (2016).

ZALMA OPINION

The Insurance Frauds Prevention Acts across the country that have qui tam provisions provide a weapon to insurers and their SIUs to deter insurance fraud by taking the profit out of the crime. Insurers will find that a qui tam action against fraud conspiracies can become a major profit center and a serious deterrent to those who are unafraid of becoming one of the rare arrests and who commit insurance fraud without concern for any downside to the crime.


© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

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Being Shot from a Passing Car is Not a Viable UM Claim

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A Gun – Whether in a Car of Not – is not Operation of a Motor Vehicle

Insurance is important because it protects the insured against many risks of loss like injury from a hit and run by an uninsured motor vehicle. Insurance does not, however, protect against every potential risk of loss.

In Joan Jones McGuire, et al. v. Motorists Mutual Insurance Company, et al., No. 29165, 2021-Ohio-3945, Court of Appeals of Ohio, Second District, Montgomery (November 5, 2021) Joan Jones McGuire and William McGuire appealed from the trial court’s entry of summary judgment against them on their complaint seeking uninsured-motorist benefits from Motorists Mutual Insurance Company. The appellants contended that their Motorists Mutual automobile insurance policy extended uninsured-motorist coverage to Joan McGuire, who was shot by an occupant of an unidentified motor vehicle. The trial court found that no coverage existed.

Factual and Procedural History

On February 3, 2018, Joan McGuire was a passenger in a vehicle driven by her husband, William McGuire. The vehicle was covered by a Motorists Mutual insurance policy. William was the named insured under the policy, which included uninsured-motorist coverage. As the McGuires were traveling on Third Street in Dayton, Ohio the occupants of two other cars exchanged gunfire. Joan McGuire sustained serious injuries when a stray bullet struck her head. The other vehicles fled the scene, and their occupants were not identified.

Following the shooting, Joan McGuire sought uninsured-motorist benefits under the Motorists Mutual policy. The insurance company denied her claim. The McGuires then sued alleging breach of contract, seeking declaratory judgment and specific performance, and asserting a claim for unjust enrichment. The trial court found no uninsured-motorist coverage for three related reasons:

  1. the shooting was an intervening cause of Joan McGuire’s injury, unrelated to the use of an uninsured vehicle;
  2. the instrumentality that caused her injury was a firearm, not an uninsured motor vehicle; and
  3. her injury did not arise out of the ownership, maintenance, or use of an uninsured motor vehicle,

Analysis

The substantive law of the claim being litigated determines whether a fact is “material. With regard to the Motorists Mutual policy, the interpretation of an automobile liability insurance policy presents a question of law that an appellate court reviews without deference to the trial court. In construing the terms of an insurance policy, the appellate court is guided by rules of contract interpretation.

Where provisions of a contract of insurance are reasonably susceptible of more than one interpretation, they will be construed strictly against the insurer and liberally in favor of the insured. This rule cannot be used, however, to create ambiguity where none exists. The fundamental goal in insurance policy interpretation is to ascertain the intent of the parties from a reading of the contract in its entirety and to settle upon a reasonable interpretation of any disputed terms in a manner calculated to give the agreement its intended effect.

The Motorists Mutual policy required the McGuires to establish that the unknown owner or operator’s liability arose out of the ownership, maintenance, or use of a hit-and-run vehicle which hit or which caused bodily injury without hitting the vehicle Joan McGuire was occupying. There was no evidence that the shooter’s vehicle made contact with the McGuire vehicle.

Although the McGuires cite cases from various jurisdictions, they failed to address the Ohio Supreme Court’s decision in Howell v. Richardson, 45 Ohio St.3d 365, 544 N.E.2d 878 (1989), which we find to be dispositive of the “ownership, maintenance, or use” issue. In Howell, a tortfeasor negligently discharged a firearm from his vehicle into another vehicle, striking one of the occupants. After obtaining a judgment against the tortfeasor, the victim sued the tortfeasor’s insurer. The trial court directed a verdict for the insurer, finding that the act of shooting from a vehicle fell outside of policy language covering bodily injury “caused by accident resulting from the ownership, maintenance or use” of a motor vehicle. The Ohio Supreme Court agreed that reasonable minds could not find the shooting resulted from the “use” of a motor vehicle. It upheld the directed verdict, finding that bodily injury to an insured resulting from the discharge of a firearm by a tortfeasor is not encompassed within the terms of a policy of insurance which limits coverage to injuries ’caused by accident resulting from the ownership, maintenance or use of an automobile.

The appellate court could see no material distinction between Howell and the present case as to whether Joan McGuire’s injury arose out of the “use” of a motor vehicle. On the basis of Howell and the other cases the court concluded that Joan McGuire’s injury did not arise out of the “ownership, maintenance, or use” of an uninsured motor vehicle as a matter of law. Her injury arose out of the use of a firearm. That being so, the trial court properly entered summary judgment in favor of Motorists Mutual on the appellants’ complaint.

As a matter of law there was no causal connection between the ownership, maintenance or use of the uninsured motor vehicle and there was no causal connection between the use of the uninsured motor vehicle and bodily injuries sustained by appellants as a result of the shooting

The trial court properly entered summary judgment against the appellants on all four claims in their complaint. The breach-of-contract claim failed because the appellants were not entitled to uninsured-motorist coverage as a matter of law. The request for declaratory judgment regarding a right to coverage properly was denied because the appellants were not entitled to uninsured-motorist coverage. The request for specific performance under the uninsured-motorist provision properly was denied because no coverage existed. Finally, the fact that an uncovered claim was denied did not establish unjust enrichment.

