No Excuse for Not Reporting Loss as Soon as Practicable

Waiting Until You Lose a Suit to Report the Loss to the Insurer Breaches Material Condition

Claims made and reported policies require prompt reporting within the policy period. When an insured is sued, the prudent insurer will immediately report the loss to the insurer. There should simply be no excuse for waiting six months to tell the insurer. When an insured waits to report and has no excuse for the delay nor an explanation why the insured did not fulfill a condition precedent will lose its right to defense or indemnity.

In Food Market Merchandising, Inc. v. Scottsdale Indemnity Company, United States Court of Appeals, Eighth Circuit, 2017 WL 2271363, No. 16-3427 (March 9, 2017) Food Market Merchandising, Inc. sued Scottsdale Indemnity Company for coverage under a Business and Management Indemnity Policy.

The district court granted Scottsdale’s motion because timely notice is a condition precedent to payment under the Policy, Scottsdale’s duty to defend/indemnify was never triggered, and Scottsdale is entitled to judgment as a matter of law.”

FACTS

The policy covers “only claims first made against the insured during the policy period … and reported to the insurer pursuant to the terms of the relevant coverage section.” The “Notification” provision of the coverage section at issue states: “The Insureds shall, as a condition precedent to their rights to payment under this Coverage Section only, give Insurer written notice of any Claim as soon as practicable, but in no event later than sixty (60) days after the end of the Policy Period.” (emphasis added)

In January 2014, former employee Robert Spinner sued Food Market, seeking unpaid commissions. In June, a court granted partial summary judgment for Spinner, awarding twice the unpaid commissions and attorney’s fees. It did not reduce the award to judgment. (The parties settled two years later).

In August 2014—during the policy period—Food Market notified Scottsdale of the Spinner lawsuit. It sought defense and indemnification under the “Employee Insuring” provision of the Employment Practices coverage that provided: “Insurer shall pay the Loss of the Insureds which the Insureds have become legally obligated to pay by reason of an Employment Practices Claim first made against the Insureds during the Policy Period …  for an Employment Practices Wrongful Act taking place prior to the end of the Policy Period.”

In June 2015, Food Market sued Scottsdale for coverage, asserting claims for breach of contract, breach of the covenant of good faith and fair dealing, and declaratory judgment. A week later, Scottsdale formally denied coverage, stating Food Market’s notice was untimely and its claim outside the policy’s scope.

ANALYSIS

Food Market believes its notice was timely because it had a “claims-made” policy and gave notice within the claims period. Here, the policy did not require notice to be given during the policy period, but instead only required that notice be given as soon as practicable, but in no event later than sixty (60) days after the end of the Policy Period.

Food Market contends the district court erred in finding no genuine issue of material fact about the timeliness of notice. Generally, whether the notice was given as soon as practicable is a fact-dependent question for a jury to determine. A court may grant summary judgment, however, when there is no genuine issue of material fact.

Food Market presented no evidence that providing notice over seven months after Spinner sued was “as soon as practicable.”

Whether the delay prejudiced Scottsdale, a showing both parties admit is not required where, as here, notice is a condition precedent to coverage, is irrelevant.

The Eighth Circuit concluded that the district court properly found no genuine issue of material fact about the timeliness of notice.

Food Market asserted the policy’s notification provision was ambiguous. Whether the phrase “as soon as practicable” is ambiguous regarding timely notice for an original claim requires the court to accept Food Market’s interpretation that ignores the phrase “as soon as practicable.”

As the district court concluded, Food Market’s interpretation of the condition precedent—requiring notice only within 60 days of the policy’s expiration — renders the phrase “as soon as practicable” meaningless. Therefor the district court properly found the policy unambiguous and that Food Market failed to report the loss to Scottsdale as soon as practicable and provided no explanation for the failure to fulfill the condition precedent.

ZALMA OPINION

Insurance policies are contracts where people make promises to their insurer. A condition precedent is a promise made by the insured to the insurer that if the insured wants defense or indemnity from the insurer it must report a loss “as soon as practicable.” It did not. Rather, the insured waited seven months to report the loss. It is impossible to believe seven months was as soon as practicable, especially when the insured defends the suit and loses a summary judgment motion before it reports the loss to the insurer.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

 

 

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No Good Service From Agent Goes Unpunished

Agent Fulfilled Duty to Advise Insured of Changes in New Policy

When an insured seeks coverage from an insurance agent or broker it is obligated to answer all application questions accurately. When a trucking firm advised its agent of product hauled to innocuous and inexpensive product when, in fact, it was hauling copper, it claimed its agent acted wrongfully when it failed to get coverage for the loss of copper and had acquired a policy with a copper exclusion.

FACTS

In Atic Enterprises, Inc., v. Cottingham & Butler Insurance Services, Inc., United States Court of Appeals, Sixth Circuit Case No. 16-6549, 2017 WL 2261004 (May 23, 2017) Atic Enterprises, Inc. (“Atic”), a now-defunct trucking company that bought an insurance policy through Cottingham & Butler Insurance Services, Inc. (“Cottingham & Butler”) sued its agent for negligence when its claim for the loss of two loads of copper that were stolen from Atic’s trucks. After its claim was denied Atic sued Cottingham & Butler, contending that the insurance company was negligent and misrepresented Atic’s policy.  Cottingham & Butler notes that, despite being asked specifically what cargo the company hauled, Atic concealed that it hauled copper.

Atic was a contract-carrier trucking company based in Bowling Green, Kentucky. Atic claimed that it transported general freight, including commodities dry bulk, non-alcoholic beverages, and paper products, from 2011 to 2014. Atic also hauled copper, despite not disclosing this fact to government regulators or to its insurance provider.

Cottingham & Butler sales agent Jacob Zeal dealt with Atic. Prior to the initial sale of the 2012–13 policy, Cottingham & Butler requested information from Atic about what materials the company transported. Atic did not list copper among the items it transported. Instead, it listed that it transported canned goods, paper and paper products, non-alcoholic beverages, and general merchandise. It also stated that the information provided an accurate and complete representation of its business. On this basis, Cottingham & Butler sold Atic a policy from Westchester Insurance that covered its transporting needs. The 2012–13 policy did not contain a copper exclusion.

Prior to the expiration of the initial insurance policy, Westchester notified Atic that it would not automatically renew its current policy. The notice read that “[i]f we are able to offer you insurance for the next policy term, the terms, limits and premium may be materially different from your current insurance policy.” At the expiration Atic and Cottingham & Butler’s agent, Zeal, discussed a policy for 2013–14 policy year.

In July 2013, Zeal sent Atic a proposal for a new policy. The proposal included a side-by-side comparison of the proposed 2013–14 policy and the current 2012–13 policy. The proposal showed explicitly that copper was excluded from the new policy. In fact, copper is the first item listed under the “Property Not Covered” list at the bottom of the side-by-side coverage-comparison page. Atic received and read this policy proposal.  Atic, again, did not disclose that it was transporting copper.

The new 2013–14 policy included a handful of explicit exclusions, including copper. Atic contended that it never received this policy.

In early November 2013, two loads of copper were stolen from Atic’s trucks. Following the theft, Atic contacted Zeal for a copy of the 2013–14 policy. Zeal explained that the new policy excluded copper but encouraged Atic to submit a claim nonetheless. Atic submitted a claim, which Cottingham & Butler subsequently denied.

ANALYSIS

To recover on a claim of negligence, Kentucky law requires a plaintiff to establish (1) that the defendant owed a duty of care; (2) that the defendant breached that duty; and (3) that the breach actually and proximately caused plaintiff’s damages.  The duty an insurance agent has to his clients is a question of law. Under Kentucky law, there is no affirmative duty to advise … by the mere creation of an agency relationship. Instead, an insurance agent owes his clients a standard duty of reasonable care. Atic, however, contends that Cottingham & Butler’s agent, Zeal, took on the special role of insurance advisor, and with that, owed a heightened standard of care.

An insurance agent can assume a duty to advise if he expressly or impliedly undertook to advise his client. An implied assumption of duty may be present when: (1) the insured pays the insurance agent consideration beyond a mere payment of the premium; (2) there is a course of dealing over an extended period of time which would put an objectively reasonable insurance agent on notice that his advice is being sought and relied on; or (3) the insured clearly makes a request for advice.

Applying these factors, Zeal did not expressly or impliedly assume a duty to advise. Atic had been using Cottingham & Butler as its insurance agent since 2012. They bought a one year policy, and then when Westchester indicated it would not renew the policy, they worked for a second time with Zeal to update their information and purchase a new policy for 2013–14. Thus, this was not a long course of dealing. Additionally, there is no evidence that Atic paid Zeal consideration beyond the payment of a premium. And, most importantly, Atic never made any clear requests for advice on its insurance coverage relating to transporting copper. In fact, Atic never even disclosed to Cottingham & Butler that it transported copper. It withheld that information in the forms Zeal provided as a part of the application for insurance coverage.

As the district court aptly noted, Atic’s “allegations are simply a description of the role of an insurance agent.” Zeal is licensed, represented that he was a transportation consultant, tried to sell insurance to Atic, and represented to Atic that it would be easier for it to get insurance if it consolidated its company. But this conduct does not make Zeal responsible to Atic at a higher standard.

In the insurance context where the language of an insurance contract unambiguously explains the terms and conditions, no separate formal notification is required to effectuate a policy provision unless the unannounced change misleads an insured. It is clear from the language of the policy that copper was excluded from coverage.  Cottingham & Butler had no additional duty to provide separate notification of the exclusion beyond the language of the policy, and there was no reason to further explain the policy’s terms because those terms were unambiguous.

Despite the absence of a duty to provide additional notice, Cottingham & Butler provided Atic with multiple documents that listed the new policy’s copper exclusion. Cottingham & Butler provided ample additional notice of the policy change prior to the issuance of the new policy, and it did so despite not being required to provide such notice. Cottingham & Butler did not know that Atic was hauling copper, since Atic concealed that fact when it applied for insurance coverage, so Zeal had no reason to further advise Atic about the exclusion.

ZALMA OPINION

When an insured lies to its insurance agent and insurance company about a material fact the policy should have been void from its inception. Rather, it made a claim, and when the claim was denied because of an unambiguous exclusion it sued its agent for negligence. The agent went beyond its obligation to advise the insured of the limits of its policy and that it contained a specific exclusion and still it sought to punish its agent for its good and professional conduct.  The Sixth Circuit properly refused.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

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Love In The Air – Wife Shoots Husband

When Your Estranged Wife Shoots You, Don’t Expect Coverage

As June approaches and love is in the air courts are faced with interesting cases arising from love and marriage proving they don’t always go together like a horse and carriage. When a marriage breaks up love often turns to hate and one spouse may cause injury to the other. Perhaps, because insurers recognize the hazards of a family break-up almost every insurance policy excludes, to eliminate family collusion, an exclusion for incidents where one insured causes injury to another.

In Robert Nelson Rector v. Kimberly Kay Rector and State Farm Fire and Casualty Company, Supreme Court of Appeals of West Virginia, No. 16-0867, 2017 WL 2210153 (May 19, 2017) Petitioner Robert Nelson Rector appealed the August 18, 2016, order of the Circuit Court of Harrison County that granted Respondent State Farm Fire and Casualty Company’s (“State Farm’s”) motion for summary judgment on Count II of petitioner’s complaint against State Farm and his wife, Respondent Kimberly Kay Rector.

FACTS

In Count II of the complaint, petitioner sought a declaratory judgment that he was entitled to coverage from State Farm under his homeowner’s and professional liability umbrella insurance policies for medical expenses and other damages he incurred when his wife negligently shot him.

State Farm provided a homeowner’s insurance policy for petitioner and his wife’s marital home at all times relevant to this action.  State Farm also provided petitioner with a professional liability umbrella policy. Petitioner claims he moved out of the marital home on July 17, 2015, while his wife continued to reside in the marital home as its sole occupant. Eighteen days later, on August 4, 2015, petitioner’s wife shot petitioner in the abdomen as he exited a tavern an action that would be difficult to do accidentally.

Petitioner sued his estranged and violent wife seeking damages from his wife for her negligence with regard to the shooting (Count I), and, seeking a declaratory judgment of coverage from State Farm for his medical expenses and other damages proximately caused by the shooting (Count II).

State Farm filed its motion for summary judgment regarding Count II of petitioner’s complaint. State Farm argued that petitioner was not entitled to coverage because both his homeowner’s and professional liability umbrella polices excluded coverage for “bodily injury or personal injury to any insured.”

Petitioner also set forth the need for further discovery in his response. Specifically, petitioner sought to depose his wife who was expected to assert that she was the named insured on the homeowner’s policy because she was the sole occupant of the marital home on the date of the shooting.

By way of explanation, petitioner argued that he was required to be a resident of the marital home to be an “insured” under the definitions of “you,” “your,” “insured location” and “residence premises” found in his homeowner’s policy. Thus, petitioner claimed that because he no longer resided in the home on the date of the shooting, the “bodily injury or personal injury to any insured” exclusion did not preclude him from recovering his damages from State Farm.

On August 18, 2016, the circuit court granted State Farm’s motion for summary judgment on Count II. The circuit court noted that petitioner’s homeowner’s and professional liability umbrella policies provided liability coverage for any claim “brought against an insured” and that the homeowner’s policy provided medical payments coverage. However, the circuit court concluded that State Farm properly denied coverage because both policies contained a clear and unambiguous exclusion of coverage for “bodily injury or personal injury to any insured,” and petitioner is the named insured under both policies.

ANALYSIS

The Supreme Court concluded that the Petitioner failed to identify, in any fashion, the basis for his belief that additional discovery would yield genuinely disputed issues of material fact, or to articulate how further discovery, such as deposing his wife, would create a dispute of material fact. That failure deprived him of an escape from the motion for summary judgment.

In Petitioner’s brief before the Court, petitioner failed to identify any factual finding in the order for which the circuit court viewed the facts in the light most favorable to State Farm. Moreover, the circuit court expressly acknowledged in the order that it was required to draw any permissible inference from the underlying facts in the light most favorable to the party opposing the summary judgment motion. Having thoroughly reviewed the order, the Supreme Court found no indication that the circuit viewed any fact in the light most favorable to State Farm.

Petitioner’s sought reversal based on a severability clause that provided that “[t]his insurance applies separately to each insured. This condition shall not increase our limit of liability for any one occurrence.” The purpose of severability clauses is to spread protection, to the limits of coverage, among all of the insureds. The purpose is not to negate unambiguous exclusions. Petitioner argued that the circuit court erred in failing to find that the severability clause operates to place petitioner’s wife in the position of named insured and to eliminate petitioner’s status as an “insured.”

In his brief before the Supreme Court, the petitioner never explains how the language in the severability clause provides a mechanism by which a named insured loses that status or another insured gains that status. Nor does petitioner cite to any other clause in his homeowner’s policy that provides a mechanism for such a reformation of the homeowner’s policy. As the circuit court correctly noted in the order on appeal, petitioner’s “speculation does not override the application of the clearly unambiguous, exclusionary language contained in the subject insurance policies. …” The bald claim that the severability clause defeats the “bodily injury or personal injury to any insured” exclusion did not defeat that exclusion.

Petitioner argues that the bodily injury to an insured exclusion and the “bodily injury or personal injury to any insured” exclusion in the instant case are in direct conflict with the public policy of West Virginia. Petitioner is mistaken. The Supreme Court has found that the bodily injury to an insured exclusion does not violate public policy because it is not “injurious to the public or against public good.” See Rich v. Allstate Ins. Co., 191 W.Va. 308, 311, 445 S.E.2d 249, 252 (1994).

ZALMA OPINION

The reason for the exclusion for bodily injury or personal injury to the insured exclusion is to avoid fraud. In this case, where an estranged wife meets the husband at the door of a bar where he had, probably, been drinking and shoots him in the belly, seems to be an intentional act.  State Farm did not need to prove the action was intentional since the shooter was an insured and the person shot was an insured on the same policy. That he moved out did not change the world-wide liability coverage provided by a homeowners policy.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

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The Reason for the Examination Under Oath

An Important Tool to Resolve Insurance Claims

Courts that construe submission to an EUO as a condition precedent to recovery generally do not require the insurer to prove that it suffered actual prejudice from an insured’s unexcused refusal to submit to an examination. Lorenzo–Martinez v. Safety Ins. Co., 58 Mass. App. Ct. 359, 790 N.E.2d 692, 695–96 (2003). The EUO provides a mechanism for the insurer to corroborate the claim by obtaining information that is primarily or exclusively within the possession of the insured.

The adjuster, the independent adjuster, the Special Investigation Unit (“SIU”) investigator, the independent insurance adjuster and, in complex cases, the attorney retained to represent the insurer questions the person interviewed in a manner similar to a deposition in a legal proceeding. Because of the formality of the proceeding — it includes an oath, and the presence of a certified shorthand reporter — the task of establishing rapport with the person interviewed so that relevant information may be obtained from the person questioned is more difficult than in an informal interview. Unlike legal proceedings where questions are limited to those seeking a “yes” or “no” or brief answer the EUO seeks narrative responses from the person questioned.

The person taking the EUO, therefore, must be capable of transitioning from lawyer like questions in litigation to the broad, inquisitive, narrative seeking questioning of an investigator. An EUO should never be conducted as if it is an adversarial activity but merely a fact seeking activity that is directed to the needs of an insurance policy and the need to prove a loss is either compensable or not.

Because the EUO is a tool for gleaning the maximum amount of information the EUO is an effective weapon against insurance fraud. This is because the person taking the EUO is knowledgeable about insurance and insurance law while the person being questioned is only aware of the claim presented and the fraud he or she may be attempting.

Often, however, the purpose of the EUO is not to stop fraud but to allow an insured the opportunity to prove his or her claim of loss in cases where evidence has been destroyed by a casualty or is otherwise unavailable.

The authority to take an EUO is provided by the insurance contract and exists, as a result of statutes, establishing a state mandated fire insurance policy that must be incorporated in every policy in the state that insures against the peril of fire. For example the New York Standard Fire Policy provides as follows:

The insured, as often as may be reasonably required, shall exhibit to any person designated by this company all that remains of any property herein described and submit to EUO by any person named by this compa­ny, and subscribe the same; and as often as may be reason­ably required, shall produce for examination and copying all books of account, bills, invoices, and other vouchers… (Emphasis added)

In Shaw v. State Farm Fire and Cas. Co., 37 So.3d 329, 35 Fla. L. Weekly D1020 (2010) Florida concluded that State Farm had every right to include the EUO provision in its contract as a condition precedent to payment or suit, just as insurance companies have done in Florid for over a century; State Farm had every right to expect and require that the EUO requirement be complied with by any person or organization making a claim or seeking payment so that State Farm can determine whether the claim is proper or fraudulent; and State Farm had every right to require and expect that this clause be complied with by assignees of PIP benefits who are no less capable of filing fraudulent claims than insureds. According to the Florida Court of Appeal, the insured and his assignees—the Appellants—do not have the right to take this valuable contract right and investigative tool away from State Farm through the mere expedient of an assignment.

Although the EUO is a formal proceeding it is not part of a judicial process. The EUO is not controlled by the rules of civil procedure. In most states it is considered a condition precedent to recovery under a policy of insurance. The EUO is not limited by any statute relating to civil discovery. Some states have enacted regulations that try to limit insurers taking of the EUO and place certain requirements upon the insurer to chill the desire to take an EUO but still recognize that it is an important tool.

THE DIFFERENCE BETWEEN AN EUO AND A DEPOSITION

Depositions and examinations under oath serve vastly different purposes. First, the obligation to sit for an examination under oath is contractual rather than arising out of the rules of civil procedure. Second, an insured’s counsel plays a different role during examinations under oath than during depositions. Third, examinations under oath are taken before litigation to augment the insurer’s investigation of the claim while a deposition is not part of the claim investigation process. Fourth, an insured has a duty to volunteer information related to the claim during an examination under oath in accordance with the policy while he would have no such obligation in a deposition. [Beasley v. GeoVera Specialty Ins. Co., Slip Copy, 2015 WL 2372328, 2015 WL 2372328 (E.D.La., 2015)]

An insurer’s right to ask questions at EUO is basically unlimited.

THE RIGHT TO TAKE AN EUO

As early as 1884, the U.S. Supreme Court explained the purpose of the EUO, as follows:

The object of the provisions in the policies of insurance, requiring the assured to submit himself to an EUO, to be reduced to writing, was to enable the company to possess itself of all knowledge, and all information as to other sources and means of knowledge, in regard to the facts, material to their rights, to enable them to decide upon their obligations, and to protect them against false claims. And every interrogatory that was relevant and pertinent in such an examination was material, in the sense that a true answer to it was of the substance of the obligation of the assured. A false answer as to any matter of fact material to the inquiry, would be fraudulent. If it made, with intent to deceive the insurer, would be fraudulent. If it accomplished its result, it would be a fraud effected; if it failed it would be a fraud attempted. And if the matter were material and the statement false, to the knowledge of the party making it, and willfully made, the intention to deceive the insurer would be necessarily implied, for the law presumes every man to intend the natural consequences of his acts. 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; and if they are knowingly false and willfully made, the fact that they are material is proof of an attempted fraud, because 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 Ins. Co., 110 U.S. 81, 3 S.Ct. 507, 28 L.Ed. 76 (1884)]

The position taken by the U.S. Supreme Court in Claflin has been upheld by every court that has considered it to date. For example, in Gipps Brewing Corp v. Central Manufacturers Mutual Insurance Co., 147 F.2d 6, 13 (C.A. 7, 1945) the Seventh Circuit stated:

We think there is no escape from the conclusion that these witnesses purposefully refused to answer ques­tions upon EUO which were materi­al to the inquiry. We see no basis for refusal to answer upon the ground that they were controversial or that the answers thereto might have been used for the purpose of impeachment. Such a limitation would seriously impair and perhaps destroy defendants’ right under this provision of the policy.  We would think that defendants had a right to examine as to any matter material to their liability, as well as to its extent. (Emphasis added)

A court concluded that there could be no question that a plaintiff made false statements when he applied for coverage and during the claims process. Thomas (the insured), “made false statements … relating to this insurance” both before and after the loss. Under the express terms of the Policy, AFI therefore can void “[t]he entire policy[.]”

The insured’s intent is not relevant when the insurer seeks to void a policy based on a false statement where the policy contains the language at issue here. [Thomas v. Armed Forces Ins. Exchange, Slip Copy, 2015 WL 2063064 (E.D.Mich., 2015)]

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

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Ethics for the Insurance Professional

The Covenant of Good Faith Is a Force for Ethical Behavior

People who are insured are obligated to treat their insurer equally and in good faith.

It is no answer for a person insured to say that the error or suppression of a material fact was the result of mistake, accident, forgetfulness or inadvertence. It is enough that the insurer has been misled, and has thus been induced to enter into a contract which, upon correct and full information, he would either have declined, or would have made upon different terms. Although no fraud was intended by the assured, it is nevertheless a fraud upon the underwriter, and avoids the policy. The insured, by failing to act ethically, empowers the ethical insurer to declare the policy void as a result of the deception.

Ethical underwriters and claims persons should never use technicalities to reach a decision on a policy or a loss. Rather, the ethical underwriter or claims person must apply the facts to the issue raised and provide the indemnity promised. Similarly, the insured must also clearly, fairly, and completely advise the underwriter of all of the facts known, or that he should know, that would be material to the decision of the insurer to accept or reject the risk.

The California Court of Appeal explained the situation as follows:

An insurance company is entitled to determine for itself what risks it will accept, and therefore to know all the facts relative to the applicant’s physical condition. It has the unquestioned right to select those whom it will insure and to rely upon him who would be insured for such information as it desires as a basis for its determination to the end that a wise discrimination may be exercised in selecting its risks. (Emphasis added) [Robinson v. Occidental Life Ins. Co. (1955) 131 Cal. App. 2d 581, 586 [281 P.2d 39].]

An insurer can only exercise that “wise discrimination” in “selecting its risks” if it deals with an ethical insured who makes known to the insurer all of the facts relative to the risk the applicant is asking the insurer to assume. Demonstrating high moral and ethical standards are vital to success in the insurance business. Insurers that have a clear vision based on ethical practices should be more successful over the long term than organizations suffering ethical lapses.

Ethical insurers seldom face litigation for the tort of breach of the covenant of good faith and fair dealing and should never see a verdict concluding the insurer breached the covenant. At most, if they dispute an obligation under a policy of insurance, they are compelled to pay the indemnity promised by the contract.

Unethical insurers who breach the covenant are compelled to pay contract and tort damages. Ethical values in an organization like an insurer are logically connected with success of the organization. Success follows ethical behavior because the insurer that stresses high ethical standards will also stress quality, fair, and thorough claims service. It is quality claims service that the contract of insurance promises. The insurer that provides consistent, quality insurance claims service will usually be successful over a period of time.

The claims professional may be the only contact a policyholder ever makes with the insurer. The quality of the service provided by the claims adjuster, supported by the high ethical values of the insurer, has a direct bearing on all future relationships and contact with the policyholder. Reasonable people will always pay more for honest, professional, ethical service than for promises of service that are never delivered.

Ethical Behavior & Success

To understand the connection between ethics and quality service, it is important to understand the meaning of ethical values in the insurance context.  The ethical insurer and its ethical claims and underwriting staff must treat the insureds and claimants with whom they comes in contact honestly, fairly and with utmost good faith. The contact must reflect the highest integrity, respect and empathy for the people who need the service of the insurer.

Finally, the insurer must reflect a high level of trustworthiness, fairness; honesty and personal accountability. Vince Lombardi reportedly said: ‘The quality of a person’s life is in direct proportion to their commitment to excellence, regardless of their chosen field of endeavor.”

