Bad Faith by Insured Should Have Resulted in Sanctions but Only Resulted in Loss

Waiting More than a Year After Default is Always Prejudicial

When an insured delayed notifying his insurer of his need for coverage was both unexcused and unreasonable. When the action was commenced against the insured in 2010, a reasonably prudent person would have understood that liability might be incurred. Moreover, when default was entered against the insured he certainly should have known that he could be found liable. Nevertheless, the insured failed to notify the insurer until one and a half years after the lawsuit was commenced and 15 months after the default. Insofar as the insured argued that his untimely notice should be excused because the entity that sued him engaged in unscrupulous tactics, he fails to explain how that conduct prevented him from timely providing notice of the action to the insurer whose summary judgment motion was granted.

In Graham Zahoruiko v. Federal Insurance Company, Chubb National Insurance Company, DBA Federal Insurance Company, Chubb Group Of Insurance Companies, collectively and individually, No. 17-965-cv, United States Court Of Appeals For The Second Circuit (January 5, 2018) the Second Circuit affirmed the judgment in favor of Federal on a summary order.

SUMMARY ORDER

Plaintiff J. Graham Zahoruiko, proceeding pro se, appeals from an award of summary judgment to Federal Insurance Company (“Federal”) on Zahoruiko’s breach of contract and related claims based on Federal’s denial of coverage under a director and officer liability insurance policy. Specifically, Zahoruiko challenges the district court’s determination that he was not entitled to coverage under Connecticut law because he did not timely notify Federal of the claims for which he sought insurance coverage. The court reviewed the challenged award de novo and will affirm only if the record, viewed in the light most favorable to Zahoruiko, shows no genuine dispute of material fact and Federal’s entitlement to judgment as a matter of law. In doing so, the court assumed the parties’ familiarity with the underlying facts, the procedural history of the case, and the issues on appeal, which it referenced only as necessary to explain the decision to affirm substantially for the reasons stated by the district court.

Under Connecticut law, an insurer can be discharged from its coverage obligations pursuant to the “notice” provision of an insurance policy only by showing: “(1) an unexcused, unreasonable delay in notification by the insured; and (2) resulting material prejudice to the insurer.” Arrowood Indem. Co. v. King, 605 F.3d 62, 77 (2d Cir. 2010).

Insofar as Zahoruiko argued on appeal that Federal failed to show prejudice, he forfeited the argument by failing to raise it in the district court. It is a well-established general rule that an appellate court will not consider an issue raised for the first time on appeal. Regardless, upon an independent review of the record and relevant case law, the Second Circuity concluded, as the district court did, that Federal is entitled to summary judgment.

An insured’s “duty to give notice does not arise unless and until facts develop which would suggest to a person of ordinary and reasonable prudence that liability may have been incurred, and is complied with if notice is given within a reasonable time after the situation so assumes an aspect suggestive of a possible claim for damages.” Arrowood Indem. Co. v. King, 605 F.3d at 77 (internal quotation marks omitted). “The purpose of the requirement for prompt notice is to give the insurer a full opportunity to investigate the claim.” As to the prejudice prong, “the insurer bears the burden of proving, by a preponderance of evidence, that it has been prejudiced by the insured’s failure to comply with a notice provision.” Arrowood Indem. Co. v. King, 39 A.3d 712, 725-26 (Conn. 2012).

Zahoruiko’s arguments that the district court improperly assumed prejudice and that Federal failed to carry its preponderance burden are equally meritless. Federal provided a declaration from a senior claim officer stating that Zahoruiko’s failure to give notice until after default was entered denied it the opportunity to interview witnesses or participate in the defense or any proposed settlement of the claim. Zahoruiko argues that the declaration is speculative, and that Federal would not have defended his claim because it denied coverage based on a different clause of the policy. The argument does not persuade. Connecticut recognizes that the denial of the opportunity to investigate, as well as entry of default, are prejudicial to an insurer.

Entry of a default judgment against an insured is evidence of prejudice as well as the lack of opportunity for the insurer to investigate a claim and to pursue a compromise or settlement. Zahoruiko’s prejudice challenge is further belied by his own waiver in the underlying action of defenses that Federal could otherwise have asserted.

Federal having carried its burden, and Zahoruiko having failed to adduce evidence sufficient to support a jury verdict in his favor, or even to challenge Federal’s showing of prejudice in the district court, summary judgment was correctly entered in Federal’s favor.

ZALMA OPINION

It took a great deal of gall to bring this action. The prejudice was obvious. The failure to comply with the policy condition was blatant. The insured did not act in good faith to his insurer and should have been sanctioned by the court for making the spurious assertions delineated by the Second Circuit.


© 2017 – Barry Zalma

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

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

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

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached at http://zalma.com/zalma-books/

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

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 Compact Book of Adjusting Property Insurance Claims

Why is There an Insurance Adjuster?

Product DetailsThe following is excerpted from my new book “The Compact Book of Adjusting Property Insurance Claims” published at Amazon.com and available as a paperback or a Kindle book.

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

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

Technically, if the wording of the policy was followed literally the insurer could sit back, do nothing, and wait for the proof. If the insured was late in submitting the proof the insurer could reject the claim. If the insured submits a timely proof of loss the insurer could either accept or reject the proof of loss. If the insurer rejected the proof of loss the insured could either send a new one or give up and gain nothing from the claim. Suit on the policy would be difficult because the policy contract limited the right to sue to times when the proof of loss condition had been met.

The Duties & Obligations of the Property Adjuster

Although a special relationship exists between an insurer and insured because they are in privity of contract as an individual, the individual insurance adjuster is not in privity with the insureds based on their insurance policy wording. Thus, although the employee adjuster does not owe a special duty to the insureds on which the bad faith tort could be based against the adjuster he or she owes the duty to the insurer employer although actions of the adjuster can support a claim of bad faith against the insurer for whom the adjuster works. [Gruenberg v. Aetna Ins. Co., 9 Cal.3d 566, 108 Cal.Rptr. 480, 510 P.2d 1032] In the absence of privity of contract, an insurance adjuster is not individually liable to an insured for a failure to settle a claim against an insured. [Dumas v. ACCC Ins. Co., 349 Fed.Appx. 489, 2009 WL 3358479 (C.A.11 (Ga.), 2009)] However, the actions of the adjuster can cause the insurer that employed him or her to face charges of breach of the insurance contract and liability for breach of the tort of bad faith.

An independent insurance adjuster is not liable to an insured for malfeasance when the insurer delegates to the adjuster the responsibility to handle the insured’s claim because the adjuster is not in contractual privity with the insured. See Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 576, 108 Cal.Rptr. 480, 510 P.2d 1032 (Gruenberg) that held that an insurance adjuster and law firm hired to adjust claim were not liable for bad faith; and Sanchez v. Lindsey Morden Claims Services, Inc. (1999) 72 Cal.App.4th 249, 253, 84 Cal.Rptr.2d 799 (Sanchez) where an independent adjuster hired to adjust claim was found to owe no duty to insured.

However, in Texas, the Texas Supreme Court has determined that the “adjustment of claims and losses” qualifies as “the business of insurance,” thus making an adjuster a “person” under the Texas Insurance Code. Consider Vail v. Texas Farm Bureau Mut. Ins. Co., 754 S.W.2d 129, 132 (Tex.1988); Gasch v. Hartford Indem. Co., 491 F.3d 278, 282 (5th Cir.2007) that held that an insurance adjuster who services a policy engages in the business of insurance and therefore could be held individually liable under the Texas Insurance Code. [Esteban v. State Farm Lloyds & Aaron A. Galvan, 23 F.Supp.3d 723 (N.D. Tex., 2014)]

Regardless of the jurisdiction the adjuster must conduct himself or herself in such a way that there will never be an issue that the insurer breached the contract directly or through the adjuster’s action. Although protected from individual tort liability acting in bad faith and exposing the insurer to a bad faith judgment will probably cause the adjuster to lose his or her job.

Imposed on the adjuster by the insurer and by state law and regulation is an obligation to investigate the loss, interpret the policy wording, and apply the policy wording to the facts discovered in the investigation. A first party property adjuster must be educated, trained, experienced and ready to help an insured obtain the benefits promised by the insurance policy.

All Amazon.com Books from Barry Zalma

All of Mr. Zalma’s books are available as Kindle books or paperbacks at Amazon.com. They  include: “Insurance Fraud & Weapons to Defeat Insurance Fraud” In Two Volumes
“The Compact Book on Adjusting Liability Claims: A Handbook for the Liability Claims Adjuster”; “Ethics for the Insurance Professional”; “Rescission of Insurance”
“The Insurance Examination Under Oath”; “Random Thoughts on Insurance Volume V: Digests from Barry Zalma’s Blog: ‘Zalma on Insurance’”;  “HEADS I WIN, TAILS YOU LOSE”; “Candy and Abel: Murder for Insurance Money” “Murder And Insurance Fraud Don’t Mix”; “Murder & Old Lace”; “Arson for Profit: How an Attempt to use Arson & Fraud to Fund Terrorism Failed”can be reached with links at http://zalma.com/zalma-books/  


© 2017 – Barry Zalma

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

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

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

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached at http://zalma.com/zalma-books/

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

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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When One Insurer Sues Other Insurers No One Wins

Exclusion of Suits by Customer Upheld

No insurance policy covers every possible risk. When multiple millions of dollars are involved insurers, who have coverage, are tempted to recover from insurers who claim they have no coverage for the same issue. Courts that are normally anti-insurer are forced to be fair one insurer sues another.

In Beazley Insurance Company, Inc. v. Ace American Insurance Company, Illinois National Insurance Company, Docket No. 16-2812-cv, United States Court of Appeals For The Second Circuit (January 22, 2018) a dispute over which of multiple insurers needed to pay for defense of NASDAQ and the $26.5 million settlement. Beazley paid and then, with an assignment sued other insurers who had rejected the claim made by NASDAQ.

FACTS

The NASDAQ public stock exchange conducted the initial public offering for Facebook, Inc. NASDAQ encountered a variety of technical difficulties in executing the IPO that resulted in trades not being performed properly. Retail investors sued NASDAQ, and those claims were eventually settled for $26.5 million.

NASDAQ maintained both errors and omissions (“E&O”) and directors’ and officers’ (“D&O) insurance policies. Appellant Beazley Insurance Company was the second-level E&O carrier; appellees ACE American Insurance Company and Illinois National Insurance Company were the first and second level D&O carriers, respectively. ACE and Illinois National disclaimed coverage under the D&O policies. Beazley paid out its policy limit of $15 million in E&O coverage subject to an agreement with NASDAQ in which NASDAQ assigned Beazley its contractual rights against ACE and National. Beazley then sued ACE and National for coverage under D&O policies.

The United States District Court for the Southern District of New York (Rakoff, J.) ultimately granted ACE and Illinois National summary judgment. Beazley Ins. Co. v. ACE Am. Ins. Co., 197 F. Supp. 3d 616 (S.D.N.Y. 2016). The district court found that (1) retail investors in Facebook were unambiguously “customers” of NASDAQ; (2) the underlying securities claims against NASDAQ arose out of NASDAQ’s provision of professional services; and (3) thus, the claims were excluded from coverage pursuant to the D&O policy’s professional services exclusion.

NASDAQ is a public stock exchange that provides an electronic trading platform on which its members, registered broker-dealers, execute securities transactions. Members trade on NASDAQ both on their own behalf, and on behalf of retail investors.

NASDAQ carried Facebook’s initial public offering on May 18, 2012. It did not go smoothly—NASDAQ’s trading platform suffered a series of technical failures, resulting in the improper processing of orders to buy and sell stock. Retail investors in Facebook sued NASDAQ, alleging that they suffered losses as a result of NASDAQ’s technical failures. In all, more than 40 lawsuits related to the Facebook IPO were brought against NASDAQ across the country, and were eventually consolidated in the Southern District of New York.

After consolidation, plaintiffs filed a consolidated amended class action complaint (the “CAC”) against NASDAQ and two NASDAQ officers: Robert Greifeld, then-president and chief executive officer; and Anna Ewing, then-chief information officer (collectively, “NASDAQ”). The CAC, filed in April 2013, was brought on behalf of a putative class of all persons who entered orders to buy or sell Facebook’s common stock on May 18, 2012 and lost money as a result of NASDAQ’s alleged wrongdoing.

NASDAQ provided notice of the CAC to each insurer. Chartis accepted potential coverage under its E&O policy subject to a reservation of rights, as did Beazley and ACE. However, both ACE and Illinois National disclaimed coverage under the D&O policies, relying on the “professional services” exclusion in the ACE policy.

NASDAQ agreed to settle the CAC in April 2015 for $26.5 million, and sought coverage under its E&O tower to pay for both the settlement and NASDAQ’s defense costs. Chartis paid out its $15 million, and ACE paid out $4.9 million under its third-level E&O policy. Because Chartis and ACE were responsible for the cost of defending the lawsuits, the claim cost them more than the $26.5 million settlement figure. Beazley also paid out its full $15 million pursuant to an agreement in which NASDAQ “assign[ed] to Beazley any and all contractual rights or extra-contractual rights they have or that they may acquire . . . against ACE and/or Illinois National in connection with the [CAC] up to the amount of [$15 million].”

On balance, the Court agreed with Beazley that interpreting “customer [s] or client[s]” to exclude retail investors in a public company listed on NASDAQ is at least one reasonable interpretation of the ACE D&O Policy.

The district court denied Beazley’s motion, granted ACE and Illinois National’s motion and also found ACE liable for unreimbursed attorneys’ fees and costs reasonably incurred by NASDAQ in excess of the policy’s $2 million retention.

DISCUSSION

The D&O policy defines neither “customer or client” nor “professional services.” Beazley argues that the district court erred in enforcing the exclusion because (1) the retail investors who sued and settled the CAC are not customers or clients within the meaning of the D&O policy, and (2) the claims settled in the CAC are not “alleging, based upon, arising out of, or attributable to the rendering or failure to render professional services.” The burden of proving the exclusion applies rests with the insurer.

Customers and clients

In the absence of guidance from the policy language, courts ask whether a body of law or an established custom or usage provides a definition. For it is quite possible that even where a contract does not define a particular—and potentially ambiguous—term, a body of state law or an established custom fills in the gaps left by the drafters.

The district court properly relied on custom and usage of the terms “customers” in determining that the retail investors were “customers” of NASDAQ within the meaning of the ACE D&O policy. The vast majority of federal courts to consider the issue find retail investors to be “customers” of a stock exchange.

Broker-dealers are simply agents of the retail investors, performing “the narrow task of consummating the transaction requested.” Retail investors may be customers both of NASDAQ and of NASDAQ’s members.

Professional Services

To successfully invoke the exclusion, ACE also must demonstrate that the claims arose out of the “rendering of or failure to render professional services.” If the plaintiff in an underlying action or proceeding alleges the existence of facts clearly falling within such an exclusion, and none of the causes of action that he or she asserts could exist but for the existence of the excluded activity or state of affairs, the insurer is under no obligation to defend the action.

In determining whether a professional service is at issue, courts look to the nature of the conduct under scrutiny rather than the title or position of those involved, as well as to the underlying complaint. The question of whether one is engaged in a professional service depends on whether those individuals acted with the special acumen and training of professionals when they engaged in the acts.

The CAC plaintiffs could not win at trial merely by showing that NASDAQ made false and misleading statements as to its capabilities. To prevail on the merits in a private securities fraud action, investors must demonstrate that the defendant’s deceptive conduct caused their claimed economic loss. This requirement is commonly referred to as loss causation. The CAC recognizes this, and pleads loss causation based on failures in the technical service provided by NASDAQ.

The CAC attributed plaintiffs’ losses to NASDAQ’s failure to “properly execute” the purchase and sale orders and deliver timely confirmations, not to NASDAQ’s marketing of itself to Facebook as the best exchange to handle the IPO. Failures to properly execute orders and deliver timely order confirmations go to the heart of NASDAQ’s provision of professional services. The district court correctly determined that the professional services exclusion applies.

ZALMA OPINION

Federal securities law makes clear that retail investors in company stock are “customers” of NASDAQ within the meaning of the insurance policies at issue; the claims in the underlying complaint arose out of the provision of “professional services.” Therefore,  plaintiffs could not prevail without demonstrating that their losses flowed from NASDAQ’s failure to properly process their trades. The insurers were only required to pay what they owed and failed to pass off their obligation to another insurer.


© 2017 – Barry Zalma

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

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

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

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached at http://zalma.com/zalma-books/

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

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 Insurance Examination Under Oath

A Tool Available to Insurers To Thoroughly Investigate Claims

Product Details

The following was adapted from my new book on Amazon.com called “The Insurance Examination Under Oath” where you can learn the law surrounding the EUO and how to require and take an EUO.

Available as a Kindle book.

Available as a paperback.

 


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

The EUO is a tool used sparingly by insurers in the United States when a thorough claims investigation raises questions about the application of the coverage to the facts of the loss, the potentiality that a fraud is being attempted, or to assist the insured in the obligation to prove to the insurer the cause and amount of loss. Although rarely used the EUO is an important tool needed by insurers when there is a question of coverage.

The Reason for the Examination Under Oath

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 insured 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. 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)

Similarly, the 1991 edition of the Homeowners policy provides, in easy to read language:

“2.       Your Duties After Loss. In case of a loss to covered property, you must see that the following are done:

* * *

“f.        As often as we reasonably require:

            “(1)      Show the damage property.

            “(2)      Provide us with records and documents we request and permit us to make copies; and

            “(3)      Submit to EUO, while not in the presence of any other “insured” and sign the same.” [ISO form HO 00 03 04 91, PAGE 9 OF 10]

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 Claflin v. Commonwealth Ins. Co., 110 U.S. 81, 3 S.Ct. 507, 28 L.Ed. 76 (1884)] 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.

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.


To learn more go to my new book on Amazon.com either Available as a Kindle book  or Available as a paperback.