ZALMA OPINION

Since there was no contact between the vehicles nor did a vehicle cause an injury to Mrs. McGuire there was no potential for coverage under the uninsured motorist policy provision because it required the injury to come as a result of the vehicle not a bullet fired from an auto or any other location. It is sad that Mrs. McGuire was injured by a criminal firing a weapon at someone else and unfortunately – since most criminals are not marksmen – hit and injured her. Regardless, there was no possibility that the UM coverage applied and the court correctly affirmed the trial court.


© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

 

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Published Today – Zalma on Insurance Claims Part 109 Third Edition

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Zalma on Insurance Claims Part 109 Third Edition

This is the latest addition to Barry Zalma’s insurance claims treatise on insurance claims and is the Ninth part of the most thorough, up-to-date, expert-authored insurance claims guide available today.
Written by nationally-renowned insurance coverage expert Barry Zalma, an insurance coverage attorney, consultant, expert witness, Certified Fraud Examiner 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
  • Insurance Fraud

Thorough, yet practical, this book, and the Treatise of which it is a part, is 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 this multiple 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
  • 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

The 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.
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 – Red Flags of Fraud – Property Insurance
  • Checklist 3 – Red Flags of Fraud – Liability Insurance
  • Appendix A – Commonly Used Medical Acronyms and Abbreviations
  • Appendix B – Glossary of Medical Terms

Available as a paperback, Kindle book or hardcover


© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

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Lawyer Should Know Better – Never Lie on an Insurance Application

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Lawyer Lies on Application for Malpractice Insurance – Policy Rescinded

See the full video at https://youtu.be/FIPB0E9qlqs and at https://rumble.com/vp4j7e-lawyer-should-know-better-never-lie-on-an-insurance-application.html

Travelers issued a Lawyers Professional Liability Insurance Policy to Grimmer, Davis, Revelli & Ballif (“Grimmer Davis”). Grimmer Davis is a law firm with its principal place of business in Lehi, Utah. Matthew Grimmer was the sole shareholder of Grimmer Davis and had general managing and governing responsibilities at the firm. Grimmer is a licensed attorney with knowledge of the rules of professional conduct. Jacob Davis was an employee of Grimmer Davis. Davis is also an attorney with knowledge of the rules of professional conduct. Defendant Grimmer and Associates, P.C. (“G&A”) is a law firm with its principal place of business in Lehi, Utah. G&A is located in the same office as Grimmer Davis. Grimmer is the sole shareholder of G&A, and Davis was also employed at G&A.  Grimmer made false statements in the application and in Travelers Casualty And Surety Company Of America v. Grimmer Davis Revelli & Ballif, P.C., et al., No. 2:19-cv-597-DAK-JCB, United States District Court, D. Utah (November 10, 2021) Travelers sought to rescind the policy.

BACKGROUND

Georgia Noel Inman and her twin brother Walker Patterson Inman III (“Patterson”) were clients or former clients of G&A and its attorneys. Patterson was also a client or former client of Grimmer Davis and its attorneys. Georgia and Patterson’s father died when they were twelve years old. Their stepmother served as their deceased father’s personal representative and successor trustee. However, there were allegations that she was pilfering or hiding assets from the estate. In 2013, Grimmer and G&A began representing Georgia and Patterson in the probate dispute with their stepmother in an action in Wyoming.

On June 27, 2018, Georgia filed a motion to disqualify the firm Grimmer Davis and the individual attorneys Grimmer and Davis from representing Patterson in the consolidated trust cases pending in Wyoming, citing various conflicts of interest and breaches of professional duties against Grimmer, Davis, G&A and Grimmer Davis (“Grimmer Parties”). In this disqualification motion, Georgia asserted that the Grimmer Parties advocated for positions that favored Patterson and were adverse to her interests. The motion states that “Georgia potentially has claims against parties and lawyers in this litigation” and “Georgia now has viable claims, which she will be bringing to undo both the Greenfield Plantation sale and the assignment of claims”-two transactions involving Georgia, Patterson, and Grimmer.

The Wyoming court appointed a Special Master in the consolidated trust cases, who issued a Report of Special Master on Georgia’s Motion to Disqualify on March 5, 2019. The Special Master found that Grimmer made an audio recording of Georgia and used her confidential statement to him in a manner adverse to her best interests. Finally, the Special Master found that in refusing to pay sums due for the purchase of the Greenfield Plantation and in filing a counterclaim in related litigation in South Carolina, Grimmer was adverse to Georgia. The Special Master recommended that Grimmer and Davis be disqualified from further representation in the consolidated trust cases and that any member of any firm with which Grimmer was associated also be disqualified. He further recommended that Grimmer’s pro hac vice admission be revoked.

The South Carolina court also found that a material adversity existed between Grimmer, who at that time was the trustee of a trust holding assets for Patterson as the sole beneficiary, Patterson, and Georgia.

INSURANCE

Travelers had initially provided professional liability insurance coverage to Grimmer Davis for the policy period of March 20, 2018 to March 20, 2019. At the conclusion of that policy period, Grimmer Davis failed to submit a renewal application and the 2018 policy expired. Travelers did not automatically renew Grimmer Davis’ coverage.

However, in April 2019, Grimmer Davis requested that Travelers issue a new policy to provide coverage retroactive to March 20, 2019, the 2018 policy’s expiration date. Grimmer Davis submitted an application for insurance, dated April 18, 2019, which Grimmer signed on behalf of Grimmer Davis. In response to Question 27 on the application, asking whether “you or any member or employee of your firm have knowledge of any incident, act, error, or omission that is or could be the basis of a claim under this proposed professional liability policy, ” Grimmer Davis answered “No.”

Grimmer also agreed to immediately inform Travelers if any of the information supplied in the application changed between the date of the application and the effective date of any insurance policy Travelers issued in response to the application. If Grimmer provided any changed information, the application allowed Travelers to “withdraw or modify any outstanding quotation or agreement to bind coverage.”