The statement applies equally to football – about which Lombardi was speaking – and insurance. Excellence in the organization depends on the high ethical values and excellence of its members. Without excellence in claims handling and underwriting coupled with ethical behavior and conduct, an insurer will almost certainly fail. The insurer that demands excellence in claims handling and underwriting within the confines of ethical conduct and values will invariably succeed.

The professional insurance adjuster recognizes that the work of adjusting insurance claims is a profession of public trust. Independent insurance adjusters should maintain a standard of integrity that will promote the goal of building public confidence and trust in the insurance industry.

Unethical Insureds

On rare occasions, an insured will act unethically in his, her or its relations with an insurer. When they do, if discovered by the insurer or its claims person, the right to indemnity may be lost. The U.S. Supreme Court decided to deprive an insured of its right to indemnity. Although hoary with age this case still states the law of the United States with regard to unethical and fraudulent conduct by an insured. [Claflin & Others v. Commonwealth Insurance Company.; Same v. Western Assurance Company.; Same v. Franklin Insurance Company.SUPREME COURT OF THE UNITED STATES 110 U.S. 81; 3 S. Ct. 507; 28 L. Ed. 76; 1884 U.S. LEXIS 1661 Argued and submitted October 16, December 17, 1883. January 14, 1884, Decided]

The Need to Act Unethically

A modern, professional insurer, will act ethically and appropriately and demand of all of its personnel ethical behavior. Failure of an employee of an insurer to act ethically should, and usually does, result in immediate dismissal and correction of the wrongful conduct.

Even more important than refusing to accept improper inducements the insurance professional must avoid making inducements even if management asks that he or she is expected to offer inducements to a subordinate based upon the judgment of another individual or organization. An insurance professional is sometimes expected to influence a decision-making process or obtain confidential information.

Regardless an insurance professional should never offer an inducement to improperly influence professional judgment of a third party or member of the insurance company staff or vendors.

ZALMA OPINION

Every person involved with insurance – whether as insured or insurer – must act ethically and fairly to each other for the basic principle of insurance to be fulfilled. Without ethical behavior the covenant of good faith and fair dealing implied in every contract of insurance will fail.

 

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

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A Policy In Evidence is Needed to Prove Coverage

How to Lose a Declaratory Relief Action by Not Trying

When a person seeks insurance coverage he or she is required to prove that a policy of insurance exists and that there is evidence that allows a finding that the person is covered. Usually, the person seeking coverage denied by an insurer sues the insurer and the insurer defends. However, in State Farm Mutual Automobile Insurance Company v. Turran Phillips, Court of Appeals of North Carolina, 2017 WL 2118705, No. COA16-162 (16 May 2017) the insurer sued for a finding there was no coverage.

When the case was called to trial State Farm convinced the trial court that the burden was on the the person claiming insurance and the court ordered the defendant to sit near the jury and present evidence first because, regardless of whoever won the race to court, the burden of proof fell to the person claiming to be an insured.

FACTS

In November of 2013, 29-year-old defendant Turran Phillips was a passenger in his girlfriend’s car when she lost control of her vehicle and defendant was injured in the accident. Defendant Phillips’s medical expenses from the accident were in excess of $30,000.00. Defendant Phillips’s girlfriend’s insurance company paid him its per-person liability limit of $30,000.00. In February of 2014, defendant Phillips then submitted a claim to State Farm for underinsured motorist coverage under a policy belonging to his father, Mr. Patrick Sharpless.

State Farm Mutual Automobile Insurance Company (“State Farm”) filed a complaint against defendant Turran Phillips for a declaratory judgment “declaring defendant Turran Phillips is not entitled to underinsured motorist coverage under the terms of Patrick Sharpless’s State Farm automobile insurance policy” because defendant is not a “resident” of his father’s “household” as required for coverage under the policy with plaintiff State Farm.

The complaint acknowledged that State Farm issued an automobile insurance policy to Sharpless and sets forth the factual circumstances of the accident and underinsured claim.
Defendant Phillips answered State Farm’s complaint by admitting most of the factual allegations but denying that he was not a resident of his father’s household for purposes of recovery under the policy.

At the close of defendant’s case-in-chief, plaintiff State Farm moved for a directed verdict because defendant Phillips failed to put into evidence sufficient materials to meet his burden; specifically, defendant put nothing into evidence the State Farm policy that’s at issue in this lawsuit. The burden required of the defendant was to show they’re entitled to coverage under the policy, and specifically the issue here is whether or not Mr. Phillips meets the definition of an insured under the family, which – specifically, the definition of family member.

The trial court allowed plaintiff State Farm’s motion for directed verdict and dismissed the jury. The trial court concluded that evidence presented by Defendant regarding his asserted right to coverage under the subject policy was not legally sufficient to support a right to coverage.

DIRECTED VERDICT

Although plaintiff State Farm filed the complaint, its counsel directed the trial court to case law determining that the initial burden of proof is on the alleged insured to prove he falls under the policy. The trial court then instructed the parties to switch tables after lunch since plaintiff State Farm had initially been seated closer to the jury, as customary in North Carolina. The only questions before the Court are whether the trial court properly allowed directed verdict and denied the motion for a new trial.

ANALYSIS

In North Carolina, like the rest of the country, the general rule is that when an insured claims benefits under a policy, the burden is on him to prove coverage. But the burden of showing an exclusion or exception is on the insurer. A showing by an insured that he is covered establishes a prima facie case that shifts the burden to the insurer. Defendant Phillips had the burden of presenting sufficient evidence to prove that he would be entitled to coverage under the language of the policy at issue. In this case, that evidence would include evidence of the policy as well as evidence that defendant is covered by the policy because he is a resident of his father’s household. If defendant Phillips failed to meet his burden, State Farm would properly prevail on a motion for a directed verdict.

At trial, defendant presented evidence of his living circumstances at the time of the accident seeking to show that he was a “resident” of his father’s household. Since State Farm based its motion for a directed verdict on defendant Phillip’s failure to place the policy at issue into evidence the court limited its analysis to that issue while confused why the insurance policy was never actually admitted during the trial. An insurance policy is a contract which must be “enforced as written.”

The appellate court concluded that one phrase with no context is not sufficient evidence of the terms of the policy. Even if none of the definitions in the policy would be relevant, the sentence fragment in the complaint does not address any exceptions or restrictions.

Without the whole policy in evidence or at least major relevant portions thereof, defendant Phillips failed to carry his burden of production to bring himself “within the insurance coverage.” The trial court properly allowed plaintiff State Farm’s motion for a directed verdict.

ZALMA OPINION

The defendant, acting properly as a plaintiff, created a problem for himself and by not putting the policy into evidence with evidence that he was entitled to coverage because he was a relative resident in his father’s household. State Farm did not need to present any evidence because the insured failed to present a prima facie case. He went to trial unprepared to present evidence, presented no evidence of the insurance policy and lost.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

Share
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Lover Scorned Admits to Aiding Insurance Fraud

Conviction for Aiding Insurance Fraud Affirmed

Although love remains a many splendored thing when love dissolves and vengeance is attempted it can be a doubled edged sword.  Joseph Anthony Mauro was convicted by a jury finding him guilty of insurance fraud.

When Joseph Mauro and his girlfriend broke up, Mauro contacted the insurance company and informed them that the tractor was never stolen and was located on a friend’s property. The insurance company contacted law enforcement. During the investigation, law enforcement interviewed Mauro. Mauro explained how he and his girlfriend conspired to defraud the insurance company by hiding the tractor on the friend’s property and reporting it as stolen.

In State v. Mauro, Court of Appeals of Idaho, Docket No. 44232, 2017 WL 1459065 (April 25, 2017) Mauro contends the State committed prosecutorial misconduct by stating that his girlfriend’s knowledge regarding the insurance fraud was irrelevant. He argued this was a misstatement of the law because the State was required to prove a shared criminal intent between Mauro and his girlfriend in order to convict Mauro of committing insurance fraud under an aiding and abetting theory.

FACTUAL BACKGROUND

In April 2014, Mauro reported the theft of a tractor belonging to his girlfriend. Mauro drove his girlfriend to the insurance office to report the tractor as stolen. His girlfriend filled out a sworn proof of loss statement with the insurance company, which stated it was her policy and she was the only owner of the tractor. Mauro negotiated a $12,000 payout with the insurance company on the claim, and the insurance company issued the funds to Mauro’s girlfriend.

The State charged Mauro with insurance fraud. Before trial began, the prosecutor filed proposed jury instructions. Mauro made no objections to the proposed instructions. After the district court finalized the instructions, Mauro stated he had no objections to the instructions.

In closing rebuttal argument, the prosecutor explained Jury Instruction No. 17, stating: “And when you look at Instruction 17, the knowledge element, with the knowledge that the information was false. Mr. Mauro assisted, solicited, procured [his girlfriend’s] involvement in committing a crime…. And so Instruction 17 doesn’t have anything in there about whether or not [his girlfriend] had knowledge. This is about the knowledge that Mr. Mauro had, that, when he assisted her, when he drove her to the insurance company to file that report, his knowledge, the information he provided her, that he reported the tractor stolen and that he filed the police report—his knowledge that that was false. It does not ask you to consider her knowledge.”

Mauro’s trial counsel objected, stating: “I believe is a misstatement of the law.” The court responded: “Well, the instructions do set forth the law. I’ll let the jury sort that out.” The prosecutor continued her closing rebuttal argument, stating: “So you can go back and look through the jury instructions. You can look through the aiding and abetting, but nowhere in this elements Instruction No. 17 does it require that [his girlfriend] be convicted, be charged with any crime. [His girlfriend’s] not on trial here today. It’s Mr. Mauro. This is his trial. This has nothing to do whether or not she was convicted of this crime.

After he was found guilty the district court sentenced Mauro to a unified sentence of four years, with one year determinate, and being kind suspended the sentence, and placed Mauro on probation for two years.

ANALYSIS

Mauro argues that the prosecutor committed prosecutorial misconduct during closing rebuttal argument when she misstated the law by asserting the knowledge element of the crime required the jury to consider only Mauro’s knowledge, not his girlfriend’s knowledge. Before closing arguments, the district court instructed the jury pursuant to Jury Instruction No. 17.

The knowledge element of Jury Instruction No. 17 required the jury to find that Mauro did aid and abet another in preparing or making a statement to the insurance company and when doing so, Mauro knew the information was false. During closing rebuttal argument, the prosecutor stated that the jury was not required to determine the knowledge of Mauro’s girlfriend. Rather, the prosecutor stated the jury was only required to determine whether Mauro knew the information given to the insurance company by his girlfriend was false. This was simply a restatement of the jury instruction to which Mauro did not object.

Closing argument sharpens and clarifies the issues to be decided by the trier of fact. Its purpose is to enlighten the jury and to help the jurors remember and interpret the evidence.  Although it is prosecutorial misconduct for a prosecutor to misstate the law during closing argument there is no misconduct if the prosecutor does not misstate the law.

All persons concerned in the commission of a crime, whether they directly commit the act constituting the offense or aid and abet in its commission, are principals in any crime so committed. In order to be convicted for aiding and abetting the commission of a crime, a person must act in such a way as to facilitate, promote, encourage, solicit, or incite the actions of the crime. Aiding and abetting requires some proof that the accused either participated in or assisted, encouraged, solicited, or counseled the crime or some manifestation of a sharing by the aider and abettor of the criminal intent of the perpetrator.

Since the prosecutor did not misstate the law in closing rebuttal argument and only stated Jury Instruction No. 17 required the jury to determine whether Mauro knew the information about the tractor given to the insurance company by his girlfriend was false; it did not require the jury to determine his girlfriend’s knowledge.

Because the State was only required to prove Mauro’s intent, the prosecutor did not misstate the law. Thus, there was no prosecutorial misconduct and there was no need for the court to address Mauro’s argument that any error was harmless.

ZALMA OPINION

Mr. Mauro, as a scorned lover, upset that his girlfriend broke up with him reported that she committed fraud regarding an allegedly stolen tractor. Being angry he did not think through his accusation because he also admitted he aided and abetted her fraud. As a result he was tried and fairly convicted of insurance fraud and received a kind sentence of probation. He deserved the conviction because he helped the girlfriend defraud her insurer and negotiated the settlement. He was lucky he was not sentenced to prison.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

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An Insurer Cannot Safely Refuse Defense and Indemnity in Illinois

Illinois Finds Failure to File a Declaratory Relief Action Vexatious

The Valuable Dead Dog

Country Mutual Insurance Company appealed the trial court’s grant of summary judgment to plaintiff, Sabas Soto, finding defendant acted vexatiously and unreasonably and awarding plaintiff attorney fees under section 155 of the Illinois Insurance Code (Code)). Plaintiff cross-appealed, arguing that the court erred in reducing the attorney-fee award and in failing to award him additional statutory damages.

In Soto v. Country Mutual Insurance Company and Stephen Tallitsch and Gavin Wilson, Not Reported in N.E.3d, Appellate Court of Illinois, No. 2-16-0720, 2017 IL App (2d) 160720-U (May 11, 2017) a second appeal for the loss of a valuable dog was asked to give more attorneys fees and punish the insurer for denying the claim for not filling a declaratory relief action to find its decision to deny correct.

BACKGROUND

This is the second appeal originating from the death of Boris, plaintiff’s pure-bred giant schnauzer. While in the Country Side Pet Motel’s care, Boris was struck and killed by an automobile. Plaintiff sued the Pet Motel for negligence, alleging that, while Boris was in its “exclusive care, custody, and control,” the Pet Motel failed to exercise reasonable care for his safety, directly resulting in his death. The complaint requested $30,000 in damages (in part based upon the loss of Boris’s future “stud services”).

The Pet Motel submitted the lawsuit to defendant, requesting defense and indemnification under an existing policy. On September 11, 2012, defendant wrote to the Pet Motel, denying coverage and declining to hire an attorney to represent it or to pay for any settlement, judgment, or verdict amount. According to the rejection letter, because of a policy exclusion that did not cover “personal property” in the insured’s “care, custody, or control,” there was no coverage for the alleged negligence under the policy’s “Commercial General Liability Coverage.” However, according to defendant, the “Building and Personal Property Coverage Form, Coverage Extensions” provided for a “personal property of others” payment to plaintiff in the maximum amount of $2500.

Accordingly, plaintiff sued defendant, alleging breach of contract by virtue of its failure to defend or indemnify the Pet Motel in the negligence lawsuit. The trial court (1) found that defendant had a duty to defend the Pet Motel in plaintiff’s negligence action; (2) found that it breached its duty to defend and was, therefore, estopped from asserting any policy defenses in the coverage dispute; and (3) entered judgment against defendant and in plaintiff’s favor in the amount of $60,810.72.

After hearing argument, the court granted summary judgment in plaintiff’s favor and denied defendant’s cross-motion for summary judgment. The trial court concluded that the insurer ignored a clear potential for coverage. Additionally, defendant needlessly made discovery difficult by not voluntarily presenting an employee who could provide information requested by the assignee. The court further decided to “use its discretion” to not impose any of the additional sanctions available.

The court awarded attorney fees in the amount of $49,000. In doing so, it reduced the award from the requested $65,794.50.

ANALYSIS

Defendant argued on appeal that the trial court erred in awarding attorney fees to plaintiff. Defendant argued that the issue of estoppel differs from the vexatious-and unreasonable standard.

An insurer will not be liable for fees and costs merely because it litigated and lost the issue of insurance coverage. If a bona fide dispute existed regarding insurance coverage, the insurer’s delay in settling a claim does not violate the statute. In determining whether the statute applies, the trial court must consider the totality of the circumstances, including the insurer’s attitude, whether the insured was forced to sue to recover, and whether the insured was deprived of the use of her or his property.

The trial court’s ultimate ruling, deciding that defendant’s actions satisfied the statute and justified attorney fees, but not additional sanctions, reflected an exercise of discretion.

The court could not conclude that the trial court abused its discretion in finding that, under the totality of circumstances, defendant’s failure to defend under a reservation of rights or file a declaratory judgment action was vexatious and unreasonable. Here, there was no bona fide (i.e., real or genuine) challenge because defendant did not engage in one. It simply denied coverage and informed its insured that it would not defend or pay for any settlement, judgment, or verdict amount (although it offered $2500 under the policy).

Although a second appeal no court litigated or ruled that defendant believed it had a bona fide defense to coverage.

Because the legitimacy or merits of defendant’s alleged coverage defenses have not been squarely before any court, the issue here concerns whether defendant’s decision that it was clearly not required to seek declaratory relief or defend under a reservation of rights was unreasonable and vexatious (not whether its position that there was no actual coverage was bona fide).

Noting that the duty-to-defend threshold is low: the complaint need present only the possibility, not probability, of recovery under the policy. Thus, even though the threshold is low and the complaint and policy should be compared liberally in the insured’s favor to consider whether there is a potential for coverage, defendant determined, under the circumstances of this case, that it was so clear that there was no potential for coverage that it did not need a neutral arbiter to decide whether its interpretation was correct.

The court of appeal could not dispute or find an abuse of discretion in the trial court’s finding that defendant’s application of that authority under the facts of this particular case was vexatious (annoying and frustrating) and unreasonable.

Here, defendant issued a liability policy to a dog kennel, a business which boards and cares for animals belonging to others. The complaint alleged negligence due to the death of an animal boarded there. The policy here covers negligence and property damage, but then has various exclusions and other inclusions which resulted in it not being “clear” that there was “no potential coverage.”

Even if it were likely that there was no actual coverage under the policy, defendant’s actions to not defend or seek relief from defending through a declaratory action were improvident because the nature of the policy, business purposes of the insured, and the complaint allegations were simply not, under these circumstances, clearly divorced from any potential of coverage.

Contrary to defendant’s suggestion, affirming the trial court’s ruling here is not equivalent to a finding that, as a matter of law, behavior that results in estoppel automatically constitutes vexatious and unreasonable conduct. Rather, the court of appeal held that it was not an abuse of discretion for the trial court to find, under the totality of the circumstances here, that defendant’s decision not to seek declaratory relief or defend under a reservation of rights was vexatious and unreasonable.

Further, the circumstances reflect that defendant’s sole response to its insured was to offer $2500, less than 10% of the damages the insured was facing in the complaint alone, let alone any attorney fees or costs.

The trial court further found, based upon its knowledge of the case, that defendant was vexatious and unreasonable during discovery. Accordingly, the court’s attorney-fees award was not an abuse of discretion.

ZALMA OPINION

The untimely death of Boris the schnauzer resulted in two lawsuits and two appeals which clearly cost more than the stud value of the dog. The insurer, feeling there was a clear and unambiguous exclusion, refused to defend and indemnify. Whether the insurer was correct was never litigated.  With 20/20 hindsight the trial and appellate courts found the denial to be vexatious and assessed sanctions. Therefore, in Illinois, an insurer cannot deny a claim and refuse to defend without seeking advice of a court or be punished.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

 

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Misrepresentation of Material Facts on Application Requires Rescission

Dr. Lies on Application & Policy Rescinded

As I have reported multiple times in this blog that the covenant of good faith and fair dealing applies equally to the person insured as the insurer. When a doctor applies for insurance and falsely states that he has never been cancelled, refused, non-renewed nor had an insurer refused a claim, and that he had no knowledge of any potential claims, he has deceived the insurer.

In Svabek v. Lancet Indemnity Risk Retention Group, Inc., Slip Copy, Court of Appeals of Indiana, 2017 WL 1955048 (May 11, 2017) Steven J. Svabek, D.O., appealed the trial court’s entry of summary judgment in favor of Lancet Indemnity Risk Retention Group, Inc. (“Lancet”) on Lancet’s complaint seeking rescission of Svabek’s medical malpractice insurance policy.

FACTS

Dr. Svabek is an orthopedic surgeon residing in Boca Raton, Florida. Dr. Svabek previously practiced medicine in the State of Indiana.

Lancet is an insurance company organized under the laws of the State of Nevada with its corporate office in Las Vegas, Nevada, and its executive office in Tampa, Florida.

The Effective Date of the policy is December 7, 2012, with a Retroactive Date of December 7, 2010. The Policy is a “Tail Policy” only with no prospective coverage. The Policy only covers an Occurrence on or after December 7, 2010 [the Retroactive Date] and before December 7, 2012 which was first made against Dr. Svabek and reported to Lancet between December 7, 2012 and December 7, 2013 [the Policy Period].

In entering the contract for the Policy, on December 7, 2012, Dr. Svabek completed and submitted an application to Lancet. In that application, Dr. Svabek confirmed, among other things, that he had no known potential or anticipated losses and that no prior carrier had declined or refused coverage for a medical incident. The Policy states that Lancet relied upon the statements made by Dr. Svabek in his application for insurance and that Dr. Svabek warrants those statements are true.

On August 28, 2012, the Indiana Patient’s Compensation Fund (“PCF”) through the IDOI, sent notice of the Sykes/Williams Matter to Dr. Svabek. On November 20, 2012, counsel for Ms. Sykes and Mr. Williams sent the Proposed Complaint directly to Evanston Insurance, the insurance company that provided a medical malpractice policy that covered Dr. Svabek for the period of January 12, 2010 until January 12, 2011. On November 20, 2012, a senior claims examiner with Markel Corporation, a company acting as claims manager for Evanston Insurance, sent Dr. Svabek the correspondence and Proposed Complaint that it received from the lawyer representing Sykes/Williams.

On December 4, 2012, Markel sent correspondence to Dr. Svabek advising that no coverage was available under the Evanston policy for the Sykes/Williams Proposed Complaint because the Evanston policy lapsed on January 12, 2011 and thus would not cover the Proposed Complaint filed on August 15, 2012. The Markel December 4, 2012 denial letter was sent to Dr. Svabek by certified mail. It was also sent to Dr. Svabek by email to svabek.steve @gmail.com.

On December 7, 2012, three days after Evanston sent its denial of coverage to Dr. Svabek by certified mail and by email, Dr. Svabek completed and submitted an application to Lancet for medical malpractice insurance coverage. In that application, Dr. Svabek confirmed, among other things, that he had no known potential or anticipated losses and that no prior carrier had declined or refused coverage for a medical incident. The Lancet Policy excludes coverage for any claim that was the subject of an administrative proceeding, civil litigation or written demand for damages which existed prior to the Policy’s Effective Date of December 7, 2012.

Lancet moved for summary judgment. Following a hearing, the trial court concluded in relevant that Lancet is entitled to rescind the Policy because Lancet relied on false and material representations in Dr. Svabek’s insurance application.

ANALYSIS

Insurers rely on the truthfulness and completeness of the information on the application in assessing whether to issue a policy and on what terms. Rescission protects the insurer’s right to know the full extent of the risk it undertakes when an insurance policy is issued. Dr. Svabek’s insurance application erroneously stated that no prior insurance carrier had refused or declined to issue coverage regarding any medical incident or threat of claim. Dr. Svabek’s prior insurance carrier denied coverage to Dr. Svabek for the Sykes/Williams claim pursuant to a denial letter issued on December 4, 2012.  Dr. Svabek’s representation that a prior carrier had not previously denied coverage, whether intentional or not, was false. As a result the trial court concluded that Dr. Svabek’s failure to disclose a known claim entitles Lancet to rescind the Policy.

False representations warrant rescission regardless of whether the misrepresentation was innocently made or made with fraudulent design because innocent misrepresentations are just as injurious as intentional fraud.  Dr. Svabek’s subjective intent in providing the false information to Lancet does not impact whether rescission is appropriate.

The information that Dr. Svabek did not disclose in his insurance application was material. A representation in an application for insurance is deemed material if the facts represented reasonably enter into and influence the insurer’s decision whether to issue the policy or charge a higher premium. Lancet would have either declined to issue the Policy or offered the Policy to Dr. Svabek on different terms if Dr. Svabek had provided truthful information in the Statement of No Known Claims.

Fraud in the inducement of a contract is a proper basis for rescission. The remedy of contract rescission functions to restore the parties to their pre-contract position, that is, the status quo. A request for rescission of a contract is addressed to the sound discretion of the trial court. The party seeking rescission bears the burden of proving his right to rescission and his ability to return any property received under the contract. On the other hand, the party appealing the trial court’s grant of rescission has the burden of demonstrating that the trial court’s decision was erroneous. Rescission is appropriate where the party seeking rescission is not in default and the defaulting party can be restored to the same condition he occupied before the making of the contract.

On appeal, Svabek does not deny that he falsely claimed in his application that no prior insurance carrier had refused or declined to issue coverage regarding any medical incident or threat of claim.  And Svabek does not challenge the trial court’s conclusions that “a prior carrier’s previous denial of coverage for an existing claim is material to an insurer’s decision to issue coverage” and that, “[a]ccordingly, [his] untruthful statement entitles Lancet to summary judgment in its favor as to its request for a judgment declaring its right to rescind the Policy.”

In sum, Svabek failed to demonstrate the absence of any genuine issue of fact as to a determinative issue, namely, that Lancet is entitled to rescission based on Svabek’s misrepresentation on his application for insurance regarding a prior denial of coverage.