See a listing of all Barry Zalma’s books at Amazon.com at Amazon.com can be reached at http://zalma.com/zalma-books/


© 2017 – Barry Zalma

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

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

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

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached at http://zalma.com/zalma-books/

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

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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Running a Person Down With a Car is a Battery

No Coverage for Rolling Assault & Battery

Most insurers have no stomach for insuring a bar’s liability for assault and battery. Some, to avoid arguments, first exclude bodily injury or property damage and then give the coverage back with a small limit of liability.

In The Burlington Insurance Company v. Rosa De La Puente; et al., and Cesar Salmoran, doing business as Mambo’s Night Club, United States Court Of Appeals For The Ninth Circuit (January 12, 2018) Burlington issued a limited coverage. When people were injured they attempted to get to the higher limits on a business policy by arguing the exclusion did not apply nor did the smaller limit.

Rosa De La Puente, Monica Varela, and Neiry Mora (“De La Puente”), and Cesar Salmoran, appeal the district court’s entry of summary judgment in a declaratory judgment action brought by The Burlington Insurance Company (“Burlington”). At issue is whether an insurance policy limits coverage to $25,000 for injuries sustained by the De La Puente Appellants on a nightclub’s premises, because those injuries arose out of an assault and battery. The district court held that it did.

FACTS

Burlington insured “Cesar Salmoran DBA Mambo’s Night Club,” under a commercial general liability policy. That policy excludes from coverage bodily injury “arising in whole or in part out of any ‘assault’ or ‘battery.'” The policy includes an endorsement, however, that extends limited coverage for such injuries, but only up to $25,000 per occurrence.

The parties agreed about what happened at Mambo’s Night Club in the early morning hours of July 7, 2013. A physical altercation began in the club between Blake Maldonado, his brother, and a few other men. The club’s security employees removed the men from Mambo’s, but the fight continued in the adjacent parking lot. Maldonado and his brother were in Maldonado’s car, driving around the lot, when the brother exited the car and resumed the fight. Maldonado then sped around the parking lot in an effort to get back to and assist his brother. His car struck De La Puente who happened to be in the lot, walking from the club.

ANALYSIS

De La Puente makes two arguments regarding the policy exclusion at issue. First, they say that whether the injuries they suffered were the result of an “assault and battery” within the meaning of the policy is a question of fact for a jury. Next, they argue that the policy’s language is ambiguous, because conflicting provisions describe the exclusion.

The assault and battery exclusion applies not only to injuries directly caused by an assault or battery, but also to injuries arising out of an assault and battery. Under Nevada law, such a “policy exclusion unambiguously includes both damages arising from the assault and battery itself and negligent hiring, training or supervision.” Hernandez v. First Fin. Ins. Co., 802 P.2d 1278, 1280 (Nev. 1990).

The rolling physical altercation that began in the club and continued out in the parking lot (continuing assaults and batteries) falls squarely within the policy’s definitions of “assault” (an “attempt or threat to inflict injury upon the person of another, or any display of force such as would give a person reason to fear or expect immediate bodily harm”), and “battery” (“physical contact with a person without his or her consent that entails some injury or offensive touching”). And, in speeding around the parking lot to rejoin the fight, Maldonado was plainly still engaged in the altercation.

The injured also sought to avoid the exclusion and coverage limitation by positing a distinct negligence theory of liability. De La Puente Appellants claim that, rather than arising from an assault, their injuries can be attributed to other distinct causes, such as Mambo’s negligent creation of a dangerous environment, its failure to prevent the fight that began in the club (by failing to admit “only law-abiding patrons,” or to adequately train staff, and by admitting individuals into Mambo’s who would not “adhere to reasonable conduct”), as well as its negligent response to the fight (failing to separate the “two groups involved in the situation”). In other words, De La Puente argues, in substance, that the injuries were caused by Mambo’s failure to prevent the altercation, and failure to adequately suppress or halt the altercation. The district court correctly determined that De La Puente’s negligence claim against Mambo’s falls squarely within the scope of the assault and battery exclusion.

Finally, the policy language is not ambiguous. Coverage for liability arising out of an assault or battery is limited to $25,000. The endorsements related to injuries arising out of assault or battery are clearly titled, and referenced in the first pages of the policy. Those endorsements unmistakably disclose that they modify the insurance coverage provided under the Commercial General Liability Form.The relationship between the relevant provisions is equally clear: the first generally excludes coverage for injuries arising out of assault or battery, and the second, which appears as a supplement, affords limited coverage for such injuries ($25,000).

ZALMA OPINION

Assault & Battery exclusions have been tested over the years. They are clear, conspicuous and unambiguous. They must be enforced for any injury arising out of an assault or battery.  The Ninth Circuit agreed and De la Puente could only recover up to $25,000 from the insurer. They are not without a remedy. They can still obtain a judgment and attempt to collect the damages in excess of $25,000 from Cesar Salmoran.


© 2017 – Barry Zalma

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

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

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

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached at http://zalma.com/zalma-books/

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

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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Belts and Braces Language Supports Lack of Coverage

No Coverage for Primary Means No Coverage for Umbrella

Insurers issuing businessowners insurance policies carefully word the language of the policy to eliminate coverages the policy is not designed to insure. Since a businessowners policy is a limited coverage for the risks faced by a business it tries to make clear that it is not providing coverages for automobile liability.

In Citizens Insurance Company of America v. Risen Foods, LLC, Petr A. Tkach, Jason J. Tanner, Cristina Tanner, Docket No. 16-4166, United States Court Of Appeals For The Second Circuit, (January 22, 2018) Citizens Insurance Company of America (“Citizens”) appealed from the judgment of the United States District Court for the Northern District of New York declaring that Citizens is obligated to defend and, if necessary, indemnify Risen Foods, LLC, and Petr A. Tkach under a businessowners policy and an umbrella policy in an underlying suit brought by Jason J. Tanner and Cristina Tanner for damages arising out of a motor vehicle accident.

BACKGROUND

On April 29, 2013, a van owned by Risen and driven by Tkach, a Risen employee, collided with a truck driven by Tanner. Tanner suffered serious injuries. Later in 2013, Tanner and his wife, Cristina, sued Risen and Tkach for Tanner’s injuries and related loss of services (“underlying suit”).

The Risen vehicle was insured under a commercial auto policy issued by State Farm Insurance Company (“State Farm”) with a liability limit of $1,000,000 per occurrence. State Farm has provided defense and indemnity coverage to Risen and Tkach with respect to the underlying suit and offered amounts close to the policy limit to settle it but had not yet received agreement to the offered settlement since the plaintiffs would like to dip into the higher limits available under the businessowners policy.

Citizens issued to Risen a businessowners policy and an umbrella policy. Both policies bear the same policy number, OBF-9828714-00, and the SCHEDULE OF UNDERLYING POLICIES of the umbrella policy states, “This schedule is part of Policy Number: OBF-9828714-00.” The businessowners policy has a limit of $1,000,000 per occurrence, and the umbrella policy has a limit of $2,000,000 per occurrence.

The Policy Provisions.

The Citizens policy provided that:

“This insurance does not apply to . . . “g. Aircraft, Auto or Watercraft

“‘Bodily injury’ or ‘property damage’ arising out of the ownership . . . of any . . . ‘auto’ . . . owned . . . by . . . any insured.”

The umbrella policy in section I(A)(2), titled “Exclusions,” provides:

“This insurance does not apply to: . . .

f. Auto Coverages

“(1) ‘Bodily injury’ or ‘property damage’ arising out of the ownership, maintenance or use of any ‘auto’ which is not a ‘covered auto.’

The umbrella policy, in section V(5), titled “DEFINITIONS,” defines “covered auto” to mean “only those ‘autos’ to which ‘underlying insurance’ applies.”

 

The Pending Lawsuit.

Citizens eventually sued Risen, Tkach, and the Tanners, seeking a declaration that Citizens had no duty to defend or indemnify Risen or Tkach with respect to the Tanners’ lawsuit. After discovery both sides filed motions for summary judgment.

The District Court denied Citizens’ motion and granted the defendants’ motion. The Court ruled that the claim against Citizens with respect to an owned vehicle was outside the coverage of the endorsement to the businessowners policy but within the coverage of that policy itself. The trial court stated that “the auto exclusion remains in full effect,” and then concluded that “[W]hile this claim was outside the scope of the endorsement, it was not by reason of the auto exclusion, outside of the scope of coverage provided by the policy.”

The trial court ruled that the umbrella policy applied to the claim at issue because Risen was a named insured, as was Tkach, an employee of Risen. Finally, acknowledging the auto exclusion of the umbrella policy, the Court ruled that Citizens’ disclaimer of liability under the umbrella policy was ineffective to comply with state law because the disclaimer relied only on the lack of listing of the State Farm policy as an underlying insurance and did not mention the auto exclusion.

Discussion

Unlike the trial court the Second Circuit Court of Appeal concluded that the case is squarely governed by its decision in NGM Insurance Co. v. Blakely Pumping, Inc., 593 F.3d 150 (2d Cir. 2010) (“NGM“). NGM, like the pending case, involved a claim under a businessowners policy to which had been added a hired auto and non-owned auto endorsement. The claim was based on an accident involving a vehicle owned by the insured. The operative language of the endorsement in NGM is identical to the operative language in the endorsement added to the Citizens businessowners policy. The only differences are trivial variations in the labeling of cross-referenced sections of the businessowners policies.

It is not surprising that a document, especially one drafted by an insurance company, would use a “belt and suspenders” approach, using definitional language to avoid inclusion of coverage and also adding language of exclusion. That was true in NGM and is true here.

As to the umbrella policy, it is arguable that it provides no coverage simply because the only listed underlying policy, the businessowners policy, does not provide coverage, and the State Farm policy, which does provide coverage, was not listed.

But the Umbrella also states: “However, we will have no duty to defend the insured against any ‘suit’ seeking damages for ‘bodily injury’ or ‘property damage’ to which this insurance does not apply.” And the umbrella policy’s definition of “[c]overed auto” is “only those ‘autos’ to which ‘underlying insurance’ applies.” Because the underlying insurance, the businessowners policy, does not apply to an owned auto, the umbrella policy also does not apply.

 

ZALMA OPINION

The Second Circuit reversed the district court’s judgment declaring that Citizens was obligated to defend and, if necessary, indemnify Risen Foods under a businessowners policy and an umbrella policy in an underlying suit for damages arising out of a motor vehicle accident.  Since the Risen Foods vehicle was not a “covered auto” under the policies neither defendant was entitled to defense or indemnity.


© 2017 – Barry Zalma

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

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

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

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached at http://zalma.com/zalma-books/

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

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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Rescission of Insurance

A Remedy When Insurance is Obtained by Deception

Adapted from Barry Zalma’s New Book Rescission of Insurance available now as a Kindle Book or a Paperback.

Rescission

Rescission is an equitable remedy as ancient as the common law of Britain.

When the United States was conceived in 1776 the founders were concerned with protecting their rights under British common law. They adopted it as the law of the new United States of America modified only by the limitations placed on the central government by the U.S. Constitution approved in 1789.

The viability and ability to enforce contracts was recognized as essential to commerce. Courts of law were charged with enforcing legitimate contracts. Courts of equity were charged with protecting contracting parties from mistake, fraud, misrepresentation and concealment since enforcing a contract based on mistake, fraud, misrepresentation or concealment would not be fair.

The common law developed rules that courts could follow to refuse to enforce the terms of a contract that was entered into because of mutual mistake of material fact, a unilateral mistake of material fact, the breach of warranty (a presumptively material promise to do or not do something), a material concealment, or a material misrepresentation. The remedy – called rescission – created a method to apply fairness to the insurance contract and allow an insurer to void a contract and allowed courts to refuse to enforce such a contract entered into by misrepresentation or concealment of material facts.

Insurance contracts, unlike common run-of-the-mill commercial contracts, are considered to be contracts of utmost good faith.[1] Each party to the contract of insurance is expected to treat the other fairly in the acquisition and performance of the contract. For example, the prospective insured is required to answer all questions about the risk he, she or it are asking the insurer to take and about the person the insurer is asked to insure.

Rescission, since before the U. S. Constitution, became an important remedy for insurers. As a contract of utmost good faith insurers and the courts recognized that the parties to a contract of insurance were more vulnerable than other contracting parties to misrepresentation or concealment of material fact. The remedy is available to either party to the contract and when one determines it was deceived into entering into the contract it may declare the contract void from its inception, return the consideration and treat it as if it never existed.

When an insurer or the insured discovers the existence of a factual basis for rescission they have the opportunity, but not the duty, to exercise the remedy of rescission.

In most states the remedy is available to both parties to the contract of insurance whether the party deceived believes the deceit was the result of a fraud or simply an innocent

misrepresentation or concealment of a material fact. To do otherwise would be to make a gift to the person who deceived the insurer of rights not available to the truthful.

Equitable remedies, like the remedy of rescission, are expected to be fair. Some states, like California, follow the ancient equitable remedies and have codified the right to rescission of insurance contracts. The legislative right to rescission arose because  legislatures considered it unfair to make a contracting party abide by a contract that was not obtained fairly. The ancient maxim that “No one can take advantage of his own wrong”[2] is applied when a court is faced with a request to confirm rescission. Other states have imposed limitations on insurers in their state and make the ability to rescind a contract of insurance more difficult than it was under the common law.

Rescission Is A Remedy That Must Be Used With Care

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

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

California, with a Draconian rescission law, still makes it clear that if an insurer elects rescission without sufficient evidence it will bring the wrath of the courts down on it and will be the basis for allegations, easily proven, of extra-contractual torts.[1]

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

Bases for Rescission

The primary bases for rescission are:

  1. misrepresentation or material fact(s),
  2. concealment of material fact(s),
  3. mistake of material fact(s),
  4. mistake of law, or
  5. fraud.

Before Rescinding The Following is Required

Before a party considers rescission of an insurance policy, whether insured or insurer, the following must be established, regardless of the jurisdiction:

  • The facts represented in the acquisition of the policy.
  • Evidence that establishes whether a fact was misrepresented.
  • Evidence that establishes that a material fact was concealed.
  • Evidence that establishes that the fact(s) misrepresented or concealed was material to the decision to insure or not insure.
  • Evidence that the person seeking rescission did not have better knowledge of the facts claimed misrepresented or concealed.
  • A sworn declaration from the underwriter who made the decision to insure or not insure concerning the effect true facts would have had on the underwriting decision.
  • A review of the policy, application process, investigation results and applicable law by a competent insurance coverage lawyer in the jurisdiction where the policy was made or to be performed.
  • A thorough investigation of the negotiations for the policy.
  • A sworn statement from the underwriter who made the decision to insure or not insured, as to his or her reliance on the material facts presented and what different decisions would have been made had the truth been told.

You can order the full book, either as a Kindle or paperback at the links that follow: available as a paperback and Available as a Kindle book.


© 2017 – Barry Zalma

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

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

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

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached at http://zalma.com/zalma-books/

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

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 & The Insurance Professional

Ethical Insurance Claims

The following was adapted from my book “Ethics for the Insurance Professional” available as a paperback and Available as a Kindle book.

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 come 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.

 Uberrimae Fidei

Ethics is a process of systematically applying, using, defending and recommending concepts of right and wrong behavior.

Ethical behavior is required of both parties to a contract of insurance for the system to work. If any party to the insurance contract acts unethically the ability of insurance to work effectively and profitably will fail.

Ethics is the essence of insurance. Since insurance was first created it has been a business of utmost good faith. As a result, the insured and the insurer are expected to treat each other ethically.

Insurance was created to spread risk from individuals to multitudes. Spreading the risk in a fair, ethical and honorable manner from one person to many is the basis upon which a system of insurance was founded. The insurance contract since modern insurance was first created was founded on the concept of Uberrimae Fidei. The phrase Uberrimae Fidei is used to express the principle that a contract of insurance must be made in perfect good faith, with neither the insurer nor the insured concealing nothing from the other. In the case of insurance both the insured and the insurer must observe the most perfect good faith towards each other so that the insurer understands the risk it is asked to take and the insured understands the risks accepted by the insurer.

Insurers and reinsurers are dependent on “utmost good faith [which] may be viewed as a legal rule but also as a tradition honored by ceding insurers and reinsurers in their ongoing commercial relationships.”

Uberrimae fidei has its roots in British jurisprudence. The doctrine has historically been applied to all insurance contracts issued in or to be performed in the United States. The doctrine of utmost good faith was stated by the U.S. Supreme Court dating back to 1828. The doctrine imposes the highest duty on parties to an insurance contract to disclose facts that materially affect the insurer’s risk.

Several federal cases have applied the duty of uberrimae fidei in the marine insurance setting applying the doctrine more strictly than in property, casualty, life, health or disability insurance.

Under marine insurance’s interpretation of uberrimae fidei, any failure to disclose a material fact not known by the underwriter that is, or should be, within the knowledge of the insured party, is grounds for rescission of the policy, even if the omission or misstatement is the result of the insured’s mistake, accident, or forgetfulness. In the marine setting the insured is required to disclose everything that is material to the insurer even if the insurer does not ask.

Product DetailsNot all federal circuit courts apply the uberrimae fidei doctrine to marine insurance policies but most do.

“Insurance policies are traditionally contracts uberrimae fidei and a failure by the insured to disclose conditions affecting the risk, of which he is aware, makes the contract voidable at the insurer’s option.” Similarly, misrepresentation or concealment of material fact by the insurer allows the insured to declare the contract void at the insured’s option. The duty is mutual.

The majority of courts faced with the application of uberrimae fidei to a marine insurance policy, have found that utmost good faith applies. Insurance cannot operate without the ethical doctrine of uberrimae fidei.

Under the doctrine of uberrimae fidei, or utmost good faith, the insured in a maritime insurance contract is required to disclose to the insurer all known circumstances that materially affect the insurer’s risk, the default of which renders the insurance contract voidable by the insurer. Under the doctrine of uberrimae fidei, “the parties to a marine insurance policy must accord each other the highest degree of good faith.” This duty of good faith requires the insured to “disclose to the insurer all known circumstances that materially affect the risk being insured.”

Because the insured is in the best position to know of any facts that may be material to the risk, the insured is obligated to disclose those facts to the insurer, regardless of whether the insurer makes a specific inquiry about the facts.