In order to evaluate Grimmer Davis’ request for a renewal policy with a retroactive effective date of March 20, 2019, Travelers required Grimmer Davis to provide a letter confirming that its attorneys were not aware of any facts or circumstances after March 20, 2019, that may give rise to a claim under the renewal policy. Grimmer Davis provided Travelers with a letter, dated April 18, 2019 (“No Known Circumstances Letter”), stating, in part, that “[a]s of the date of this letter, we are not aware of any facts, circumstances, or losses from the period of March 20, 2019 to the present as respects our lawyers’ professional lawyers insurance.”

Kristin Montalvo, the Travelers underwriter responsible for Grimmer Davis’ account, reviewed the application and letter to evaluate the risk of insuring Grimmer Davis. She provided Grimmer Davis with a quote and Grimmer Davis accepted. On April 19, 2019, Travelers issued to Grimmer Davis a Travelers 1st Choice+ Lawyers Professional Liability Coverage insurance policy, effective March 20, 2019 to March 20, 2020.

A week later, on April 25, 2019, Georgia asserted a malpractice claim against Grimmer Davis, G&A, Grimmer, and Davis based on their prior representation of her.

Montalvo, Travelers’ underwriter, testified in an Affidavit that if Grimmer Davis had disclosed Georgia’s various claims and assertions against the Grimmer attorneys in the Wyoming and South Carolina actions, as well as those court’s findings regarding ethical violations, Travelers would not have issued the renewal policy.

DISCUSSION

Traveler’s Motion for Summary Judgment

Utah law provides for rescission of insurance policies in three circumstances. Utah Code Annotated Section 31A-21-105(2) governs rescission and provides that “no misrepresentation . . . affects the insurer’s obligations under the policy unless: (a) the insurer relies on it and it is either material or is made with intent to deceive; or (b) the fact misrepresented or falsely warranted contributes to the loss.”

Courts applying this statute have held that an insurer may rescind a policy where

  1. the insurer relies on a material misrepresentation made by the applicant;
  2. the insurer relies on a misrepresentation that was made by the applicant with the intent to deceive; or
  3. the applicant’s misrepresentation contributes to the loss.

An insurer need only satisfy one of the justifications for rescission to rescind a policy. Travelers, however, claims that it is entitled to rescind the policy under all three of those justifications.

Here, Grimmer acted on behalf of Davis Grimmer and attested in the application and the “No Known Circumstances” letter that no one at the firm was aware of any facts, circumstances, or losses that could impact coverage under the policy. However, at the time Grimmer signed those documents, Georgia Inman had already repeatedly threatened substantial claims against the firm and its attorneys, and two courts had already determined that the attorneys’ conduct was improper and breached professional obligations to a former client.

The information Grimmer gave or failed to give Travelers occurred before Travelers agreed to issue the policy. Although the policy’s inception date was backdated to pre-date the Application, Travelers only agreed to backdate the policy because of Grimmer’s misrepresentations and material omissions. The inception date of the policy, which was obtained as a direct result of misrepresentations and material omissions, does not require that the terms of the policy apply to the issue. The more applicable law in this situation is Utah’s rescission statute.

Utah courts have recognized that the doctrine of equitable estoppel will prevent a party from taking advantage of misrepresentations made in the insurance context. Equitable estoppel may be invoked to prevent injustice where one has reasonably relied to his or her detriment on an intentional or negligent false representation by another. [Barnard v. Barnard, 700 P.2d 1113, 1115 (Utah 1985).]

All the elements for equitable estoppel are met here. Grimmer made untrue statements and omitted material information to obtain a policy with a backdated inception date. Travelers relied on those misrepresentations and agreed to issue the policy with a backdated inception date.

The undisputed evidence demonstrates that Grimmer knew or should have known that the information he provided to Travelers was false and given with the intent to obtain the insurance policy. Intent to deceive can be inferred from circumstantial evidence. Grimmer had threats from Georgia Inman that she would bring any claims possible against the firms and attorneys. A few weeks before applying for the renewal policy, the Wyoming court issued a ruling in favor of Georgia. That ruling was issued five days after the prior policy expired. Grimmer knew or should have known that he and his firm needed insurance coverage. However, when he applied for that insurance coverage and asked for it to apply retroactively, he did not mention any of these material circumstances to Travelers. He knew or should have known that Travelers was concerned about this kind of information when they asked for a separate letter. Nonetheless, he did not disclose the information.

Georgia made complaints relating to Grimmer Davis’ ongoing representation of Patterson, the alleged resulting damages to assets owned by a trust to which Georgia is a beneficiary, and their obligations to her as a former client. Defendants contend that Georgia’s claims against Grimmer Davis can simply be attributed to Georgia’s confusion as to the firms’ names. She did admit to some confusion as to the relationship of the two firms, but she also made clear she was seeking disqualification of Grimmer, Davis and both firms specifically. She repeatedly referred to “firms” in the plural, as did the courts. There is no genuine dispute as to whether Georgia threatened claims against Grimmer Davis and its members relating to conduct that occurred after she was represented by G&A.

Under the terms of the policy, a “Claim” is a demand for “money or services” against an “Insured” for a “Wrongful Act.” Georgia claimed that the damages to the trust was in March 2018, after Grimmer Davis was formed. Georgia repeatedly made such claims stemming from Grimmer Davis’ representation of Patterson in 2018 after Grimmer Davis was formed and representing Patterson. Grimmer does not allege that he was unaware of Georgia’s claims and assertions.