ZALMA OPINION

Dr. Svabek lied. The evidence was clear that he lied and he did not even dispute he lied. The lie was material to the decision of the insurer to insure him and the insurer proved that he knew the information provided was false when it was provided. He obtained a policy of insurance by fraud and deserved to have the policy rescinded from its inception and be returned to the position he was in before the policy was acquired.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

 

 

 

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Zalma’s Insurance Fraud Letter – May 15, 2017

Insurance Fraud & Politics

 Every Insurance Adjuster Must Be Trained About Fraud


Certified Expert in Corporate Property Insurance Program Now available from Illumeo and Barry Zalma:

A comprehensive program enabling insurance professionals to become Certified Experts in Corporate Property Insurance
A complete course of study providing education and training to allow insurance professionals, after completing the individual classes, to become a Certified Expert in Corporate Property Insurance. The program covers everything an employee, an officer, or a director of a corporation needs to know about the need to get the proper insurance and to resolve any claim presented by the corporation to the insurer.
The full curriculum consisting of 16 course are available at https://www.illumeo.com/curriculum/certified-expert-corporate-property-insurance.
Major topics of study include, but are not limited to: the importance of insurance; how to acquire insurance and understand an insurance policy; the methods used by insurers to investigate claims, including first-party property claims; the various types of insurance that corporations need; the duties and obligations of a public adjuster; and how to present a claim that will be paid.


  • Insurance Fraud & Politics
  • Certified Expert in Corporate Property Insurance
  • Stupid & Vicious Attempt at Insurance Fraud Fails
  • Books from Barry Zalma
  • “Doc-in-the-Box” Scheme Defeated
  • Barry Zalma Speaks at Your Request
  • State Farm Caught Overcharging Policyholders
  • E-Books from Barry Zalma
  • Barry Zalma
  • Good News From the Coalition Against Insurance Fraud
  • Health Insurance Fraud Convictions
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Zalma Insurance Consultants

Visit the Zalma Insurance Claims Library


The most recent posts to the daily blog, Zalma on Insurance, are available at http://zalma.com/blog. Check in every day for a case summary at http://zalma.com/blog


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

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

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

 New Blog: 

Insurance Law Commentary

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

“Arson for Profit and “Murder & Insurance Fraud Don’t Mix”

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

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Lawyer Fails Trying to Make an Application an Insurance Policy

Read Your Policy or Else

An insurance application is nothing more than a request presented to an insurer seeking an offer of insurance. It is not a contract. It is not even an offer. It is a request for an offer. An insurance contract will only come to be if the insurer accepts the application and makes an offer to the insured. If the insured accepts the insurer’s offer and pays a premium there will be a policy of insurance. Any lawyer or insurance broker understands that an application is nothing more than a request for an offer.

Over the last 50 years in the business of insurance I have found one constant: No one reads their policy. They pay the premium and ignore communications from the insurer. Some don’t even check the declarations page to see if the insurance requested was provided. When a lawyer doesn’t read communications from his insurer, the policy or declarations page and doesn’t even comment on a reduction in premium of almost $2,000 a year, should be ashamed of his stupidity rather than sue the insurer and agent.

In Sicari v. Hartford Insurance Company of the Midwest, Superior Court of New Jersey, Appellate Division, Not Reported in A.3d,  2017 WL 1908541 (May 10, 2017) Plaintiff Vince A. Sicari, Esq., Attorney at Law, LLC, appealed from the Law Division orders granting defendant The Harford Insurance Company of the Midwest’s (Hartford’s) summary judgment motion and denying his own motion for summary judgment.

FACTS

Plaintiff is an attorney who operates his own law practice. Hartford issued plaintiff an insurance policy effective July 31, 2010 through July 31, 2011 (the 2010 policy), which included coverage for commercial general liability, business personal property liability, and lawyers’ professional liability. Plaintiff paid a premium of $2728 for the 2010 policy.

On May 31, 2011, two months before the 2010 policy expired, Hartford mailed plaintiff a letter advising there would be a “[r]eduction in [c]overage” regarding “[l]awyer’s [p]rofessional [l]iability.” Attached to the letter was a notice stating Hartford was “no longer writing [l]awyer’s [p]rofessional [l]iability coverage as an endorsement to its … policy.”

Plaintiff testified at his deposition that he never received the May 31, 2011 letter and was unaware it existed until he received a copy in discovery. However, plaintiff admitted the letter was addressed to his office. In addition, plaintiff claimed his routine practice upon receiving an insurance policy was to review it and then call the insurance broker to ask whether he needed to take any additional action “in furtherance of [the policy.]” The facts seem to establish he did not follow his routine practice.

On June 21, 2011, plaintiff signed a renewal application for lawyers’ professional liability insurance coverage and submitted the application to the insurance broker. On July 13, 2011, the broker e-mailed the application to Hartford and requested Hartford to review the application and contact the broker with any questions. Hartford received plaintiff’s application, but never notified the broker whether it contained any deficiencies or that it “was not going to be processed[.]”

Without responding to plaintiff’s renewal application for lawyers’ professional liability insurance, Hartford issued a policy for the July 31, 2011 to July 31, 2012 period (the 2011 policy). Except for the lawyer’s professional liability coverage, which Hartford no longer provided, the 2011 policy provided substantially the same coverage as the 2010 policy. The premium for the 2011 policy was $649, a $2079 reduction from the 2010 policy.

Plaintiff renewed the Hartford policy for the July 2012 through July 2013 period (the 2012 policy) at a premium of $663. Like the previous year’s policy, the 2012 policy contained no reference to lawyer’s professional liability coverage. The 2011 and 2012 polices provided coverage for commercial general liability and business personal property only. The record does not reflect plaintiff filed a renewal application for lawyers’ professional liability insurance for the 2012 policy period.

In June 2013, when plaintiff began receiving mass mailings from insurance providers regarding malpractice coverage, he contacted his insurance broker and inquired about his own malpractice insurance. A few weeks later, the insurance broker informed plaintiff his malpractice coverage had lapsed. Thereafter, in July 2013, plaintiff discovered a potential malpractice claim against him.

Plaintiff filed three more complaints against the insurance broker and Hartford seeking the same relief as alleged in the first and second complaint.

Plaintiff eventually moved for summary judgment, and Hartford cross-moved for summary judgment the following day. The trial court ultimately found Hartford’s May 31, 2011 letter “sufficient to notify [p]laintiff that Hartford would not renew the professional liability coverage in [p]laintiff’s policy” and “Hartford fully complied with the regulatory requirements for notification of nonrenewal.” That, coupled with “the drop in the premium and the absence of any mention of lawyers’ professional liability coverage in the text of the 2011 and 2012 policies,” proved plaintiff had “statutory and sufficient notice of the change in [his] coverage and cannot argue … [he] was reasonably unaware” he lacked coverage. Lastly, the court noted plaintiff’s renewal application did not create a contract between plaintiff and Hartford. The court denied plaintiff summary judgment and granted Hartford summary judgment.

ANALYSIS

Where an insurance company purports to issue a policy as a renewal policy without fairly calling the insured’s attention to a reduction in the policy coverage, the insurance company remains bound by any greater coverage afforded in the earlier policy.  Stated differently, an insured is not bound by a change in a renewal policy when the insurance company fails to notify the insured of the change. An insured’s failure to examine the renewal policy until after the event insured against occurs is immaterial.

Here, by way of notice on May 31, 2011, two months before plaintiff’s 2010 policy expired, Hartford duly notified plaintiff it would no longer provide coverage for lawyer’s professional liability.  The May 31 notice complied with the regulatory requirements for non-renewing the professional liability coverage in plaintiff’s policy. The fact that plaintiff was unaware of the contents of the notice does not render Hartford non-compliant with the law.

Moreover, plaintiff was charged with knowledge of the policy’s contents. A court must expect that a conscientious policyholder, upon receiving the policy, would likely examine the declaration page to assure himself that the coverages and their amounts, the identity of the insured risks and the other basic information appearing thereon are accurate and in accord with his understandings of what he is purchasing.

In addition, while the trial court acknowledged Hartford received and should have responded to plaintiff’s renewal application, plaintiff himself should have noticed the absence of lawyers’ professional liability coverage on his declarations page and the sharp drop in premiums for his 2011 and 2012 policies. That large premium drop should have been a “red flag,” and plaintiff’s apparent failure to take notice weakens his argument for coverage.

Plaintiff’s renewal application did not create a contract between himself and Hartford because Hartford did not offer lawyers’ professional liability coverage as part of plaintiff’s renewed insurance policy. An offer to constitute a contract must be in a form which is intended of itself to create legal relations on its acceptance. It must contemplate the assumption of legal rights and duties and must show a clear intention to assume liability. Since an application is merely a request for an offer ignoring it and failing to make an offer cannot conceivably be considered a contract.

The record clearly reflects that Hartford did not intend to provide plaintiff with continued lawyers’ professional liability coverage. In fact, Hartford intended the opposite. Its May 31, 2011 notice to plaintiff manifested its intent to discontinue lawyers’ professional liability coverage. Thus, contractual principles do not compel the result that Hartford retroactively provide plaintiff lawyer’s professional liability coverage.

Plaintiff had ample notice that his 2011 and 2012 polices did not include lawyers’ professional liability coverage. His renewal application did not obligate Hartford to provide coverage it no longer offered. The trial court did not err in granting Hartford summary judgment.

ZALMA OPINION

Vince A. Sicari, a lawyer, tried to make an application an insurance policy. He failed because he was negligent in dealing with his insurance program, failed to recognize that an application is nothing more than a request for an offer, and did not even ask his insurance broker why the premium Hartford charged him was reduced by more than $2,000. The lawyer plaintiff failed to protect himself and deserved to have his claim denied.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

 

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Agent Should Explain Effect of Coinsurance

Promise of Coverage Without Explanation of Coinsurance Can Be Fatal To Insurance Agent

No one seems willing to read the insurance policy they purchased. When they have a loss an the failure to read the policy costs the insured money he, she or it will always sue the insurance company and the insurance agent. Often courts, feeling sorry for the person insured, will place the importance of the failure to read on the agent instead of the  insured. In a case where the court was required to believe all of the facts alleged in the complaint are true a lifeline will usually be given to the insured even after it is give four tries to amend its complaint.

In Kendall South Medical Center, Inc. v. Consolidated Insurance Nation, Inc., d/b/a Insurance Nation, District Court of Appeal of Florida, 2017 WL 1908376, No. 3D16-926. (May 10, 2017) Kendall South Medical Center, Inc. (“Kendall South”), the plaintiff below, appealed a final order dismissing its Fourth Amended Complaint with prejudice for failure to state a cause of action against one of the defendants below, Consolidated Insurance Nation, Inc. d/b/a Insurance Nation (“Insurance Nation”).

UNDERLYING FACTS

Kendall South operates a medical center on leased premises located in North Miami Beach, Florida. On January 3, 2013, the sprinkler system on the leased premises was undergoing maintenance when a leak occurred, resulting in significant water damage to both the physical improvements (i.e., walls, flooring, baseboards) and to the contents (i.e., equipment and machinery). Kendall South had a commercial property insurance policy with Nation Insurance—issued in August 2011, and later renewed—which provided $100,000 of coverage for the physical improvements and contents of the subject property, and which contained a $1,000 deductible and a 90 percent coinsurance clause. As a result of the sprinkler leak, Kendall South suffered property damage totaling approximately $260,000. Kendall South made an insurance claim expecting to receive a $100,000 payout, but received only $16,562.67 due to the policy’s coinsurance clause because they failed to buy insurance with limits equal to the 90% of the value of the property, the risk of loss of which was insured.

In its pleading, Kendall South alleged that it had met with Insurance Nation’s agent, Humberto Torres, on or about August 10, 2011, in order to obtain a “a commercial property coverage policy of insurance in the amount of $100,000[.]00 that would cover the property, equipment, supplies, and improvements” of Kendall South. At this meeting, after informing the agent that the subject premises had “office equipment, supplies and furnishings in excess of $100,000.00 and that [Kendall South] had spent in excess of $100,000.00 for the buildouts, betterments or improvements.”

Kendall South alleged it requested from agent Torres insurance coverage of $100,000.00 to cover the property, supplies, furnishings, betterments or improvements of Kendall South Medical Center, Inc. Thereupon, it alleged Torres informed Kendall South that Defendant Insurance Nation would procure a commercial policy of insurance that would cover and protect all the property, equipment, furnishings and improvements of the Plaintiff Kendall South Medical Center, Inc., and as specifically requested by Plaintiff.

After Kendall South paid the premium for a policy that provided property damage coverage of $100,000 with a $1,000 deductible and a 90 percent coinsurance clause, Kendall South renewed the policy under the same terms in August 2012. As a result of the sprinkler leak in January 2013, Kendall South’s premises purportedly suffered property damage in excess of $260,000. The subject policy, however, provided coverage in the amount of only $16,562.67 as a result of a penalty imposed by the coinsurance clause.

Kendall South specifically alleged that Insurance Nation “had the duty to procure the insurance coverage as requested,” as well as a “duty of reasonable care in … properly explaining the policy of insurance procured on [Kendall South’s] behalf.” This duty was allegedly breached when the agent “failed to advise and or inform and or adequately and or properly explain to [Kendall South] the 90% coinsurance clause” where the agent “knew or should have known that the policy written by [Insurance Nation] with the 90% coinsurance clause would not cover and pay [Kendall South’s] property as requested by [Kendall South] in the event” of a covered claim.

Insurance Nation moved to dismiss the Fourth Amended Complaint, once again alleging that Kendall South had failed to allege a claim for negligent procurement of insurance. Insurance Nation asserted, in pertinent part that:

  • it “explained this policy, including the coinsurance requirements, to Kendall South in the same way that Insurance Nation always explains similar policies to its customers as a matter of custom and practice”;
  • “[b]y procuring and explaining the insurance requested by Kendall South, Insurance Nation met its duty”; and
  • “Kendall South is attempting to manufacture a broker’s liability claim against Insurance Nation despite 1) receiving the insurance it requested; and 2) never specifically asking for a higher level of insurance given the value of its office equipment.”

This time the trial court dismissed the Fourth Amended Complaint with prejudice.

ANALYSIS

It is well settled that where an insurance agent or broker undertakes to obtain insurance coverage for another person and fails to do so, he may be held liable for resulting damages for negligence. An action charging insurance agents with negligence in failing to procure the proper coverage requested by the insured is a recognized cause of action.

More specifically an agent is required to use reasonable skill and diligence, and liability may result from a negligent failure to obtain coverage which is specifically requested or clearly warranted by the insured’s expressed needs.

Viewing the allegations of the Fourth Amended Complaint as true and in a light most favorable to Kendall South, the appellate court concluded that the allegations sufficiently stated a cause of action for negligent procurement of insurance. Kendall South asserts that, once it informed Insurance Nation’s agent:

  • that both the physical contents of the subject premises and the improvements thereon were each valued in excess of $100,000, and
  • that it wanted to procure just $100,000 of insurance with respect thereto, it was incumbent upon the agent to apprise Kendall South of the effect of the coinsurance clause, and to explain that different coverage was required to meet Kendall South’s expectations.

In short, Kendall South alleges, albeit somewhat inartfully, that liability arises here from the agent’s negligent failure to advise Kendall South at the August 10, 2011 meeting that the procured policy was inadequate to address Kendall South’s expressed insurance needs. At this stage of the proceedings, on these allegations, the appellate court agreed that Kendall South has stated a valid cause of action for negligent procurement of insurance.

In reaching this decision, given the current state of the pleadings, this is a case where it has been alleged by the plaintiff that an agent or broker has a general duty to explain a coinsurance clause to any insured before issuing such a policy. When an insured alleges that it specifically communicated its insurance needs to an agent who then undertook to procure a policy addressing such needs, the insured states a cause of action for negligent procurement where it also alleges that, without providing an explanation that different coverage was required, the agent procured a policy not meeting those expressed needs.

Accordingly the final order dismissing with prejudice Kendall South’s Fourth Amended Complaint against Insurance Nation was reversed and remanded to the trial court for further proceedings.

ZALMA OPINION

The insured received the limits it requested. It renewed the policy in identical wording and limits for a second year. Both years contained a 90% co-insurance clause that was written to make sure that the insured purchased insurance equal to 90% of the value at risk. They reduced the premium charged by keeping a low limit and by not insuring to value. When the case is tried they will be faced with the fact that they knew the values at risk and insisted that the agent only buy $100,000 in coverage when they had almost three times that value at risk. In so doing they cheated the insurer out of proper premium and now wants more coverage for free.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

 

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Various Types Of Insurance Fraud Found by FBI

The FBI lists the following common insurance fraud schemes in its Insurance Fraud Report at https://www.fbi.gov/stats-services/publications/insurance-fraud:

Premium Diversion

  • Premium diversion is the embezzlement of insurance premiums.
  • It is the most common type of insurance fraud.
  • Generally, an insurance agent fails to send premiums to the underwriter and instead keeps the money for personal use.
  • Another common premium diversion scheme involves selling insurance without a license, collecting premiums and then not paying claims.

Fee Churning

  • In fee churning, a series of intermediaries take commissions through reinsurance agreements.
  • The initial premium is reduced by repeated commissions until there is no longer money to pay claims.
  • The company left to pay the claims is often a business the conspirators have set up to fail.
  • When viewed alone, each transaction appears to be legitimate—only after the cumulative effect is considered does fraud emerge.

Asset Diversion

  • Asset diversion is the theft of insurance company assets.
  • It occurs almost exclusively in the context of an acquisition or merger of an existing insurance company.
  • Asset diversion often involves acquiring control of an insurance company with borrowed funds. After making the purchase, the subject uses the assets of the acquired company to pay off the debt. The remaining assets can then be diverted to the subject.

Workers’ Compensation Fraud

  • Some entities purport to provide workers’ compensation insurance at a reduced cost and then misappropriate premium funds without ever providing insurance.

Massive Storm, Massive Cost

  • In late August 2005, Hurricane Katrina made landfall along America’s Gulf Coast.
  • The storm caused approximately $100 billion in economic damages.
  • Approximately 1.6 million insurance claims were filed, totaling $34.4 billion in insured losses.
  • Of the $80 billion in government funding appropriated for reconstruction, it is estimated that Insurance Fraud may have accounted for as much as $6 billion.

Disaster Fraud Schemes

  • False or exaggerated claims by policyholders.
  • Misclassification of flood damage as wind, fire, or theft.
  • Claims filed by individuals residing hundreds of miles outside the disaster-zone.
  • Bid-rigging by contractors, falsely inflating the cost of repairs.
  • Contractors requiring upfront payment for services, then failing to perform the agreed upon repairs.
  • Charity fraud scams designed to misappropriate funds donated for disaster relief.

The Government Response

  • On September 8, 2005, the Attorney General created the Hurricane Katrina Fraud Task Force (HKTF).
  • The HKTF was designed to deter, investigate, and prosecute disaster-related federal crimes.
  • The HKTF has a zero-tolerance policy for fraud related to Hurricane Katrina.
  • In one Katrina-Related fraud case alone, the FBI received more than 70 indictments and over 60 guilty pleas (as of March 2007).

Health Care Fraud

The FBI reports that health care fraud costs the country tens of billions of dollars a year. It’s a rising threat, with national health care expenditures estimated to exceed $3 trillion in 2014 and spending continuing to outpace inflation. Recent cases also show that medical professionals continue, and may be more willing, to risk patient harm in furtherance of their schemes. The FBI is the primary agency for exposing and investigating health care fraud, with jurisdiction over both federal and private insurance programs. We seek to identify and pursue investigations against the most egregious offenders involved in health care fraud through our investigative partnerships with federal, state, and local agencies, as well as our relationships with private insurance national groups, associations, and investigative units. Our field offices proactively target fraud through coordinated initiatives, task forces and strike teams, and undercover operations at https://www.fbi.gov/about-us/investigate/white_collar/health-care-fraud.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

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Appropriate to Effect “Force Placed Insurance”

Pay Your Mortgage & Keep Insurance or Lose

Many people have – especially in the last ten years – difficulty paying their mortgage and keeping the property insured as required by the mortgage documents. When the lender exercises its rights under the mortgage document, places “forced placed insurance” to protect their security, they are often sued by the defaulting mortgagor.

In Tonya Hill v. DLJ Mortgage..., United States Court of Appeals, Second Circuit — Fed.Appx. —-, 2017 WL 1732114 (May 3, 2017) Tonya Hill appealed an order dismissing her claims against  DLJ Mortgage Capital, Inc. (“DLJ”), Selene Finance LP (“Selene”), and Doonan, Graves and Longoria, LLC (“Doonan”).

Hill alleged violations of the Fair Debt Collection Practices Act (“FDCPA”), the Real Estate Settlement Procedures Act (“RESPA”) and a state statute. Hill’s claims arise from her promissory note (the “Note”) in the amount of $379,200, and the mortgage on real property that she and her husband executed and delivered as security for the Note. Hill alleged that the defendants improperly sought to collect on her defaulted Note.

The District Court dismissed Hill’s FDCPA and RESPA claims with prejudice and declined to exercise jurisdiction over Hill’s state statutory claim. We assume the parties’ familiarity with the underlying facts, the procedural history of this case, and the issues on appeal.

ANALYSIS

To state a claim the complaint must plead enough facts to state a claim to relief that is plausible on its face. Although all allegations contained in the complaint are assumed to be true, legal conclusions are not presumed to be accurate.

A claim will have facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.

FDCPA Claims

Hill’s FDCPA claims are premised on monthly statements sent to her by Selene regarding the total amount owing under her Note. As the District Court explained, Selene sent these statements in compliance with the Truth in Lending Act federal regulations which requires mortgage loan servicers to transmit monthly statements to consumers. With this in mind, the monthly statements here do not reflect attempts to collect on the debt evidenced by the Note.

RESPA Claim

Hill alleged that the defendants, when purchasing force-placed insurance on her property, did not provide her with any of the information or requests required by RESPA’s Regulation X and charged her account for the insurance in violation of a different regulation.

“Force-placed insurance,” as defined by RESPA, is “hazard insurance coverage obtained by a servicer of a federally related mortgage when the borrower has failed to maintain or renew hazard insurance on such property as required of the borrower under the terms of the mortgage.” 12 U.S.C. § 2605(k)(2). The allegations of Hill’s complaint, all conclusory in nature, failed to state a plausible claim for relief under RESPA. Among other things, the RESPA allegations do not specify that Hill’s mortgage was “federally related.”

Hill also asserts that the District Court should have granted her leave to amend her complaint to assert a specified damages amount for her RESPA claim.  Hill, however, never sought leave to replead her Amended Complaint from the District Court. The contention that the District Court abused its discretion in not permitting an amendment that was never requested is frivolous.

State-Law Claim

Hill did not address her GBL claim on appeal, and accordingly has waived that claim. In fact, arguments not made in an appellant’s opening brief are waived. Even so, because the District Court correctly dismissed all of Hill’s federal claims, it was entitled to decline to exercise supplemental jurisdiction over her state-law claims.

ZALMA OPINION

Not only was the appellate request to amend the complaint frivolous, it appears that the entire action was frivolous and an attempt to avoid paying a mortgage and insure the property that was security for the debt. Although the Second Circuit affirmed the district court one can only wonder why there was no sanction for the frivolous nature of the suit and appeal.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

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Heads I Win, Tails You Lose

Insurance Fraud by Divine Right

The story that follows is based on fact. It is, however, a work of fiction. The names, places and descriptions have been changed to protect the guilty. Any resemblance to real people is purely coincidental. This story was written for the purpose of providing insurers, those in the insurance business, and the insurance buying public sufficient information to recognize and join in the fight against insurance fraud. This article is a chapter in my e-book “Heads I Win, Tails You Lose” and is available at http://www.zalma.com/zalmabooks.html.

They were All-American girls. Muffy and Buffy met each other as cheerleaders in high school. They were best friends. They did everything together. The two young women shared everything from clothes to boyfriends.

When they graduated from high school, both started to work as trainee tellers at the Fresno Friendly Loan and Mortgage Corporation. They learned to handle money. More than anything else, they learned how to beat the system. When the need to shop came upon them, they called in sick simultaneously. They were the antithesis of modern liberated women. They did not do the same job that men did. They did less. They were rewarded by their male supervisors more for their tight sweaters and plunging necklines than their ability as bankers.

Muffy and Buffy rented an apartment together and, even with their limited banking salaries, began to gather things. They had a fine stereo, a 50” High Definition television with surround sound, a DVR and a microwave oven. They had all of the accouterments of the modern young upwardly mobile professional. To get these things, Muffy and Buffy charged more than the limit available on their credit cards. Their earnings were only sufficient to barely make the interest payments required by the credit card companies.
After paying their credit card companies and rent, even with their salaries combined, there was little money left for groceries. Muffy and Buffy had grown up on a high protein diet and would not conceive a meal without prime meat. They could not buy clothes unless they had a designer label. It was inconceivable that they could venture outside without wearing, at least, one piece of diamond jewelry.

Buffy and Muffy were high school graduates. Each was intelligent. They could read but had no interest in reading. They needed some way to increase their income or the credit card company would take all of their nice things.

Buffy and Muffy knew they were important people. Their parents had always told them they were important. They went to the best private high school in all of Fresno. It was their right to live well. Buffy and Muffy were born to be rich and famous. That they were not rich or famous would not deter them from the conviction that wealth and fame were their birthright.

Muffy was promoted from the position of teller to personal banker. She was assigned, among other accounts, to the chief financial officer of Fresno Property and Casualty Insurance Company. He would come in, every day, to receive special attention for his daily deposits of $20,000 to $30,000 in premium payments. She was never asked for counter checks or certified checks. As far as Muffy knew, the client, Fresno Property and Casualty Insurance Company, only deposited premiums. They had to be the richest, most successful company in all of the state of California.

She tried to become friendly with the CFO, but he was married. He did, like most older men, like to sit and talk with Muffy. Muffy knew nothing about insurance, but she listened.
After patiently listening, and smiling, while the CFO of Fresno Property and Casualty Insurance Company explained how insurance worked, Muffy had a brilliant idea. She and Buffy could resolve the problem they faced with their enormous credit card debt. That night she explained her plan to Buffy.