The age-old federal marine-insurance doctrine of uberrimae fidei governs the argument and provides “the controlling federal rule even in the face of contrary state authority.”

Uberrimae fidei reflects “an enlightened moral policy” based upon the presumption that “the party procuring insurance, is not … in possession of any facts, material to the risk which he does not disclose.” Indeed, “[i]t is the duty of the [insured] to place the underwriter in the same situation as himself.” (quotation marks omitted).

Under the federal common law doctrine of utmost good faith or uberrimae fidei, a failure by the insured to disclose conditions affecting the risk, of which he is aware, makes the contract voidable at the insurer’s option.

An insured who conceals or misrepresents a material fact commits fraud which avoids the policy and is a clear breach of the ethical obligation of the insured. Fraud is an obvious breach of the contract and the implied covenant of good faith and fair dealing. It is the ethical obligation of the insured to truthfully and fully advise the insurer of the risks the insured is asking the insurer to take. Failure to do so, even if there was no intent to deceive, is sufficient to allow the insurer to rescind the policy, if the insurer was actually deceived.

In some instances, the law chokes on the issue of ethics and good faith. It is sometimes difficult for a court to determine which of the two considerations influences the classification of insurance contracts. At least the insurance considerations have been referred to as uberrimae fidei in England and in the United States. The two countries, however, are not in accord in their interpretation of the uberrimae.

In the leading English case of Carter v. Boehm, S.C. 1 Bl. Burr 1906, 11th May 1766. 593, 3, Lord Mansfield in 1766 declared that even an innocent concealment of a material fact made the contract voidable saying that the question, therefore, must always be, whether there was, under all the circumstances at the time the policy was underwritten, a fair representation, or a concealment, fraudulent if designed, or, though not designed, varying materially the object of the policy, and changing the risk understood to be run.

You can order the full book, either as a Kindle or paperback at the links that follow: available as a paperback and Available as a Kindle book.


© 2017 – Barry Zalma

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

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

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

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached at http://zalma.com/zalma-books/

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

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 to Lie to Your Life Insurer

It’s a Crime in Maryland to Lie on an Insurance Application

As I have said continuously for the last 50 years, insurance is a business of the utmost good faith that requires each party to treat the other fairly and honestly. In some states, like the state of Maryland, a false statement on an application for insurance is considered insurance fraud – criminal conduct.

In Bradley Levar Burton v. Maryland Insurance Administration, No. 2024, Court Of Special Appeals Of Maryland (January 12, 2018) the Commissioner of the Maryland Insurance Administration (“the MIA”) found that Appellant Bradley Levar Burton committed insurance fraud by knowingly giving false information when applying for life and disability insurance. Burton appealed, contesting the sufficiency of the evidence supporting the Commissioner’s decision.

BACKGROUND

In August of 2014, Burton applied for life and disability insurance through the Northwestern Mutual Insurance Company. As part of the application process, Burton was required to complete a medical questionnaire and provide blood and urine samples. A paramedical examiner, Patricia Collins, met Burton at his Baltimore home. She collected the samples and conducted the questionnaire by asking Burton questions and recording the answers on her laptop computer. Collins marked the following questions with the notation that Burton had answered “no”:

4(a) Have you ever sought, received, or been advised to seek treatment, counseling, or participation in a support group for the use of alcohol or drugs?

4(b) Have you ever been advised to reduce or discontinue the use of alcohol?

These answers were false. In March of 2010, Burton had pleaded guilty in the United States District Court for the District of Maryland to driving under the influence of alcohol. The federal District Court accepted his guilty plea and, as a condition of his probation, ordered Burton to complete an alcohol addiction treatment program in which he had preemptively enrolled.

In a follow-up telephone interview with Northwestern, Burton was asked again whether he had received treatment for abuse of alcohol. Burton disclosed the 2010 arrest and the alcohol treatment program to the interviewer, who made the following note: “Recom[m]endation by attorn[e]y but not a court order. Treatment program- weekly group session for a few mo[nth]s (emphasis added). This, too, was false, as described above.”

When Northwestern discovered the falsehood, it referred the matter to the MIA. The MIA investigated and concluded that Burton, by answering falsely, had committed insurance fraud. Burton requested a hearing before the Commissioner. At the hearing, Burton asserted his rights against self-incrimination and refused to testify. After the two-day hearing, the Commissioner found that Burton had committed insurance fraud by answering “No” to each of the two questions and fined him $3,250. Burton sought judicial review in the Circuit Court for Baltimore City, which affirmed the Commissioner’s finding.

DISCUSSION

“It is a fraudulent insurance act for a person knowingly or willfully to make a false or fraudulent statement or representation in or with reference to an application for insurance.” [Md. Code Insurance (“IN”) § 27-406(1).] An individual may be subject to a civil penalty if the Insurance Commissioner finds by clear and convincing evidence that he or she has committed insurance fraud.

Burton challenged the Commissioner’s finding on the grounds that there was insufficient evidence to support it. Burton argued specifically that there was no evidence to prove that he actually was asked questions 4(a) and 4(b) of the questionnaire, or that he knowingly or willfully provided the false answers. He further argued that the Commissioner erred by relying solely on the negative inference of his refusal to testify when there was no other substantial evidence against him.

The appellate court concluded that there was sufficient evidence to support the Commissioner’s finding that Burton had given false answers to questions 4(a) and 4(b). At the hearing, the Commissioner heard testimony from Collins, her supervisor, the MIA investigator, and Northwestern’s investigator, and received 27 exhibits regarding Burton’s interview.

The Commissioner found Collins to be a credible witness and relied heavily on her testimony in forming his decision that Burton was asked questions 4(a) and 4(b), and that Burton gave false answers to them. Collins testified about the standard course of these interviews, and specifically recalled interviewing Burton. This testimony was supported by the testimony of Collins’ supervisor. The Commissioner found, based on Collins’ testimony and the documentation of the questionnaire and subsequent telephone interview, that Burton had electronically signed the questionnaire and thus ratified the false answers. This evidence is more than sufficient to support the Commissioner’s conclusion.

This evidence similarly supports the Commissioner’s finding that Burton gave the false answers knowingly or willfully. Burton knew his own history when answering the questionnaire. The Commissioner noted that Burton provided a different, though similarly false, answer during the telephone interview. The Commissioner believed that this showed Burton knew his answers to be false, and there is nothing in the record to indicate that this was an unreasonable conclusion.

Moreover, in such a quasi-judicial civil proceeding, an agency may draw a negative inference when a party refuses to testify, even when that party is asserting his or her rights against self-incrimination. Here, the Commissioner did draw a negative inference from Burton’s refusal to testify and Burton concedes that the Commissioner was entitled to do so. The Commissioner did not err in drawing the inference.

The appellate court concluded that the record contains sufficient evidence to support the Commissioner’s finding that Burton gave false answers to questions 4(a) and 4(b), and that he did so knowingly, and Burton has not convinced us that any mistake was made. That Burton may not have appreciated the consequences of his answers does not change this result.

ZALMA OPINION

To avoid a small fine Burton took the time of a trial court and an appellate court after hearing overwhelming evidence that he had lied on the application and failed to tell the insurer about his conviction for driving under the influence even when asked twice. He deserves the punishment he received plus punishment for bringing a frivolous action and appeal.


© 2017 – Barry Zalma

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

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

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

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached at http://zalma.com/zalma-books/

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

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 Dangerous to Lie to Your Life Insurer

“Chutzpah” or how a Guilty Plea to Insurance Fraud Defeats Claim

A Plea of Convenience is Still a Plea of Guilty

“Chutzpah” is a Yiddish word meaning “unmitigated gall” where, for an example, a person who murdered his parents asks the court for clemency because he is an orphan.

In Sonya Fuller, Nationstar Mortgage, LLC v. Mercury Insurance Company Of Georgia,  No. 17-12975, United States Court Of Appeals For The Eleventh Circuit (January 10, 2018) a person who pleaded guilty to insurance fraud had the unmitigated chutzpah to plead guilty to the crime of insurance fraud and still attempt to collect on the fire she caused to her dwelling.

FACTS

Sonya Fuller appealed the summary judgment against her complaint that her insurer, Mercury Insurance Company of Georgia, breached its contract and acted in bad faith by denying her claim for losses to her home and personal property. The district court ruled that Mercury could deny payment to and cancel Fuller’s homeowner policy under a provision that excluded from coverage claims involving concealment or fraud based on the unrebutted evidence of wrongdoing supplied by her plea of guilty to insurance fraud.

After Fuller’s house in Smyrna, Georgia, was damaged by a fire, she submitted a claim to Mercury for her loss. Mercury determined that Fuller or someone acting at her behest started the fire and denied Fuller’s claim based on two clauses in her insurance policy that excluded coverage for intentional loss and for concealment or fraud. The policy excluded any “Intentional Loss, meaning any loss arising out of any act committed: (a) by or at the direction of any Insured; and (b) with the intent to cause a loss.”

The “concealment or fraud” clause stated that the “policy will be cancelled and any unpaid claims denied if an Insured has, before or after a loss: (a) intentionally concealed or misrepresented any material fact or circumstance; or (b) made false statements or engaged in fraudulent conduct relating to this insurance.”

Mercury answered Fuller’s suit alleging that it had not breached a contractual duty owed to Fuller, requested a judgment declaring that it had “no obligation to satisfy [Fuller’s] claim for insurance proceeds,” and counterclaimed to recover money that it had advanced to Fuller. In the meantime, a grand jury in Georgia indicted Fuller for arson and insurance fraud. Fuller entered a plea of convenience to the charge of insurance fraud and received a sentence of probation.

Mercury moved for summary judgment, which the district court granted as to a lack of liability. The district court ruled that Fuller’s plea of guilty to “fraudulent conduct,” which provided “prima facie evidence of an intentional act that would cancel her insurance policy” and had not been “rebut . . . in any meaningful way,” resulted in a “cancel[lation [of] the Policy, and [the elimination of any duty on the part of] Mercury . . . to cover Fuller’s claim.”

ANALYSIS

The Eleventh Circuit concluded that the district court did not err by entering summary judgment in favor of Mercury. Fuller’s conviction, the court concluded, was sufficient to establish a prima facie case of insurance fraud.  Fuller’s plea of guilty constituted an admission that she committed the crime charged against her of making a false or fraudulent statement or misrepresentation in a written statement or when filing her insurance claim.

Because the state court found that there was a satisfactory factual basis for Fuller’s plea and Fuller confirmed that she was entering her plea knowingly, intelligently, and voluntarily, her entry of a plea of convenience had the same significance as an ordinary plea of guilt.

Fuller argued that her plea is only prima facie evidence of her guilt. The insurer, of course countered, that evidence of her guilt was all that was needed to declare the policy void under the standard “Misrepresentation, Concealment or Fraud” clause of the policy. The Eleventh Circuit, however, agreed with Mercury that Fuller failed to create a genuine issue of material fact about the validity of her plea of guilt.

Since there was no evidence that Fuller did not admit her guilt, her plea was conclusive evidence that she committed insurance fraud. Mercury was, therefore,  entitled to a judgment in its favor that it owed no coverage to her.

ZALMA OPINION

No matter the extent of the insured’s chutzpah when she admitted to fraud she destroyed her insurance claim. A conviction of insurance fraud is always sufficient, every time and every where, to defeat an insurance claim. Fuller should be happy that the criminal court only sentenced her to probation. Arson or insurance fraud usually carry a sentence of five years in prison. She should be concerned because, in my opinion, going forward with the suit and the appeal is a violation of the terms of her probation.


© 2017 – Barry Zalma

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

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

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

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached at http://zalma.com/zalma-books/

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

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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Another Failure of Stipulated Judgment to Get Insurance Money

Contract Between Driver & Owner Controls

When state law only requires insurance up to minimum statutory limits an insurer whose insured allowed another to permissively drive an owned vehicle was asked to provide full limits rather than those required by contract and law.

In Patricia Engrassia, Administratrix Ad Prosequendum, of the Estate of Jason Marles, Deceased v. Erick Uzcategui, Hunterdon Motors, Inc., d/b/a Hunterdon BMW and Federated Mutual Insurance Company, and John Saddy, Saddy Family, LLC, etc., et al. DOCKET NO. A-2755-15T1, Superior Court Of New Jersey Appellate Division (January 11, 2018) the Plaintiff appealed from orders entered by the Law Division which granted in part and denied in part a motion by Federated Mutual Insurance Company (Federated) for summary judgment; granted a motion for summary judgment by Hunterdon Motors, Inc. d/b/a Hunterdon BMW (Hunterdon BMW); and denied plaintiff’s motion for summary judgment.

FACTS

On November 24, 2010, Erick Uzcategui brought his personal vehicle to Hunterdon BMW for service. Hunterdon BMW provided Uzcategui a BMW X3 as a loaner car, and required that he return the vehicle within twenty-four hours. Hunterdon BMW required Uzcategui to execute a “BMW Rental Agreement for a Temporary Substitute Vehicle” (the BMW Rental Agreement), which provided in pertinent part that he was responsible for all damage or loss to others arising from his use of the vehicle.

Hunterdon BMW was insured by Federated under a commercial garage policy (the garage policy), which had coverage limits of $500,000. Hunterdon BMW also had a commercial umbrella liability policy with Federated (the umbrella policy), with coverage limits of $10,000,000. The umbrella policy covered certain damages that are in excess of the amount of the available primary insurance.

Uzcategui had auto liability insurance coverage through GEICO Indemnity Company (GEICO). His policy provided coverage of $100,000 per person and $300,000 per accident.

On the evening of November 24, 2010, Uzcategui drove the loaner car while intoxicated and collided with another vehicle, causing the death of its driver, Jason Marles. Uzcategui was thereafter convicted of vehicular manslaughter and sentenced to a term of imprisonment.

In December 2011, plaintiff, as representative of Marles’ estate, filed a complaint seeking damages arising from Marles’ death, including claims of conscious pain and suffering and wrongful death. Plaintiff named Uzcategui, Hunterdon BMW, and Federated as defendants.

THE DECLARATORY RELIEF ACTION

Plaintiff sought a declaration that Federated was required to provide coverage of $500,000 under the garage policy, and $10,000,000 under the umbrella policy for the claims asserted against Uzcategui. Federated denied liability.

GEICO provided Uzcategui a defense in the action and deposited its full policy limits with the court. NJM intervened and also sought a declaration that Uzcategui was entitled to coverage under the garage policy that Federated issued to Hunterdon BMW. After discovery was completed, plaintiff, Federated, and Hunterdon BMW filed motions for summary judgment.

The Law Division judge determined that the provision of Federated’s garage policy pertaining to Hunterdon BMW’s customers was not an illegal “escape clause.” The judge found, however, that the policy would be reformed and Federated ordered to provide Uzcategui coverage in the amount of $15,000, the minimum level of liability coverage required by New Jersey law, concurrent with the coverage provided under the GEICO policy.

The judge also determined that Federated had no obligation to provide Uzcategui coverage under the umbrella policy. Eventually plaintiff and Uzcategui settled plaintiff’s claims for $9,500,000, plus interest of $934,722, for a total of $10,434,722. The settlement was subject to an agreement not to collect the judgment against Uzcategui.

Trial against the bar, the jury entered a verdict finding that plaintiff had not proven by a preponderance of the evidence that LASV had served Uzcategui alcoholic beverages while he was visibly intoxicated and that Uzcategui was one-hundred percent responsible for the accident and awarded plaintiff damages of $10,082,735.

ANALYSIS

Plaintiff argues that the provision of the policy pertaining to coverage of Hunterdon BMW’s customers is an illegal “escape clause.” Plaintiff contends the clause unlawfully excludes permissive users of the dealership’s vehicles if those persons have their own auto insurance in amounts that exceed the minimum coverages required by law.

Plaintiff argues that the applicable provision of Federated’s garage policy constitutes an illegal “escape clause” because it fails to provide the coverage required by statute.

Because the Federated garage policy excludes coverage for permissive users of the dealership’s autos who have their own auto liability insurance that exceeds the minimum coverage required by statute the plaintiff claimed the clause is invalid. The appellate court disagreed. The relevant provision of the policy is not an illegal “escape clause,” but rather a valid “step-down” clause. The liability section of the dealership’s policy stated in part that the dealership’s customers are insured, but coverage was limited to the minimum required by law.

The dealership’s policy, which limited coverage for the dealership’s customers “to the statutory minimum, $15,000” and because the statutory minimum was not greater than the liability limits under the dealership’s policy, the driver was not covered by the liability section of that policy.

Under the policy, Federated is not obligated to provide coverage when the customer has insurance with coverage that exceeds the minimum required by law. Thus the relevant provision of the Federated policy is a valid “step-down” clause or limitation on coverage.

Because Uzcategui had auto liability insurance that exceeds the minimum required by law, Federated was not obligated to provide him with coverage under the garage policy.

The BMW Rental Agreement does not state the customer will be given insurance coverage. Moreover, the agreement states that “any” coverage provided will be no higher than the minimum required by law. In light of the clear and unambiguous provisions of the BMW Rental Agreement, Uzcategui could not have any expectation he would be covered by the garage policy, or if covered, that such coverage would be up to the full $500,000 limits of the policy.

The Federated umbrella policy clearly and unequivocally states that it does not provide coverage to customers to whom Hunterdon BMW has entrusted its automobiles. Therefore, the motion judge correctly found that Uzcategui was not entitled to coverage under that policy.

An insurer has a duty to advise its insured of a possible disclaimer of coverage. Plaintiff was not, however, an insured under the Federated policies, and Federated had no duty to inform plaintiff of all the possible reasons it might have to deny coverage to Uzcategui. Moreover, the record shows that Federated made clear before and after the litigation commenced that it was not obligated to provide coverage to Uzcategui. Thus, plaintiff’s claim that Federated is estopped from denying coverage under the umbrella policy is meritless.

In its cross-appeal, Federated argues that although the trial court correctly determined that the provision of its garage policy is not an illegal “escape clause,” the court erred by holding that it was required to provide coverage in the statutory minimum liability coverage of $15,000 to Uzcategui under that policy, concurrent with Uzcategui’s coverage under the GEICO policy. Federated contends the “step-down” clause in the garage policy is valid and should be enforced according to its terms.