The Special Master’s Report and the Wyoming Court’s Order clearly dealt with both firms. Even if Georgia’s claims against Grimmer Davis had proved to be unmeritorious, it was clear that she intended to bring them and bring them against Grimmer Davis, Grimmer, and Davis. It does not matter whether she alleged a valid claim, only that she was threatening to bring claims. Grimmer either knew or should have known that the information he provided Travelers was false.

Grimmer’s representations to Travelers were material because Travelers relied on them in issuing the renewal policy and they contributed to the loss. A fact is material to the risk assumed by an insurance company if reasonable insurers would regard the fact as one which substantially increases the chance that the risk insured against will happen and therefore would reject the application. If a fact would “naturally influence the insurer’s judgment in making the contract, estimating the degree or character of the risk, or in fixing the rate of insurance, ” then it is material.

Defendants present no evidence to dispute Travelers’ position on reliance or materiality. Defendants do not assert a material disputed fact that would prevent this court from entering summary judgment.

Even if Georgia Inman erroneously made claims against Grimmer Davis, and Grimmer and Davis in their roles at Grimmer Davis, Grimmer Davis should have disclosed the existence of those claims to Travelers when it was pursuing the renewal policy. Those claims were material and Travelers relied on Grimmer Davis’ assertions that there were no such claims in issuing the policy renewal. Grimmer knew of the claims and did not disclose them. The court, therefore, concludes that Defendants made misrepresentations to Travelers, Travelers relied on those misrepresentations, and those misrepresentations were material to Traveler’s decision to provide insurance.

Accordingly, the court concluded that Travelers is entitled to rescind the policy under Utah law. The court further declares that the policy is void and Travelers has no duty to defend or indemnify Defendants under the policy. Therefore, the court granted Traveler’s motion for summary judgment.

ZALMA OPINION

A lawyer should know that insurance is a contract of utmost good faith where neither party may do anything to deprive the other of the benefits of the contract. In this case, a lawyer not only failed to act in good faith when applying for malpractice insurance, he acted badly by misrepresenting to the insurer that he knew of no potential action against him or his firms when, in fact, he had been so advised by Georgia and her counsel and by orders of two different courts. Rescission was the only appropriate action available to the Travelers.


© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

 

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Zalma’s Insurance Fraud Letter – November 15, 2021

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Zalma’s Insurance Fraud Letter

Volume 25, Issue 22

Insurance Criminal Appeals After Pleading Guilty

Ohio Court Allowed Insurance Criminal to Change Felony to Misdemeanor Only to Face an Appeal

Sandy Diane Pinney, appealed the March 2, 2021 judgment of the Ashtabula County Court of Common Pleas overruling her motion to dismiss due to pre-indictment delay, and the March 30, 2021, judgment sentencing her to twelve months community control on one count Insurance Fraud. In State of Ohio v. Sandy Diane Pinney, 2021-Ohio-3483, No. 2021-A-0013, Court of Appeals of Ohio, Eleventh District, Ashtabula (September 30, 2021) the Ohio Court of Appeal dealt with the claim.

FACTS

Ms. Pinney, a fairly incompetent insurance fraud perpetrator, in October 2018, staged a fall on a broken egg while shopping at Wal Mart. Much to her surprise, she was actually injured and suffered a broken ankle.  Wal Mart denied her insurance claim and she received no monetary compensation. An investigation was submitted to the prosecutor’s office in 2019.

Meanwhile, in August 2021, Pinney was under indictment for an unrelated offense, to which she pleaded guilty and served a twelve-month prison term. In October 2020, after her release in the unrelated matter, the state charged her with one count Insurance fraud in violation of R.C. 2913.47(B)(1) &(C), a felony of the fifth degree, in relation to the Wal Mart fall.

Pinney filed a motion to dismiss due to a pre-indictment delay arguing prejudice in that she was deprived of the ability to argue for a concurrent sentence, or from seeking a negotiated plea that would have concluded the matter prior to her release from prison. Additionally, she argued that although the events occurred in 2018, the conviction appears on her record in 2021, after the completion of the 2019 prison sentence. The trial court overruled her motion, finding there was no evidence that the State was negligent or intentional in the delay, and that appellant failed to demonstrate prejudice in preparing her defense due to the delay.

In March 2021, Pinney, seeing a conviction on the way, withdrew her not guilty plea and entered a plea of no contest to an amended count one, Insurance Fraud, in violation of R.C. 2913.47(B)(1), a misdemeanor of the first degree. By so doing she avoided jail and the court sentenced her to a twelve-month period of community control.

Man Bites Dog Story – Aetna Sues Fraud Perpetrators to Recover Fruits of Fraud

New Jersey’s IFPA Helps Victims of Fraud Sue the Fraudsters

Aetna Health Inc. and Aetna Life Insurance Co. (collectively, “Aetna”) appeal from trial court orders dismissing for failure to state a claim their second amended complaint, and denying as untimely their motion for leave to file a third amended complaint, against father-daughter defendants Robert W. Kerekes (“Kerekes”) and Susan Nicoll (“Nicoll”). The two were minority owners of Biodiagnostic Laboratory Systems, LLC, (“BLS”) which submitted millions of dollars of fraudulent claims to Aetna. David Nicoll (“David”) – Nicoll’s husband and Kerekes’s son-in-law – was BLS’s majority owner and was convicted of various federal crimes related to the fraud, along with other Nicoll and Kerekes family members and numerous physicians who participated in the scheme.

In Aetna Health Inc. and Aetna Life Insurance Company v. Biodiagnostic Laboratory Services, L.L.C., et. al., No. A-3335-17, Superior Court of New Jersey, Appellate Division (October 7, 2021) the Appellate Division explained that the statutory provisions require less detailed pleadings than a common law fraud case.