“First,” she said to Buffy, who sat cross legged on their living room sofa, “we buy an apartment contents package from my friend at Fresno Property and Casualty Insurance Company. We tell them that the value of all of our furniture and clothing in the apartment is $70,000.” “Doesn’t that cost a lot of money?” Buffy asked.

“No,” Muffy replied. “My friend the CFO says a policy like that would only cost us $250.”

“But Muffy, we don’t have $250.”

“All we need to do,” Muffy explained, “is to adopt $10 a day from our cash drawers. In no time we will have more than $250. With that money we will buy a policy and then report that a burglary happened at our apartment. The insurance company will give us the value of anything we tell them was stolen.”

“How do we get someone to steal our things?” Buffy asked.

“Silly, we don’t need to have anything stolen. All we need to do is give the insurance company a list of things that we are claiming stolen. We can keep all of our good things.”
Buffy wasn’t convinced, but she went along with the proposal and liberated only $10 bills from her cash drawer, one a day for fourteen working days. Muffy did the same, and they had saved on their adoption program $280. They bought the policy. They waited until two weeks had passed after the policy was delivered to them and began the efforts needed to make it appear a burglary had occurred.

First, they took their most valuable and favorite things and stored them in Muffy’s mother’s garage. An old black and white television, which had never worked properly, they placed near their front door and broke the screen with a balpeen hammer. They then went to their bedrooms and took the drawers out of the dressers and emptied them onto their respective beds. Muffy didn’t want to need to wash their underwear again so she was careful not to throw things on the floor.

Buffy took the hammer they used to damage the television out on their patio. She used it to break a small hole near the locking mechanism of the sliding glass patio door. She was careful to make sure that all of the broken glass fell inside their apartment. A can of spray paint was used to spray on their bedroom wall the word “Bitches!” and on their living room walls, “Die, Money Changers!”

After the house was totally ransacked and the spray painted graffiti dried, Buffy and Muffy climbed into Buffy’s Ford Fiesta and drove to a nearby movie house. They saw a film about a teenager’s first love. Buffy, because she wanted to, insisted that they watch a second film about the rebirth of the devil. Totally frightened out of their wits by the fiction on the screen, Buffy and Muffy returned to their apartment. They called the Fresno police to report a burglarized and vandalized apartment. Muffy went to the building manager to report the damage.

They told the police they did not know they had any enemies. Buffy admitted that they were employees at a bank and that a customer could have become angry with them for no apparent reason. The police had no suspects. Buffy and Muffy provided the police department, two days later, with a complete list of everything claimed stolen or damaged. Their banking experience helped them make the list in alphabetical order, showing description, cost price and fair market value at the time of the burglary of each item. Each purchase was backed by a receipt or other evidence of purchase and ownership.

Sometimes all they had was a canceled check to prove their purchase.

When they finished their list of stolen property (all of which was either worn out and already taken to the dump or was stored in Muffy’s mother’s garage) they were pleasantly surprised. The total value of their loss was $80,000. They could only claim the $70,000 policy limit.

At the same time they delivered the list to the police department, they also delivered a list including serial numbers and model numbers of each item they claimed was stolen. They used the actual serial numbers of their appliances, except for the last digit. They replaced that digit with the letter “C.” The adjuster, recognizing that the claim far exceeded limits of the policy, explained to the Buffy and Muffy how they were to fill out the proof of loss showing that her loss was over $80,000 and that her claim was for the policy limit, $70,000. The adjuster tried to explain the concept of “betterment” or physical depreciation to them. Depreciation is a simple and direct concept that, however, requires at least three years of college level mathematics to properly calculate. The adjuster was impressed with the claim and tried to help the poor woman understand the difference between a loss and her claim against the company.

He wrote out a check to Buffy and Muffy for the full $70,000 policy limit based upon their representation of loss. He did not ask, nor did he learn, that Buffy and Muffy had a storage facility where the reportedly stolen property now resided.

With the $70,000 collected from their fraudulent claim, Muffy and Buffy paid off their credit cards and moved the “stolen property” back into their apartment. The money left over they used to get more things and to live comfortably. Muffy and Buffy felt no guilt. Muffy and Buffy did not do anything wrong. They had more right to the money (because they were good and deserving people) than did that vile money grubbing insurance company.

They had never learned about the concept of indemnity. Buffy and Muffy felt that people with money, like insurance companies, deserved to have that money taken from them by good, clean living, lovely, highly intelligent, perspicacious, tenacious and honest young women. The money belonged to Muffy. It did not occur to her that other people could be more deserving.

They had perpetrated an exceptionally well planned and executed insurance fraud. Neither of them thought a crime was committed. They didn’t think anyone was being hurt. An insurance company, with more money that it could ever spend, could not be hurt.
What Muffy and Buffy believed was that they took the money from the insurance company by right. The insurance company should be required to share its wealth with Muffy and Buffy who were poor and deserving. The insurance company was not slightly harmed by the actions of Muffy and Buffy since, they believed, it took advantage of most of the people it insured.

Of course, to collectors of things, it takes very little time to spend a great deal of money. Even money that came to them as a gift of the gods because they were so deserving could be spent. Within a few months all of the insurance money was gone and Buffy and Muffy had an apartment bursting at the seams with wonderful things. Their credit card limits began to grow. The minimum payment acceptable on their credit cards became egregiously high. They could not live and continue to pay these high fees. There was only one thing left to do. Buy a new insurance policy and have a second claim.

This time, with Buffy as the only insured, signed an application for a new tenant’shomeowners package policy, with limits of $90,000, was presented to Fresno National Property Insurance Company. They quoted her a reasonable premium that she immediately paid. She took the policy home to Muffy who was proud of her roommate getting an even bigger policy with what was left of their cash finances. Since they did not want the insurance company to remember the first claim, Buffy and Muffy packed four empty suitcases into the trunk of Buffy’s car and drove toward Sacramento. They stopped at a truck stop in the small town of Agua Verde for lunch. After lunch they went out to their car (which was parked in view of all of the patrons of the restaurant), opened the trunk and began to scream, “We’ve been robbed!”

The manager of the restaurant called 911 and the County Sheriff arrived. He found auto burglary to be a rare occasion in his small town and pulled out all stops to apprehend the villains. He brought out his fingerprint kit and dusted all over their luggage and trunk lid trying to find a finger print different from those of Muffy or Buffy. The Deputy failed. No one in the restaurant had seen anything unusual happening. There were no witnesses. The Sheriff had no choice but to prepare a report based on what Muffy and Buffy told him of the incident. He listed everything that they told him had been in their suitcases in the car. Wrist watches and other jewelry totaled almost $20,000. Small appliances like hair dryers and electric toothbrushes were dutifully listed as were each piece of Buffy and Muffy’s designer clothing. When the entire list was added up an additional $40,000 in value was claimed missing.

A $60,000 auto burglary was the biggest crime ever to be perpetrated in the small town of Agua Verde. The sheriff, unsuccessfully, used all of his investigative skills. The car burglars appeared to be invisible, master lock picks. There was no evidence of forced entry into the vehicle. They were thieves with eclectic tastes in ladies clothing and jewelry.
Dejected, without ever reaching Sacramento, Muffy and Buffy returned home. They reported their loss to their new insurance company, the Fresno National Property Insurance Company who immediately sent out an adjuster. Muffy and Buffy were surprised to see the same adjuster who had worked for Fresno Property and Casualty Insurance Company. He, also, was surprised to see Muffy and Buffy. Apparently these were two very unlucky ladies. He took their claim down in detail. He informed them that he was sorry to say they had not purchased a jewelry floater and that their policy would only pay $1000 per item up to a maximum of $10,000 for the unscheduled jewelry. Muffy and Buffy appeared devastated by this information. Buffy asked the adjuster to get her only as much money as she was entitled to receive. She did not need a lawyer or public adjuster. She wanted to be fair with her insurance company.

The adjuster went back to his office to process the claims of this nice woman. As he was going through the list, however, he noticed a Rolex wristwatch that appeared familiar to him. He called his old claims manager at Fresno Property and Casualty and asked him to look up Buffy and Muffy’s old claim. He was shocked to learn that the Rolex watch claimed stolen in this burglary from Buffy’s automobile in Agua Verde had the same serial number as the watch stolen from Muffy’s home. Similarly, she had lost an identical toothbrush and hair dryer in their first burglary.

The adjuster, faced with a new claim for what appeared to be the same items returned to meet with Muffy and Buffy. Using his tape recorder he obtained a statement from them in copious detail concerning both losses. Muffy and Buffy, honestly, reported that they had not replaced a single item they had claimed stolen in their first burglary. The things taken in this burglary from their vehicle were all items they purchased before the first loss. They even provided receipts and canceled checks establishing the purchase and the date of purchase of each item. After that the adjuster was convinced. There was no doubt, they had attempted a fraud. He reported his conviction to the Fraud Division of the California, Division of Insurance, and to Buffy and Muffy.

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

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

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

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

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

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“Doc-in-the-Box” Scheme Defeated

Chiropractors Cannot Own & Control Medical Practice

Insurance fraud appears in many different schemes. When a chiropractor wishes to increase his practice and the fees charged in order to defraud insurers who compensate people injured in accidents, creates a “Doc-in-the-Box” scheme where the physician merely sells his or her name and license to a chiropractor for a fee, the action is a fraudulent violation of state law.

Plaintiff Allstate Insurance Company (Allstate)sued a group of doctors and lawyers who created what Allstate believed were a scheme to commit insurance fraud against defendants Robert P. Borsody, Esq., a New York attorney, and Daniel H. Dahan, a California chiropractor (collectively, defendants). After a bench trial, defendants were found to have violated the Insurance Fraud Prevention Act (IFPA), N.J.S.A. 17:33A-1 to – 30, by assisting a New Jersey chiropractor in the late 1990s in the creation of an unlawful multi-disciplinary practice, which submitted medical insurance claims to Allstate.

The trial court determined that Borsody and Dahan violated the IFPA to the extent they promoted and assisted in the creation of a practice structure that was designed to circumvent regulatory requirements with respect to the control, ownership, and direction of a medical practice.

In Allstate Insurance Company v. Northfield Medical Center, P.C. (A-27-15) Supreme Court of New Jersey (076069), 2017 WL 1739692, (May 4, 2017 ) the Supreme Court of New Jersey the Appellate Division reversed because it held Allstate had not established that defendants knew that a violation of those regulatory requirements could constitute insurance fraud under the provision of the IFPA that creates liability for one who “knowingly assists, conspires with, or urges any person or practitioner to violate any of the provisions of [the IFPA].”

Defendants extensively promoted a professional practice structure that a fact-finder could reasonably conclude was little more than a sham intended to evade well-established prohibitions and restrictions governing ownership and control of a medical practice by a non-doctor.

STATE OF NEW JERSEY RULES FOR MEDICAL PRACTICES

The Board of Medical Examiners established limits on the corporate practice of medicine. Section 6.16(f) lists the appropriate types of private practices – for example, solo practice, partnership, and medical corporation – and explicitly provides that a medical doctor with a plenary scope of practice may not be employed by a licensee with a more limited scope of practice, such as a chiropractor.

FACTS

A New Jersey-licensed chiropractor, John Scott Neuner testified in the trial of the IFPA complaint filed by Allstate against the multi-disciplinary practice that he had incorporated as Northfield Medical Center (Northfield), as well as the various other professional entities and persons named as defendants. In the 1990s, Dahan, a chiropractor licensed in California, began organizing a series of lectures throughout the country through his company, “Practice Perfect.” Practice Perfect lectures were marketed toward chiropractors and focused on the creation of multi-disciplinary practices in which chiropractors work with physicians and other medical professionals. Borsody, a New York-based healthcare attorney, made presentations at Practice Perfect lectures on the legal issues arising from such multi-disciplinary practices.

On March 28, 1997, after attending the Practice Perfect seminar Neuner signed a contract with Dahan to become a client of Practice Perfect. Neuner spoke with Borsody about establishing a medical corporation and management company as had been described.

In late 1998, Allstate, which had been receiving insurance claims for treatment provided at Northfield, began investigating the legality of Northfield’s practice structure and ceased paying claims to the practice. Neuner retained Borsody to represent him with respect to the investigation. On January 28, 1999, Borsody wrote to Neuner, informing him that because the doctors hired to work at Northfield did not own stock in the medical practice, Neuner’s employment of those doctors likely violated existing guidance from the Board.

As a result of its investigation, Allstate refused payment on approximately $330,000 in claims of patients treated by Northfield.

For present purposes, the salient charges of the complaint allege that Borsody and Dahan violated the IFPA by knowingly assisting Neuner in the creation and operation of a multi-disciplinary practice whose insurance claims were fraudulent under the IFPA.

Based on the record presented, the trial court found that Borsody and Dahan violated the IFPA when they “knowingly assisted, conspired with and urged Neuner to operate in a fashion that violated the law.” The trial judge rejected defendants’ argument that, because the law was unclear the evidence did not establish a knowing violation of the Act.

In a Statement of Reasons, the trial court set forth the essence of its determination: “Borsody and Dahan promoted what they knew was essentially a lie. The business model they promoted was intended to appear to be one way and yet, in reality, be another way. They both were motivated to provide to the chiropractor the ability to manage a practice which included medical doctors. Dahan knew that a chiropractor could not own a majority interest of a multi-disciplinary practice since his California corporation was established so that he was a minority shareholder himself. Borsody knew that he was placing in the hands of the chiropractor the control that was lacking in his first experience in New York. The simple fact that the practice was intended to look as though a medical doctor was in control yet, with various side agreements, he was not, constitutes a sufficient basis for the Court to conclude that Borsody knew what he was doing was not proper.”

ANALYSIS

This is not a criminal case. And, the Legislature did not incorporate the criminal definition of a “knowing” mens rea in its adoption of a knowing violation for IFPA civil liability, as is applicable in criminal insurance fraud prosecutions. There is no need for contortions in understanding the word. “Knowing.”  It is well understood to be an awareness or knowledge of the illegality of one’s act.

There is ample precedent supporting the proposition that a party’s knowledge as to the falsity or illegality of his conduct may be inferred from the surrounding factual circumstances. As has been stated often circumstantial evidence is not only sufficient but may also be more certain, satisfying and persuasive than direct evidence.

The failure of a healthcare provider or service to adhere to the statutory requirements or any other significant state statute or agency regulation, renders that provider or service ineligible for reimbursement under the statute. In New Jersey a practice entity must comply with all statutes and regulations governing the permissible structures for control, ownership, and direction of a medical practice, including the use of professional services interconnected with a medical practice.

Borsody, as well as Dahan, knew of the regulatory requirements at issue, promoted a practice scheme specifically designed to circumvent those requirements while appearing compliant, and therefore knowingly assisted in the provision of services, the foreseeable result of which was the submission of invalid and misleading claims under the IFPA.

The documents and structure promoted and designed by defendants accomplished what the regulations sought to avoid. They placed control over the medical practice in the hands of a chiropractor, subjecting plenary licensees to his effective control through interconnected contracts and the imposition of the threat of substantial monetary penalties. Importantly, the plan sought to conceal those features to appear compliant.

The scheme vested bare legal title in a physician. However, the physician, besides being subject to direction and financial control by a chiropractor-owner of a management company, in reality was a stranger to the medical practice and was not operationally in control, having been demonstrated to have “sold” her license to multiple practices utilizing the so-called “Doc-in-the-Box” structure in New Jersey and many other states.

There was an abundance of proof that the contracts and penalties – imposed on the doctor named as nominal owner in title of this practice – placed control of the medical practice in the hands of a chiropractor. The lengths that defendants went to in shielding the true controller of this practice from view undermine any basis for interfering with the trial court’s assessment of the mixed question of fact and law that was presented to the court.

Considering all of the circumstances involved in defendants’ interactions with Neuner, the trial court reasonably concluded that defendants knowingly assisted Neuner in violating the Board’s rules and submitting ineligible and fraudulent medical claims for reimbursement through that practice structure, contrary to law.

Knowledge or a “knowing” state of mind for purposes of a statutory civil violation under the IFPA was inferred by the Supreme Court and, as a result, reversed the judgment in favor of Allstate.

ZALMA OPINION

The type of scheme defeated by this case was designed for the sole purpose of profiting from fraudulent claims made to insurers whose insureds had allegedly injured third parties. Allstate, and its persistent and effective counsel, defeated an insurance fraud scheme an may have deterred other chiropractors from entering into the scheme. The Supreme Court was careful to note this was not a criminal case but should have referred the parties to the Attorney General to prosecute the criminal provisions of the IFPA.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

 

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Eleventh Circuit Refuses to Create Ambiguity When None Exists

Clear Exclusion Enforced

Although appellate decisions concerning insurance issues are seldom noted for their brevity sometimes an issue is so clear that the appellate court needs only state the obvious and logical decision.  When a lawyer does not read the policy issued to him or ignores the fact that his conduct operating a business not the practice of law, cannot claim ignorance and was responsible for his own problems.

In Abel Band, Chartered, Coast Investment Group, LLC, V. John Brook, v. Twin City Fire Insurance Company, United States Court of Appeals, Eleventh Circuit, 2017 WL 1531573, No. 16-10867 (April 28, 2017) the Eleventh Circuit was asked to reverse a trial court judgment in favor of the insurer because its refusal to pay caused a law firm into bankruptcy.

Coast Investment Group, LLC and John Brook, the bankruptcy Trustee for the Abel Band law firm, appealed the district court’s order granting judgment on the pleadings in favor of Twin City Fire Insurance Company. The lawsuit sought a declaratory judgment establishing a duty by Twin City to defend or indemnify the Abel Band law firm against Coast’s legal malpractice claims.

THE POLICY EXCLUSIONS

The insurance policy’s “Business Enterprise” exclusion removes the following from coverage: “Exclusions – We shall not pay damages or claim expenses in connection with any claim: ¶ 10. Arising out of professional legal services performed for or on behalf of any organization other than you if, at any time when those services were performed, the organization was or was intended to be: ¶ a. Directly or indirectly controlled, operated or managed by an insured[.]”

The exclusion expressly bars any insurance claims arising out of legal services provided to a business which an insured also manages or operates.

FACTS

Coast and Mr. Brook asked the Eleventh Circuit to conclude that insurance coverage extends to losses arising out of allegedly negligent legal advice that the Abel Band law firm provided through one of its attorneys, Jenifer Schembri.

At the time of the advice, however, David Band was both a partner at the Abel Band law firm and an attorney-advisor, business manager, and promoter for Coast. As the district court correctly explained, the plain language of the “Business Enterprise” exclusion bars any claims arising out of this advice, including the claim at issue here.

ANALYSIS

Florida law provides that insurance contracts are construed in accordance with the plain language of the policies as bargained for by the parties. The Eleventh Circuit found that the district court’s conclusion that the exclusion is consistent with that of other courts and the severability arguments advanced by Coast and Mr. Brook are not persuasive because the exclusion is not dependent on which attorney provided the deficient advice.

 Courts may not adopt a strained and unnatural construction of insurance policy language in order to create an uncertainty or ambiguity.

Since the language of the exclusion was clear and unambiguous the Eleventh Circuit affirmed the trial court.

ZALMA OPINION

The Eleventh Circuit must be commended for refusing to adopt a strained and unnatural construction of insurance policy language in order to create an uncertainty or ambiguity. Insurance companies have the right to limit the coverage it was willing to provide and should not be asked to change the clear and unambiguous language of the contract just because the insured, by its uninsured legal malpractice, was sufficient to drive the firm into bankruptcy. The lawyers should have clarified the coverage since they knew the firm’s partner was directly or indirectly controlled, operated or managed by an insured.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

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Arson-for-Profit Fails – Life In Prison Without Parole

Stupid & Vicious Attempt at Insurance Fraud Fails

I have reported often that arson-for-profit is the most dangerous, deadly, and stupid way to steal money from insurance companies because there is always evidence left after the fire and people are killed and injured as a result of the set fire. When the criminals are stupid, do not understand fire, and the explosive nature of the accelerants used, they will invariably find themselves in state or federal prison.

A perfect example of the incompetent arsonsist, a jury convicted Mark Leonard of two counts of murder for which the trial court imposed consecutive life without parole sentences in Mark Leonard v. State Of Indiana, Supreme Court of Indiana, — N.E.3d —-, 2017 WL 1649843, No. 71S00-1509-LW-539 (May 2, 2017).

BACKGROUND

Late in the evening of November 10, 2012, a massive explosion that could be heard for more than ten miles away awakened the neighborhood of Richmond Hill. Richmond Hill residents made their way outside to find homes in a “shredded” state, a state of complete “chaos”; and variously described what they saw: “smoke”, insulation falling like snow, “debris absolutely everywhere,” “total destruction,” a “war zone,” rubble “up to my knees,” people “running” and screaming, people “disoriented” and “dazed,” “devastation,” “raining ash” and cinder, a “blast zone.” Firefighters at a station nearby heard and felt the explosion, and even before emergency calls came in, they set out in the direction of a large plume of … debris and smoke. Approaching the neighborhood these first responders observed several houses on fire. Nearly thirty homes were damaged severely enough that they had to be demolished. Others suffered extensive but repairable damage.

The home at the epicenter of these events was owned by Monserrate Shirley, a nine-year resident of Richmond Hill. Her boyfriend Mark Leonard also lived at the residence along with Shirley’s teen-aged daughter and the family cat. No one was home at the time of the explosion. Ultimately authorities concluded natural gas was intentionally leaked into the Shirley home through a modification of the fireplace and that a delayed timing device was triggered which caused an explosion equal in force to approximately three tons of TNT.

FACTS AND PROCEDURAL HISTORY

Initially both Leonard and Shirley denied any wrongdoing. Shirley later agreed to cooperate with authorities. According to Shirley, for several months Leonard had planned to destroy the house by fire in a scheme to collect insurance money. At Leonard’s urging, Shirley increased the amount of insurance coverage on the contents of the house from $160,000 to $300,000. Leonard then recruited a friend — Gary Thompson — to help set the fire.

In preparation for the arson-for-profit fire Shirley arranged a hotel room for herself and Leonard at an out-of-town casino and arranged an overnight babysitter for Shirley’s daughter. She also boarded her cat at a kennel. As it turned out, the fire did not occur that night. Apparently, Thompson was not able to set it because he had gotten pulled over by a police officer and could not get into Shirley’s house.

Their plan having failed, Leonard told Shirley it “ha[d] to be done” and they were “going to do it again[.]” On the evening of November 1, 2012, Leonard’s brother Bob Leonard visited Shirley’s home. Leonard and Bob spoke and after Bob left Leonard told Shirley that Bob was going to set a small fire so they could collect the insurance money and that they would pay Bob $10,000. Leonard and Thompson cut a piece of cardboard and used it to block the flue to the fireplace chimney so that gas coming from the fireplace would stay in the house. The plan was for a spark from the thermostat to ignite the gas from the fireplace.

On Friday, November 9, 2012—for the third weekend in row—Shirley again arranged for a room at the casino, a place for the cat at a kennel, and a babysitter for her daughter. The following evening Shirley and Leonard were seated at the bar inside the casino when she received a telephone call telling her something terrible had happened in her neighborhood and asking if she and her daughter were all right. Shirley then called a neighbor who informed Shirley that her house had exploded and there was nothing left.

Shirley’s house was next door to the home of husband and wife Dion and Jennifer Longworth. Their home was also destroyed in the explosion. It was reduced from a two-story residence to a seven-foot pile of rubble. Despite the best efforts of firefighters and neighbors to rescue the couple neither survived. Mrs. Longworth died an “almost sudden death” from what the medical examiner referred to as “blast injuries [.]”  Mr. Longworth survived the initial blast but ended up trapped in the basement of his house. He was alert, relatively uninjured, and communicating with neighbors through a hole in the house at ground level. However, the house was on fire. Firefighters tried to pull Mr. Longworth out of the hole but the fire kept getting closer to where they were working to get him out. The heat became so intense that even wearing protective gear firefighters had to back away. Mr. Longworth sustained thermal injuries and charring over 90% of his body. His ultimate cause of death was inhalation of hot gases and soot, and carbon monoxide poisoning. Both Mr. and Mrs. Longworth had to be identified through their dental records.

Extensive discovery and pre-trial proceedings ensued. After several delays, including a change of venue from Marion County, the guilt phase of Leonard’s jury trial began June 4, 2015 and concluded July 14, 2015, generating a twenty-two-volume transcript and over eighteen hundred exhibits. Following the guilt phase of trial the jury found Leonard guilty as charged on all counts. Leonard had previously waived his right to trial by jury for the penalty phase of the trial. Therefore, the trial court conducted a hearing before the bench. It found the State proved each of the three charged aggravating factors beyond a reasonable doubt. The trial court also found the State proved “beyond a reasonable doubt” that the three aggravating circumstances “far outweigh the mitigating circumstances considered.”

DISCUSSION

There was sufficient evidence to support a murder conviction when the defendant started a fire in a house when it was occupied. Although Leonard’s victims were not in the same structure as the explosion and resulting fire, the record is clear the homes were in very close proximity—approximately ten feet apart.

AGGRAVATING CIRCUMSTANCES

The State sought life without parole based on three aggravating circumstances. A sentence of life without parole is subject to the same statutory standards and requirements as the death penalty.

CONSTITUTIONALITY OF INDIANA’S LIFE WITHOUT PAROLE STATUTE

Leonard challenges as unconstitutional Indiana’s life without parole statutory sentencing scheme. According to Leonard this is so because the statute does not require the jury, or as in this case the trial court, to find that the aggravating circumstances outweigh the mitigating circumstances beyond a reasonable doubt.