It is undisputed that Uzcategui had liability coverage that exceeded that statutory minimum, and for that reason, he was not covered under the Federated garage policy. There was no need to reform the Federated policy to ensure that Uzcategui was insured in the minimum amounts by law since he had bought his own coverage that far exceeded the statutory limit.  The trial court erred by reforming the policy to require Federated to provide liability coverage to Uzcategui under the garage policy in the amount of $15,000.

ZALMA OPINION

There is only one reason for this lawsuit: Uzcategui’s only asset was his GEICO policy. If he had any assets above and beyond the limit the plaintiff should have executed upon those assets. In this case the Plaintiff gave up the right to collect on a more than ten million dollar judgment for off chance of collecting from an insurer. A bad bet because the policy was clear and unambiguous.


© 2017 – Barry Zalma

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

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

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

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached at http://zalma.com/zalma-books/

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

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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Giving Away Judgment Against Defendant to Sue Insurer Gets Plaintiff Nothing

Assault and Battery Exclusion Enforced

I have warned, multiple times, that it is not necessarily wise to enter into a stipulated judgment for an assignment of a claim. Giving a defendant a covenant not to execute on a stipulated judgment eliminates the possibility of recovering from a viable defendant with only a chance of getting money from an insurance company. Before entering into such an agreement the prudent plaintiff will determine the assets of the defendant and the defendants ability to satisfy the judgment as well as the viability of the case against the insurer.

In Jane Doe v. Hudson Specialty Insurance Company, No. 17-11642, United States Court Of Appeals For The Eleventh Circuit (January 12, 2018) the plaintiff, Jane Doe, pursued a multi-million dollar judgment against an insurer that refused to defend the person she claimed tortiously cause her injury only to have the trial court rule in favor of the insurer.

Jane Doe appealed the district court’s decision granting summary judgment in favor of Hudson Specialty Insurance Company (Hudson) regarding the scope of Hudson’s duty to defend claims against its insured, Moheb Inc. (Moheb).

BACKGROUND

This suit arises out of Moheb’s operation of its Coconut Grove bar, Mr. Moe’s, on the night of July 5, 2014. Jane Doe, then a seventeen year old student at the University of Miami, was in Mr. Moe’s with a group of other students who were also under legal drinking age. Moheb’s employees provided alcoholic beverages to Doe and the other students without requesting or verifying proof of legal drinking age. Doe became so intoxicated that she was unable to fend off older male students who took Doe to a University dormitory where she was sexually assaulted. Based on these events, Doe sued Moheb for negligence in Miami-Dade County circuit court.

Moheb held a liquor liability insurance policy from Hudson effective August 30, 2013 through August 30, 2014 (the Policy). The Policy provided coverage for liability “imposed upon the insured by reason of selling, serving or giving of any alcoholic beverage at or from the insured premises.” However, the Policy also contained the following exclusion:

Assault & Battery Exclusion – Absolute

This insurance does not apply to claims arising out of an assault and/or battery, whether caused by or at the instigation of, or at the direction of, or omission by, the insured, and/or his employees.

After receiving notice of the underlying suit, Hudson denied Moheb insurance coverage based, in part, on the Assault & Battery Exclusion.

On May 11, 2016, Doe and Moheb entered into a Stipulation and Agreement for Settlement of Claim and Covenant Not to Sue. Moheb admitted liability and agreed to the entry of a 3.5 million dollar judgment against itself in the underlying suit. Doe, in turn, agreed not to execute on the judgment. Moheb pledged its cooperation in any litigation Doe initiated to recover damages against other entities, including Hudson.

The same day, Doe and Moheb also executed an Agreement for Assignment of Claims under which Moheb assigned and transferred to Doe its rights, claims, and benefits against Hudson and other entities related to the denial of insurance coverage and refusal to defend under the Policy. Final Consent Judgment was entered for Doe on June 8, 2016.

Shortly thereafter, on July 21, 2016, Doe commenced the instant lawsuit against Hudson. Doe seeks a declaration that Hudson is liable in the amount of the Policy limit, damages, and attorney’s fees. The district court concluded Hudson had no duty to defend and, accordingly, granted summary judgment in Hudson’s favor.

ANALYSIS

The Eleventh Circuit applying Florida law concluded that an insured may bind its insurer to a reasonable consent judgment for liability against an adverse party if coverage exists and the insurer wrongfully denies coverage and refuses to defend. [See Coblentz v. Am. Surety Co. of N.Y., 416 F.2d 1059, 1063 (5th Cir. 1969)]. To recover under a Coblentz agreement, a plaintiff must show: (1) the insurer wrongfully refused to defend the insured, (2) the consent judgment is covered under the insurance policy, and (3) the settlement was objectively reasonable and made in good faith

In Florida, an insurer’s duty to defend “depends solely on the allegations in the complaint filed against the insured.” Trizec Props., Inc. v. Biltmore Const. Co., 767 F.2d 810, 811 (11th Cir. 1985) (quotation omitted). There is no duty to defend if there is no doubt that the allegations of the complaint do not fall within the policy’s coverage. The burden of demonstrating that the allegations of the complaint are cast solely and entirely within the policy exclusion rests with the insurer.

Here, the Policy excludes “claims arising out of an assault and/or battery.” Under Florida law, the phrase “arising out of” is “broader in meaning than the term ’caused by’ and means ‘originating from,’ ‘having its origin in,’ ‘growing out of,’ ‘flowing from,’ ‘incident to,’ or ‘having a connection with.'” Taurus Holdings, Inc. v. U.S. Fid. & Guar. Co., 913 So. 2d 528, 539 (Fla. 2005) (quotation omitted). Proximate cause is not required; instead, the phrase refers to some causal connection, or relationship beyond mere coincidence.” alleges a connection between Doe’s intoxication, which resulted from a Moheb employee’s negligent distribution of alcoholic beverages, and the sexual assault. Therefore, the district court correctly concluded that “the exclusion’s language undeniably captures the actions and omissions alleged here.”

Doe’s Complaint alleges a causal connection between the two forces she now asserts are independent, namely, her intoxication and the sexual assault. She claimed the concurrent cause doctrine does applied so that coverage was not available. The Eleventh Circuit, applying Florida law concluded that the concurrent cause doctrine does not apply.

Doe claimed the doctrine of efficient proximate cause was to be applied. The doctrine is relevant when the efficient cause—the one that set the other in motion—is the cause to which the loss is attributable. In this case it was inapplicable. Doe contends the sexual assault, a harm excluded under the Policy, should be covered because it was caused by Doe’s intoxication, a harm covered under the Policy. But the Eleventh Circuit declined to apply the doctrine of efficient proximate cause or concurrent cause doctrine because doing so would render the exclusionary clause a nullity.

The Policy, which covers liability “imposed upon the insured by reason of the selling, serving or giving of any alcoholic beverage at or from the insured premises” would be irrelevant if alcohol was not involved. Alternatively, Doe notes that alcohol may contribute substantially to an assault and battery without being the efficient proximate cause thereof. This argument, too, is unpersuasive.

The doctrine of efficient proximate cause applies where a covered peril sets an uncovered peril into motion, not vice versa. The Policy covers only one peril: liability related to the sale and distribution of alcohol.

The Eleventh Circuit concluded that because Hudson had no duty to defend Moheb in the underlying suit, entering summary judgment for Hudson was proper.

ZALMA OPINION

Although Doe’s lawyers had multiple arguments that appeared convincing to them they did not apply. The defendant Moheb avoided being required to pay a $3.5 million judgment by allowing plaintiff’s greed to take over good sense. The defense lawyers for Moheb defeated a fairly clear liability case by talking the plaintiff into trying for a major judgment against an insurer when she could have collected damages from Moheb or driven it out of business. If, on the other hand, Moheb had no assets the suit against the insurer might have been worth the effort.


© 2017 – Barry Zalma

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

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

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

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached at http://zalma.com/zalma-books/

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

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 – January 15, 2018

The Department of Justice obtained more than $3.7 billion in settlements and judgments from civil cases involving fraud and false claims against the government in the fiscal year ending Sept. 30, 2017, Acting Assistant Attorney General Chad A. Readler of the Justice Department’s Civil Division announced today.  Recoveries since 1986, when Congress substantially strengthened the civil False Claims Act, now total more than $56 billion.
“Every day, dedicated attorneys, investigators, analysts, and support staff at every level of the Justice Department are working to root out fraud and hold accountable those who violate the law and exploit critical government programs,” said Acting Assistant Attorney General Chad A. Readler of the Justice Department’s Civil Division.  “The recoveries announced today are a testament to the efforts of these valuable public servants and a message to those who do business with the government that fraud and dishonesty will not be tolerated.”
Of the $3.7 billion in settlements and judgments, $2.4 billion involved the health care industry, including drug companies, hospitals, pharmacies, laboratories, and physicians.  This is the eighth consecutive year that the department’s civil health care fraud settlements and judgments have exceeded $2 billion.  The recoveries included in the $2.4 billion reflect only federal losses.  In many of these cases, the department was instrumental in recovering additional millions of dollars for state Medicaid programs.
In addition to combating health care fraud, the False Claims Act serves as the government’s primary civil remedy to redress false claims for government funds and property under government programs and contracts relating to such varied areas as defense and national security, food safety and inspection, federally insured loans and mortgages, highway funds, small business contracts, agricultural subsidies, disaster assistance, and import tariffs.

New Insurance Books by Barry Zalma

Now available as Kindle or paperback books are the following non-fiction texts for insurance professionals:

  • Insurance Fraud & Weapons to Defeat Insurance Fraud – Volumes One and Two
  • Rescission of Insurance
  • Ethics for the Insurance Professional
  • Random Thoughts on Insurance – A Collection of Blog Posts from Zalma on Insurance
  • The Insurance Examination Under Oath
  • The Compact Book on Adjusting Liability Claims

Now available as Kindle or paperback books are the following fiction pieces on insurance matters:

  • Heads I Win, Tails You Lose
  • Arson for Profit
  • Murder & Old Lace
  • Murder and Insurance Fraud Don’t Mix
  • Candy & Able – Murder for Insurance Money

See all Barry Zalma Books Available on Amazon here. 

The Current Issue Contains the Following  

  • DOJ Recovers $3.7 Billion in False Claims Act Recoveries
  • Become a Certified Expert in Corporate Property Insurance and a Certified Expert in Corporate Liability Insurance
  • What Insurance People Must Do to Change the Fraud Statistics
  • Introducing Barry Zalma’s Insurance Law Deskbook
  • To Investigate Insurance Fraud
  • Barry Zalma Speaks at Your Request
  • Coalition Against Insurance Fraud Grants Journalism Award
  • Wisdom
  • Barry Zalma
  • Coalition Against Insurance Fraud Announces Prosecutor of the Year National Award
  • Good News From the Coalition Against Insurance Fraud
  • Health Insurance Fraud Convictions
  • Zalma’s Flat Rate Opinions
  • Other Insurance Fraud Convictions
  • Books from the American Bar Association
  • Zalma’s Insurance Fraud Letter

 Zalma on Insurance – A 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. 

 Zalma’s Insurance 101 

I have completed a video blog called that consist of 1022 three to four minute videos starting with “What is Insurance” and moving forward to insurance fraud investigations explaining the basics of insurance and insurance claims handling in a painless fashion that can be viewed every morning with the first cup of coffee at  Zalma’s Insurance 101.
The videoblog is adapted from my book, Insurance Claims: A Comprehensive Guide available at the Zalma Insurance Claims Library.
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.

Advertise  

Are you a lawyer, law firm, independent insurance adjuster or insurer who would you to promote yourself or your firm to more than 200 daily visits by insurance professionals or the more than 2000 subscribers to ZIFL?
If you are, an ad on the blog Zalma on Insurance or Zalma’s Insurance Fraud Letter, to such a selective audience of insurance professionals and management can be more effective than any other form of advertising.
For only $100 a month on the blog or $100 an issue on ZIFL your ad will be permanent and effective.

© 2017 – Barry ZalmaThis article, and all of the blog posts on this site, digests and summarizes cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award. Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached at http://zalma.com/zalma-books/Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/bzalma  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalmaLegal Disclaimer:The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.


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Why Do Courts Allow Punitive Damages?

Punitive Damages Are Designed to Punish Wrongdoing

Every lawyer who represents a plaintiff suing an insurance company for the tort of bad faith or the lawyer defending an insurer against claims that it committed the tort of bad faith, must understand, why punitive damages can be awarded to punish an insurer. Through an analysis of punitive damages as applied in the United States to insurance bad faith suits, this book will analyze why the various states allow judges and juries to award punitive damages against insurers in civil litigation.

First and foremost, lawyers and litigants must understand that unlike contract or tort damages punitive damages are awarded to punish the tortfeasor sufficiently to act as a deterrent to others who may be considering to act similarly. Until the 1950’s a person suing an insurance company could only recover contract damages. The most the insured could recover, if an insurer breached the contract of insurance, is the benefits promised by the policy. When the courts created the tort of bad faith they changed contract law enormously by allowing unhappy insureds to sue insurers for both contract and tort damages, including punitive damages.

Basic tort damages are designed and expected to provide indemnity to the plaintiff. Tort damages attempt to use money to place the plaintiff in same situation he or she was in before injured by a tortfeasor.

The award of punitive damages provides the plaintiff with sums greater than the damages actually incurred as a result of the tort in a sum sufficient to punish the defendant and deter the defendant – and others – from repeating the wrongful conduct. Punitive damages do not help the insured return to the situation he or she was in before the insurance contract was breached. If they collect the punitive damages the insured is placed in a better position than he or she was in before the breach of the contract.

Traditional Tort Damages

When an American is damaged by the tortious conduct of another his or her ability to reason analytically disappears. The damaged person becomes angry and wants to punish the person who caused the harm. Indemnity, the general measure of tort or contract damages, is insufficient. The injured person wants revenge, he or she wants the defendant tortfeasor to suffer. The plaintiff is not satisfied with traditional tort damages that merely compensates him or her fairly for the damages incurred.

Punishment was limited to that authorized by statute for criminal conduct of a defendant. The common law of England and the common and statutory law of the United States only allowed tort damages designed to make the plaintiff whole. Damages for breach of contract or for injuries to person or property by the tortious conduct of the defendant were limited to the cost to repair or replace the damaged property or compensate the plaintiff for the injuries incurred. The defendant who acted tortiously – negligent or intentionally – was only required to pay damages resulting from the tortious conduct that placed the plaintiff back in the position he or she was in before the injury or damage.

Civil juries have a difficult enough time establishing appropriate numbers to indemnify a person so that he or she is back the way he or she was before damaged by a tort. To ask a civil jury to, after concluding a tort caused damage to the plaintiff, add to the actual damages an appropriate civil punishment does not appear to be fair to the judge or jury. Punitive damages are assessed by civil juries where only nine out of twelve must agree to punish the defendant. Without the protection given criminal defendants by the Fifth Amendment to the U.S. Constitution and the right to a trial by a jury of the tortfeasors’ peers who must vote unanimously to punish the tortfeasor is the reason why punitive damages are controversial.

The wild differences in awards of punitive damages from a single dollar to billions of dollars is evidence of the difficulties the assessment of appropriate quantum of punitive damages give juries. As Benjamin Franklin once said: “Tis more noble to forgive, and more manly to despise, than to revenge an injury.” Punitive damages allow revenge and are neither noble nor manly but is a court ordered revenge.

ZALMA OPINION

It is time for punitive damages to leave U.S. jurisprudence. It gives a false impression that the punishment helps to deter others from acting wrongfully. It does not, it only adds to the wealth of plaintiffs’ lawyers, gives a great deal of money to the tax collectors, and does not help the plaintiffs. It is an effective example of the law of unintended consequences.

 


© 2017 – Barry Zalma

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

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

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

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached at http://zalma.com/zalma-books/

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

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 and Insurance Claims

Uberrimae Fidei

This article is adapted from my new book “Ethics for the Insurance Professional” available here.

Ethics is a process of systematically applying, using, defending and recommending concepts of right and wrong behavior.

Ethical behavior is required of both parties to a contract of insurance for the system to work. If any party to the insurance contract acts unethically the ability of insurance to work effectively and profitably will fail.

Ethics is the essence of insurance. Since insurance was first created it has been a business of utmost good faith. As a result, the insured and the insurer are expected to treat each other ethically.

Insurance was created to spread risk from individuals to multitudes. Spreading the risk in a fair, ethical and honorable manner from one person to many is the basis upon which a system of insurance was founded. The insurance contract since modern insurance was first created was founded on the concept of Uberrimae Fidei. The phrase Uberrimae Fidei is used to express the principle that a contract of insurance must be made in perfect good faith, with neither the insurer nor the insured concealing nothing from the other. In the case of insurance both the insured and the insurer must observe the most perfect good faith towards each other so that the insurer understands the risk it is asked to take and the insured understands the risks accepted by the insurer.

Insurers and reinsurers are dependent on “utmost good faith [which] may be viewed as a legal rule but also as a tradition honored by ceding insurers and reinsurers in their ongoing commercial relationships.”[1]

Uberrimae fidei has its roots in British jurisprudence. The doctrine has historically been applied to all insurance contracts issued in or to be performed in the United States. The doctrine of utmost good faith was stated by the U.S. Supreme Court dating back to 1828.[2] The doctrine imposes the highest duty on parties to an insurance contract to disclose facts that materially affect the insurer’s risk.[3]

Several federal cases have applied the duty of uberrimae fidei in the marine insurance setting applying the doctrine more strictly than in property, casualty, life, health or disability insurance.

Under marine insurance’s interpretation of uberrimae fidei, any failure to disclose a material fact not known by the underwriter that is, or should be, within the knowledge of the insured party, is grounds for rescission of the policy, even if the omission or misstatement is the result of the insured’s mistake, accident, or forgetfulness. In the marine setting the insured is required to disclose everything that is material to the insurer even if the insurer does not ask.

Not all federal circuit courts apply the uberrimae fidei doctrine to marine insurance policies but most do.