Health Insurance Fraud Convictions

Two Sentenced for Embezzling Over $777,000 From Native American Addiction & Counseling Center

Fredericka DeCoteau, 63, Cloquet, Minnesota, and Edith Schmuck, 77, Rice Lake, Wisconsin, were sentenced October 29, 2021 in federal court in Madison, Wisconsin for theft of federal program funds.

U.S. District Judge William M. Conley sentenced DeCoteau to 2 years in prison, and Schmuck to 1 year and 1 day in prison. Judge Conley also ordered the defendants to jointly pay restitution of $777,283. Both defendants were ordered to report to the Bureau of Prisons on December 29, 2021 to begin their sentences.

DeCoteau and Schmuck pleaded guilty to one count of theft of federal funds on July 15 and June 24, 2021, respectively. They worked at Ain Dah Ing (ADI) which has operated as a non-profit halfway house in Spooner, Wisconsin since 1971. DeCoteau worked as the Executive Director at ADI from 2002 to 2017. Schmuck worked as the bookkeeper from 1990 to 2017. They were fired after the thefts were discovered.

ADI offered mental health and alcohol and substance abuse services to Native Americans from Michigan, Minnesota, and Wisconsin tribes. ADI’s services included a 90-day program at its 15-bed Community-Based Residential Facility in Spooner, Wisconsin. ADI’s funding came from a federal commercial contract with the U.S. Department of Health and Human Services, Public Health Service, Indian Health Services Division.

Both DeCoteau and Schmuck pleaded guilty to embezzling a total of $777,283 from ADI by paying themselves unauthorized bonuses via payroll checks that were signed using a rubber signature stamp of the ADI Treasurer. The embezzlement lasted from 2007 to 2017.

At today’s sentencing, Judge Conley noted that DeCoteau and Schmuck stole over 67% of the total funds intended for programming at ADI, and that they gambled away most of this money at local Indian casinos. Judge Conley explained that the defendants violated the trust of the ADI Board of Directors and took advantage of vulnerable people with addictions. In imposing sentence, Judge Conley made clear to both defendants that the gravity of the offense, coupled with the long-term nature of the embezzlement, mandated that they serve prison time despite their claims of being addicted to gambling.

Other Insurance Fraud Convictions

Life Sentence for Fort Worth Man Found Guilty of Gruesome Murder of Wife, Infant Son

Craig Vandewege, 40, was found guilty, Thursday, and given an automatic sentence of life without the possibility of parole.

Vanderwege, a Fort Worth man was charged with, and convicted by a jury, of the capital murder of his wife and infant son. He was found guilty, November 4, 2021 and automatically sentenced to life without the possibility of parole.


© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

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The Ballard Allison Case & the Reality of Mold Claims

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A Video Explaining How Mold Claims Became Popular

See the full video at https://rumble.com/vp2tmg-the-ballard-allison-case-and-the-reality-of-mold-claims.html?mref=23gga&mrefc=2 and at https://youtu.be/0Rp5VFcPBF4

The fear of mold claims was engendered in the insurance industry by the trial court decision in Ballard v. Fire Insurance Exchange, No. 99-05232 (Texas District Court, Travis County, June 1, 2001), cited in Jury Awards: $32 Million to Texas Homeowner in Mold Coverage Action, 6, No. 12, Mealey’s Emerging Insurance Disputes 11 (June 20, 2001 and “What Coverage Attorneys Need to Know About Mold,” Tort and Insurance Practice Law Journal, Fall 2002 (38:1), at page 45). The fear was mostly misplaced. The verdict was the result of poor claims handling. Almost the entire $32 million verdict was punitive damages that did not withstand appellate review.

The Texas Court of Appeals, Third District, at Austin, reversed much of the trial court’s opinion in Ronald Allison/Fire Insurance Exchange v. Fire Insurance Exchange, A Member of the Farmers Insurance Group/Mary Melinda Ballard and Ronald Allison, et. al, 98 S.W.3d 227 (2002), and explained the factual background that resulted in an improper and excessive judgment against the Fire Insurance Exchange (FIE). The Court of Appeals describe the evidence presented at trial in detail necessary to the understanding of the decision.

Although the Ballard Allison trial verdict was touted as a “mold” case, it was, in fact, a claims-handling case. The jury was offended by the admission that the adjuster, McConnell, lied to the insured and decided to punish them with excessive punitive damages.

In order to avoid an insurance claim as complex as this one, the FIE should have followed proper claims-handling protocol. The lawsuit, and the results of the lawsuit, could have been avoided if it followed good faith claims handling and if the claims adjuster did not testify that she lied to the insured. [For a complete discussion of insurance claims handing, see Zalma on Insurance Claims or the Compact Book of Adjusting Property Claims or The Compact Book of Adjusting Liability Claims  available as paperbacks or Kindle books at http://zalma.com/blog/insurance-claims-library/]

If the Ballard claim was presented after the decision in Fiess v. State Farm Lloyds, supra there would have been no coverage for any of her claims except the direct damage caused by water and no basis for her allegations of bad faith.

The US Centers For Disease Control (CDC) in response to an inquiry from the public concerning the hazards of toxic mold said:

The term “toxic mold” is not accurate. While certain molds are toxigenic, meaning they can produce toxins (specifically mycotoxins), the molds themselves are not toxic, or poisonous. Hazards presented by molds that may produce mycotoxins should be considered the same as other common molds which can grow in your house. There is always a little mold everywhere – in the air and on many surfaces. There are very few reports that toxigenic molds found inside homes can cause unique or rare health conditions such as pulmonary hemorrhage or memory loss. These case reports are rare, and a causal link between the presence of the toxigenic mold and these conditions has not been proven. [ www.cdc.gov/mold/stachy.htm#Q1 .]


© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

Posted in Zalma on Insurance | Leave a comment

Man Bites Dog Story – Aetna Sues Fraud Perpetrators to Recover Fruits of Fraud

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New Jersey’s IFPA Helps Victims of Fraud Sue the Fraudsters

Aetna Health Inc. and Aetna Life Insurance Co. (collectively, “Aetna”) appeal from trial court orders dismissing for failure to state a claim their second amended complaint, and denying as untimely their motion for leave to file a third amended complaint, against father-daughter defendants Robert W. Kerekes (“Kerekes”) and Susan Nicoll (“Nicoll”). The two were minority owners of Biodiagnostic Laboratory Systems, LLC, (“BLS”) which submitted millions of dollars of fraudulent claims to Aetna. David Nicoll (“David”) – Nicoll’s husband and Kerekes’s son-in-law – was BLS’s majority owner and was convicted of various federal crimes related to the fraud, along with other Nicoll and Kerekes family members and numerous physicians who participated in the scheme.

In Aetna Health Inc. and Aetna Life Insurance Company v. Biodiagnostic Laboratory Services, L.L.C., et. al., No. A-3335-17, Superior Court of New Jersey, Appellate Division (October 7, 2021) the Appellate Division explained that the statutory provisions require less detailed pleadings than a common law fraud case.

FACTS

Aetna seeks to recover over $32 million that BLS distributed to Kerekes and Nicoll. Aetna contends the funds are proceeds of the fraud, and that Nicoll and Kerekes are liable to Aetna under the New Jersey Insurance Fraud Prevention Act (“IFPA”), N.J.S.A. 17:33A-1 to -30, because they knowingly benefitted from BLS’s fraud and they failed to disclose the fraud to Aetna. Aetna also contends that BLS’s payments to Nicoll and Kerekes are voidable under the Uniform Fraudulent Transfer Act (“UFTA”), because BLS made them with the actual intent to hinder, delay, or defraud Aetna, as a BLS creditor.

The principal question here is whether, in its second amended complaint, Aetna adequately pleaded its IFPA and UFTA claims. We conclude it did, and the trial court erred by failing to read the complaint indulgently by misapplying the heightened pleading standard applicable to fraud claims, and by misconstruing the meaning of “knowingly” as used in the IFPA. Because we reinstate the second amended complaint, we remand to the trial court to consider anew Aetna’s motion to file a third amended complaint, which would add claims, among others, for restitution, piercing the “corporate veil,” and imposition of a constructive trust.

Aetna asserts in the second amended complaint claims against Nicoll and Kerekes under the IFPA and UFTA. Aetna also asserts numerous claims against the direct participants in the fraud, including David, Kerekes’s son Kevin Kerekes (“Kevin”) who was a BLS salesperson, physicians who accepted bribes to funnel business to BLS, and other BLS employees who paid the bribes.

Aetna alleged that BLS, through its salespeople and their sham business entities, bribed physicians or paid them kickbacks to refer Aetna’s insureds to BLS for laboratory services. BLS then submitted fraudulent insurance claims to Aetna by billing for services that BLS did not perform, by double-billing, and by waiving patients’ copays and deductibles.

Aetna alleged that Nicoll and Kerekes, as principals and owners of BLS, “orchestrated, directed and/or knew of the bribery scheme,” and “knowingly benefitted from the scheme to defraud.”

Aetna alleged, with supporting documentation, that Nicoll and Kerekes acquired twenty-nine and twenty percent of BLS respectively – and David acquired fifty-one percent – without paying anything out of pocket. In return for an insignificant investment in a company that evidently had little value, Nicoll and Kerekes respectively received disbursements from BLS topping $19 million and $13 million over an eight-year period beginning the year following their acquisition. Aetna alleges that under these circumstances, Nicoll and Kerekes knew that BLS was not operating within the confines of the law and knew of the fraudulent scheme.

In addition, Nicoll and Kerekes were both personally named in a lawsuit that Horizon Blue Cross Blue Shield of New Jersey (Horizon) brought during the fourth year of their ownership, alleging many of the claims Aetna later raised: that BLS paid kickbacks, double-billed, and waived patient responsibility in a fraudulent scheme.

In lieu of an answer, Nicoll and Kerekes moved to dismiss the second amended complaint under Rule 4:6-2(e). And after oral argument, the trial court granted the motion without prejudice.

Although Nicoll and Kerekes were dismissed from the case, Aetna took their depositions as part of discovery in the case remaining against other defendants. Five months later, Aetna sought leave to file a third amended complaint that repeated IFPA and UFTA claims against Nicoll and Kerekes and added claims for a constructive trust, piercing the corporate veil, and restitution against the two.

In its proposed pleading, Aetna bolsters its claims by alleging additional facts regarding BLS’s formation, its operating agreement, Nicoll’s and Kerekes’s respective backgrounds and levels of sophistication, their incomes from BLS, and the Horizon litigation. Aetna alleged that in the years before the Horizon lawsuit, Nicoll received an 8,196 percent return on investment, or about 262 percent annually.

ANALYSIS

The court examined the legal sufficiency of the facts alleged on the face of the complaint, assuming the truth of those facts and granting plaintiffs every reasonable inference. A pleading which sets forth a claim for relief  need only contain a statement of the facts on which the claim is based, showing that the pleader is entitled to relief. The dismissal motion must fail if the claim has been made out. Applying this liberal standard, Aetna adequately pleaded facts supporting causes of action under the IFPA and the UFTA.

The IFPA “aggressively” combats insurance fraud in part by authorizing insurers to pursue private claims for statutory violations. Here, Aetna adequately alleged that Nicoll and Kerekes committed two statutory violations.