The evidence in this case is sufficient to sustain the murder convictions; the State proved the aggravator beyond a reasonable doubt; and Indiana’s life without parole statute is not unconstitutional.

ZALMA OPINION

As readers of ZIFL are aware there are many, easy, non-dangerous ways to steal from an insurance company. Arson-for-profit is not one of those ways. Mr. Leonard and his girlfriend plotted to destroy their home but, because they were not knowledgeable, it took them three tries to start the fire and explosion, succeeding on the third try to destroy their house and a good part of their neighborhood and murdering their next-door neighbors in a most painful and disgusting manner. Life in prison without parole was a kind sentence.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

 

 

 

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Insurer Victims Must Be Provided Restitution From Criminal

Insurers That Pay A Theft Claim Are Victims

States like Ohio believe that a person who is smart enough to insure against theft and other criminal acts suffer no loss if insurance exists to pay for the loss. Acting on behalf of an insured, paying a claim, with the equitable right of subrogation available to the insurer, makes the insurer who pays a theft claim the victim of a crime. Courts that believe a criminal need not pay restitution if the victim is insured are ignorant of what insurance is and who is the true victim of a crime.

In State Of Ohio v. Angela Marie Nickens…, Court of Appeals of Ohio, 2017 -Ohio- 1448, Slip Copy 2017 WL 1407330 (April 20, 2017) Angela Marie Nickens appeald her theft conviction, a fifth-degree felony offense, and her one-year term of community control sanctions that also involved a jail term — imposed to be served on the weekends for 52 weeks.

Nickens worked for Walmart as a cashier. Through video surveillance, she was caught stealing $1,640 from her register. Walmart representatives verified the amount stolen and that Nickens admitted to the theft and the amount during Walmart’s internal investigation. The jury found Nickens guilty of theft of between $1,000 and $7,500. Nickens claimed the imposition of restitution was contrary to law because it is “inconceivable” that a company like Walmart lacked insurance.

Nickens claimed that the trial court was required to hold a hearing before imposing restitution. Before restitution can be imposed, the court must determine the amount of restitution that bears a reasonable relationship to the loss suffered. That amount must be supported by competent, credible evidence from which the court can discern the amount of restitution to a reasonable degree of certainty.  Nickens never objected to the amount of restitution.

In this case, representatives from Walmart testified that Nickens stole $1,640, and therefore, there is competent, credible evidence demonstrating the amount of restitution. Nickens believes, however, that “it is inconceivable that a store, such as Walmart, would not be covered by insurance to protect its economic losses.” A trial court must inquire into whether a victim has insurance before imposing restitution, otherwise plain error occurred. Perhaps Nickens, her counsel and the court did not know that a firm the size of Walmart might have insurance for employee theft with a multi-million dollar self-insured-retention. Rather, the appeal was brought based on rank speculation which the court ignored, although its ignorance did not change the ruling.

Ohio does not allow for a presumptively prejudicial error when a trial court fails to inquire into an issue that could affect the authority to impose a sentence, like the existence of insurance in favor of the “victim.”

As it relates to restitution, a trial court is permitted to impose restitution for an amount of the victim’s economic loss. If the victim has insurance that reimbursed her for part or all of the loss that occurred as a result of the offender’s criminal conduct, the victim has not suffered an economic loss for the purposes of imposing restitution.

However, the mere possibility of insurance coverage is not a sufficient basis to establish plain error with respect to the imposition of restitution when the existence of insurance is not demonstrated in the record.

Where restitution is imposed but the record does not demonstrate that the victim’s economic losses were partly or wholly covered by insurance the appellate court had no choice but to affirm the trial court. If a particular victim omits any reference to potential insurance proceeds, that omission or the trial court’s failure to inquire into the existence of insurance is not presumptively prejudicial error.

Nickens’s argument rests on the faulty presumption that all victims, even large organizations, have insurance and have received proceeds for at least part of what was lost.

Nickens never contested the amount, and in fact, her counsel noted at sentencing that Nickens agreed to pay the $1,600 in restitution effectively inviting any error into the proceedings.

ZALMA OPINION

Although this case rested upon a pitifully small restitution order the fact is that Ohio law allows a criminal to avoid the obligation to make restitution to the victim if the victim carried insurance. In so doing the criminal profits from the wisdom of the victim to carry insurance and the victim and the victim’s insurer suffer. It is, in my opinion a stupid decision, and every insurer that pays a claim where the criminal is convicted should appear in court as the victim demanding restitution. Courts must recognize that an insurer that pays for the loss of a crime victim stands in the victims shoes and deserves restitution from the criminal.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

 

 

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Zalma’s Insurance Fraud Letter – May 1, 2017

 Happy Law Day From The Essential Resource For The Insurance Fraud Professional  

Innocent Young Lawyer Falls Into Fraud Trap

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

Because more insurers are training their people to recognize insurance fraud in this issue you may be surprised to see cases where fraud failed and the perpetrator spent time in jail even though the number of convictions seem to be shrinking.

The Current Issue Contains the Following

  • Innocent Young Lawyer Falls Into Fraud Trap
  •  Illumeo Continuing Education
  • Insurance Fraud Prevention Tips From Oklahoma
  • New from Barry Zalma
  • Assurant, Inc. Fined More Than $200K in Delaware for Unfair Practices
  • Barry Zalma Speaks at Your Request
  • Tort Damages for Failed Fraud Investigation
  • E-Books from Barry Zalma
  • The Zalma Insurance Claims Library
  • Wisdom
  • Barry Zalma
  • Good News From the Coalition Against Insurance Fraud
  • Health Insurance Fraud Convictions
  • Zalma Insurance Consultants Provides the Following Services to its Clients
  • Other Insurance Fraud Convictions
  • Books from the American Bar Association
  • Zalma’s Insurance Fraud Letter
  • The Legend

Zalma Insurance Consultants

Visit the Zalma Insurance Claims Library

The most recent posts to the daily blog, Zalma on Insurance, are available at http://zalma.com/blog.
Check in every day for a case summary at http://zalma.com/blog

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

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

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

 New Blog:   Insurance Law Commentary

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

Regards,

Barry Zalma

Go to Zalma Books – E-Books and Articles by Barry Zalma – http://www.zalma.com/zalmabooks.html
Go to my Zalma’s Insurance 101 at http://www.zalma.com/videoblog.   Subscribe to e-mail Version, it’s Free! – http://www.zalma.com/ZIFL-CURRENT.htm. Go to my blog Zalma On Insurance at http://zalma.com/blog, and Insurance Commentary at http://zalma.com/insvideo.

 

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

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The Temptation of Fraud

Innocent Young Lawyer Falls Into Fraud Trap

In California a person can pass the Bar Exam and practice law even if he or she does not attend law school or attends an non ABA accredited law school. Finding employment with a law firm is almost impossible for young lawyers who did not attend a prestigious law school so they hang out a shingle and attempt to create a law business. More often than not the attempt fails.

Gottlieb & Oheb

In early 1993, Oheb opened his own law practice, which he limited almost exclusively to plaintiffs’ personal injury. In October 1996, Oheb moved into an office in Tarzana, California, which he thereafter maintained as his permanent and principal office. Over the years, Oheb also opened “satellite” offices in a number of other cities such as Woodland Hills, California and Las Vegas, Nevada. Oheb testified that almost all of his satellite offices were open only for a short while because they were not profitable.

Oheb personally kept his financial records, maintaining particularly meticulous bank records for each of his accounts, including his client trust account. For each bank account, he kept a file containing a copy of each check written on the account and another file containing a copy of each check deposited into the account. Oheb was the only one who wrote or signed checks on his bank accounts.

When a case settled, Oheb personally prepared the “settlement sheet,” which set forth the division of the settlement proceeds, i.e., between the client, Oheb, medical providers, and any other party entitled to a portion of the proceeds. The client had to approve division of the settlement proceeds and sign the settlement sheet before Oheb would pay out any proceeds.

One morning in October 1997, chiropractor Richard Monoson telephoned Oheb. Oheb had met and dealt with both Monoson and Jack Hannah, Monoson’s office manager and only employee, some 10 years earlier while Oheb was in law school and worked as a law clerk for an attorney who referred clients to Monoson. Over the years, Monoson befriended Oheb and, inter alia, employed Oheb for three or four months in 1992 while he waited for his bar results at a salary of either $200 or $300 per week and apparently even loaned Oheb money. Oheb considered Monoson like a brother; believed that Monoson saved his and his family’s lives by employing him; and allegedly relied greatly on Monoson’s purported honesty, integrity, and good judgment. From the time he started practicing law in 1993 through mid-December 1998, Oheb referred all of his clients to Monoson for treatment.

When Monoson telephoned Oheb that morning in October 1997, he asked Oheb to come to his chiropractic office in Encino that afternoon to meet Kenneth Gottlieb, whom Monoson described only as a former attorney who could increase Oheb’s practice. When Oheb went to Monoson’s office that afternoon, Monoson introduced him to Gottlieb as well as to Keith R. Ohanesian, a chiropractor with whom Monoson did business and who knew Gottlieb, and Tony Folgar, an investigator who worked with Gottlieb.

At the meeting, no one told Oheb that Gottlieb resigned with disciplinary charges pending in July 1992 or that Gottlieb had a criminal record and conviction for insurance fraud. Oheb was told and believed that Gottlieb had been a very successful “attorney for 25 years plus, that [Gottlieb] was a litigator, [that Gottlieb] had worked for a number of famous attorneys,” that Gottlieb had a “huge book of business” that he was willing to refer to Oheb, and that he was willing to teach Oheb how to litigate.

Public records did not disclose Gottlieb’s September 1991 convictions on two counts of insurance fraud, two counts of grand theft, and two counts of forgery.

The parties agreed at the meeting that Gottlieb would transfer all of the personal injury cases that he had with Attorney Hettena to Oheb, that Oheb would be substituted in place of Hettena as the attorney of record in those cases, that Gottlieb would find and, when necessary, buy new cases and refer them to Oheb to be the attorney of record, that Gottlieb would work for Oheb on the cases he referred to Oheb, and that the clients would be sent to either Monoson or Ohanesian for treatment. Moreover, as the hearing judge correctly found, Oheb and Gottlieb agreed at the meeting to split the attorney’s fees on each case Gottlieb referred to Oheb: 25 percent to Oheb and 75 percent to Gottlieb whenever Gottlieb had to buy the case or otherwise had to pay money to someone in connection with the case, and 50 percent each whenever Gottlieb did not have to buy the case or otherwise have to pay for some expense related to the case or whenever Gottlieb bought the case from a specific individual who did not charge much for cases.

Oheb admited that he agreed to permit Gottlieb, for the first couple of months of their business relationship, to operate his office in Van Nuys as an extension of Oheb’s law office and to work on the cases Gottlieb referred to him in that Van Nuys office without Oheb’s or another attorney’s supervision.

In total, Gottlieb referred 50 to 60 automobile accident injury cases involving about 150 plaintiffs to Oheb. Virtually all of the Gottlieb referred cases were based on fraudulent insurance claims arising from staged automobile accidents under a sophisticated scheme involving, at least, Monoson, Ohanesian, Gottlieb, and possibly Folgar. In a typical case, Monoson and Ohanesian bought the cars that were involved in the staged accident, which were ordinarily older model cars, and fraudulently obtained and paid for insurance on the cars.

The hearing judge found that Oheb’s testimony that he did not know about the staged accidents was credible and supported by Gottlieb’s and Hannah’s testimony, which the hearing judge also found credible, that they did not tell Oheb about the staged accidents because they were afraid that he would not participate in filing the insurance claims on the accidents. For reasons we discuss post, we adopt this finding.

Oheb admitted that he often did not even meet the clients in the Gottlieb referred cases until an insurance company or someone wanted to take the clients’ statements. However, Oheb also admits that he was not always present when a client’s statement was taken. Oheb explained that, whenever it was inconvenient for him to be present when a client’s statement was taken, he sent Gottlieb to appear with the client.

During his 14-month association with Gottlieb, Oheb’s practice increased substantially. In total, Oheb paid Gottlieb about $148,300 (about $7,500 in 1997; about $127,000 in 1998; and about $13,800 in 1999) as Gottlieb’s 75 percent share of the attorney’s fees recovered on the cases that he brought into Oheb’s office. Moreover, Oheb admits that, once or twice when he had a case with a particularly large settlement, he attempted to conceal the nature of his payment to Gottlieb by writing an incorrect description of the payment in the memo section with the intent to disguise or hide his fee splitting from the State Bar.

In mid-December 1998, both Hannah and Gottlieb were arrested. Hannah was apparently released relatively soon, but Gottlieb remained in jail until sometime around February 24, 1999. Oheb quickly learned of the arrests. It was not until after Oheb learned that Gottlieb had been arrested in mid-December 1998 that Oheb retained Jeffery Sklan as his criminal attorney. At that time, Sklan advised Oheb to end his relationship with Gottlieb and to change his office locks, which Oheb did after Gottlieb was released from jail.

Even though Oheb and Sklan claimed not to know whether cases referred to Gottlieb involved staged accidents, Sklan advised Oheb, after the February 26, 1999, meeting “to get rid of any pending cases” referred to Oheb by Gottlieb. By the end of March 1999, Oheb had “dropped” all such pending cases.

Oheb was arrested on June 29, 1999, and charged with a total of 36 counts of making false insurance claims, conspiracy to commit grand theft, and capping.  Oheb pleaded nolo contendere to two felony counts of violating Penal Code section 549 for accepting referrals of personal injury clients with reckless disregard for whether the referring party or the referred clients intended to make false or fraudulent insurance claims.

Even though Oheb was sentenced to 364 days in the county jail, 304 of those days were stayed, so Oheb spent only 60 days in jail. Oheb was also put on three years’ formal probation. In addition, his sentence included a $200 fine, 500 hours of community service, and $40,000 in restitution, but did so only to the four insurance companies he admitted defrauding.

ZALMA OPINION

When I was a adjuster, and later as a young lawyer, Gottlieb was still practicing law and was well known as a person who dealt in insurance fraud. Any claim he presented was easy to settle since his clients often did not exist or could be paid off for small sums. After he was convicted and no longer a licensed lawyer he continued his practice by taking advantage of young lawyers like Oheb. I can only guess what he is doing now but since he is not in jail he is probably presenting insurance claims with other young lawyers.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

 

 

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Fraud Investigation & Punitive Damages

Tort Damages for Failed Fraud Investigation

Insurance fraud investigations by Special Investigation Unit (SIU) have saved the insurance industry millions of dollars that would have been paid to fraud perpetrators without the SIU investigation. Even though states require the existence of an SIU the law does not effectively protect the insurer from a suit by an insured who claims he or she has been wrongfully accused of fraudulent conduct.

The insured wrongfully accused of fraud will seek both contract and tort damages from the insurer that can wipe out the gains made by defeating hundreds of fraudulent claims. The measure of damages for a tort can include punitive damages. As a result of the availability of tort damages, every suit against an insurer claiming wrongful denial of a claim will include—if state law allows it—a suit for breach of the covenant of good faith and fair dealing, seeking contract and tort damages for the bad faith denial and punitive damages.

The US Supreme Court has restricted on the extent of available punitive damages in State Farm Mutual Automobile Insurance Co. v. Campbell, 123 S.Ct. 1513, 155 L.Ed.2d 585 (U.S. 2003), where it overturned a $145 million verdict against an insurer. It said that a punitive damages award of $145 million was excessive and violated the Due Process Clause of the Fourteenth Amendment. By reducing the exposure to excessive and debilitating punitive damages claims professionals can hope the Supreme Court’s ruling gives insurers more courage to fight insurance fraud since their exposure to punitive damages is now limited.

The Campbell case arose out of an automobile accident where one party was killed and another severely injured. The Campbells, insured by State Farm, attempted to pass six vehicles on a two-lane highway, failed, and caused the driver of an oncoming car to drive off the road to escape collision with the Campbells’ vehicle. The Campbells only had $25,000 coverage per person and $50,000 in the aggregate. The Campbells felt they were not at fault because there was no contact between the two vehicles. State Farm ignored the advice of its adjuster and counsel to accept policy limits demands and took the case to trial. The verdict at trial was over $180,000 and the State Farm-appointed counsel told the Campbells to put their house on the market since they would need the money to pay the verdict. State Farm refused to pay the judgment or to fund an appeal.

The Campbells retained personal counsel to pursue an appeal that was not successful, entered into a settlement with the plaintiffs where the plaintiffs agreed to not execute on their judgment in exchange for an assignment of 90% of all money received in a bad faith action by the Campbells against State Farm. Before suit was filed, State Farm paid the full judgment.

At trial the plaintiffs brought in evidence of actions of State Farm in first party cases across the country, in third party cases not similar to the Campbells’ auto accident, and other evidence not related to the facts of their case.

The Supreme Court found that State Farm’s “handling of the claims against the Campbells merits no praise,” but concluded “a more modest punishment could have satisfied the State’s legitimate objectives. A State cannot punish a defendant for conduct that may have been lawful where it occurred.

Due process requires federal courts to perform an “exacting” de novo review of the constitutionality of punitive damages awards to ensure “that an award of punitive damages is based upon an ‘application of law, rather than a decision maker’s caprice.’” [State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 418, 123 S.Ct. 1513 (2003) (quoting Cooper Indus., Inc. v. Leatherman Tool Grp., Inc., 532 U.S. 424, 436, 121 S.Ct. 1678, 149 L.Ed.2d 674 (2001); Lompe v. Sunridge Partners, LLC, USCA, Tenth Circuit, 818 F. 3d 1041 (2016)] Puntive damages serve the purpose of providing deterrence and retribution.

When a court is considering the amount, if any, of punitive damages to award, the Supreme Court’s three punitive-damages guideposts: (1) “the degree of … reprehensibility or culpability” of the defendant’s conduct, (2) “the relationship between the penalty and the harm to the victim” that the defendant caused, and (3) the sanctions other courts imposed for comparable misconduct. Id. (citing Cooper Indus., Inc. v. Leatherman Tool Grp., Inc., 532 U.S. 424, 434–35, 121 S.Ct. 1678, 149 L.Ed.2d 674 (2001)); see State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 418, 123 S.Ct. 1513, 155 L.Ed.2d 585 (2003) (instructing courts to review punitive damages using the three guideposts).

Not all courts follow, as gospel, the rules set forth in State Farm v. Campbell, like the Supreme Court’s observation that “[s]ingle-digit multipliers are more likely to comport with due process, while still achieving the State’s deterrence and retribution goals,” does not proclaim an iron clad rule. While “[s]ingle-digit multipliers are more likely to comport with due process,” Campbell, 538 U.S. at 410, 123 S.Ct. at 1516, 155 L.Ed.2d 585 (emphasis added), higher ratios, even double or triple digit ratios, are not per se unconstitutional. Punitive to compensatory damages ratios must be examined on a case-by-case basis. The precise award in any case, of course, must be based upon the facts and circumstances of the defendant’s conduct and the harm to the plaintiff.

Additional consideration is required “where ‘a particularly egregious act has resulted in only a small amount of economic damages.’” State Farm Mutual Automobile Insurance Co. v. Campbell, 538 U.S. 408, 425, 123 S.Ct. 1513, 155 L.Ed.2d 585 (2003) (quoting Gore, 517 U.S. at 582, 116 S.Ct. 1589). Ultimately, each case must stand upon its own facts with the decisive measure being the reasonableness of the award under the circumstances. [TXO Production Corporation v. Alliance Resources Corporation, 509 U.S. 443, 458, 113 S.Ct. 2711, 125 L.Ed.2d 366 (1993))]

The Kansas Supreme Court recognized those considerations in Hayes Sight & Sound, 281 Kan. at 1312, 136 P.3d 428. But they are not to be applied in a mechanical or scorecard fashion. Even if all of them pointed against manifest reprehensibility, a punitive damages award should then be viewed as “suspect” rather than automatically deficient. Likewise, one of them alone supporting particular blameworthiness wouldn’t necessarily compel a finding of constitutional adequacy. [Ostroski v. Kathleen S. Lynn Revocable Trust, Court of Appeals of Kansas, 326 P.3d 1090 (2014)]

ZALMA OPINION

The reason why the operation of an SIU loses its effectiveness is because if the SIU errs and wrongfully charges an insured of fraud or is unable to prove to a court that the insured was a fraud, will be punished with tort damages and punitive damages. In this article, adapted from my book, Insurance Claims: A Comprehensive Guide the tort of bad faith is covered in detail.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

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Insured Must Prove Whether Insurance Conditions Were Satisfied

Even a Stopped Watch Is Correct Twice a Day

The often reversed Ninth Circuit Court of Appeal gets things right once in a while. In this brief and clear opinion the Ninth Circuit granted an insurer declaratory relief because the plaintiffs failed to show that the insured fulfilled the conditions of the policy were satisfied.

In Star Insurance Company, v. Walter Johnson Family Trust, and Kimberly Thompson; Edward Thompson, United States Court of Appeals, Ninth Circuit 2017 WL 1396188, No. 14-55668, (4/19/17) Kimberly and Edward Thompson appeal pro se from the district court’s summary judgment in a declaratory judgment and interpleader action brought by Star Insurance Company (“Star Insurance”) arising from a dispute about insurance coverage following an airplane crash.

The Ninth Circuit concluded that the district court properly granted partial summary judgment in favor of Star Insurance on its first cause of action for declaratory relief because defendants failed to raise a genuine dispute of material fact as to whether the requirements of the insurance policy were satisfied and whether there was coverage.

ZALMA OPINION

Insurance policy conditions are key to the understanding of an insurance policy. When an insured fails to establish that the conditions precedent were satisfied there can be no coverage. A simple issue answered simply.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

 

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Travelers Avoids $36 Million Verdict

“Arising Out Of” Not Ambiguous In Pennsylvania

Decades of litigation over the effects of pervasive asbestos use have yielded a financial burden borne across an array of industries. A historical manufacturer of asbestos-containing products and its insurer disputed the rightful allocation of asbestos-related losses under thirty-year-old excess insurance policies.

In General Refractories Company v. First State Insurance Co; Westport Insurance Corporation, et al, United States Court of Appeals, Third Circuit, 2017 WL 1416364 (April 21, 2017) the Third Circuit Court of Appeal was asked to decide whether a policy exclusion that disclaims losses “arising out of asbestos” will prevent a manufacturer from obtaining indemnification for thousands of negotiated settlements with plaintiffs who have suffered adverse health effects from exposure to its asbestos-containing products.

After a bench trial, the District Court found that the phrase “arising out of asbestos” contained latent ambiguity because the exclusion could reasonably be read to exclude only losses related to raw asbestos, as opposed to losses related to asbestos-containing products and awarded General Refractories $21,000,000 plus additional $15,273,705 for interest.

FACTS

General Refractories Company (“GRC”) is a manufacturer and supplier of refractory products that are designed to retain their strength when exposed to extreme heat. To serve this purpose, GRC previously included asbestos in some of its products. GRC’s use of asbestos brought about approximately 31,440 lawsuits alleging injuries from “exposure to asbestos-containing products manufactured, sold, and distributed by GRC” dating back to 1978.

In 2002, after years of continued settlements of multiple asbestos related suits GRC tendered the underlying claims to its excess insurance carriers, including Travelers, all of whom denied coverage on the basis of exclusions for asbestos claims.

In maintaining that it need not compensate GRC for losses related to the underlying asbestos claims, Travelers relies on an “Asbestos Exclusion” contained within the excess insurance contracts, which reads: “It is agreed that this policy does not apply to EXCESS NET LOSS arising out of asbestos, including but not limited to bodily injury arising out of asbestosis or related diseases or to property damage. The policies do not define the terms “arising out of” or “asbestos.”

At its core, the parties dispute the meaning of four words within the Asbestos Exclusion: “arising out of asbestos.” The District Court held a one-day bench trial specifically to interpret this language. GRC took the position that at the time the policies were drafted “arising out of asbestos” had a separate meaning than “arising out of asbestos-containing products.” In GRC’s view, the term “asbestos” plainly referred to the raw asbestos mineral that is “mined, milled, processed, produced, or manufactured for sale in its raw form.” There is no dispute that GRC made and sold refractory products that sometimes contained asbestos components.

Having found ambiguity, the District Court observed that GRC’s industry custom and trade usage evidence supported the assertion that “[d]uring the relevant era, industry participants used the phrase to denote losses arising from mining, milling, producing, processing, or manufacturing the raw mineral,” not from “finished products.”  The District Court deemed the Asbestos Exclusion unenforceable to preclude indemnification to GRC for its losses in the underlying asbestos-related lawsuits, and issued a memorandum and order to this effect. The District Court concluded that Travelers must cover $21,000,000 of GRC’s losses—the combined limit of the two excess insurance policies. The District Court accepted this stipulation, awarded GRC an additional $15,273,705 in prejudgment interest, and entered final judgment for GRC. Travelers appealed.

ANALYSIS

As always, the interpretation of an insurance contract is a question of law.

Ambiguity exists where the language of the contract is reasonably susceptible of different constructions and capable of being understood in more than one sense. The phrase “arising out of,” has an established, unambiguous meaning under Pennsylvania insurance law.

The language at issue was not asbestos but “arising out of” that has an unambiguous legal meaning in Pennsylvania. As a result any uncertainty concerning the meaning of the word “asbestos” is immaterial. Pennsylvania courts have long construed the phrase “arising out of” — when used in the context of an insurance exclusion — to mean causally connected with, not proximately caused by. A policy provision containing the phrase “arising out of” is satisfied by “but for” interpretation of causation.