“Insurance policies are traditionally contracts uberrimae fidei and a failure by the insured to disclose conditions affecting the risk, of which he is aware, makes the contract voidable at the insurer’s option.”[4] Similarly, misrepresentation or concealment of material fact by the insurer allows the insured to declare the contract void at the insured’s option. The duty is mutual.

The majority of courts faced with the application of uberrimae fidei to a marine insurance policy, have found that utmost good faith applies.[5] Insurance cannot operate without the ethical doctrine of uberrimae fidei.

Under the doctrine of uberrimae fidei, or utmost good faith, the insured in a maritime insurance contract is required to disclose to the insurer all known circumstances that materially affect the insurer’s risk, the default of which renders the insurance contract voidable by the insurer. Under the doctrine of uberrimae fidei, “the parties to a marine insurance policy must accord each other the highest degree of good faith.”[6]This duty of good faith requires the insured to “disclose to the insurer all known circumstances that materially affect the risk being insured.”[7]

Because the insured is in the best position to know of any facts that may be material to the risk, the insured is obligated to disclose those facts to the insurer, regardless of whether the insurer makes a specific inquiry about the facts.

The age-old federal marine-insurance doctrine of uberrimae fidei governs the argument and provides “the controlling federal rule even in the face of contrary state authority.”[8]

Uberrimae fidei reflects “an enlightened moral policy” based upon the presumption that “the party procuring insurance, is not … in possession of any facts, material to the risk which he does not disclose.”[9] Indeed, “[i]t is the duty of the [insured] to place the underwriter in the same situation as himself.”[10] (quotation marks omitted).

Under the federal common law doctrine of utmost good faith or uberrimae fidei, a failure by the insured to disclose conditions affecting the risk, of which he is aware, makes the contract voidable at the insurer’s option.

An insured who conceals or misrepresents a material fact commits fraud which avoids the policy and is a clear breach of the ethical obligation of the insured. Fraud is an obvious breach of the contract and the implied covenant of good faith and fair dealing. It is the ethical obligation of the insured to truthfully and fully advise the insurer of the risks the insured is asking the insurer to take. Failure to do so, even if there was no intent to deceive, is sufficient to allow the insurer to rescind the policy, if the insurer was actually deceived.

In some instances, the law chokes on the issue of ethics and good faith. It is sometimes difficult for a court to determine which of the two considerations influences the classification of insurance contracts. At least the insurance considerations have been referred to as uberrimae fidei in England and in the United States.

[1] Unigard Security Insurance Co. v. North River Insurance Co., 4 F.3d 1049 (2nd Cir. 09/09/1993)

[2]  M’Lanahan v. Universal Ins. Co., 26 U.S. 170, 185, 7 L. Ed. 98, 105 (1828).

[3]  7 Jeffrey E. Thomas, New Appleman on Insurance Law Library Edition § 76.01 (LexisNexis 2014)

[4]  Stipcich v. Metropolitan Life Ins. Co., 277 U.S. 311, 316, 48 S.Ct. 512, 513, 72 L.Ed. 895 citing Carter v. Boehm, 3 Burrows, 1905; Livingston v. Maryland Insurance Co., 6 Cranch, 274, 3 L.Ed. 222; McLanahan v. Universal Insurance Co., 1 Pet. 170, 7 L.Ed. 98; Phoenix Life Ins. Co. v. Raddin, 120 U.S. 183, 189, 7 S.Ct. 500, 30 L.Ed. 644 (1887); Hardman v. Firemen’s Insurance Co., 20 F. 594 (C.C.).

[5]  Steelmet, Inc. v. Caribe Towing Corp., 747 F.2d 689, 695 (llth Cir. 1984); Knight v. United States Fire Insurance, 804 F.2d 9, 13 (2d Cir. 1986)

[6]   Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 13 (2d Cir.1986).

[7]  Id.; see also Kilpatrick Marine Piling v. Fireman’s Fund Ins. Co., 795 F.2d 940, 942 (11th Cir.1986).

[8]  Steelmet, Inc. v. Caribe Towing Corp., 747 F.2d 689, 695 (11th Cir.1984); see also HIH Marine Servs., Inc. v. Fraser, 211 F.3d 1359, 1362 (11th Cir.2000)

[9]  McLanahan v. Universal Ins. Co., 26 U.S. 170, 185, 1 Pet. 170, 7 L.Ed. 98 (1828).

[10]  Sun Mut. Ins. Co. v. Ocean Ins. Co., 107 U.S. 485, 510–11, 1 S.Ct. 582, 600, 27 L.Ed. 337 (1883)


© 2017 – Barry Zalma

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

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

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

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached at http://zalma.com/zalma-books/

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

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 Can Rescind When Insured Knew of Potential Claim

Persnickety Judge Points out that Grammatically Correct Answer on Application Should not Void Insurance Yet Fails to Carry the Day

Rescission is an equitably remedy allowing an insurer to void an insurance policy from its inception if the person insured misrepresents or conceals a fact material to the insurer’s decision to insure or not insure the insured. In Western World Insurance Company, v. Professional Collection Consultants, No. 16-55470, United States Court Of Appeals For The Ninth Circuit, (January 2, 2018) dealt with the rescission of Professional Collection Consultants policy that was approved by the District Court even though the challenged application answer was grammatically correct it deceived the insurer.

FACTS

In August 2013, FBI agents executed a search warrant at the offices of Professional Collection Consultants (“PCC”). Over the next several months, investigators subpoenaed several PCC employees and PCC produced thousands of documents. In February 2014, PCC applied for directors and officers liability insurance from Western World Insurance Co. (“Western”), and Western issued PCC a policy. PCC had submitted (and Western accepted) a CNA insurance renewal application form, even though Western is not a CNA Company and PCC was not renewing a Western policy. In 2015, Western moved to rescind the policy on the basis that PCC made a material misrepresentation in its application. The disputed question read: “None of the individuals to be insured under any Coverage Part (the ‘Insured Persons’) have a basis to believe that any wrongful act, event, matter, fact, circumstance, situation, or transaction, might reasonably be expected to result in or be the basis of a future claim?”

PCC marked “No.”

The district court granted Western’s summary judgment motion for rescission.

ANALYSIS

PCC’s answer was found to be a material misrepresentation because PCC was aware of existing circumstances – the federal investigation – that could lead to a claim covered by the policy.

Under California law, a party may rescind an insurance contract if the other party made representations “false in a material point.” [California Insurance Code § 359.] “Materiality is determined solely by the probable and reasonable effect which truthful answers would have had upon the insurer.” Thompson v. Occidental Life Ins. Co., 513 P.2d 353, 360 (Cal. 1973); see also Cal. Ins. Code §§ 334, 360. The materiality inquiry is a “subjective test viewed from the insurer’s perspective.” Superior Dispatch, Inc. v. Ins. Corp. of N.Y., 104 Cal. Rptr. 3d 508, 520 (Ct. App. 2010). “[R]escission effectively renders the policy totally unenforceable from the outset so that there was never any coverage and no benefits are payable.” [Imperial Cas. & Indem. Co. v. Sogomonian, 243 Cal. Rptr. 639, 645 (Ct. App. 1988); accord U.S. Fid. & Guar. Co. v. Lee Invs. LLC, 641 F.3d 1126, 1136 (9th Cir. 2011).

PCC contended that it did not misrepresent the truth because, if the application question is read literally, PCC’s “no” answer informed Western that PCC was aware of circumstances that could lead to a claim. However, the form instructions stated that a “yes” answer would require applicants to provide “detailed information” about their answer and could precipitate “substantially different terms and conditions.” PCC provided no additional information to explain its answer. Given that context the court of appeal concluded that Western reasonably understood PCC’s answer to mean PCC was not aware of any circumstances that could lead to a claim.

The policy covered claims arising from a civil, regulatory, criminal, or administrative proceeding or investigation against PCC or any of the individual insureds. Although PCC claims it thought the federal investigation was over before PCC completed the application, the only reasonable conclusion is that the federal criminal investigation, even if closed or on hold, nonetheless might lead to a claim under the policy.

PCC also contended its answer was immaterial because the question was required only for applicants who, unlike PCC, sought increased policy limits. Specific demand for information is, however, in itself usually sufficient to establish materiality, but not necessary. Put simply, a misrepresentation is material when it regards the nature of the risk to be insured. PCC was not entitled to misrepresent the truth about the investigation simply because Western did not ask a specific question.

Moreover, Western’s senior underwriting executive stated in a declaration that “Western World would not have issued the policy to PCC had it known of the ongoing federal criminal investigation.” Although the factfinder “is not required to believe the “post mortem” testimony of an insurer’s agents courts will accept an insurer’s uncontradicted declaration as proof of materiality at the summary judgment stage. Western therefore carried its burden of showing materiality as a matter of law. The judgment was affirmed.

However, Judge Berzon dissented contending that as a matter of English grammar, the answer checked – “No” – was accurate. “No” signified that it was not true that none of the Insured Persons had reason to expect a claim – in other words, that some Insured Persons did have reason to expect a claim.

Judge Berzon stated that “But for my persnicketiness regarding the English language, I would concur in the majority disposition. However, as the answer was literally correct, there was no misrepresentation, and PCC should prevail.”

ZALMA OPINION

Judge Berzon is not persnickety. Rather he points out that Western World was quite lucky in having the judgment affirmed and reminded it to only use applications it writes itself so that accurate responses could be obtained and litigation like this one can be avoided. English is a difficult language. Applications should only ask questions where a “no” answer means “no” and not “yes.” The majority of the court based its decision on the fact that the insured knew of the potential claim and should have disclosed that fact to the insurer whether asked or not and should not take advantage of the poorly worded application question.


© 2017 – Barry Zalma

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

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

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

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached at http://zalma.com/zalma-books/

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

Legal Disclaimer:

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

 

 

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New Books at Amazon.com

“Insurance Fraud & Weapons to Defeat Insurance Fraud”

Insurance fraud continually takes more money each year than it did Insurance Fraud & Weapons to Defeat Insurance Fraud by [Zalma, Barry]the last from the insurance buying public. No one knows the actual amount with any certainty because most attempts at insurance fraud succeed. Estimates of the extent of insurance fraud in the United States range from $87 billion to more than $300 billion every year.

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

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

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

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

the effort to stop insurance fraud against Medicare and Medicaid has increased.

This book contains appellate decisions regarding insurance fraud from federal and state appellate courts across the country and full text of many insurance fraud statutes.

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

Available only as a Kindle book.

“The Compact Book on Adjusting Liability Claims: A Handbook for the Liability Claims Adjuster”

This Compact Book of Adjusting Liability Claims is designed to Product Detailsprovide the new adjuster with a basic grounding in what is needed to become a competent and effective insurance adjuster. It is also available as a refresher for the experienced adjuster.

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

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

Available as a Kindle book

Available as a paperback.

Ethics for the Insurance Professional

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

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

Rescission of Insurance

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

Available as a paperback.

“The Insurance Examination Under Oath”

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

Available as a Kindle book.

Available as a paperback.

“HEADS I WIN, TAILS YOU LOSE”

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

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

Available as a Kindle Book.

Available as a paperback.

“Random Thoughts on Insurance Volume V: Digests from Barry Zalma’s Blog: ‘Zalma on Insurance’”

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

The case digests and articles in this book 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.

Available as a Kindle book.

“Candy and Abel: Murder for Insurance Money

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

Available as a Kindle Book or paperback

“Murder And Insurance Fraud Don’t Mix”

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

 

Available as a Kindle book.

 

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Rescission – New Book Available Only on Amazon.com

Rescission of Insurance

Rescission is an equitable remedy as ancient as the common law of Britain.

When the United States was conceived in 1776 the founders were concerned with protecting their rights under British common law. They adopted it as the law of the new United States of America modified only by the limitations placed on the central government by the U.S. Constitution approved in 1789.

The viability and ability to enforce contracts was recognized as essential to commerce. Courts of law were charged with enforcing legitimate contracts. Courts of equity were charged with protecting contracting parties from mistake, fraud, misrepresentation and concealment since enforcing a contract based on mistake, fraud, misrepresentation or concealment would not be fair.

The common law developed rules that courts could follow to refuse to enforce the terms of a contract that was entered into because of mutual mistake of material fact, a unilateral mistake of material fact, the breach of warranty (a presumptively material promise to do or not do something), a material concealment, or a material misrepresentation. The remedy – called rescission – created a method to apply fairness to the insurance contract and allow an insurer to void a contract and allowed courts to refuse to enforce such a contract entered into by misrepresentation or concealment of material facts.

Insurance contracts, unlike common run-of-the-mill commercial contracts, are considered to be contracts of utmost good faith.  Each party to the contract of insurance is expected to treat the other fairly in the acquisition and performance of the contract. For example, the prospective insured is required to answer all questions about the risk he, she or it are asking the insurer to take and about the person the insurer is asked to insure.

Rescission, since before the U. S. Constitution, became an important remedy for insurers. As a contract of utmost good faith insurers and the courts recognized that the parties to a contract of insurance were more vulnerable than other contracting parties to misrepresentation or concealment of material fact. The remedy is available to either party to the contract and when one determines it was deceived into entering into the contract it may declare the contract void from its inception, return the consideration and treat it as if it never existed.

When an insurer or the insured discovers the existence of a factual basis for rescission they have the opportunity, but not the duty, to exercise the remedy of rescission.

In most states the remedy is available to both parties to the contract of insurance whether the party deceived believes the deceit was the result of a fraud or simply an innocent

misrepresentation or concealment of a material fact. To do otherwise would be to make a gift to the person who deceived the insurer of rights not available to the truthful.

“Rescission of Insurance” is now available at Amazon.com here.

Additional books by Barry Zalma as Kindle or paperback available here.

Including:

ETHICS FOR THE INSURANCE: Methods for Insurers and their Personnel to Act with the Utmost Good Faith; The Insurance Examination Under Oath; The Compact Book on Adjusting Liability Claims: A Handbook for the Liability Claims Adjuster; Random Thoughts on Insurance Volume V: Digests from Barry Zalma’s Blog: “Zalma on Insurance”; Random Thoughts on Insurance Volume V: Digests from Barry Zalma’s Blog: “Zalma on Insurance”; HEADS I WIN, TAILS YOU LOSE; ETHICS FOR THE INSURANCE PROFESSIONAL: Methods to Act with the Utmost Good Faith; Candy and Abel: Murder for Insurance Money; Murder And Insurance Fraud Don’t Mix and watch for more to come.


© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of 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://zalma.com/zalma-books/

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

Legal Disclaimer:

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

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New Book – The Insurance Examination Under Oath

Now a Kindle Book & A Paperback

The following is an excerpt from my new Kindle & Paperback book, The Insurance Examination Under Oath:

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

The EUO is a tool used sparingly by insurers in the United States when a thorough claims investigation raises questions about the application of the coverage to the facts of the loss, the potentiality that a fraud is being attempted, or to assist the insured in the obligation to prove to the insurer the cause and amount of loss. Although rarely used the EUO is an important tool needed by insurers when there is a question of coverage.

The Reason for the Examination Under Oath

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 insured 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. 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.

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.

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)]

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)]

Now available as a Kindle book or a paperback at https://www.amazon.com/Insurance-Examination-Under-Oath/dp/197681961X/ref=sr_1_3?s=books&ie=UTF8&qid=1515419013&sr=1-3&keywords=Barry+zalma

See all of Barry Zalma’s Kindle books available at Amazon.com here.

 


© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of 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

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

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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You Only Get What You Pay For

Broker Had No Duty to Force Insured to Buy More Insurance

For reasons that only make sense when there is no loss people decide to purchase insurance based solely on price. If more coverage is needed, but it is expensive, they don’t buy it. When a major loss occurs they then sue the broker who bought the insurance ordered not the insurance the insured needed.

In Bradley E. Cromer, as Assignee of the Rights of Allen Skriloff et al., Assignors, v. Rosenzweig Insurance Agency Inc., et al., 524896, 2017 NY Slip Op 08926, Appellate Division of the Supreme Court of the State of New York (December 21, 2017) the Appellate Division dealt with an appeal from an order of the a trial court in Ulster County, which, among other things, granted a motion by defendant Rosenzweig Insurance Agency Inc. for summary judgment dismissing the complaint and cross claims against it.

FACTS

In 2006, plaintiff was injured after falling off a ladder while employed as a painter at a property owned by Allen Skriloff and SOS 1031 Properties 112, LLC in the Town of Hurley, Ulster County. The insurance carrier for Skriloff and SOS 1031 disclaimed coverage for the loss on the ground that, among other things, the subject insurance policy specifically excluded coverage for injuries to employees, contractors and employees of contractors. Plaintiff thereafter commenced a lawsuit against, among others, Skriloff and SOS 1031. Following a trial, plaintiff obtained a jury verdict in his favor in excess of $6,100,000. Skriloff and SOS 1031 thereafter assigned to plaintiff any and all rights and claims that they held against the insurance brokers and the insurer with respect to the procurement of insurance coverage for the subject property.

Plaintiff sued Rosenzweig Insurance Agency Inc. (hereinafter defendant) and defendant Leon G. Silver & Associates, Ltd. (hereinafter Silver), as the insurance brokers for plaintiff’s assignors, alleging causes of action for negligence, breach of contract and fraud/material misrepresentation based upon defendant and Silver’s alleged failure to procure the appropriate insurance coverage for plaintiff’s assignors. Defendant and Silver separately moved for summary judgment dismissing the complaint against them. The trial court granted both motions, determining, among other things, that plaintiff’s assignors were presumed to know the contents of their insurance policy, thereby defeating the causes of action for negligence and breach of contract, and no evidence was otherwise submitted establishing any material misrepresentation and/or fraud by defendant or Silver.

Rosenzweig established that Skriloff telephoned him, informed him that he was in the process of a purchasing a property with the intent of renovating same and, in furtherance thereof, requested defendant to obtain a commercial general liability policy for the premises. Based on the information provided, Rosenzweig indicated that he obtained a quote for the policy requested and, the following day, prior to the submission of an application for or request to bind coverage, sent Skriloff a letter wherein he specifically indicated that the quoted policy “did not cover injuries to construction workers.” The letter further provided that, in the event that Skriloff was interested in procuring such additional coverage, it could be obtained for an additional $5,000. Rozenzweig indicated that, in response to his letter, he received a fully executed application for the commercial general liability policy as outlined in the provided quote.