  1. That Nicoll and Kerekes “conceal[ed] or knowingly fail[ed] to disclose the occurrence of an event which affects any person’s initial or continued right or entitlement to (a) any insurance benefit or payment or (b) the amount of any benefit or payment to which the person is entitled.
  2. Aetna alleged that due to the assistance, conspiracy or urging of any person or practitioner, that is, BLS and its numerous actors – Nicoll and Kerekes knowingly benefitted, directly or indirectly, from the proceeds derived from a violation of the act that violation being BLS’s numerous acts of fraud.

The “events” that Nicoll and Kerekes allegedly concealed or failed to disclose were BLS’s fraudulent acts, including bribes, double-billing, and waiver of patient responsibility. Aetna described them in great detail, and explained they affected BLS’s right to payment. Put another way, Aetna alleged that had it known that BLS bribed doctors, double-billed, and waived patient’s copays and deductibles, it would not have paid the claims.

Aetna was not obliged to allege more. Knowledge is a state of mind that is rarely proved by direct evidence. Knowing is well understood to be an awareness or knowledge of the illegality of one’s act.

In a civil action under the IFPA the defendant’s knowledge of a violation may be proven by circumstantial evidence, including, for example, a defendant’s demeanor and intellect.

Despite its short title, the IFPA is designed to combat insurance fraud by creating causes of action based on less than the elements of common law fraud. The Seventh Circuit held pleading-with-particularity did not apply to “an allegation of unfair conduct, because fraud is not a required element under that branch of the statute.” Benson v. Fannie May Confections Brands, Inc., 944 F.3d 639, 646 (7th Cir. 2019).

Aetna’s claims against Nicoll and Kerekes rest not on the elements of common law fraud, but on their knowing receipt of BLS’s fraud proceeds and their failure to disclose that knowledge. Regarding BLS’s underlying fraud, Aetna pleaded facts with great particularity, explaining who, what, when, where, and how the bribes were paid to corrupt physicians and the claims paid for double-billing. The trial court, therefore, erred in dismissing Aetna’s IFPA claims in its second amended complaint.

Aetna’s UFTA claim also passed pleading muster. However, even assuming that heightened pleading is required, a party may allege intent generally. In order to adequately plead a fraudulent-conveyance claim, a complaint must plead the who, what, where, when, and how of the challenged transactions. Aetna met that test.

Therefore, the trial court erred in dismissing Aetna’s UFTA claims in its second amended complaint and Aetna’s motion to file a third amended complaint deserves consideration from the trial court.

ZALMA OPINION

Since prosecutors seem reluctant to prosecute people who commit insurance fraud and seek restitution for the victims, the insurers, Aetna and other insurers are becoming proactive and seeking to take the profit out of the crime. The defendants made millions by their fraud and Aetna, if it can prove what it alleged will recover the millions stolen from it by insurance fraud, even if the defendants are imprisoned for their crime. It is time for insurers to fight back in a way that will hurt the fraudsters the most – in their bank accounts. New Jersey is only one of many states that have an IFPA that allows insurers to sue or sue under Qui Tam suits. Aetna’s actions should be emulated by all insurer victims.


© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

 

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The Rights of Mortgagees

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A Video Explaining the Union or Standard Mortgage Clause

See the full video at https://youtu.be/fnta0i2LMYQ  and at https://rumble.com/vp0rmu-the-rights-of-mortgagees.html

Since properties are frequently encumbered by mortgages, most first party property policies contain provisions that protect the mortgagee’s interest in the event the insured property is damaged or destroyed.

Historically there have been two types of mortgage clauses:

  1. a loss payable or open mortgage clause, which only provides that loss shall be payable to the mortgagee as interest may appear. Most courts have construed the phrase, “as interest may appear” as referring not to the mortgagee’s interest in the insured property, but rather to the amount of debt owed to it secured by the mortgage or deed of trust.
  2. the standard or union mortgage clause (Form 438 BFU NS), which states, in addition to the loss payable provision, that the mortgagee’s interest in the proceeds of the policy shall not be invalidated by any act or neglect of the mortgagor.

Where an insurer issues a policy knowing that the property is subject to a mortgage, and in fact the policy itself contains a standard mortgage clause extending coverage to mortgage holders, there is no added risk. At the time the policy was issued, it was foreseeable that a mortgagee could take possession and control of the property in the event of default.

The union mortgage clause in an insurance policy creates a separate contract between the mortgagee and the insurer. [Vargas v. Nautilus Ins. Co., 248 Kan. 881, 887, 811 P.2d 868 (1991); see also Neises v. Solomon State Bank, 236 Kan. 767, 778, 696 P.2d 372 (1985); Iron Horse Auto v. Lititz Mut. Ins. Co., 156 P.3d 1221, 283 Kan. 834 (Kan. 2007)

A standard mortgage clause creates an independent contract between the insurer and the mortgagee that prevents the mortgagee’s interest from being invalidated by the conduct of the mortgagor. [Allen, 167 Minn. at 149–50, 208 N.W. at 817–18 (quoting Syndicate Ins. Co. v. Bohn, 65 F. 165, 178 (8th Cir.1894)); Magoun v. Fireman’s Fund Ins. Co., 86 Minn. 486, 490, 91 N.W. 5, 7 (Minn. 1902).]

ZALMA OPINION

Every first party property adjuster must understand the effect a standard mortgage clause has on claims handling and that, even if it is proved that the insured intentionally committed the crime of arson-for-profit and burned down his house the mortgagee may still recover from the insurer up to its security interest.


© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

 

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Insurance Expert May Not Testify About Law or Causation

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An Expert Witness May Not Testify Outside his Field of Expertise

For more than a decade I have testified as an insurance claims expert. I have never, however, even considered testifying about the cause of a loss or engineering about which I know nothing. Erie Insurance Property and Casualty Company, d/b/a Erie Insurance Group’s (“Erie”), faced with an insurance expert who proposed to testify about the law of the case and the cause of a loss, moved in limine to exclude Plaintiff’s expert Vince King from offering testimony regarding the cause of Plaintiff’s alleged damages and from offering opinion testimony as to the law of the case. In Richard Ferguson v. Erie Insurance Property And Casualty Company, d/b/a Erie Insurance Group, Civil Action No. 3:19-0810, United States District Court, S.D. West Virginia, Huntington Division (November 8, 2021) the USDC found it necessary to limit the proffered testimony of an insurance expert.

BACKGROUND

This case involves an insurance coverage dispute for property damage at Plaintiff Richard Ferguson’s home in Putnam County, West Virginia. Plaintiff alleged that his home sustained damages to the foundation walls through the blasting operations of Bizzack Construction, LLC during its road construction activities in 2017-2018. Plaintiff alleged that the foundation walls to his home sustained fifteen vertical cracks during those blasting operations.

At the time of the damage, Plaintiff’s home was covered by an insurance police issued by Erie. Plaintiff submitted a claim to Erie. Erie retained a structural engineer, Tammy St. Clair, P.E., to investigate Plaintiff’s damages and opine as to the cause of loss. Ms. St. Clair issued a report to Erie, finding that the cause of the damage to Plaintiff’s home resulted from the shrinkage of the grout-filled CMU cells. Because of this report, Erie advised Plaintiff that there was no coverage. Plaintiff sued Erie, alleging that Erie wrongfully denied coverage for his property insurance claim, which was the result of blasting.

Throughout the course of the litigation, Plaintiff identified Vince King as an insurance expert. Plaintiff stated that “Mr. King is expected to testify regarding the standard practices and protocols in the insurance industry.” In anticipation of the litigation, Mr. King produced a report in which he offered three categories of opinions: (1) that Erie engaged in post-claim underwriting; (2) that Erie breached the insurance contract by violating the implied covenant of good faith and fair dealing; and (3) that Erie could be subject to extracontractual claims.

The insurer moved in limine to preclude Mr. King from offering opinions regarding the cause of any of the alleged damages or challenging the methods and basis by which Defendant’s expert reached her conclusions. Defendant also seeks to preclude Mr. King from offering opinions regarding the law or to instruct the trial court as to applicable law of the case.

LEGAL STANDARD AND DISCUSSION

The admissibility of expert testimony in court proceedings is governed by Rule 702 of the Federal Rules of Evidence and is relevant if: “(a) it has any tendency to make a fact more or less probable than it would be without the evidence; and (b) the fact is of consequence in determining the action.”

Expert Testimony on Causation

Mr. King’s only opinion as to Ms. St. Clair’s findings was to criticize her conduct during her investigation, specifically for not having reviewed pre-blast and post-blasting reports in ruling out blasting as a cause of loss. Defendant argued that Mr. King is not qualified, by his own admission, to volunteer opinions about grout shrinkage.

It is undisputed that Vince King is not a qualified engineer and cannot, as he did in his depositions, volunteer opinions regarding grout shrinkage or causation. He is similarly not qualified to offer opinions as to what investigation was necessary for a structural engineer to determine whether grout shrinkage had occurred, because he has no expertise in this area. Accordingly, the court concluded that Mr. King cannot testify as to causation or critique the scientific foundation underlying Ms. St. Clair’s reports, and so the Motion was granted in part.

Expert Testimony on Insurance Claims

Erie claims that Mr. King’s testimony as to insurance coverage issues or the way Erie determined coverage is irrelevant. Given that the scope of the question before the jury involves questions of insurance coverage that go beyond causation, Mr. King might be able to assist a jury in the typical protocols and analysis an insurer uses when deciding to cover a claim. This may assist a jury in determining whether the cause of damage that Defendant asserts constitutes “post-claim underwriting.” Accordingly, Mr. King may testify as an insurance expert on matters of insurance procedures and practice as they relate to coverage.

Whether or not the jury finds this evidence persuasive is a matter for them. For these reasons, Mr. King should be permitted to testify as to the analysis an insurance company should follow in determining coverage. This may implicate Ms. St. Clair’s conclusions, but if Mr. King attempts to testify as to causation or her scientific findings, this Court can rule on objections during trial as to particular questions that may be improper.

Expert Testimony on the Applicable Law

Defendant asks the Court to preclude Mr. King from testifying as to his opinions regarding the applicable law. Generally it is not permissible for an expert to opine as to the law of the case, or to instruct the trial court as to the applicable law of the case. An expert “may not testify as to such questions of law as the interpretation of a statute. or case law… or the meaning of terms in a statute… or the legality of conduct. [Jackson v. State Farm Mut. Auto. Ins. Co., 600 S.E.2d 346, 255 (W.Va. 2004).]

In his deposition, Mr. King testified at length as to the applicable law. Similarly, in his report, he explains the applicable law to support some of his contentions. These statements are inadmissible.

CONCLUSION

Mr. King may testify as to applicable insurance practice and standards. However, he may not testify as to the causation of the damage, or the scientific underpinnings of Ms. St. Clair’s report. Similarly, he must not opine on the law underlying the case. Within the scope of these limitations however, Mr. King may testify.

ZALMA OPINION

The orders rendered by the USDC appears to be correct in limiting the expert’s testimony to insurance issues. However, he claims to be able to testify about “post loss underwriting” which scheme was created to deal with a supposed overuse of the equitable remedy of rescission by insurers. Since Erie just denied the claim, did not cause the policy to be void, and only denied the claim because the cause of loss was not due to an enumerated peril that was not excluded. Underwriting – whether original or after a loss – is irrelevant to the issues and he should be precluded from testifying about a concept that is not at issue.


© 2021 – Barry Zalma

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

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

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

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

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