Not only have courts applying Pennsylvania law interpreted “arising out of” to require “but for” causation, they have also held that the phrase is unambiguous. With this consistent interpretation in mind, the Third Circuit, compelled to follow state law, found that the plain language of the Asbestos Exclusion, disclaiming “EXCESS NET LOSS arising out of asbestos,” is unambiguous on its face and is not reasonably susceptible of different constructions. The provision plainly encompasses losses that would not have occurred but for asbestos or which are causally connected to asbestos.

Evidence of industry custom or trade usage is always relevant and admissible in construing commercial contracts, and does not depend on the existence of ambiguity in the contractual language. Where it can be shown that words have a special meaning or usage in a particular industry, members of that industry are presumed to use the words in that special way, whatever the words mean in common usage and regardless of whether there appears to be any ambiguity in the words.

Even the narrowest interpretation of “asbestos” — as referring only to raw mineral asbestos — as GRC argued, leads to the conclusion that coverage for losses associated with the claims against GRC is disclaimed by the Asbestos Exclusion. Even if GRC’s theory that “asbestos” only referred to mineral asbestos in its raw, unprocessed form the asbestos claims against GRC would still fall within the Asbestos Exclusion. The application of “but for” causation compels the conclusion that GRC’s losses are excluded under the policy as a matter of law. “But for” causation is a de minimis standard of causation, under which even the most remote and insignificant force may be considered the cause of an occurrence.

The claims that underlie this litigation stem from exposure to the asbestos incorporated into the finished products that GRC manufactured or sold. GRC only paid settlements and incurred damages when the underlying claimants alleged exposure to GRC’s asbestos-containing products. For each such settlement, a claimant was required to produce sworn evidence of exposure to a GRC asbestos-containing product and medical verification of an asbestos-related disease.

But for the inclusion of asbestos in GRC’s products—which was originally mined or milled as a raw mineral—the plaintiffs exposed to those products would not have contracted asbestos-related diseases.

Parties to an insurance contract must be able to place faith in consistent interpretations of common language when drafting their policies if they are to properly allocate the risks involved. The phrase “arising out of,” when used in a Pennsylvania insurance exclusion, unambiguously requires “but for” causation.

Because the losses relating to the underlying asbestos suits would not have occurred but for asbestos, raw or within finished products, the judgment of the District Court was reversed by the Third Circuit.

ZALMA OPINION

One of the most dangerous aspect of judging is allowing compassion for a litigant over the clear language of a contract and a clear statement of the law. The Third Circuit, reversing the District Court, applied a long line of insurance law cases establishing the meaning of the term “arising out of” and refused to find an ambiguity when none existed. Courts, as did the Third Circuit, must apply the meaning of an insurance contract as written and cannot allow compassion for the plaintiff overrule the wording of the policy.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

 

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Posted in Zalma on Insurance | Comments Off on Travelers Avoids $36 Million Verdict

Assault & Battery Exclusion Unambiguous

 An Insurance Company May Limit Coverage in any Manner

Alcoholic beverages tend to have an effect on the ability of those who consume it to lose their ability to control their tempers. People who work in bars to protect the patrons – called “bouncers” – face abuse from intoxicated patrons and have been known to lose their temper and causing injury to the patron while evicting him or her from the bar. Insurers, as a result of the known risk, are usually unwilling to insure a bar against the risks of loss as a result of an assault or battery. The language of the exclusions for such injuries are ubiquitous and have be interpreted by courts across the country to eliminate insurance coverage for the bar or its employees against charges of injury caused by an assault or a battery.

In Juan Mendez v. Evan Vincent, C.B., LLC, D/B/A Reggie’s And ABC Insurance Company, Court of Appeal of Louisiana, 2017 WL 1386397, NUMBER 2016 CA 1358 (APRIL 18, 2017) Menendez was thrown out of Reggie’s and injured. Because Louisiana law allows it he also sued the insurer for the bouncer and the bar. The insurer claimed it had no obligation to defend or indemnify the bar and its employee because of its policy wording excluding such losses.

Insurance covering such risks is available but at a fairly high premium. When a bar refuses to pay the extra cost of assault and battery coverage it gambles that it will not need it and will find itself uninsured if its employee injures a patron or other person.

FACTS

Plaintiff, Juan Mendez, was involved in an altercation with Evan Vincent at Reggie’s, a bar located in Baton Rouge, Louisina.  Vincent picked plaintiff up in the parking lot and forced him to the ground, injuring plaintiff. Police and paramedics arrived and charges were filed against Vincent who, however, was never prosecuted for the charges.

Plaintiff sued. In response the insurer defendant, Century, filed an answer and a motion for summary judgment. In its motion for summary judgment, Century contended that the altercation that occurred between plaintiff and Vincent was excluded from coverage under the assault-and-battery endorsement exclusion in the policy that Century had issued to Reggie’s.

Following a hearing on May 16, 2016, the trial court granted summary judgment in favor of Century, finding that the policy’s assault-and-battery exclusion precluded coverage for any damages arising from this incident.

DISCUSSION

An insurance policy is an agreement between the parties and should be construed according to general rules of contract interpretation as set forth in the Louisiana Civil Code. An insurance company may limit coverage in any manner, as long as the limitations do not conflict with statutory provisions or public policy.

The exclusionary provisions of an insurance contract are strictly construed against the insurer, and any ambiguity in the exclusion is construed in favor of the insured. The rules of construction, however, do not authorize a perversion of the words or the exercise of inventive powers to create an ambiguity where none exists or the making of a new contract when the terms express with sufficient clarity the parties’ intent.

The assault-and-battery exclusion, which is part of an endorsement to the Century CGL policy, provides: “1. This insurance does not apply to “bodily injury”, “property damage”, or “personal and advertising injury” arising out of or resulting from: ¶ (a) any actual, threatened or alleged assault or battery; ¶ (b)the failure of any insured or anyone else for whom any insured is or could be held legally liable to prevent or suppress any assault or battery; ¶ (c) the failure of any insured or anyone else for whom any insured is or could be held legally liable to render or secure medical treatment necessitated by any assault or battery…”

Plaintiff contends that the exclusion is ambiguous in that the exclusion does not specify that an assault or battery is excluded from coverage when it results from “the reasonable use of force to protect persons or property.” Plaintiff cited to another exclusion that provided: “Bodily injury” or “property damage” expected or intended from the standpoint of the insured. This exclusion does not apply to “bodily injury” resulting from the use of reasonable force to protect persons or property.”

In Mattingly v. Sportsline, Inc., 98-230 (La. App. 5th Cir. 10/28/98), 720 So.2d 1227,  98-2938 (La. 1/29/99), 736 So. 2d 830, the plaintiff made an argument in favor of insurance coverage identical to the argument made by plaintiff which the court rejected (and the Louisiana Supreme Court denied writs).

The Court of Appeal found no merit to plaintiff’s arguments that coverage may exist if a trier of fact finds that Vincent was using reasonable force to protect the bar and its patrons when plaintiff was injured.

Applying plaintiff’s interpretation of the policy, and specifically the assault-and-battery exclusion, would allow a perversion of the words of the policy so as to create ambiguity where none exists.

ZALMA OPINION

Liability insurance companies issue contracts that promise to defend or indemnify the insured against contingent or unknown risks of accidental loss. An assault or a batter can never be “accidental” nor could such actions fit within the definition of “occurrence” in a CGL policy. Regardless of the creativity of Plaintiff’s counsel it was properly unable to create an ambiguity and find coverage for Vincent’s battery on the Plaintiff. The Plaintiff is not without a remedy, he may proceed against Vincent and Reggies who will now understand that it was better to pay for the coverage eliminating the exclusion.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

 

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Insurance is an Important Part of Every Commercial Lease

Two Cases Confirm the Importance of Insurance

I admire New York appellate courts because they write opinions that are truly brief, concise, and state the law without fluff or attempts to look wise when a simple paragraph will do.

The following two cases cover attempts by plaintiffs, who failed to acquire the required insurance, to prevent the breach of lease and eviction of the plaintiffs.

Prince Fashions, Inc.

In Prince Fashions, Inc. v. 60G 542 Broadway Owner, LLC, — N.Y.S.3d —-, 2017 WL 1378563, Supreme Court, Appellate Division, First Department, New York 2017 N.Y. Slip Op. 02918 (April 18, 2017) the property owner issued a notice of default to plaintiff that stated that plaintiff had breached its obligations to defendant under the terms of the lease by failing to “maintain general public liability insurance [policies] … in favor of Landlord and Tenant against claims … occurring in or upon the [Retail] [P]remises” and by failing to deliver such policies to defendant.

The landlord defendant represented to the Appellate Court, uncontroverted by plaintiff, that immediately following the trial court’s denial of plaintiff’s motion, on July 1, 2016, defendant served a notice of lease cancellation on plaintiff terminating the lease effective July 5, 2016 and commenced a holdover proceeding against plaintiff. Although plaintiff had the opportunity to seek injunctive relief from either the trial court or the appellate court until the cure period expired, it failed to do so.

Because plaintiff’s lease was terminated, and a holdover proceeding had been commenced, appellate relief is barred since there was no temporary restraining order in place at the time that the notice of termination was served, the notice was validly served and the lease was terminated. Once the lease was terminated in accordance with its terms, the court lacked the power to revive it.

The default alleged is incurable for several reasons: First, the period in question involves commercial general liability (CGL) insurance policies for the periods 2014–2015 and 2015–2016; Second, these policies were all obtained by, and named, plaintiff’s subtenants as the insureds, but did not name defendant as a certificate holder or additional insured; and third, the evidence plaintiff proffers as to one of the 2014–2015 policies evinces that no party, not even defendant’s predecessor, was named as an additional insured.

These policies would not, nor could they, cure the default. They were not “in favor” of defendant. A New York landlord is not required to accept a subtenant’s performance in lieu of tenant’s. A lease is a contract and the parties must fulfill the conditions of the contract.

Further, the policy obtained by plaintiff after receiving the notice of default on March 4, 2016, and covering the policy period March 10, 2016 to March 10, 2017, cannot cure the default. The fact that plaintiff obtained this prospective CGL insurance coverage cannot retrospectively cure the default arising from plaintiff’s failure to have continuously maintained insurance coverage in the landlord’s favor as required by its commercial lease.

Because plaintiff’s evident failure to obtain insurance naming defendant as an additional insured constitutes an incurable default there were no options available to the court other than to affirm the default and termination of the lease.

Rui Qin Chen Juan

In Rui Qin Chen Juan v. 213 West 28 LLC, — N.Y.S.3d —-, 2017 N.Y. Slip Op. 02926, 2017 WL 1378434, Supreme Court, Appellate Division, First Department (April 18, 2017) decided the same day as the Prince Fashions, Inc. case with similar issues, the Appellate court concluded that a motion court properly denied the tenant plaintiffs’ motion for an injunction because the sole source of support for the motion was the English language affidavit of the non-English-speaking Rui Qin Chen Juan, which is inadmissible for want of a translator’s affidavit. Plaintiffs, therefore, provided no factual support for the motion.

The appellate court concluded that plaintiffs were clearly in default regarding provisions in the lease requiring insurance coverage. Most significantly, they failed to obtain continuous insurance coverage for the entire lease term.

It is undisputed that there were two gaps in insurance coverage. The failure to obtain insurance is a material breach that may not be cured by the purchase of prospective insurance, as such insurance does not protect defendant owner against the unknown universe of any claims arising during the period of no insurance coverage nor was the defendant obligated to exercise its option of securing insurance on plaintiffs’ behalf

ZALMA OPINION

Almost every commercial lease has a requirement that the lessee buy a CGL insurance policy naming the landlord as insured. It is a condition precedent to the lease agreement. When, as in these two cases, the lessee fails to acquire the required insurance, the lease agreement is breached and cannot be insured since insurance purchased late is not retrospective. In short and sweet decisions the appellate court affirmed the effort of the landlord to evict the defaulting plaintiffs.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

 

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Posted in Zalma on Insurance | Comments Off on Insurance is an Important Part of Every Commercial Lease

When Joint Venture Is Insured Joint Venturer is Insured

To Prove Bad Faith Plaintiff Must Prove Malice, Oppression, Wilfulness or Reckless Indifference

Insurers, like every business, will often err, be lazy, or just fail to treat their insured properly. When that happens the insured will invariably sue or cross-claim for the tort of bad faith. The insured learns, when they seek damages from the insurer, that it is not enough to prove stupidity, delay, or incompetence, to obtain a bad faith judgement.

In Westchester Surplus Lines Insurance Company v. Clancy & Theys Construction Company, Westchester Surplus Lines Insurance Company v. Clancy & Theys Construction Company, United States Court of Appeals, Fourth Circuit, 2017 WL 1239588, No. 15-2299, No. 15-2373  (April 4, 2017) a complex insurance coverage case became simple when the court decided that coverage existed but there was no bad faith.

FACTS

Capstone Development Corporation hired a joint venture consisting of Brasfield & Gorrie, LLC, and Clancy & Theys Construction Company to construct a mid-rise student housing building in Raleigh, North Carolina. After construction was well under way, a portion of the building began to lean, damaging other portions of the building. After a plan for repair was agreed to, the Brasfield/Clancy Joint Venture initiated a mediation process with potentially responsible subcontractors to agree to an allocation of the $14.4 million repair costs. Following the process, the subcontractors and their insurance companies agreed to pay $10.5 million, leaving the remainder to be absorbed by the Brasfield/Clancy Joint Venture.

When Clancy, as a partner in the Brasfield/Clancy Joint Venture, sought reimbursement for its share of the repair cost from its insurance company, Westchester Surplus Lines Insurance Company, which had issued Clancy a general liability and professional liability insurance policy, Westchester Insurance sued seeking declaratory judgment that its policy provided no coverage. Clancy filed a counterclaim alleging breach and tortious breach of the insurance contract. The district court, finding that the policy afforded coverage, entered judgment in favor of Clancy on its breach of contract claim in the amount of $1.75 million and dismissed Clancy’s claim for tortious breach of contract.

To insure its liability as a partner or venturer in the joint venture, Clancy purchased a “Joint Venture Endorsement” to its Westchester Insurance policy to cover its liability as a partner in the Brasfield/Clancy Joint Venture. The underlying policy — a commercial general liability and professional liability policy — excluded coverage for joint venture liability.  The Joint Venture Endorsement was designed to eliminate that exclusion and provide Clancy with coverage for joint venture liability.

The repair ended up costing $14.4 million to implement. Clancy notified Westchester Insurance in September 2011 of the potential claim. But Clancy was unable subsequently to contact the employee of Westchester Insurance who had been assigned to the claim; unbeknownst to Clancy, that employee had left the employ of Westchester Insurance. After about a month, Clancy was able to establish contact with another Westchester Insurance employee, who had been assigned to the claim. After providing that employee with all of the communications between Clancy and Capstone Development, Clancy heard nothing further from Westchester Insurance for another two months. As Clancy pressed Westchester Insurance for a coverage determination, Westchester Insurance requested an accounting of costs and a copy of the Brasfield/Clancy Joint Venture agreement, all of which Clancy also provided. When, in September 2012, Clancy complained about the delay in Westchester Insurance’s making a decision and threatened suit, Westchester Insurance commenced this declaratory judgment action.

In its complaint, Westchester Insurance sought a declaratory judgment that its policy did not cover Clancy’s losses because Clancy’s liability did not arise from the performance of its work. More particularly, it asserted that responsibility for the losses belonged to the Brasfield/Clancy Joint Venture, not to Clancy as a venturer in the Joint Venture.

On Westchester Insurance’s motion, the district court granted summary judgment to Westchester Insurance on Clancy’s claim for tortious breach of contract because Clancy failed to show “malice, oppression, or a reckless indifference to consequence,” as required to prove a claim for tortious breach of contract under North Carolina law. Following a bench trial on the remaining issues, the court found that Westchester Insurance owed Clancy coverage for its $1.77 million loss, less a deductible of $500,000 as provided in the policy, plus interest, entering judgment in favor of Clancy in the total amount of $1,746,963.83.

ANALYSIS

In contending that its policy provided no coverage for Clancy’s joint venture liability, Westchester Insurance argues that “Clancy and the Joint Venture were separate and independent entities under North Carolina law and for the purposes of the Policy.

The Fourth Circuit noted, as had the trial court, that Westchester Insurance confused Clancy’s obligations to its partner under the Brasfield/Clancy Joint Venture agreement and its obligations as a joint venturer to Capstone Development for the defective foundation. Westchester Insurance also overlooks the fact that its Joint Venture Endorsement provided coverage for Clancy’s liability as a joint venturer to Capstone Development, which liability is indeed the same as the Joint Venture’s liability.

Not only did Clancy have liability as a joint venturer, it was this very liability that it insured when it purchased the Joint Venture Endorsement.

The liability of a joint venture is indistinguishable from the liability of the venturers. The injured person may sue all the members of the partnership or any one of them at his election. Thus, Westchester Insurance’s premise that the Brasfield/Clancy Joint Venture’s liability to Capstone Development was distinct from the liability of each member of the joint venture was fallacious.

The Fourth Circuit also concluded on Clancy’s cross-appeal, that the district court did not err in granting Westchester Insurance summary judgment on Clancy’s claim for tortious breach of contract. Under North Carolina law, to prove such a claim, a plaintiff must show malice, oppression, wilfulness [or] reckless indifference to consequences. The district court concluded that, while the record showed delay, it did not provide support for the elements of a tortious breach claim.

The Fourth Circuit agreed that Clancy had not directed it to any portion of the record to support its claim. Clancy relies simply on Westchester Insurance’s delay in investigating the coverage issue, which, without more, is insufficient to satisfy North Carolina’s requirements for showing a tortious breach.

ZALMA OPINION

The tort of bad faith was created to deal with insurance industry abuses. It has be fairly successful. However, as this case makes clear, the worm has turned and the abuses are now impressed on the insurance industry. Westchester had a legitimate, albeit wrong, coverage dispute with its insured. It sought declaratory relief to determine if it owed coverage. The trial court and Fourth Circuit found coverage but Westchester was forced to defend a claim seeking bad faith tort damages. It is time to get away from the tort of bad faith and allow contract disputes to be resolved quickly.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

 

 

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Zalma’s Insurance Fraud Letter – April 15, 2017

Zalma’s Insurance Fraud Letter

The Essential Resource For The Insurance Fraud Professional  

 Zalma’s Insurance Fraud Letter, Volume 21, No. 8

Every Insurance Adjuster Must Be Trained About Fraud

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

Because more insurers are training their people to recognize insurance fraud in this issue you may be surprised to see cases where fraud failed and the perpetrator spent time in jail even though the number of convictions seem to be shrinking.


The Current Issue Contains the Following

  • The Insurance Fraud Bureau of Massachusetts
  • Illumeo Continuing Education
  • “Post Loss Underwriting” is an Oxymoron
  • New from Barry Zalma
  • Equity & Insurance
  • Barry Zalma Speaks at Your Request
  • Agent Or Broker Can Be Liable for False Statements on Application
  • E-Books from Barry Zalma
  • Rescission Is A Remedy That Must Be Used With Care
  • The Zalma Insurance Claims Library
  • Wisdom
  • Barry Zalma
  • Good News From the Coalition Against Insurance Fraud
  • Health Insurance Fraud Convictions
  • Zalma Insurance Consultants Provides the Following Services to its Clients
  • Other Insurance Fraud Convictions
  • Books from the American Bar Association
  • Soft Fraud
  • Zalma’s Insurance Fraud Letter
  • The Anti-Kickback Statute

 

The Legend


Visit the Zalma Insurance Claims Library

THE “ZALMA ON INSURANCE” BLOG

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

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

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

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

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

New Blog:

Insurance Law Commentary

You can see video commentary and read two serialized novels:

“Arson for Profit” and “Murder & Insurance Fraud Don’t Mix”

Regards,

Barry Zalma

Barry Zalma

Go to Zalma Books – E-Books and Articles by Barry Zalma – http://www.zalma.com/zalmabooks.htm
Go to my Zalma’s Insurance 101 at http://www.zalma.com/videoblog.

Subscribe to e-mail Version, it’s Free! – http://www.zalma.com/ZIFL-CURRENT.htm.

Go to my blog Zalma On Insurance at http://zalma.com/blog

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Broker Responsible to Assure Policy Provides Coverage Ordered

Broker May Not Rely on Representation of Underwriter About Coverage Provided

It is axiomatic that an insurance broker is responsible to obtain the coverage required by the insured. As an insurance professional the broker is required to read the policy provided to determine it provides the coverages required and not rely upon representations of others.

In Loomcraft Textile & Supply Company v. Schwartz Brothers Insurance Agency, Inc., & Schwartz Brothers Insurance Agency, Inc., Third-Party Plaintiff-Appellant v. Fireman’s Fund Insurance Company, Appellate Court of Illinois, 2017 IL App (2d) 160557-U,  No. 2-16-0557 (April 3, 2017) a broker tried to pin the responsibility to determine appropriate coverages to the insurance underwriter and relied on the underwriter’s representations that were not totally correct.

FACTS

Schwartz Brothers Insurance Agency, Inc. (Schwartz), appealed the trial court’s grant of summary judgment in favor of Fireman’s Fund Insurance Company (Fireman’s Fund. The trial court ruled that Schwartz needed expert testimony to be able to prevail on its allegations.

Schwartz filed a third-party complaint against Fireman’s Fund after Schwartz was sued by Loomcraft Textile & Supply Company (Loomcraft). It sued Schwartz on a single count of broker negligence. Loomcraft alleged Schwartz obtained a replacement policy from Fireman’s Fund and assured Loomcraft that it matched the coverage in the previous Liberty Mutual Insurance policy, including a selling price endorsement. On December 16, 2013, Loomcraft suffered a loss to its fabric inventory and goods with a retail value of $608,611.85. It submitted proof of the loss to Fireman’s Fund. Fireman’s Fund asserted that according to the policy, the loss for finished goods was valued at replacement cost rather than selling price. In its complaint, Loomcraft claimed that Schwartz breached its duty to Loomcraft by failing to obtain the agreed-upon coverage under the Fireman’s Fund policy, and that as a direct and proximate result of Schwartz’s breach, Loomcraft sustained damages of $529,980.58.

In its answer to the amended complaint, Schwartz admitted that it agreed to procure an insurance policy for Loomcraft that included “Selling Price Replacement Cost” (selling price coverage) and that it had informed Loomcraft that the Fireman’s Fund policy included such coverage. In essence it admitted liability and negligence in failing to obtain the policy with the coverage promised.

Schwartz sued Fireman’s Fund alleging contribution and reformation. Fireman’s Fund, in an earlier agreement, promised to indemnify Schwartz if it was held responsible for errors made by Fireman’s Fund.

To obtain replacement insurance for Loomcraft Schwartz submitted an application for insurance to Fireman’s Fund to insure Loomcraft. Thomas Brennan, a Fireman’s Fund insurance underwriter a Schwartz employee advised Brennan that Loomcraft required selling price coverage for all of its goods. Brennan told Jacobs that such coverage would be included with Fireman’s Fund’s property coverage and that a separate endorsement was not necessary. Contrary to Schwartz’s specific request and instruction, Fireman’s Fund underwrote and issued an insurance policy to Loomcraft that did not contain the selling price coverage requested, thereby exposing Schwartz to liability to Loomcraft.

While the dispute with Fireman’s Fund was pending Loomcraft obtained a judgment against Schwartz for $529,980.58.

ANALYSIS

Fireman’s Fund moved for summary judgment against Schwartz. Fireman’s Fund argued that the agency agreement’s provisions were inapplicable because the trial court had found that Schwartz’s negligence as an insurance broker caused Loomcraft’s damages; Fireman’s Fund argued that Schwartz was not acting as Fireman’s Fund’s agent when it engaged in the negligent conduct. Fireman’s Fund moved for summary judgment against Schwartz and argued that the indemnity provision limited its obligation to its own acts and conduct, as opposed to negligence attributable to Schwartz.

Schwartz failed to state a claim for negligent misrepresentation. A negligent misrepresentation claim must include facts showing that the defendant owed the plaintiff a duty to communicate accurate information. The Underwriter, in fact, correctly stated that there was a selling cost provision but did not point out that it only applied to goods manufactured by Loomcraft who, Schwartz should have known, manufactured nothing.

For a claim of negligent misrepresentation, the defendant has to be in the business of supplying information to guide others, in contrast to information that is supplied as ancillary to or in connection with the sale of merchandise or other matter. Fireman’s Fund is in the business of selling insurance rather than in the business of supplying information, and any information that it does supply is in connection with the sale of insurance. Therefore, Schwartz failed to state a claim of negligent misrepresentation.

Schwartz argues that even if its allegations raise a claim of professional negligence rather than negligent misrepresentation, Illinois law still does not require it to retain an expert to prove its case. Schwartz recognizes that, in general, a plaintiff in a professional negligence case has the burden to establish the standard of care through expert witness testimony. This is because jurors, who are not skilled in the profession, are not otherwise equipped to judge the professional’s conduct.

The elements of a professional negligence action are: (1) the existence of a professional relationship; (2) a breach of duty arising from that relationship; (3) causation; and (4) damages. Expert testimony is generally necessary to prove the standard of care in a professional negligence case, except where the conduct is so grossly negligent or the procedure is so common that the jury can readily appraise it without expert testimony.

This distinction highlights that there is no defined “duty of care” or “standard of care” regarding an insurer’s representations about coverage to the broker/producer, and whether the insurer can expect that a broker/producer would rely solely on such representations without examining the policy itself. This is especially true considering that it is the broker who has the duty to the insured to obtain the agreed-upon insurance coverage, and that the policy here did contain a type of selling price coverage, albeit one not ultimately applicable to Loomcraft’s products.