According to Rosenzweig, at no point in time did Skriloff or anyone else associated with the subject property ever request defendant to obtain a policy that covered injuries to construction workers. Defendant also offered Skriloff’s deposition testimony. Skriloff testified that he was aware that the policy he purchased did not provide coverage for injuries to construction workers and explained that he did not procure the more expensive policy because he mistakenly believed that his contractor already had liability insurance covering his employees.

ANALYSIS

On a motion for summary judgment, it is the moving party’s burden to establish its prima facie entitlement to judgment as a matter of law by presenting sufficient evidence demonstrating the absence of any material questions of fact. Upon establishing a prima facie case, the burden then shifts to the party opposing the motion to demonstrate the existence of a material issue of fact.

As a general rule, “[a]n insurance [broker] has a common-law duty to provide requested coverage within a reasonable time and may be held liable for negligence or breach of contract when a client establishes that a specific request was made for coverage that was not provided in the policy” (Finch v Steve Cardell Agency, 136 AD3d 1198, 1200 [2016] [citation omitted].

Defendant therefore met its burden on its motion for summary judgment, shifting to plaintiff the burden of raising a triable issue of fact.

In opposition, plaintiff failed to present any credible evidence rebutting defendant’s proof in this regard. At best, plaintiff established that Skriloff made a generalized request for liability coverage, and it is well-settled that such a generalized request is insufficient to satisfy the requirement that a specific request for a particular type of coverage be made.

We find similarly unavailing plaintiff’s contention that a special relationship existed between defendant and Skriloff.  Indeed, although an insurance broker’s common-law duty to his or her clients does not include a continuing duty to advise the clients on appropriate coverage or to recommend additional coverage that the clients did not request an insurance broker may nevertheless be found liable for failing to provide appropriate advice regarding insurance coverage where it is determined that a special relationship has been established with his or her. Whether such a special relationship exists is best determined on a case-by-case basis upon consideration of such factors as whether the broker received compensation for his or her consultation services distinct from the payment of premiums, whether the broker and the client had a specific interaction with respect to the insurance coverage such that it was apparent that the client was relying on the advice of the broker or whether there existed a course of dealing over an extended period of time that would have put an objectively reasonable insurance broker on notice that his or her advice and/or expertise were being relied upon. It is the burden of the insured to establish that a special relationship existed.

Even assuming, without deciding, that plaintiff submitted sufficient proof demonstrating the existence of a special relationship, the record demonstrates that defendant fulfilled any corresponding duty of advisement that it may have owed to plaintiff’s assignors based upon defendant’s unambiguous letter advising Skriloff, in writing, that additional insurance coverage for injuries to construction workers was available and could be procured upon request and Skriloff’s testimony that he was aware that injuries to construction workers were specifically excluded from the policy that he purchased.

Because the record is devoid of any specific request for such additional coverage ever having been made the appellate court found that defendant’s motion for summary judgment dismissing the complaint against it was appropriately granted.

ZALMA OPINION

Skriloff was wise in assigning his rights – that were non-existent – to the plaintiffs who took a chance of a case against an insurer rather than to try to execute on the more than six million dollar verdict from Skriloff and others. Clearly the agent did everything he could, advised his client of the availability of the coverage needed, only to have it refused. The suit was, therefore, spurious. To save a $5,000 premium Skriloff suffered a more than six million dollar verdict.


© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of 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://zalma.com/zalma-books/

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

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 – January 1, 2018

Zalma’s Insurance Fraud Letter

The Essential Resource For The Insurance Fraud Professional   

As we start the 22nd year of ZIFL we say Happy New YearJanuary 1, 2018 

Co-Conspirator’s Civil Testimony Convicts Arsonist 

When committing a serious crime like arson it is best to have no co-conspirators or witnesses. Amanda Azevedo found out why when statements made by her co-conspirator to police officers and in deposition at a civil trial guaranteed the conviction of Azevedo. In Connecticut, the Court of Appeal was called upon to reverse Azevedo’s conviction in State of Connecticut v. Amanda Azevedo, AC 38124, Court Of Appeals Of The State Of Connecticut (December 19, 2017).

In California, violation of Penal Code Section 550, Insurance Fraud, will result in five years in prison. Similarly, across the country insurance fraud is a felony. It is time that prosecutors in every state and federal jurisdiction arrest fraud perpetrators and courts convict and sentence to long terms those convicted.

Zalma’s Insurance Fraud Letter, Volume 22, No. 1  


 The Current Issue Contains the Following  

  • Happy New Year
  • Co-Conspirator’s Civil Testimony Convicts Arsonist
  • Become a Certified Expert in Corporate Property Insurance and a Certified Expert in Corporate Liability Insurance
  • Two major insurers agree to Death Master File settlements totaling $600,000
  • Introducing Barry Zalma’s Insurance Law Deskbook
  • Fifth Amendment & Insurance Fraud
  • Barry Zalma Speaks at Your Request
  • Fraud Schemes
  • Wisdom
  • Barry Zalma
  • California Suspends 16 More Medical Providers
  • Good News From the Coalition Against Insurance Fraud
  • Health Insurance Fraud Convictions
  • Zalma’s Flat Rate Opinions
  • Other Insurance Fraud Convictions
  • Books from the American Bar Association
  • Zalma’s Insurance Fraud Letter

Zalma on Insurance – A Blog

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


Zalma’s Insurance 101 

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

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

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.

Advertise 

Are you a lawyer, law firm, independent insurance adjuster or insurer who would you to promote yourself or your firm to more than 200 daily visits by insurance professionals or the more than 2000 subscribers to ZIFL?
If you are, an ad on the blog Zalma on Insurance or Zalma’s Insurance Fraud Letter, to such a selective audience of insurance professionals and management can be more effective than any other form of advertising.
For only $100 a month on the blog or $100 an issue on ZIFL your ad will be permanent and effective.
Regards,
Barry Zalma  
 Barry Zalma, Inc.
(c) 2018, Barry Zalma & ClaimSchool, Inc.
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Insured v. Insured Exclusion Effective

Derivative Claim Exception Fails

Liability insurance policies invariably exclude defense or indemnity of one insured sued by another insured of the same policy. The reason is obvious, the potential for collusion and fraud are high.

In Sunrise Specialty Company, Inc. and Robert Weinstein v. Scottsdale Insurance Company, No. 16-16856, United States Court Of Appeals For The Ninth Circuit, (December 27, 2017) the insureds, Sunrise Specialty Company, Inc. (“Sunrise”) and its CEO, Robert Weinstein, appealed from the district court’s entry of summary judgment in favor of the insurer, Scottsdale Insurance Company (“Scottsdale Insurance”).

FACTS

In October of 2014, three of Sunrise’s minority shareholders (and former members of its board of directors) filed suit against Sunrise and Weinstein alleging, among other things, that Weinstein had breached his fiduciary obligations to the corporation. Sunrise promptly notified Scottsdale Insurance of the suit and demanded a defense and indemnification under the policy. Scottsdale denied coverage, invoking the policy’s “insured vs. insured exclusion,” noting that because each of the plaintiffs had previously served on Sunrise’s board of directors, each was an “Insured” as defined in the policy.

Sunrise and Weinstein sued Scottsdale Insurance in federal court, asserting claims for breach of the insurance policy and breach of the duty to defend, as well as breach of the covenant of good faith and fair dealing. The district court granted Scottsdale’s motion for summary judgment, concluding that the pertinent policy language was unambiguous, there were no genuinely disputed issues of material fact, and the policy’s “insured vs. insured” exclusion applied.  The trial court ruled that Scottsdale had, as a matter of law, properly denied coverage.

Surprisingly, all parties agreed that the plaintiffs in the underlying state suit are “Insureds” as defined in the policy and, therefore, the policy’s “insured vs. insured” coverage exclusion does apply.  Sunrise and Weinstein contended that an exception to that exclusion, known as the “derivative claim exception,” also applied, thereby triggering coverage. The district court found that it did not.

ANALYSIS

The “derivative claim exception” applies only if the underlying suit was “brought derivatively by a securities holder” and was “instigated and continued totally independent of, and totally without the solicitation, assistance, active participation of, or intervention of, any Insured.” Sunrise argues that the underlying plaintiffs were merely “nominal parties” who did not instigate, assist, or actively participate in the underlying lawsuit.

The Ninth Circuit concluded that the insured’s suggestion was speculative and unsupported by the record. Scottsdale argued that because a lawsuit cannot be instigated and continued totally independent of its named plaintiffs, the derivative exception would still not apply even if the named plaintiffs had a minimal role in conducting the litigation.

Regardless, Scottsdale refuted the argument that the plaintiffs were merely nominal. The record revealed that the underlying complaint includes statements taken directly from personal emails that Weinstein sent to the underlying plaintiffs. Plainly, then, those underlying plaintiffs (all of whom are “Insureds”) at least “assisted” and/or “actively participated” in drafting the complaint by providing counsel with copies of those emails.

The record disclosed, therefore, no genuine dispute with respect to any material fact. The Ninth Circuit concluded that the district court correctly concluded that, as a matter of law, the “derivative claim exception” does not apply, and Scottsdale properly denied coverage under the policy pursuant to the “insured vs. insured” coverage exclusion.

ZALMA OPINION

In an exceptionally short, concise opinion, not typical of the Ninth Circuit, the clear and unambiguous insured vs. insured exclusion was found to apply and the plaintiffs’ claim for defense and indemnity properly failed.


© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of 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://zalma.com/zalma-books/

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

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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Adjusting Property Claims

Why is there a First-Party Property Adjuster

The insurance adjuster is not mentioned in a policy of insurance. Standard first party property insurance policies, based upon the New York Standard Fire Insurance policy, contain conditions requiring the insured to, within sixty days of the loss, submit a sworn proof of loss. The policy allows the insurer to then, and only then, respond to the insured’s proof of loss. The insurer can then either accept or reject the proof submitted by the insured.

Technically, if the wording of the policy was followed literally the insurer could sit back, do nothing, and wait for the proof. If the insured was late in submitting the proof the insured could reject the claim. If the insured submits a timely proof of loss the insurer could accept or reject the proof of loss. If the insurer rejected the proof of loss the insured could either send a new one or give up and gain nothing from the claim. Insureds and insurers were not happy with that system since it seemed to run counter to the covenant of good faith and fair dealing. Most insurers understood that their insurers were mostly incapable of complying with the strict enforcement of the policy conditions. As a result, the insurance adjuster was created by the insurance industry.

“An ‘adjuster’ or ‘insurance adjuster’ is a person, co-partnership or corporation who undertakes to ascertain and report the actual loss to the subject-matter of insurance due to the hazard insured against.” As a result of its policy, an insurance company has a contractual obligation to pay its insured’s valid claim and, therefore, often dispatches one with special knowledge – the adjuster – to separate fact from fiction regarding a claim and obtain information to enable the insurance company to distinguish the valid claim from a claim for which the insurance company is not liable under its policy.

Some policies specifically state that the claimant must use his own judgment in estimating the amount of loss and that the assistance of an insurance adjuster is a “courtesy only” — the claimant must still send “a proof of loss within 60 days after the loss even if the adjuster does not furnish the form or help you complete it.”  As a general rule, “[w]hen an insurer gives its insured written notice of its desire that proof of loss under a policy of fire insurance be furnished and provides a suitable form for such proof, failure of the insured to file proof of loss within 60 days after receipt of such notice, or within any longer period specified in the notice, is an absolute defense to an action on the policy” [Stopani v. Allegany Co–op Ins. Co., 83 A.D.3d 1446, 920 N.Y.S.2d 559, 2011 N.Y. Slip Op. 2588 (N.Y. App. Div., 2011)]

Since the invention of the adjuster more than a century ago, the first person from the insurer that the insured meets when he or she suffers a first party property loss is the adjuster. The claim adjuster was invented to smooth the claims process and be certain that the insured receives the indemnity promised and performs a complete and thorough investigation to avoid fraudulent claims. As a result, every modern claims adjuster should know that it is his or her duty to aid the insurer in its obligation to fulfill the promises made by the policy of insurance and assist the insured in presenting his or her claim to the insurer.

An insurance adjuster is a person engaged in the business of insurance. Statutes define an adjuster as one who investigates losses on behalf of an insurer as an independent contractor or an employee of an independent contractor. An insurance adjuster is a special agent for the company and his powers and authority are prima facie coextensive with the business entrusted to his care, which is ascertaining and determining the amount of any claim, loss or damage payable under an insurance contract, and/or effecting settlement of such claim, loss or damage. The acts of an adjuster within the apparent scope of his authority are binding on the company without notice to the insured of limitations on his powers. [Old Republic Ins. Co. v. Von Onweller Const. Co., 239 So.2d 503 (Fla.App. 2 Dist., 1970)]

Although a special relationship exists between an insurer and insured because they are in privity of contract as an individual, the individual insurance adjuster is not in privity with the insureds based on their insurance policy wording. Thus, the employee adjuster does not owe a special duty to the insureds on which the bad faith tort could be based against the adjuster although actions of the adjuster can support a claim of bad faith against the insurer for whom the adjuster works. [Gruenberg v. Aetna Ins. Co., 9 Cal.3d 566, 108 Cal.Rptr. 480, 510 P.2d 1032] In the absence of privity of contract, an insurance adjuster is not liable to an insured for a failure to settle a claim against an insured. [Dumas v. ACCC Ins. Co., 349 Fed.Appx. 489, 2009 WL 3358479 (C.A.11 (Ga.), 2009)]

An independent insurance adjuster is not liable to an insured for malfeasance when the insurer delegates to the adjuster the responsibility to handle the insured’s claim because the adjuster is not in contractual privity with the insured. (See Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 576, 108 Cal.Rptr. 480, 510 P.2d 1032 (Gruenberg) that held that an insurance adjuster and law firm hired to adjust claim were not liable for bad faith; Sanchez v. Lindsey Morden Claims Services, Inc. (1999) 72 Cal.App.4th 249, 253, 84 Cal.Rptr.2d 799 (Sanchez) where an independent adjuster hired to adjust claim was found to owe no duty to insured.

However, in Texas, the Texas Supreme Court has determined that the “adjustment of claims and losses” qualifies as “the business of insurance,” thus making an adjuster a “person” under the Insurance Code. Vail v. Texas Farm Bureau Mut. Ins. Co., 754 S.W.2d 129, 132 (Tex.1988); Gasch v. Hartford Indem. Co., 491 F.3d 278, 282 (5th Cir.2007) that held that an insurance adjuster who services a policy engages in the business of insurance and therefore could be held individually liable under the Texas Insurance Code). [Esteban v. State Farm Lloyds & Aaron A. Galvan, 23 F.Supp.3d 723 (N.D. Tex., 2014)]

Imposed on the adjuster is an obligation to investigate the loss, interpret the policy wording, and apply the policy wording to the facts discovered in the investigation. A first party property adjuster must be educated, trained, experienced and ready to help an insured obtain the benefits promised by the insurance policy. The adjuster does not act as an attorney for the insurer. As a result, any effort to expand the work-product doctrine to include the work of the insurance adjuster prior to retention of counsel requires a deliberative and participative process to assure a careful balance between advocacy and truthfulness. The routine taking of statements by an insurance adjuster is work in the ordinary course of business which fails to qualify as work product. [Sorrells v. Cole, 141 S.E.2d 193, 111 Ga.App. 136 (Ga. App., 1965); Popina v. Rice–Steward, Not Reported in S.E.2d, 86 Va. Cir. 402, 2013 WL 8118663 (Va.Cir.Ct., 2013)]

The Idaho Supreme Court has indicated that statements made to an insurance adjuster are work product and protected from discovery. In Dabestani v. Bellus, 131 Idaho 542, 961 P.2d 633, 636 (1998), the Idaho Supreme Court agreed that a statement made to an insurance adjuster was protected as work product and free from discovery. The work product objection is the type that could be made during the deposition itself as questions are presented and do not prevent the deposition of an adjuster. [Boswell v. Steele, 348 P.3d 497, 158 Idaho 554 (Idaho App., 2015)]

To make certain that the adjuster’s work is protected by the work product doctrine it is necessary that he or she be instructed by counsel that the work is in anticipation of litigation with an explanation from counsel why it needs to be protected.

If litigation is not anticipated the adjuster, after being assigned a first notice of loss caused by fire, lightning, windstorm, hail, or any other peril not excluded by a direct risk of loss policy, must begin work to complete a thorough investigation. The adjuster must understand that it is his or her obligation to determine if the loss is one for which the insurer promised to provide indemnity; determine if the conditions of the policy have been complied with by the insured; and reach agreement with the insured as to the amount of loss and the amount of claim compensable by the policy.


© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of 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://zalma.com/zalma-books/

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

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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Adjusting Liability Claims

The Obligations of the Liability Claims Adjuster

Adjusting liability insurance claims requires skill, patience and knowledge of insurance and investigation.  The claims adjuster is faced with the following basic obligations:

  1. To understand the law of torts as applied in the state where the adjuster works.
  2. To understand sufficient medical terminology to be able to evaluate claims of injury.
  3. To understand how to read and apply the terms and conditions of a liability insurance policy.
  4. To understand how to thoroughly investigate all claims assigned.
  5. To conduct an investigation of every claim assigned fairly and in good faith with an intent to find coverage for the loss presented by the insured.
  6. To understand how to analyze the insurance coverage and apply the facts established by the thorough investigation to the policy wording.
  7. To pay promptly all claims the insurer owes under the contract.
  8. To resist, and not pay, all claims the insurer does not owe under the contract of insurance.
  9. To understand how to negotiate a settlement of claims presented by an injured person against an insured.
  10. To understand how to negotiate a settlement of claims presented by an injured person’s lawyer.

The average adjuster (a 22-year-old female graduate of a liberal arts college) has little or no training sufficient to allow her to fulfill the obligations. Some modern insurance companies simply hire a person to be an adjuster, provide no training, and send them out to deal with the public with only the assistance of a claims supervisor who may only have two years-experience.