Expert testimony is generally necessary to prove the standard of care in a professional negligence case accordingly an expert would be necessary to testify regarding the standard of care applicable between an insurer and a broker/producer, and the trial court correctly granted summary judgment in Fireman’s Fund’s favor based on Schwartz’s lack of an expert witness.

ZALMA OPINION

Insurance contracts are the most complex commercial contracts that are read by no one. In this case the broker did not read the policy nor did the insured. As a result, both relied on erroneous statements of coverage by the underwriter and the broker. The responsibility was that of the broker to ascertain that the coverages required were obtained. In so doing the broker failed.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

 

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Washington State Turns TPA Into a Virtual Insurer

Washington State Court Finds TPA Subject to Bad Faith Law

I has been axiomatic across the country that only an insurer may be liable for the tort of bad faith. For example, in 1973 Gruenberg v. Aetna Ins. Co. (1973) 9 Cal. 3d 566 [108 Cal. Rptr. 480, 510 P.2d 1032] the California Supreme Court found that the adjusters and lawyers involved in a claim, not parties to the contract, could not breach the implied covenant of good faith and fair dealing since they were not parties to the contract of insurance.

In William Merriman And Colleen Merriman v. American Guarantee & Liability Insurance Company; Partners Claim Services, Inc.; Bernd Moving Systems, Inc., A Washington Corporation; Douglas A. Bernd And Jane Doe Bernd; Court of Appeals of Washington, 2017 WL 1330469, No. 33929-7-IIIm (APRIL 11, 2017) the Court of Appeals of Washington did not follow the California decision.

FACTS

On August 5, 2012, a storage warehouse in Yakima owned and operated by Bernd Moving Systems burned to the ground. In addition to destroying the warehouse itself, the fire destroyed Bernd’s personal property and the property of 38 of its customers who stored property in the warehouse—among them, the Merrimans.

William and Colleen Merriman sued Bernd Moving Systems after a fire at Bernd’s storage warehouse destroyed over $300,000 worth of the Merrimans’ property. When the Merrimans learned through litigation that Bernd had substantial insurance protecting its storage customers against property loss that had never been disclosed by Bernd’s insurer, its adjuster, or the adjuster’s local agent, they amended their complaint to assert claims against all three companies. They also moved, successfully, for certification of a class action. Settlements were reached between the class and Bernd, the insurer, and the adjuster’s local agent.

No settlement was reached with the adjuster, York Risk Services Group (York), and the trial court eventually decertified the class and granted summary judgment dismissal of the Merrimans’ claims against it.

Bernd was insured by American Guarantee & Liability Insurance Company (American Guarantee). Its commercial insurance policy provided many types of property and liability coverage. American Guarantee engaged York to not only adjust claims for the Bernd warehouse fire, but to more broadly administer the entire review, adjustment, settlement, and payment process under a preexisting third party administrator agreement between its parent company and York.

American Guarantee would ultimately concede that Bernd’s policy covered the Merrimans’ and other storage customers’ property loss but it never disclosed the coverage to the Merrimans. It claimed it relied on York to perform its “contractual job duties,” including to make required disclosures of coverage to potential insureds.

ANALYSIS

The Merrimans appealED dismissal of their claims against York for insurance bad faith, negligent misrepresentation, negligence, and violation of the CPA.

The Merrimans Can Assert A Claim For Insurance Bad Faith Against York

As an adjuster contracted by American Guarantee to act as its claims administrator, York was, at all relevant times, a “person” engaged in “the business of insurance” and a representative of American Guarantee. York contends that despite this broad language, a common law bad faith claim is available only against an insurer.

The Washington Bad Faith statute, RCW 48.01.030 unambiguously applies to insurance adjusters. By statute, an “[a]djuster means any person who, for compensation as an independent contractor or as an employee of an independent contractor, or for fee or commission, investigates or reports to the adjuster’s principal relative to claims arising under insurance contracts, on behalf solely of either the insurer or the insured.”  An “[i]ndependent adjuster”—which York was here—“means an adjuster representing the interests of the insurer.” RCW 48.17.010(1)(a).

There is substantial evidence that York acted as more than an adjuster in this case. York’s contract with American Guarantee identified York as a third party claims administrator and the scope of its duties was broad. The duration of York’s responsibility covered the entire process of administration, from beginning to end: it promised to “provide … services” and “perform … duties” for claims under American Guarantee’s policies, and to carry out that responsibility for all promised services “from the date of first report until final resolution.”

York promised American Guarantee that it would “[p]romptly and thoroughly review, process, Adjust, settle and pay Claims under the Policy;” that it would perform its duties “from the date of first report until final resolution,” and that it would do so in compliance not only with its agreement and the policy, but “in frill compliance with … all applicable legal and regulatory requirements.” It would have been impossible for York to both keep property owners in the dark about the policy’s coverage for their property—which it did—and at the same time fulfill its contractual duties. A plain reading of the contract supports American Guarantee’s position that property owners were expected to benefit from York’s performance of its obligations under the third party administrator agreement.

Advancing Washington’s Policy Of Protecting Insureds

The Merrimans did not persuade the Court of Appeal that an independent adjuster owes a general duty of care to an insured. However, the court concluded that that York had a duty to exercise reasonable care to fulfill the insurer’s duties to insureds that it promised to fulfill in the third party administrator agreement.

Since the duty to comply with claims handling regulations could not require York to do anything that American Guarantee was not itself required to do, it cannot present a conflict between York and American Guarantee. York would not be representing insureds as an adjuster, so RCW 48.17.410 does not apply.

Just as the regulations in chapter 284-30 WAC do not prevent American Guarantee from watching out for its own legal rights and interests in investigating, settling, and paying claims, they cannot prevent York from representing American Guarantee’s interests as an independent adjuster.

When an insurer engages a claims administrator to take on all or substantial responsibility for claims investigation, adjustment, settlement and payment, it would be strange for it not to require the claims administrator to take responsibility for the associated claims handling regulations. Holding that a claims administrator owes a duty to insureds under these circumstances advances the policies of the insurance code by increasing the likelihood that the entity on whom everyone relies to comply with legal and regulatory requirements will comply.

Since a Washington insurer’s duties are nondelegable, it simplifies any resulting litigation. Imposing a duty on the claims administrator safeguards against what might otherwise be an incentive for an unscrupulous insurer to engage an unscrupulous claims administrator who, by withholding information and cooperation, will prevent persons from ever discovering that insurance covers their loss.

Considering logic, common sense, justice, policy, and precedent, the Court of Appeal held that given the duties undertaken by York in the third party administrator agreement; the intent of that agreement to benefit, in part, American Guarantee’s insureds; and the foreseeable harm to the insureds if York’s relevant promises were not performed, York owed the insureds a duty of reasonable care to perform those promises.

To prevail in a private CPA claim, the plaintiff must prove five elements: (1) an unfair or deceptive act or practice, which (2) occurs in trade or commerce, and (3) affects the public interest, for which (4) the plaintiff suffered injury to her business or property, and was (5) caused by the act in question.

The Merrimans’ claimed that York committed “per se” unfair and deceptive acts or practices by violating claims handling regulations. The first two elements required to prevail in a CPA action may be established by showing that the alleged act constitutes a per se unfair trade practice. A per se unfair trade practice exists when a statute that has been declared by the legislature to constitute an unfair or deceptive act in trade or commerce has been violated. A first party insured may bring an action for violation of the CPA based on a single violation of a claims-handling regulation.

The problem for the Merrimans is that the per se deceptive practices on which they rely appear in regulations that apply only to insurers. The Merrimans argue that a jury could conclude that York’s failure to alert property owners to available coverage was an unfair or deceptive act that led to harm for purposes of the CPA when the owners were required to resort to other sources of payment for their loss, or in some cases go without complete indemnity as a result.

Accepting the claim of the Merrimans’ was accepted by the Court of Appeal and it reversed the dismissal of the Merrimans’ insurance bad faith, negligent misrepresentation, negligence, and non per se CPA claims and remand for proceedings consistent with this decision.

It also reversed the dismissal of the Merrimans’ claims against York for insurance bad faith, negligent misrepresentation, and non per se violations of Washington’s Consumer Protection Act (CPA).

ZALMA OPINION

This decision changed the law and made the TPA York from a claims person into a virtual insurer and because of the promises it made to the insurer it was required to be individually responsible for the tort of bad faith as if it was an insurer. Every TPA doing business in Washington state should immediately negotiate with the insurer it represents to have it agree to defend and indemnify the TPA in the case of a suit by an insured contending the insurer acted in bad faith or violated the CPA. Insurers, insuring TPA’s doing business in Washington state should reevaluate its exposure. The Washington Supreme Court should reverse and follow the decision in Gruenberg since application of the case will have every independent adjuster and independent lawyer dealing with claims exposed to suits for bad faith and/or violation of the CPA.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

 

 

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Happy Passover

Passover 2017 – In English

Passover is a time when every Jewish father and mother tell their children the story of the Exodus of the Jews from slavery in Egypt. It is a story that Jewish people have told every year for more than 3,000 years. It is a very personal story and applies to each of us as if we were the people who lived it so long ago.

It is a story never to be forgotten. For those of us who have assimilated into the United States and who do not speak Hebrew my wife and I wrote an English only Passover story so that we and our children and grandchildren will understand the story of Passover without a great deal of ritual. We will have our Seder tonight.

It is available, free, to anyone who wants to conduct a easy to understand Seder.

PASSOVER-SEDER

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Fraudulent Claim Voids Coverage

When Insured Admits Tax and Bankruptcy Fraud They Should Be Prosecuted

Making false reports to the IRS and to Bankruptcy Courts about the value of a business or its property to avoid taxes and paying legitimate debts seems to be a popular sport in the United States. The problem, of course, is that the lies bite the person making an insurance claim based upon the truth rather than the claim made.

In Ahmadpoor v. Truck Insurance Exchange, Court of Appeal, California, Not Reported in Cal.Rptr.3d ___, 2017 WL 1230462 (4/4/2017) an insurer rejected the claim because of the evidence of fraud when making a claim to Truck Insurance Exchange.

The Appeal

This appeal arises from the trial court’s order granting a defense summary judgment motion in an insurance coverage action. Jahangir Ahmadpoor (Father), as the legal owner of an automobile repair business named European Coach (the business or Plaintiff), sued its commercial property insurance carrier, Farmers Insurance Company (Truck), on breach of contract theories.

After investigation of a burglary claim, Truck denied the claim on the basis that the business’s representatives made several types of material misrepresentations during the processing of the claim, in breach of the policy terms. Truck’s summary judgment motion contended this conduct voided the terms of the policy.

Plaintiff claims the trial court misapplied the analysis of Cummings v. Fire Ins. Exchange (1988) 202 Cal.App.3d 1407 (Cummings ), which held that an insured’s misrepresentation with respect to a claim is material if the “misrepresentation concerns a subject reasonably relevant to the insurer’s investigation, and if a reasonable insurer would attach importance to the fact misrepresented.”  An insured’s intent to defraud the insurer is necessarily implied from the insured’s willfully false material misrepresentations made during the claims process. Plaintiff argues the trial court was unjustified in finding that certain misrepresentations relied on by Truck to deny the claim were properly relevant or material to the insurer’s investigation, or to the ultimate disposition of the claim.

Plaintiff admitted to Truck, through Son, that it had underreported its income and cash flow to the Internal Revenue Service (IRS) when paying its taxes for several years before the burglary occurred. Father did not know anything about the business’s taxes. In any event, since those representations about the business’s income were made to a third party, not Truck, and also predated the claim, Plaintiff argues triable issues of fact must remain about liability.

In pursuing its claims for stolen property, Plaintiff supplied Truck with information that some of the stolen tools and equipment had been obtained by the business from other similar companies previously owned by Son, the business’s operator. Although Son had declared a personal bankruptcy in 2008 and made filings and disclosures about some of these other companies he previously operated, he never disclosed his ownership of such tools in that bankruptcy action.

The Policy

In its clause entitled “Concealment, Misrepresentation or Fraud,” the policy provides that it becomes “void in any case of fraud by you as it relates to this policy at any time. It is also void if you or any other insured, at any time, intentionally conceal or misrepresent a material fact concerning: 1. This policy; 2. The Covered Property; 3. Your interest in the Covered Property; or 4. A claim under this policy.”

The Claim Presentation

Plaintiff sent Truck a 160-page proof of loss document that included numerous photographs of tools taken by Son, handwritten lists of equipment with price estimates, and $68,814.36 in quotations from suppliers for tools similar to those the business was claiming were stolen.

Plaintiff provided a supplemental proof of loss that included monthly estimates of the business interruption losses, from April 9 to October 9, totaling $257,825.

The Claim Denial

Truck denied Plaintiff’s claim in writing on October 29, 2012, giving as reasons that the business and its principals had failed to fully cooperate with their duties under the policy, by misrepresenting and concealing material information during the presentation of the claim. Because of the misrepresentations and concealments of material information in the presentation of the claim, Truck declared the policy void due to breaches of the policy conditions.

Discussion

A fraud and concealment clause in an insurance policy generally voids the policy upon the insured’s attempts to deceive the insurer. Deceit may involve false representations to obtain insurance coverage or to obtain benefits after a claimed loss. Material representations are those relating to the insurer’s investigation to determine its obligations under the policy.

Materiality is a mixed question of law and fact that can be decided as a matter of law if reasonable minds could not disagree on the materiality of the misrepresentations.  In Cummings, the trial court found it to be beyond question that the insured’s false statements, about the cause of a loss, were made with knowledge of falsity and an intent of defrauding the insurer.  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.

Son admitted in his examination under oath that the business’s 2009 and 2010 tax forms provided to Truck did not accurately reflect the business’s income. According to Son’s wife Galynne Ahmadpoor, when assisting with the business bookkeeping, she would normally take the invoices and expenses and combine them into summaries and turn them over to the accountant. For tax purposes, she gave the accountant all the sales receipts, unless the customer was nontaxable or it was a cash deal.

In explanation of its position on appeal, Plaintiff argues that its misrepresentations to the IRS about cash sales in 2009 and 2010 could not have materially influenced Truck, because they were made to a third party and therefore were not directly designed to defraud the insurer.  Even though the business’s representatives admitted to misleading the IRS, they also admitted to misleading Truck on the amounts of losses being claimed, a material issue in the investigation. Their motive for doing so is irrelevant in this context.

In its order, the trial court concluded “The tax records are falsified because they do not accurately reflect the income of the business,” and “[s]ince the tax information provided by Plaintiff was submitted in support of the claim for lost profits and was admittedly inaccurate, the information provided by Plaintiff constitutes a material misrepresentation which was relevant to the investigation and constitutes a valid basis for denial of coverage.”

Plaintiff’s deceptive representations were material in nature and on this record, the court properly determined that Plaintiff’s misrepresentations about the level of the business’s income during relevant time periods were, as a matter of law, material, because they were reasonably related to the claims being made for business interruption amounts. There is sufficient evidence in the record to support the finding that a reasonable insurer such as Truck would attach significance to the false statements made by Plaintiff regarding this aspect of the claim.

In the order, the court noted that in addition to its incomplete tax records, Plaintiff had supplied Truck with contradictory information about its ownership interest in different pieces of the stolen property. The trial court was correct in determining that Plaintiff had failed to comply with its obligations under the policy of supplying adequate documentation of the claimed losses, thus breaching its duties and justifying a decision to declare the policy void. The evidence supports the conclusion that the misrepresentations made in pursuing Plaintiff’s claims for lost property were material.

Plaintiff’s false statements about the origin of the tools and its ownership interest in them, made in the current proceedings as contrasted to the earlier bankruptcy matter, concerned a subject that was “reasonably related” to Truck’s investigation of Plaintiff’s claim. The motive was irrelevant.

ZALMA OPINION

This is a case that should never have been brought to a court. The insureds claimed that their insurer had no right to consider when evaluating their claim that they had provided falsely sworn statements to the IRS and a Bankruptcy court. They asked the court to ignore their criminal conduct and make their insurer pay for property and business earnings they really earned rather than what they submitted to the IRS under oath. The court should have referred the case to the U.S. Attorney for both tax and bankruptcy fraud.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

 

 

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Punished for Not Reading Policy

Broker Can Be Negligent For Failing To Acquire Insurance Requested

Insurance brokers transact insurance with but not on behalf of insurers. They act as the agent of the insured to acquire the insurance required by their client. By so doing they are obligated to seek and obtain the insurance required if available.

In LG Mayfield LLC v. United States Liability Insurance Group, Slip Copy, Court of Appeals of Ohio, 2017 -Ohio- 1203, 2017 WL 1196113 (3/31/2017) the Court of Appeals of Ohio was faced with two important questions raised when an insurance broker failed to obtain the insurance its client desired and the insureds could have avoided the problem by reading the policy.

FACTS

In February 2014, Eric Eisner (“Mr. Eisner”) the sole owner and operator of Eisner, assisted Mayfield in applying for and procuring general liability and property damage insurance from USLI. The policy was obtained to cover Mayfield’s start-up restaurant, Oak & Embers Tavern (“Oak & Embers”). Mr. Eisner met with Gretchen Garofoli (“Mrs. Garofoli”), Oak & Embers principal, to review the application and coverages. After the policy was issued, Mr. Eisner provided a copy to Mrs. Garofoli; neither she nor her husband and agent Marc Garofoli (“Mr. Garofoli”) read the policy after it was issued. On June 27, 2014, a fire damaged the restaurant. After the fire, Mr. Eisner falsely advised the Garofolis that the policy included business interruption coverage. The policy, however, did not include such coverage.

In March 2015, Mayfield sued various parties, including appellees IHT, Eisner, and USLI for allegedly failing to obtain business interruption coverage for Oak & Embers, as part of the insurance contract it purchased from USLI.

The excerpts of Mr. Garofoli’s deposition, attached to the dispositive motion, reveal that he “believed” he advised Mr. Eisner that he and his wife wanted business interruption coverage and that Mr. Eisner advised him that they “needed” the coverage.

A court considering a summary judgment need not afford the non-moving party every inference to be drawn from the evidence, but only every reasonable inference. Viewing the evidence most strongly in Mayfield’s favor, the reasonable inference can be drawn that the Garofolis desired business interruption insurance and/or Mr. Eisner, despite his averments to the contrary, advised them it was necessary. If Mr. Eisner advised Mr. Garofoli that the restaurant “needed” business interruption coverage, and Mr. Garofoli indicated he wanted such coverage, but Mr. Eisner failed to procure the same, there is a genuine issue of material fact as to whether he was negligent in procuring the insurance policy that did not include business interruption coverage. The court of appeal concluded, therefore, that there is a genuine issue of material fact for litigation relating to Mayfield’s negligence claim against Eisner.

Mayfield asserts a genuine issue of material fact remains regarding USLI’s liability for breach of an oral contract because Mr. Eisner, acting as its agent, orally promised to obtain business interruption coverage.

In responding to USLI’s motion for summary judgment, Mayfield submitted only the affidavit of Christopher McCauley, the manager of Oak & Embers. McCauley averred that, after the fire, Mr. Eisner assured Mr. and Mrs. Garofoli that the policy contained business interruption coverage. Mr. McCauley also averred he heard a voice message left by Mr. Eisner shortly after the fire. In the message, Mr. Eisner stated he reviewed the subject policy and represented it included business interruption coverage. Obviously, Mr. Eisner’s representations were misleading because the policy did not include business interruption coverage. To formulate a sustainable theory of liability against USLI, Mayfield was required to advance some evidentiary quality material, whether by affidavit or deposition, that would allow for the reasonable inference that Oak & Embers, through Mr. and/or Mrs. Garofoli, requested Mr. Eisner to obtain business interruption coverage. Without this preliminary nexus, it is inconsequential whether Mr. Eisner was acting as USLI’s agent.

The record failed to establish Mr. Eisner was acting as USLI’s agent during his discussions with the Garofolis.

An insurance broker (or independent insurance agent) becomes an agent for a particular insurer when: (1) the broker notifies its customer, the potential insured, that he or she intends to place the customer’s insurance coverage with a particular insurer; or (2) the broker accepts an application for insurance on behalf of the customer.

The record on appeal reflects that after discussing Oak & Embers’ insurance needs, Mr. Eisner contacted three separate insurance companies to obtain an insurance quote for the restaurant. One of the companies was USLI. According to Mr. Eisner, USLI was the only company willing to offer a quote. After receiving the quote, Mr. Eisner contacted Mr. Garofoli and, eventually, Mrs. Garofoli signed the policy.

When Mr. Eisner contacted USLI, he was acting as a “broker.” An “insurance broker” is one who acts as middleman between the insured and the insurer, and who solicits insurance from the public under no employment from any special company and who, upon securing an order, places it with a company selected by the insured, or, in the absence of such a selection, with a company selected by himself; whereas an ‘insurance agent’ is one who represents an insurer under an employment by it.

At the time he sent the restaurant’s information to the companies, which did not include a business interruption coverage option, i.e., the essence of Mayfield’s negligent procurement claim, he was performing activities particular to his role as an insurance broker, not a soliciting agent. The alleged negligent act occurred when he was acting “as middleman between the insured and the insurer,” during the pre-application stage, and not as a representative of USLI.

Finally, Mayfield contends that because, after the fire, Mr. Eisner represented that the policy included business interruption coverage and the Garofoli’s believed such coverage was included, there was a mutual mistake justifying reformation of the contract.

Unambiguous insurance policies are enforced as written. Where, however, clear and convincing evidence demonstrates a mutual mistake in the policy, a court may employ the equitable tool of reformation to deviate from the terms of the written agreement and correct the mistake.

Nevertheless, a court should not reform an insurance policy where the party seeking reformation has failed to fulfill his duty to read the policy. An agent or broker is not liable when a customer’s loss is due to the customer’s own act or omission.

The record demonstrates that Mr. and Mrs. Garofoli did not read the policy. Had they done so, they would have known business interruption coverage was omitted. In this respect, the Garofolis were not vigilant in verifying their alleged assumptions about the coverage.

Alternatively, it is uncontroverted that USLI provided insurance coverage that was requested and did not deprive Mayfield of any benefits owed under the policy.

ZALMA OPINION

Although there was a strenuous dissent, the Ohio Court got everything right. A broker who promises one coverage, obtains at his request a policy that does not contain the business interruption coverage promised, can be held responsible for his negligence. Also, an insured who fails to read the policy when it is delivered cannot seek the equitable remedy of reformation because he was not vigilant in protecting his own rights. He can sue the broker but no one else.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

 

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Justice Gorsuch and Insurance

Two Insurance Cases Written by the New Supreme Court Justice

Today, Justice Neil Gorsuch will be appointed to the U.S. Supreme Court. Since I and my readers are interested in insurance matters I thought it might be useful to see the type of decisions he has made in the past relating to insurance. Below I have digested two of his insurance decisions so you may understand the way our new Justice resolves insurance matters.

How Policy Limits Disputes Are Resolved

In Professional Solutions Ins. Co. v. Mohrlang, 363 Fed.Appx. 650 (2010) the parties asked the Tenth Circuit to determine whether two professional insurance claims against the same attorney are related to one another? If so the limits available is $500,000 and if not the limits available to the lawyer is $1,000,000.

FACTS

Professional Solutions Insurance Company (PSIC) provided single coverage liability of $500,000, up to an annual aggregate limit of $1 million, to one of its insureds. When Bruce Mohrlang submitted a negligence claim against the insured, and Harry Mohrlang submitted another alleging breach of fiduciary duties, PSIC conceded liability of at least $500,000 on each but argued that under the policy definitions, the claims were related and thus subject to the $500,000 single coverage limit.

The parties eventually settled their disputes. PSIC agreed to pay the single coverage limit of $500,000 and pursue this declaratory judgment action to determine any further liability. The sole question was whether the two claims were related to one another so as to cap PSIC’s liability at $500,000, or whether the two claims were unrelated and thus separately covered under PSIC’s annual aggregate limit of $1 million. The district court granted summary judgment in favor of the Mohrlangs.

THE TWO CLAIMS

The trial court recognized that the critical inquiry was whether the claims were “temporally, logically or causally connected by any common fact, circumstance, situation, transaction, event, advice or decision.” The court understood that Bruce Mohrlang’s claim was based on the insured’s negligence in structuring a corporate stock sale, while Harry Mohrlang alleged breach of fiduciary duties based on the insured’s misrepresentations that caused him to release a deed of trust he held against the corporate entity.

Harry Mohrlang’s claim was not temporally connected to the sale because the insured caused Harry Mohrlang to release his deed of trust some three weeks after the sale closed. The court found no logical connection between the claim and the sale because neither the deed of trust nor the promissory note it secured was incorporated into the final sale agreement and both should have remained unaffected by the sale. Finally, the court determined that no causal connection existed between Harry Mohrlang’s claim and the sale because the promissory note remained a valid, independent obligation even after the sale, and the deed of trust was not released until the insured’s unforeseeable acts severed any causal link that could have existed.

The trial court ruled that the two claims were unrelated and PSIC was liable under the policy’s $1 million annual aggregate limit.

Judge Gorsuch and the Tenth Circuit concluded that the two claims are unrelated. Moreover, having reviewed the parties’ appellate materials, the district court’s order, and the relevant legal authority, Judge Gorsuch agreed with the district court’s cogent and well-reasoned analysis. The analysis was detailed, accurate, and complete.

ZALMA OPINION

As an insurance lawyer, consultant and expert witness it is a welcome relief and refreshing  to see an appellate decision that looks at the clear findings of the trial court, affirms the decision because that is what the facts and the law required, and although the ruling went against the insurer it was clearly correct.

AN INSURER IS NOT OBLIGATED TO BE CLAIRVOYANT

In Johnson v. Liberty Mut. Fire Ins. Co., 648 F.3d 1162 (2011) Judge Gorsuch was faced with a suit insureds brought action against their automobile insurer, alleging spoliation of evidence, that the insurer acted negligently as a bailee, and that insurer engaged in bad faith breach of its insurance duties by failing to hold onto a pair of tail lights that would allegedly help insureds win a personal injury lawsuit they wanted to bring against a driver involved in accident with insureds.

FACTS

Judge Gorsuch reported that the case is about a pair of missing tail lights and the limits of reasonable foreseeability.

Russell and Jennifer Johnson blame Liberty Mutual for failing to hold onto a pair of tail lights that, they say, would have helped them win a personal injury lawsuit they wanted to bring. “Problem is, the Johnsons never asked Liberty Mutual to keep the tail lights, never mentioned their intent to sue, and allowed years to pass without a word. Now they fault the company for failing to divine their hidden (and perhaps not yet formed) intentions. Because the Johnsons, quite unsurprisingly, cannot identify a statutory or contractual basis for their claim, they ask us to create one for them in the common law of tort.”

One early summer morning, Russell Johnson was driving a pickup truck when he was rear-ended. Michael Dellock, an employee of Zimmerman Truck Lines, did it. When the police arrived, Mr. Dellock told them he crashed into Mr. Johnson’s truck because the latter’s trailer’s tail lights weren’t working—and, based on this account, the police issued Mr. Johnson a traffic citation. Recognizing the potential evidentiary importance of the tail lights, Mr. Johnson’s insurance company—Liberty Mutual—took them to have them tested. After a lab report suggested that the lights were operating at the time of the crash, Liberty Mutual succeeded in fending off liability claims threatened by Zimmerman and Mr. Dellock’s insurance companies. Liberty Mutual even managed to get Zimmerman’s insurance company to pay for the damage to Mr. Johnson’s truck and trailer. And to top it off, the police dismissed Mr. Johnson’s citation. Jennifer Johnson, Mr. Johnson’s wife, herself later admitted that by this time she had “kind of forgot about” the tail lights.

“But the end of these lurking lawsuits only marked the birth of another.” Four years after the accident, Mr. and Mrs. Johnson decided to turn the tables on Zimmerman and Mr. Dellock and sue them for personal injuries. To help their case, the Johnsons asked Liberty Mutual to return the tail lights. By this time the lights were long gone. Gone because, over all the intervening years, the Johnsons had never asked Liberty Mutual to return or retain the lights, and never mentioned their potential interest in suing. Ultimately, the Johnsons settled their personal injury claims but, they say, at a deep discount because of the missing tail lights.

And this is the nub of our case. Arguing they could have obtained more money from Zimmerman and Mr. Dellock had Liberty Mutual held onto the tail lights, the Johnsons sued under Colorado law. The Johnsons seek to use the common law in many uncommon ways. They ask the court to recognize and enforce an independent spoliation tort, but the Colorado courts have yet to go so far. They say Liberty Mutual neglected its duties as the bailee of their property, but it’s unclear from the record whether the Johnsons even owned the tail lights by the time they asked for them. They argue that Liberty Mutual tortiously (in bad faith) disregarded an insurance obligation, but it’s hardly obvious what obligations Liberty Mutual had as an insurer to help the Johnsons anticipate and prepare for an affirmative lawsuit.

The Johnson’s needed to prove that Liberty Mutual knew or should have known that the destroyed tail lights would be relevant (valuable) evidence in their future affirmative litigation.

ANALYSIS

The Johnsons can’t prove the need for such an affirmative duty. No court has reached the stage where everyone is bound by the common law to gird for more litigation even after everything appears settled. Ours may be a litigious world. Lawsuits may tend to beget more lawsuits. But, in the absence of any statutory or contractual duty, it is unreasonable to expect anyone to hold onto apparently unwanted property for two years after all claims involving it appear to have been resolved.

The common law rarely demands such uncommon foresight.

Although Liberty Mutual had an internal policy requiring it to preserve the tail lights for six years after closing its claims file—in time for the Johnsons to use the lights in their affirmative litigation. But this line of argument conflates two very different things. When you violate a corporate policy you may well be in trouble with your boss, but that doesn’t necessarily mean you have committed a tort.

The role of a court of law is not to enforce private corporate policy but to assess public legal liability. And the Johnsons were unable to show how, in this case, the existence of the one (the corporate retention policy) might be evidence of a violation of the other (the law).

It is far more likely Liberty Mutual adopted its internal retention policy not to help out others with their own lawsuits, but to ensure it could process and defend insurance claims that it had a contractual or statutory duty to address.

So, fact-wise, everything there was to know on the foreseeability question was known by the time of the district court’s ruling. And those facts were undisputed. No doubt, a trial still might have been warranted if reasonable jurors could have drawn conflicting inferences from the evidence. But that isn’t our case.The district court was right that the undisputed facts of this case are insufficient as a matter of law to establish reasonable foreseeability.

The common law doesn’t require such uncommon foresight of an insurer to anticipate that years after all claims presented to them were settled, the persons they insured would file an affirmative suit for bodily injuries.

ZALMA OPINION

It is often said that courts dislike insurance companies and will move Heaven and Earth to find some way to rule against an insurer. A judge, whether sitting in a trial court or an appellate court is, as Judge Gorsuch pointed out, is required to apply the facts and law. To rule in favor of the Johnsons in this case would require a rule of law that insurers must be clairvoyant about future needs of its insureds. He concluded, properly, that there is nothing in an insurance contract, the covenant of good faith and fair dealing or the law to require the foreseeability of a biblical prophet.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

 

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Police Officer Immune as a Result of Dog’s Bite

Immunity Exists for Policy Officer Unless The State Has Insurance

A state government in Arkansas, and its employees, are immune from suit unless and only up to the amount of available insurance.

In Jason Harris v. Norman Beth, Supreme Court of Arkansas, 2017 Ark. App. 186 (March 29, 2017) the Supreme Court found that Jason Harris, an officer with the Little Rock Police Department K-9 Unit and was assigned a canine officer named Ammo in October 2012. As part of his duties, Harris was required to house Ammo at his private residence and he and Ammo were required to be available on a twenty-four-hour, on-call basis to assist other officers as needed. In August 2014, Norman Beth, Harris’s neighbor, was doing yard work at his home when he was bitten on the leg by Ammo, who had escaped from Harris’s backyard. Harris was not home at the time of the incident.

In January 2015, Beth filed a complaint against Harris alleging negligence and strict liability for housing an animal known to have dangerous tendencies. Beth sought compensatory and punitive damages for the injuries to his leg. Harris responded by denying the allegations in their entirety and by affirmatively pleading qualified immunity.

THE PUBLIC POLICY OF ARKANSAS

Ark. Code Ann. § 21-9-301(a) provides that it is the public policy of the State of Arkansas that all political subdivisions of the state shall be immune from liability and from suit for damages except to the extent that they may be covered by liability insurance. Harris argued that this immunity is extended to a municipality’s employees for acts of negligence committed in their official capacities and that he was acting in his official capacity for the Little Rock Police Department by maintaining Ammo at his residence and remaining on call twenty-four hours a day.

EXISTENCE OF INSURANCE

Beth asserted that he had never alleged Harris was liable in his official capacity, but even if he had, Harris’s home was covered by a homeowner’s insurance policy, which Beth attached as an exhibit. So Harris would be immune from liability only “to the extent that [he] may be covered by liability insurance.” Harris replied that “the issue of insurance is not that provided to Defendant Harris in his individual capacity but that provided to him through the City of Little Rock in his official capacity,” so the homeowner’s policy was irrelevant.

In its oral ruling, the circuit court found that this was a question of law and that Harris’s argument was compelling. Nonetheless, the court ruled that the statute did not provide immunity in this case, because if it did, “there is absolutely in my mind no way that the Defendant could be liable for whatever that dog did anytime, anywhere. I can’t believe that’s what the statutes were intended to do and, therefore, the Motion for Summary Judgment is denied.”

CONCLUSION

The Supreme Court, relying on a decision from Georgia, Eshleman v. Key, 774 S.E.2d 96 (Ga. 2015),where the Georgia Supreme Court, in a similar fact situation, reversed the denial of summary judgment on immunity grounds and stated that a police officer and dog handler, “Eshleman is responsible for the care and maintenance of Andor at all times, even when she is not working.” For this reason, the allegation that Eshleman failed to secure the dog outside her home concerns her performance of an official function, and as a result is presumptively entitled to official immunity.

The Supreme Court of Arkansas, agreeing with Georgia, affirmed the circuit court’s decision because Harris failed to establish a prima facie entitlement to summary judgment.

The statute provides immunity to municipal employees for acts committed during the performance of their official duties except to the extent there is liability coverage.

Since Harris failed to plead and prove that the city lacks liability coverage he was not entitled to summary judgment.

ZALMA OPINION

A homeowners policy held by a police officer is not the type of insurance called for by the statute since it does not cover the state or the police department. To avoid the immunity set by the statute the plaintiff must prove that there was insurance protecting the police department for bites by police dogs.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

 

 

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Zalma At The Atlantic Claim Executive Association Spring Conference

Resources to Defeat Insurance Fraud

Yesterday I was honored to speak before the Atlantic Claim Executive Association Spring Conference at the Hammock Beach Resort in Palm Coast, Florida.  The slide show is at the link below.

ACA-INSURANCE FRAUD & WEAPONS

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

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Zalma’s Insurance Fraud Letter – April 1, 2016

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

Because more insurers are training their people to recognize insurance fraud in this issue you may be surprised to see cases where fraud failed and the perpetrator spent time in jail even though the number of convictions seem to be shrinking.

 The Current Issue Contains the Following  

  • Rescission for Fraud by Default in Bermuda Not Bindinge
  •  Illumeo Continuing Education
  • Insurance Fraud by Insurers
  • New from Barry Zalma
  • Fraud in The Presentation of a Claim
  • Barry Zalma Speaks at Your Request
  • Fraud Created by Legal Professionals
  • E-Books from Barry Zalma
  • The Staged Loss
  • The Zalma Insurance Claims Library
  • Wisdom
  • Barry Zalma
  • Good News From the Coalition Against Insurance Fraud
  • Health Insurance Fraud Convictions
  • Zalma Insurance Consultants Provides the Following Services to its Clients
  • Other Insurance Fraud Convictions
  • Books from the American Bar Association
  • Social Security Fraudster Convicte
  • The Legend

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

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

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

Some of the 1,022 videos follow: If you start at Volume 1 at the bottom of the blog’s first page and view one or two videos a day you will have approximately 12 to 24 hours of training a year until you get to the last video.
The videoblog is adapted from my book, Insurance Claims: A Comprehensive Guide available at the Zalma Insurance Claims Library.
You can see video commentary and read two serialized novels:

“Arson for Profit” and “Murder & Insurance Fraud Don’t Mix”

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

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Dangerous Immature Driver Loses License

Uninsurable Driver Refused License by DOI

Zachary Phillips, at age 16, drove recklessly in an accident that resulted in the death of his passenger. He claimed he was not driving but evidence established he was driving the vehicle that resulted in the death of his passenger. He sought judicial review of the Massachusetts Division of Insurance order revoking his license.

In Zachary A. Phillips v. Board Of Appeal Of The Division Of Insurance, Appeals Court of Massachusetts, 16-P-417 2017 WL 1103000 (March 24, 2017) the Registrar of Motor Vehicles (registrar) revoked the driver’s license of the plaintiff, Zachary A. Phillips, on the ground that he posed an “immediate threat” to public safety. The board of appeal of the Division of Insurance (board) affirmed that decision. In 2014, Phillips sought to have his license reinstated. The registrar declined to do so, and after holding an evidentiary hearing, the board again affirmed Phillips’s indefinite suspension.

FACTUAL BACKGROUND

In 2008, Phillips and his classmate, Mark Frattaroli, were students at Lawrence Academy in Groton. On the night of September 27, 2008, Phillips and Frattaroli were asked to leave the school’s homecoming dance, and they did so in a car owned by Frattaroli’s mother.  Phillips was sixteen years old at the time. He held a junior operator’s license for only nineteen days at the time of the accident. His driving with Frattaroli in the car was itself a violation of the terms of that license. The weather that night was rainy and foggy, yet Phillips drove along the streets of Groton at extreme speed, estimated by an accident reconstruction expert to be between eighty-one and eighty-six miles per hour in a thirty-five miles per hour zone. After Phillips apparently lost control of the car as it rounded a curve, the car crashed into a tree and rolled over. Frattaroli was killed and Phillips suffered serious injuries.

In April of 2009, Phillips took a crash prevention course. Despite this, he had a second motor vehicle accident later that year while driving with his younger sister. In that accident, for which Phillips was found responsible and incurred a significant insurance surcharge, the car skidded off the road and ended up in a ditch.

After testing showed Phillips was driving the Groton police requested that his license be revoked based on an immediate threat.  In addition, for his role in the 2008 crash, the Commonwealth charged Phillips with delinquency based on vehicular homicide and operating to endanger.

After trial on the vehicular homicide charge started Phillips pleaded to sufficient facts, and the Juvenile Court judge continued the case without a finding until his nineteenth birthday. Phillips was placed on probation, and his driver’s license was suspended. He completed a specified safe driving course that was required as a condition of probation, and the delinquency case was dismissed. Had he been found delinquent as charged, he would have faced a mandatory fifteen-year license suspension.

Despite the plea bargain and the significant mounting evidence demonstrating that he was the driver during the September, 2008, accident, Phillips took the position in various other forums that Frattaroli had been driving. For example, in the context of a dispute related to insurance coverage, Phillips swore out an affidavit stating that he was only a passenger in the car and that “Frattaroli was responsible for the accident that took his life.” That dispute resulted in civil litigation that ended in January of 2014, with a jury finding that Phillips had been the driver.

The board declined to reinstate Phillips’s license, and it subsequently issued a ten-page, single-spaced “Statement of Reasons for Decision.” It concluded that “Phillips is a danger to public safety on the road” and that “[k]eeping him off the road until he is more mature will protect the public.”

ANALYSIS

The principal thrust of Phillips’s appeal is that instead of focusing on whether he remained an unsafe driver, the board proceeding focused more on punishing him for his role in causing Frattaroli’s death. The trial judge found that the board did not abuse its discretion and entered judgment affirming the board’s decision.

The court of appeal was unpersuaded by Phillips’s contention that the board strayed from its job of determining whether he was a safe driver and that its conclusion that he was unsafe was pretextual. The board’s decision accurately highlights that license revocation “is a non-punitive sanction designed to protect public safety.” To be sure, the decision does refer to Phillips’s immaturity and his “attitude,” and comments made by the board’s chairman during the proceedings focus on Phillips’s failure to demonstrate “accountability.”

Although Phillips seeks to portray the determination of whether someone is a safe driver as confined to issues of skill and knowledge, the court agreed with the board’s perspective that issues of maturity and judgment also play an important role (especially with regard to young drivers). The board’s characterization of the choices Phillips made on September 27, 2008, as “extremely reckless,” if anything, underplays their egregiousness. In addition, Phillips was found responsible for another accident the following year.

Given Phillips’s subsequent conduct, including his failure to accept responsibility for his actions, the board acted well within its powers in determining that he remained a potential menace on the roads.

ZALMA OPINION

The Massachusetts Department of Insurance acted with wisdom and skill by refusing to allow a young man who was responsible for the death of a friend and then, without remorse, blamed the friend for the accident he caused and continued his wrongful conduct causing a single car accident with his sister in the car. He was found by a jury to be the driver at the time of the death and then had the gall to ask the DOI to let him have a license because he wasn’t the driver. Chutzpah can be admired but not in this situation where he refused to take responsibility for his wrongful acts.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

 

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Insured Must Treat the Insurer With Good Faith & Fair Dealing

Federal Court Will Not Recognize a Fake Attempt at Defeating Diversity

When I was a young lawyer plaintiff’s bad faith lawyers wanted to avoid federal jurisdiction because California state courts were more likely to return a verdict in favor of the insured. As a result, every bad faith lawsuit would name an insurance adjuster or the insurance company’s lawyer as a defendant. As a result I was named as a defendant in dozens of bad faith lawsuits only to get them dismissed by my sworn testimony that “I am not now, nor have I ever been, an insurance company.” The court’s decision, however, came late and diversity was defeated. Eventually, the California Supreme Court put an end to the attempts by making it clear that a person not a party to the insurance contract cannot be sued for breach or bad faith.

In Joseph J. Broadway v. State Farm Mutual Automobile Insurance Company, United States Court of Appeals, Eleventh Circuit, 2017 WL 1149095, No. 16-13363 (March 28, 2017), applying Alabama law, dealt with the appeal of Joseph Broadway of the denial of his motion to remand to state court based on his fraud allegations against his insurance agent; the denial of his motion for leave to file an amended complaint; and the grant of summary judgment in favor of Plaintiff’s insurer, State Farm Mutual Automobile Insurance Company (“State Farm”).

FACTS

After a car collision where the car driven by Broadway was struck by a negligent driver. That the other driver was at fault and that Broadway suffered serious injuries as a result of the accident are undisputed. On the day of the accident, Broadway’s car was insured under an automobile insurance policy (“Policy”) issued by State Farm, which included uninsured motorist (“UIM”) benefits. Broadway recovered $25,000 from the at-fault driver’s automobile insurance company for his coverage limit. Broadway then filed a claim for UIM benefits under his Policy with State Farm. Broadway contended that his damages exceeded the amount recovered from the at-fault driver’s insurance. Plaintiff sought to recover the full coverage amount of his UIM benefits under the Policy – $25,000 but State Farm offered Plaintiff only $5,000 in satisfaction of his claim.

Attempt to Defeat Diversity

When a defendant removes a case to federal court on diversity grounds, a court must remand the matter back to state court if any of the properly joined parties in interest are citizens of the state in which the suit was filed. If, however, a plaintiff names a non-diverse defendant solely to defeat federal diversity jurisdiction, the district court must ignore the presence of the non-diverse defendant and deny any motion to remand the matter back to state court.  In pertinent part, a defendant seeking to prove a non-diverse co-defendant was joined fraudulently must show — by clear and convincing evidence — that there is no possibility the plaintiff can establish a cause of action against the resident defendant.

In his complaint, Broadway alleged that Anderson committed fraud by representing falsely to him — through State Farm’s advertising slogan — that State Farm would treat Plaintiff like a “Good Neighbor.” The district court concluded that State Farm’s advertising slogan was “mere opinion or puffery” and, thus, constituted no statement of material fact.

Under the circumstances of this case and viewed in the light most favorable to Broadway the Eleventh Circuit could not say that State Farm’s advertising slogan — “like a good neighbor, State Farm is there” — is a representation of a material fact. The advertising slogan, instead, constitutes nothing more than a statement of opinion or “puffery.” Given the lack of a viable claim against Anderson, federal diversity jurisdiction existed; and the district court committed no error in denying Plaintiff’s motion to remand.

The district court also abused no discretion in determining that Plaintiff failed to state a claim for negligent procurement of insurance. Broadway alleged that Anderson failed to advise Plaintiff to purchase an insurance policy with higher coverage limits for UIM benefits. Once the parties agree on the insurance to be procured, the insurance agent is under a duty to “exercise reasonable skill, care, and diligence in effecting coverage,” and may be held liable for negligence if he fails to fulfill that duty.

SUMMARY JUDGMENT

Absent a preexisting determination about the extent of a plaintiff’s damages, a claim for breach of contract or for bad-faith is filed prematurely and must be dismissed, without prejudice, for lack of subject-matter jurisdiction. The record establishes the existence of a dispute between Broadway and State Farm about the extent of his damages.  Based on information provided by Broadway’s counsel State Farm valued Plaintiff’s entire claim against the at-fault driver as being worth between $20,000 and $30,000.

State Farm sent Plaintiff a letter in which State Farm acknowledged that the parties had been unable to agree on an amount of damages; and State Farm made an “initial offer” of $5000. Plaintiff cashed the $5000 check but engaged in no further negotiations nor submitted additional documentation of his damages.

Where the evidence of the extent of damages is disputed, the insured has not proved that he is legally entitled to collect for purposes of proving a claim for breach of contract or for bad faith. Because undisputed evidence in the record establishes that the amount of Broadway’s damages was still in controversy when the suit was filed, Broadway’s claims for breach of contract and for bad faith — as a matter of Alabama law — were filed prematurely and were subject to dismissal without prejudice for lack of subject-matter jurisdiction.

ZALMA OPINION

This entire action was based on false allegations that the suit against the agent who allegedly did not treat Broadway as a “Good Neighbor” did not fly as a tort and the agent was joined fraudulently. The UIM case could have been negotiated to settlement but, rather than negotiate, Broadway took the offer and then sued rather than provide evidence to support a higher settlement from State Farm. People making claims must treat the insurer with good faith and deal fairly. Broadway did not. The courts must insist that insureds treat the insurer as fairly as it requires insurers to treat the insured.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

 

 

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Settlement Resolves All Disputes

It is Not Always Logical to Accept Policy Limits

Policy limit demands are made in almost every serious injury case. They usually result in a settlement. However, when there is underinsured motorist (UIM) coverage available the plaintiff and counsel must be very careful in how they set up the terms and conditions of the settlement.

In James R. Goan et al. v. Billy B. Mills, Slip Copy, Court of Appeals of Tennessee, 2017 WL 1103044 (03/24/2017) plaintiff James R. Goan’s mail delivery vehicle was rear-ended by a vehicle driven by Billy B. Mills as Plaintiff was delivering mail. The Plaintiff and his wife, Judy Goan, sued Mills. During settlement negotiations, Plaintiffs offered to settle for $100,000, the limits of Defendant’s insurance policy. Defendant accepted the offer on December 4, 2013. Over a year later, Defendant filed a motion to enforce the settlement agreement. The Plaintiffs opposed the motion, arguing that there had been no meeting of the minds and no enforceable agreement. The trial court enforced the settlement agreement. The Plaintiffs appeal.

FACTS

The accident occurred on August 22, 2008. Plaintiffs filed their complaint on August 17, 2009. Settlement negotiations ensued. The record contains correspondence between the lawyers for the parties. On April 26, 2013, Plaintiffs’ counsel sent Defendant’s counsel a letter saying: “I met with Mr. Goan who advised he has been approved for back surgery by workers comp. I believe the original medical bills that we have provided you totaled over $76,000.00. Obviously they have increased. I believe the federal workers comp subrogation was approximately $53,000.00. Obviously it is increasing. I have an agreement with comp that we can settle this case now, save the costs of medical discovery and keep the file open while we are waiting on his surgery…. If there is only $100,000.00 in insurance, I would demand the policy limits primarily because of workers comp.”

On August 23, 2013, Plaintiffs’ counsel sent another letter saying: “We have ordered from workers comp the updated numbers on Mr. Goan. They tell us the total subrogation now is $78,000.00 … Given the $78,000.00, I go back to demanding the limits which I believe is $100,000.00 but as we discussed I need a firm number from you to figure out compromising the comp claim.”

On November 6, 2013, Plaintiffs’ counsel reiterated their offer, stating, “we would renew our demand for the policy limits of $100,000.” This was followed by another letter on December 4, 2013, saying, “[p]er our discussion, my client has reject[ed] the $95,000.00 and renews his demand for the policy limits.”

On December 4, 2013, Defendant’s counsel sent Plaintiffs’ attorney a letter saying: “You have reiterated to me [Plaintiffs’] settlement position that they will accept [Defendant’s] insurance liability limits of $100,000 in full settlement and release of all of their claims and out of which settlement funds all claims, liens and subrogation rights of all persons and entities would be satisfied, including the claim of the United States Postal Service or any related entity for which like benefits have been paid to or on behalf of James Goan, and that no medical expenses have been paid by Medicare, arising out of the August 22, 2008 accident. In reliance upon this representation, this will advise that [Defendant] and his insurer, Tennessee Farmers, accepts the settlement offer.”

Following a hearing on April 15, 2016, the trial court granted the motion to enforce the settlement agreement in an order entered April 28, 2016, stating that “the Court is of the opinion and finds that an enforceable contract was entered into among the parties to settle the plaintiffs’ claim of injuries and damages against the defendant resulting from a motor vehicle accident occurring on August 22, 2008 wherein the plaintiffs, James and Judy Goan, by and through their attorney, offered to settle their claim of injuries and damages against defendant Billy Bruce Mills for Mr. Mills’ insurance liability limits of $100,000 which defendant Mills, by and through his attorney, accepted.”

ANALYSIS

Plaintiffs argue there was no meeting of the minds, and therefore no valid contract, because Defendant did not provide a copy of the declarations page of his liability insurance policy. Defendant responds that Plaintiffs’ counsel never requested this document before settling the case, and that, in any event, everyone involved knew at all pertinent times that the liability policy limits were $100,000. The record supports Defendant’s assertions.

In short, on December 4, 2013, Defendant sent Plaintiffs a letter stating: “you and I have your case settled.” (Emphasis added.) The judgment of the trial court was affirmed.

ZALMA OPINION

By demanding policy limits and settling the entire case for $100,000 the plaintiff’s destroyed his UIM suit and the $100,000 went to pay the government’s workers’ compensation claims leaving the plaintiff with nothing but his benefits. He is not without a remedy unless his lawyer explained the downside of accepting the $100,000 settlement.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

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

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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

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

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

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

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

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

Legal Disclaimer:

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

 

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