This Liability Claims Adjuster’s Pocket Book is designed to provide the new adjuster with a basic grounding in what is needed to become a competent and effective insurance adjuster.

The liability claims adjuster quickly learns that there is little difficulty with a claimant if the claim is paid as demanded. The insured may be unhappy if the claimant’s claim is paid as presented since most do not believe they did anything wrong. The adjuster must be prepared to salve the insured’s emotions, explain why in the law and the policy it was appropriate to pay the claimant and that the settlement is in the best interest of both the insured and the insurer the adjuster represents. The adjuster knows, and must be prepared to explain to an insured, that if a claim is resisted or denied the claimant will be unhappy, will probably file suit, and the claimant’s lawyers will rake the insured over the coals to prove that the insured is liable for the claimant’s injury and that the extent of the injuries will cost the insured his or her reputation and the insurer much more than the claim could have been resolved for had it been resolved before the claimant retained a lawyer.

The adjuster must also understand that investigation may establish that the insured is not responsible for the injuries claimed. Since most people would prefer not to be deposed by a claimant’s lawyer nor would they want to be cross-examined during a trial, it is the duty of the adjuster to explain to the insured the insured’s responsibility to assist in the defense of the eventual lawsuit and not let someone take advantage of the insured and the insured’s insurer.

The liability adjuster must be knowledgeable about the fact that many liability claims are part of fraudulent schemes that are used by the unscrupulous to profit from fake accidents and injuries.

  • The best estimates the insurance industry has seem to establish that insurance fraud takes more than $80 billion from the industry every year. Almost all of those less than legitimate claims are paid because:
  • The adjuster is untrained.
  • The adjuster is minimally trained.
  • The adjuster is either unable or unwilling to perform a thorough investigation.
  • The adjuster is so inexperienced that he or she does not know how to investigate.
  • The adjuster is unable to read a policy with comprehension, because
    • He or she has not been trained.
    • He or she has been trained inadequately.
    • He or she has no legal training and do not know the rules of contract interpretation.
  • The fraud perpetrator is intelligent, not greedy, and knowledgeable.
  • The insurer does not want to fight because legal costs to fight a fraud exceed the value of the claim.
  • The adjuster does not recognize the fraud.
  • The police authorities refuse to investigate, let alone, prosecute insurance fraud.

A thorough investigation of a claim must cover the duty the adjuster owes to the insured and the insurer. The liability claims investigation should never be limited to “holding the claimant down to what he asks for” or just giving a blank check to claimants. The adjuster’s obligation is to deal fairly and in good faith with the insured, the claimant, and the insurer.


© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of 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://zalma.com/zalma-books/

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

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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Statute Must be Interpreted as Written

No Waiver Required When UM Coverage Exceeds Statutory Minimums

For reasons difficult to believe people buy more insurance coverage to protect persons they injure than to protect themselves from uninsured or underinsured motorists. When an accident occurs and injuries are in excess of the available limits, the injured person will sue his or her insurer to obtain the benefits the insured failed to buy.

In Lauren Van Laar, v. Nationwide Agribusiness Insurance Company, C082935, Court Of Appeal Of The State Of California Third Appellate District (San Joaquin),  (December 18, 2017) Van Laar had $1,000,000 in liability protection and only $300,000 in uninsured motorist coverage. She was severely injured and tried to compel Nationwide to pay her the limit of liability she bought to protect her from people she might injure.

Her suit failed and a trial court entered judgment in favor of  Nationwide Agribusiness Insurance Company (Nationwide). The sole question presented to the appellate court was one of statutory construction: Whether California Insurance Code section 11580.2 requires a written waiver to reduce uninsured motorist coverage where the coverage offered is less than the policy’s bodily injury liability limits but exceeds $30,000 per person and $60,000 per accident.

FACTUAL BACKGROUND

Van Laar was involved in an automobile accident with a third party who had no insurance available to compensate her for her injuries. Van Laar sought compensation from Nationwide, the insurance provider for a policy on which she was listed as an insured driver. The Nationwide insurance policy provided liability coverage of $1,000,000 and uninsured motorist coverage of $300,000, as set forth in an attached schedule. Van Laar demanded liability coverage limits of $1,000,000 from Nationwide, but Nationwide would provide her only $300,000.

Van Laar sued Nationwide for declaratory relief, seeking a judicial declaration that Nationwide owed Van Laar insurance coverage of $1,000,000 for the injuries she sustained in an automobile accident with an uninsured motorist.

DISCUSSION

California Insurance Code Section 11580.2, subdivision (a)(1) provides in pertinent part:

“No policy of bodily injury liability insurance covering liability arising out of the ownership, maintenance, or use of any motor vehicle, . . . shall be issued or delivered in this state . . . unless the policy contains, or has added to it by endorsement, a provision with coverage limits at least equal to the limits specified in subdivision (m) and in no case less than the financial responsibility requirements specified in Section 16056 of the Vehicle Code insuring the insured, the insured’s heirs or legal representative for all sums within the limits that he, she, or they, as the case may be, shall be legally entitled to recover as damages for bodily injury or wrongful death from the owner or operator of an uninsured motor vehicle. The insurer and any named insured, prior to or subsequent to the issuance or renewal of a policy, may, by agreement in writing, in the form specified in paragraph (2) or paragraph (3), (1) delete the provision covering damage caused by an uninsured motor vehicle completely, or (2) delete the coverage when a motor vehicle is operated by a natural person or persons designated by name, or (3) agree to provide the coverage in an amount less than that required by subdivision (m) but not less than the financial responsibility requirements specified in Section 16056 of the Vehicle Code.” (Italics added by the court)

Subdivision (m) of section 11580.2 provides that:

“[c]overage provided under an uninsured motorist endorsement or coverage shall be offered with coverage limits equal to the limits of liability for bodily injury in the underlying policy of insurance, but shall not be required to be offered with limits in excess of the following amounts: [¶] (1) A limit of thirty thousand dollars ($30,000) because of bodily injury to or death of one person in any one accident. [¶] (2) Subject to the limit for one person set forth in paragraph (1), a limit of sixty thousand dollars ($60,000) because of bodily injury to or death of two or more persons in any one accident.”

Construed as a whole, this statute means that uninsured motorist coverage must equal the limits of liability if those limits exceed the $15,000/$30,000 minimum required under the financial responsibility statute but only up to a maximum of $30,000 per person or $60,000 per accident.

Therefore, the court concluded that the only plausible interpretation of the statute that gives effect to all of its terms is that where an insurer fails to obtain a written waiver of uninsured motorist coverage, the automobile insurance policy will then be construed by operation of law to provide uninsured motorist benefits in an amount equal to the bodily injury liability limits of the policy up to, but not exceeding, $30,000 per person and $60,000 per accident.

Contrary to Plaintiff’s allegations, in the absence of a written waiver, Van Laar was statutorily entitled to coverage in an amount equal to the bodily injury liability limits of the policy up to but not exceeding $ 30,000 per person and $ 60,000 per accident. Thus, no written waiver was required to provide contractual uninsured motorist coverage of $300,000, which exceeds both the statutory floor and the statutory ceiling, rather than the underlying policy umbrella liability limits of $1,000,000.

ZALMA OPINION

Insureds and their lawyers should read the policy and the statutes governing the policy before filing suit. In this case only the court seems to have read the contract and statute. Since the statute required insurers to sell no less than $30,000 per person and $60,000 per accident, the insurer fulfilled more than the statutory requirement by selling $300,000 in coverage.

 


© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of 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://zalma.com/zalma-books/

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

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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California Stretches to Find Exception to the Litigation Privilege

The Litigation Privilege Is Limited in California

The so-called litigation privilege allows a person to be safe from tort litigation for statements made in court or for reporting a crime to authorities. It should be an unlimited privilege since it protects litigants and witnesses from suits for performing their public duty to testify or to report crimes.

In The People ex rel. Mahmoud Alzayat, v. Gerald Hebb et al., E066471, Court Of Appeal Of The State Of California Fourth Appellate District Division Two, (December 19, 2017) an employer and workers’ compensation provider accused Alzayat of making a false claim for workers’ compensation benefits. The employer claimed it was protected by the litigation privilege and the People and the Relator Alzayat claimed the privilege did not apply.

INTRODUCTION

Mahmoud Alzayat, on behalf of the People of the State of California, filed this qui tam action against his employer, Sunline Transit Agency, and his supervisor, Gerald Hebb, alleging a violation of the Insurance Frauds Prevention Act (IFPA or the Act). (California Ins. Code, § 1871 et seq.) Alzayat alleged Hebb made false statements in an incident report submitted in response to Alzayat’s claim for workers’ compensation, and Hebb repeated those false statements in a deposition taken during the investigation into Alzayat’s claim for compensation. Hebb’s false statements resulted in Alzayat’s claim being initially denied.

The superior court concluded the workers’ compensation exclusivity rule is inapplicable, but ruled the litigation privilege bars Alzayat’s claim. Therefore, the court granted the motions without leave to amend and entered judgment dismissing the lawsuit.

FACTS

Sunline Transit Agency (Sunline) is a public entity that provides regional transportation services and oversight of other transportation entities such as taxi companies. Alzayat was employed by Sunline as a stops and zones technician, and in that capacity he maintained bus stop infrastructure. Hebb was Alzayat’s supervisor.

On the day of the current injury, Alzayat was working on a bus stop and needed concrete mix to anchor some posts. The only available bags of concrete mix weighed 90 pounds. To avoid reinjuring his lumbar, Alzayat asked Hebb for permission to either break down a 90-pound bag into lighter ones or to have another employee help him lift the 90-pound bag. Hebb refused Alzayat’s requests, and the two argued for about two minutes. Hebb ultimately ordered Alzayat to lift the 90-pound bag by himself without breaking it down first. Alzayat complied and, immediately upon lifting the bag, Alzayat felt intense pain in his lumbar spine, and he partially collapsed. Alzayat dropped the bag and its contents spilled out. When Hebb asked Alzayat why he had dropped the bag, Alzayat complained he had injured his back when lifting the bag.

Hebb was deposed during the investigation into Alzayat’s workers’ compensation claim. Hebb testified under oath that he had no conversation with Alzayat about the request to either break down the bag of concrete mix or to obtain help in lifting the bag. Hebb also denied having witnessed Alzayat injure himself when he lifted and then dropped the bag. Alzayat alleged Hebb knowingly provided false testimony because Hebb was present and had witnessed Alzayat’s injury. In addition, Alzayat alleged Sunline adopted and ratified Hebb’s misrepresentations, and Hebb and Sunline knew or should have known that Hebb’s deposition testimony would be used in determining whether Alzayat’s workers’ compensation claim would be granted or denied.

Sunline’s risk management authority denied Alzayat’s workers’ compensation claim based on Hebb’s report and deposition testimony. Alzayat alleged Hebb’s misrepresentations were material in that a reasonable insurance carrier would consider them important when determining whether to accept or deny liability for Alzayat’s injuries.

DISCUSSION

Alzayat’s Qui Tam Claim Under the IFPA Is Not Barred by the Litigation Privilege.

Alzayat does not dispute that, in general, the litigation privilege bars tort liability for communications that are made in judicial and quasi-judicial proceedings such as a workers’ compensation proceeding. Rather, he argues the IFPA is an exception to the litigation privilege.

The IFPA.

The IFPA was in large measure designed to prevent workers’ compensation insurance fraud, and the Act includes a number of legislative findings and declarations that are relevant here. “[T]he actions of employers who fraudulently fail to secure the payment of workers’ compensation as required by Section 3700 of the Labor Code harm employees, cause unfair competition for honest employers, and increase costs to taxpayers.”

The IFPA’s civil penalties are intended to be remedial and not punitive and they are not the exclusive remedies available for insurance fraud. An action to recover civil penalties under the IFPA may be initiated by the district attorney or the insurance commissioner. In addition, any “interested person,” including an insurance company, may file such an action in the name of the People of the State of California.

Alzayat pleaded predicate offenses under Penal Code section 550, subdivision (b)(1) and/or (b)(2).

THE LITIGATION PRIVILEGE

The litigation privilege, codified at Civil Code section 47, subdivision (b), provides that a publication or broadcast made as part of a judicial proceeding is privileged. This privilege is absolute in nature, applying to all publications, irrespective of their maliciousness. The usual formulation is that the privilege applies to any communication (1) made in judicial or quasi-judicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the litigation; and (4) that has some connection or logical relation to the action. The privilege ‘is not limited to statements made during a trial or other proceedings, but may extend to steps taken prior thereto, or afterwards.

The principal purpose of Civil Code section 47, subdivision (b)] is to afford litigants and witnesses the utmost freedom of access to the courts without fear of being harassed subsequently by derivative tort action. The law places upon litigants the burden of exposing during trial the bias of witnesses and the falsity of evidence, thereby enhancing the finality of judgments and avoiding an unending roundelay of litigation, an evil far worse than an occasional unfair result.

Claims Under The IFPA For Insurance Fraud Are An Exception To The Litigation Privilege.

Insurance Code section 1871.7 is a more specific statute than the litigation privilege. The litigation privilege is implicated in all judicial and quasi-judicial proceedings, but the IFPA is limited to a small subset of those proceedings.

Application of the litigation privilege would thwart rather than promote the legislative purpose behind the IFPA. The court of appeal concluded that the application of the litigation privilege would render the IFPA significantly inoperable.  Alzayat’s claims under the IFPA are not barred by the litigation privilege, and the trial court erred by granting judgment for defendants based on the privilege.

The Workers’ Compensation Exclusivity Rule Does Not Apply to Alzayat’s Claims Under the IFPA.

With respect to the IFPA, the Act was intended to encompass fraudulent claims for workers’ compensation benefits and specifically provides for civil penalties for claims for compensation under Labor Code section 3207, which is part of the WCA. Lest there be any residual confusion over the authority to proceed.

By definition, a qui tam lawsuit vindicates an injury to the government, not an injury to the relator. A qui tam statute effectively assigns part of the government’s interest to a relator so that the relator has standing to assert an injury suffered by the government. A qui tam relator is essentially a self-appointed private attorney general, and his recovery is analogous to a lawyer’s contingent fee.

Because a qui tam relator does not sue based on his or her own injuries, we conclude an IFPA claim filed by an employee against an employer is not barred by the workers’ compensation exclusivity rule.

DISPOSITION

The court of appeal agreed with Alzayat that his lawsuit is not barred by the litigation privilege. The litigation privilege is broad, but it has its limits.  The IFPA is a more specific statute than the litigation privilege, and application of the litigation privilege to claims under the IFPA—which in many cases will be based on communications that are otherwise privileged under Civil Code section 47(b)—would in large measure nullify the Act.

This lawsuit is not barred by the workers’ compensation exclusivity rule. The Workers’ Compensation Act provides exclusive remedies for injuries to a worker arising out of his or her employment. Like any qui tam lawsuit, Alzayat’s claim under the IFPA is based on an injury suffered by the People, not based on any injury he himself suffered. Therefore, the exclusivity rule is inapplicable.

The appellate court concluded that the trial court erred by granting judgment on the pleadings for defendants.

ZALMA OPINION

The IFPA is designed to stop fraud and a qui tam suit should not be used as a means to avoid the exclusivity of workers’ compensation or punish those who accuse a worker of fraud. This case is limited. It found Alzayt sufficiently pleaded a case. It does not have anything to do with the facts nor is it a finding that the employer lied. The decision, in my opinion, went too far since the defendants should be protected from this type of litigation by testifying that a person was not entitled to workers’ compensation benefits. Alleging the employer lied gets past a motion to dismiss but is not proof that he lied.


© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of 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://zalma.com/zalma-books/

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

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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Co-Conspirator’s Civil Testimony Convicts Arsonist

Criminal Should Never Trust Another Criminal

Arson is a serious crime that often injures or kills the innocent. Whether set to defraud an insurer or just for spite it cannot be allowed to succeed without serious punishment. When committing a serious crime like arson it is best to have no co-conspirators or witnesses. They must remember that there is no honor among thieves. Amanda Azevedo found out why when statements made by her co-conspirator to police officers and in deposition at a civil trial guaranteed the conviction of Azevedo.

In Connecticut, the Court of Appeal was called upon to reverse Azevedo’s conviction in State of Connecticut v. Amanda Azevedo, AC 38124, Court Of Appeals Of The State Of Connecticut (December 19, 2017).

FACTS

Azevedo was convicted of the crimes of arson in the first degree, attempt to commit insurance fraud, attempt to commit larceny in the first degree, conspiracy to commit arson in the first degree, conspiracy to commit insurance fraud and conspiracy to commit larceny in the first degree in connection with an arson that destroyed her home, the defendant appealed. She claimed that certain out-of-court statements that D, her coconspirator, had made to an insurance company fire investigator and to two police officers, and certain testimony that D had given in a deposition in a related civil action, should not have been admitted into evidence because they constituted inadmissible hearsay and violated her sixth amendment right to confrontation.

D had told the investigator about the defendant’s actions and whereabouts on the morning of the fire, and testified similarly in the deposition. After a memorial service for the defendant’s late husband, D asked to speak to the police officers privately and told them that the defendant was responsible for setting her house on fire and how she set the fire, that he was present while items were being removed from the defendant’s home prior to the fire and that there was a video of the items being removed. The trial court determined, on the basis of D’s deposition testimony and statements to the investigator, that the state had established, by a fair preponderance of the evidence, the existence of a conspiracy between D and the defendant, and, therefore, that D’s deposition testimony and statements to the investigator were admissible under the Connecticut Code of Evidence as statements of a coconspirator in furtherance of a conspiracy. The trial court further determined that D’s statements to the police officers inculpated both himself and the defendant, and, thus, were admissible as dual inculpatory statements.

DECISION

The defendant could not prevail on her claim that the trial court improperly admitted into evidence D’s deposition testimony and statements to the investigator as statements of a co-conspirator in furtherance of a conspiracy: although that court admitted D’s statements and deposition testimony for their substantive use, the statements were not admitted to prove their contents but, rather, were admitted as verbal acts in furtherance of a conspiracy, and, therefore, because the statements and testimony were not testimonial in nature, the defendant’s right of confrontation was not implicated; moreover, in light of the extrinsic evidence of the conspiracy presented by the state, which included evidence of discrepancies concerning the defendant’s activities and whereabouts on the morning of the fire, and showing D’s presence at the defendant’s home days prior to the fire when the defendant’s belongings were removed from the home and that D wanted the defendant’s husband to receive the insurance proceeds from the fire, it was not clearly erroneous for the trial court to conclude that the state had proven the existence of a conspiracy between D and the defendant by a fair preponderance of the evidence so as to permit the jury to consider D’s deposition testimony and statements as evidence of the continuing conspiracy.

The trial court properly characterized D’s statements to the police officers as dual inculpatory statements. D’s statements to the police officers reasonably could be characterized as inculpating both himself and the defendant, as D reasonably understood that his statements were against his penal interest in that they implicated him in the conspiracy to commit insurance fraud. D was unavailable to testify at the defendant’s trial in that he would have invoked his fifth amendment right against self-incrimination had he been called to testify, and his statements presented sufficient indicia of reliability; moreover, given the substantial amount of admissible evidence adduced at trial that supported the defendant’s conviction, any possible error in the court’s admission of D’s statements to the officers as dual inculpatory statements was harmless beyond a reasonable doubt.

In Connecticut, an out-of-court statement offered to prove the truth of the matter asserted is hearsay. . . . If such a statement is offered for a purpose other than establishing the truth of the matters contained in the statement, it is not hearsay.” The defendant contends that the court admitted D’s

The defendant bears the responsibility of demonstrating that his claim is indeed a violation of a fundamental constitutional right.  She failed.

ZALMA OPINION

Azevedo made two serious errors: She attempted an arson for profit without the knowledge or skill to do the crime carefully; and she trusted a co-conspirator who divulged the scheme to the police, an insurance investigator and in a civil deposition. The evidence from the co-conspirator was not presented as evidence of the crime or to prove the truth of the matter asserted but was, rather presented, as an admission of the crime by the co-conspirator which allowed the jury to understand how Azevedo was responsible for the crime. Thanks to a wise Connecticut court she will stay in jail.


© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of 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://zalma.com/zalma-books/

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

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 Premium, No Consideration, No Insurance

Why Wasn’t it Obvious that Failure to Pay Premium Fatal to Claim?

Insurance is nothing more than a contract. For a contract to be formed there must be evidence of an offer, acceptance of the offer and payment of consideration. To acquire a policy of insurance the consideration required is called the premium. If the premium is not paid there can be no insurance.

In the lengthy named case of Debra Allyn Nowakowski, Executrix Of The Estate Of Jesus Santiago, t/a Car Craft Audio And Car Craft Auto Corp. v. Selective Way Insurance Company, a New Jersey Corporation, and Richards & Summers, Inc., a New Jersey Corporation; The Lynoxx Group, LLC, a New Jersey Limited Liability Corporation; Town Of Dover, a Municipal Corporation, Allen Bell, Jr., ire Chief Jon Filosa, and Town Of Dover Fire Department, Docket No. A-5416-15T1, Superior Court Of New Jersey Appellate Division (December 12, 2017) Debra Allyn Nowakowski (a/k/a Debra Allyn Koeppel) (Koeppel), Executrix of the Estate of Jesus Santiago (Santiago), t/a Car Craft Audio and Car Craft Auto Corp. (Car Craft) (collectively plaintiffs) appeal from a December 4, 2015 order granting summary judgment to defendant Selective Way Insurance Company (Selective).

The trial judge determined that Selective had properly canceled a policy of insurance for non-payment of premiums and, as a result, he dismissed the complaint in its entirety.

When reviewing an order granting summary judgment, the appellate court must apply the same standard governing the trial court and it owes no deference to the motion judge’s conclusions on issues of law. The appellate court must look at the facts in the light most favorable to plaintiffs.

FACTS

Selective issued a commercial insurance policy to Santiago for the period of February 19, 2011 through February 19, 2012. On or about February 28, 2012, Selective prepared an invoice for the renewal of the policy for one additional year. The invoice notified plaintiffs that a renewal premium was due on March 19, 2012.

Koeppel had been married to Santiago. Koeppel acted as Santiago’s operations manager and handled Car Craft’s insurance needs. She testified that she and Santiago knew payment was due on March 19, 2012. Plaintiffs, however, intentionally failed to make the payment.

On March 24, 2012, Selective issued a cancellation notice to plaintiffs. The notice stated that Selective would “continue [the insurance] coverage without lapse if full payment is received prior to [April 10, 2012].” Koeppel testified that she and Santiago received the cancellation notice and intended not to make the payment. Koeppel corroborated this intention by candidly admitting in her deposition testimony that “we were letting all policies lapse.”

Selective declined insurance coverage on the fire loss for non-payment of premiums.

Plaintiffs sued alleging four causes of action against Selective: improper cancellation of the policy; interference with Santiago’s ability to secure insurance on the date of loss; breach of the covenant of good faith and fair dealing; and violation of the Consumer Fraud Act (CFA).

Selective cross-moved for summary judgment contending that the undisputed facts demonstrated that it was entitled to judgment as a matter of law. The judge agreed and entered the orders under review.

ANALYSIS

Ordinarily, the cancellation of an insurance policy must strictly comply with the statutory requirements. An insured need not actually receive a cancellation notice in order for it to be effective, provided that the statutory proof of mailing has been satisfied.  The determinative factor is the mailing of the notice, not its receipt.

In general, courts have not required such compliance where the insured admits receipt of the cancellation notice. Here, plaintiffs admitted they purposefully declined to pay the premiums. According to Koeppel, the failure to pay the premiums meant Santiago and Car Craft were “out of insurance.” She further testified that “I understand that th[e] policy . . . was no longer paid. Policy No. S1757545 was no longer my policy. [Selective was] not going to help me if anything had happened.”

The record reflects that plaintiffs concede on appeal, that plaintiffs chose not to pay the premium knowing that Selective would cancel the policy.

Plaintiffs were uninsured on the date of loss because they decided to let the policy lapse, and because they declined payment for insurance from another insurance company. Likewise, there is no credible evidence on this record that Selective engaged in bad faith, and plaintiffs have failed to make out a prima facie case of a violation under the CFA, assuming it even applies to the facts of this case.

ZALMA OPINION

Statutes requiring proof of mailing is to protect the insured. Here, it was not necessary since the plaintiff admitted she received the notice of cancellation and did nothing. It is amazing to me that a lawyer was willing to take this case up on appeal considering the facts recited by the appellate court. The plaintiff admitted that she received the notice of cancellation and affirmatively decided not to pay the premium. Without consideration there can be no policy of insurance and the insurer properly refused to pay the claim.


© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of 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://zalma.com/zalma-books/

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

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 Law Deskbook

Introducing Barry Zalma’s Insurance Law Deskbook

Barry Zalma’s Insurance Law Deskbook is coming to Full Court Press in 2018. Mr. Zalma has over 50 years of practical insurance claims experience culminating in this indispensable resource. In the course of his career Mr. Zalma has represented insurers, advised insurers on claims handling, interpreted coverages, and testified as an insurance expert on behalf of insurers and policy holders.

Today, you can read a preview chapter of the Insurance Law Deskbook exclusively on the Fastcase blog. If you are interested in purchasing an individual annual subscription for $225 please contact us at sales@fastcase.com or 202.999.4777.

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

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

Every lawyer retained to prosecute or defend a civil suit should begin the representation with a serious effort to find insurance coverage for the benefit of the client or the defendant the client is suing. If no insurance is available it is essential that the plaintiffs’ counsel determine the assets of the defendant(s) to satisfy any judgment. It makes no sense to sue a judgment proof defendant.

A lawyer who does not know the law of insurance will file a suit for actions excluded from every insurance policy the defendant may have. The lawyer who understands insurance will provide a suit whose judgment can be collected or will provide a defense to the client that will pay for the defense of the defendant and, if necessary, satisfy any judgment entered against the insured. Without that knowledge, the lawyer without sufficient insurance knowledge will find he or she is in trial litigating with duct tape firmly self-placed across his or her mouth and unable to intelligently evaluate the case.

Lawyers are paid by insurers if:

  • The tort lawyer is retained by a plaintiff and subject to a contingency fee agreement whose fee, as part of any judgment, is paid by an insurer.
  • The tort defense lawyer is paid directly by the client’s insurer(s).
  • The insurance defense lawyer is paid directly to defend an insurer.
  • The insurer client pays the insurance coverage lawyer whose practice is limited to litigating against insurers.
  • Insurers pay the regulatory lawyer who deals with regulatory agencies on behalf of or against the interest of insurers a fee.
  • An insurer pays the patent lawyer who determines that the suit for infringement is covered by insurance.
  • An insurer pays the transactional lawyer who writes contracts to compel insurance to be available for the benefit of his or her client.
  • The prosecutor whose practice is limited to the prosecution of insurance fraud is paid by funds paid to the state by insurers to prosecute crimes against insurers.
  • The criminal defense lawyer who defends a client against the crime of insurance fraud is paid by his client as a result of an insurance claim.

Every civil lawyer should understand that a major part of the lawyer’s income comes, directly or indirectly, from insurance. Since insurance is an important source of funds for the success of a civil law practice, it is imperative that every lawyer has a basic understanding of the law of insurance.

Similarly, prosecutors or criminal defense lawyers dealing with the crime of insurance fraud must understand the law of insurance to properly represent the state or the defendant. Indeed, the lawyer who is ignorant of the law of insurance cannot adequately serve his or her clients. Ignorance about insurance and insurance law is not incurable—a review of the material in this book will cure insurance ignorance as antibiotics cure pneumonia.

A thorough knowledge of insurance law is also important to risk managers, property owners, business owners, insurance underwriters, insurance brokers and agents, and insurance claims personnel.

It was for everyone who earns a living from, or with the assistance of, insurance that this book was written.

The purpose of the book is to assist the law student, the practicing lawyer, the insurance lawyer, professional claims personnel, persons who are insured, and all those who are involved with insurance understand insurance and its application to claims situation. The book includes digests of, and the full text of, insurance‑related decisions of the United States Supreme Court, the U.S. District Courts of Appeal, state appellate courts, and foreign courts that have molded the law that governs insurance transactions in the United States.

Those who are new to the subject of insurance will find this e-book a resource and a starting point for research. It can also be used as a basic training course for those who are just beginning the practice of insurance law or the claims business; for those representing insurers, those representing people who are insured; or for those litigating against insurers.

The Definition of Insurance Today

In the U.S., California has, by statute, created one of the clearest definitions of insurance. The California Insurance Code states:

Insurance is a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event. [California Insurance Code Section 22]

The California Legislature, by Insurance Code Section 22, merely codified three centuries of common law defining insurance. This definition should apply in most states. Whether codified, or only part of the state’s common law, there can only be insurance if there is an agreement to indemnify against a contingent or unknown event.

The taking of risk is the essence of insurance since the ancient Babylonians wrote the first contract on clay tablets more than 3,000 years ago.

As U. S. Supreme Court Justice Stewart said in Jacobellis v. Ohio, 378 U. S. 184, 197 (1964), when dealing with pornography, “I know it when I see it,” most members of the public would be hard-pressed to define insurance but claim to know it when they see it. In fact, over the last 45 years I have asked every insured person with whom I come in contact if they have read and understood their insurance policy. So far, only two have answered yes and they both lied, even though modern insurance policies are “easy to read” or written in English a third-grader can understand.

Many states have different definitions of the word “insurance” but each have the same essential elements:

  • It must be a written contract.
  • One party (the insurer) agrees with the other (the insured).
  • The insurer, for consideration (payment of a premium) agrees to indemnify the insured.
  • The promise to indemnify is limited to certain identified risks of loss arising from a fortuitous, contingent or unknown event.

Before making a decision that a contract is insurance it is important to use more than the concept of “I know it when I see it.” Insurance is always a contract. A contract, even one that agrees to indemnify another, is not always insurance. It can be a simple contract of indemnity without a need for the fortuity that is the basis of insurance.

The Insurance Law Deskbook allows a professional to deal with insurance, insurance claims, and insurance claims disputes.

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When a Late Report is Prejudicial to the Insurer’s Rights

Failure to Give Prompt Notice of Loss Fatal to Claim in Illinois

As I have said, many times before, the duty of good faith and fair dealing applies equally to the insured as it does to the insurer. To make that obligation clear every auto policy requires the insured to report an accident that causes property damage or bodily injury promptly to the insurer.

In State Auto Property and Casualty Insurance Company v.  Brumit Services, Inc., An Illinois Corporation, et al., No. 17-1700, United States Court of Appeals For the Seventh Circuit, (December 11, 2017) State Auto Property and Casualty Insurance Company sought a declaratory judgment that it had no duty to defend its insured Brumit Services, Inc., because the latter failed to provide prompt notice of an accident that eventually led to a lawsuit.

Contrary to State Auto’s argument the district court concluded that the insured’s 21-month delay in notifying the insurer was reasonable and awarded judgment to the insured.

BACKGROUND

Carl Brumit owns Brumit Services, Inc., a small business that performs residential concrete construction work.  Brumit purchased a Business Auto Liability insurance policy from State Auto to cover the truck he used for the business. Like most auto insurance policies, Brumit’s policy provided that State Auto would defend and indemnify Brumit in the event he was sued for an accident causing bodily injury or property damage. However, State Auto had “no duty to provide coverage” unless Brumit complied with his duties under the policy, one of which was that Brumit “must give [State Auto] prompt notice of the ‘accident’ or ‘loss.'”

When Brummit backed out of his parking space, he unwittingly struck 68-year-old Delores Menard with the truck’s tailgate. Menard fell and suffered scrape wounds on her elbow and knee. She was treated by an EMT and declined a trip to the hospital, instead choosing to drive herself home. He observed that Menard was sitting down and “may have had a scratch on her knee.”

After everyone parted ways, Brumit thought the incident so minor that he was not required to report it to State Auto. But almost two years later he was served with a lawsuit in Illinois state court in connection with the accident.

The next day, Brumit notified State Auto that he had been sued. State Auto unsuccessfully  sought declaratory relief that it owed no defense.

ANALYSIS

When construing an insurance policy an appellate court  must ascertain and give effect to the intentions of the parties, as expressed in the policy language. Unambiguous words in the policy are to be given their plain, ordinary, and popular meaning.

The Illinois Supreme Court has repeatedly held that notice provisions in insurance policies are reasonable. As the court explained in Barrington Consolidated High School v. American Insurance Co., 319 N.E.2d 25, 27 (Ill. 1974), “[a] provision in an insurance liability policy requiring an insured to give the insurer notice of an accident is a reasonable policy requirement, one which affords the insurer an opportunity to make a timely and thorough investigation and to gather and preserve possible evidence.” These are not merely technical requirements but are conditions precedent to an insurer’s contractual duties.

When a notice provision becomes the subject of a dispute, Illinois courts have read such provisions as requirements that the insured provide notice within a reasonable time.

POLICY LANGUAGE

The policy terms are unmistakably clear: State Auto will have “no duty” to defend an insured unless the insured provided “prompt notice” of the accident at issue, and the insured “must” report any accident. The notice provision is couched in mandatory terms. When Brumit backed his truck into Menard, the mandatory language in the policy imposed a contractual obligation to promptly report the accident. He did not.

An insurance company wouldn’t want to know about an accident if there was no ground for … a reasonable person to believe that a claim under the policy would be made. But where such a ground does exist, the insured has a duty to report the accident.

Although everyone at the scene on the day of the accident apparently viewed it as minor, it is fairly common for individuals involved in automobile accidents to experience injuries that don’t manifest themselves until days, weeks, or even months after the accident.

Because a reasonable person would have known that a claim might be filed after the accident, Brumit cannot avoid the mandatory policy language.

BRUMIT’S SOPHISTICATION

The second factor is Brumit’s sophistication in matters of commerce and insurance.  He had also purchased several insurance policies for himself, his home, and his business, and over several years surely had to renew those policies. His company also participates in workers’ compensation insurance. A person in his position should be expected to possess a better-than-average understanding of commerce and insurance.

The approach taken by the district court and advocated in this court by Brumit and Menard would render most people in Illinois unsophisticated as a matter of law. This is not only untenable as a matter of law, but it is contrary to the Illinois Supreme Court’s repeated holdings that notice provisions in insurance policies are reasonable.

AWARENESS OF POTENTIAL CLAIM

The district court reasoned that “the incident was trivial, resulted in no apparent harm, and furnished no reasonable ground for Brumit to believe that a claim might arise, particularly given his lack of sophistication in insurance matters.” There was no reason for Brumit to be so sure that no claim would be filed.

An insured cannot simply roll the dice with the insurer’s funds, hiding behind the statistical probabilities it has assigned to the case outcome. The burden to an insured to give notice is slight, whereas the repercussions felt by an insurer due to late notice can be substantial.

BRUMIT’S LACK OF DILIGENCE

The undisputed facts reveal that Brumit did nothing other than glance at his policy during the 21 months after he hit Menard. He did not call anyone to try to determine whether a claim might be filed against him. Instead, he relied upon his own assumptions that Menard was not badly injured to determine that he wouldn’t have to notify State Auto. An insured’s subjective beliefs must give way to an objective standard of reasonableness based on all the circumstances. A reasonable driver would have at least called his insurance agent to determine whether the accident should have been reported. Because Brumit failed to do even that, the court concluded he was not diligent.

PREJUDICE TO STATE AUTO

Brumit claimed that early notification would have made no difference, because the evidence would not have been any different if he had called State Auto the day after the accident. But that is not necessarily true. As the Illinois Supreme Court explained, a notice provision “affords the insurer an opportunity to make a timely and thorough investigation and to gather and preserve possible evidence.” Barrington Consol. High Sch., 319 N.E.2d at 27. Because of Brumit’s failure to comply with the notice provision, no one will ever know what might have been learned from a through investigation.

Compliance with the notice provision would have allowed State Auto to contact Menard to determine her willingness to settle. The insurer could also have discovered facts about her claimed injuries that were not available two years after the accident.

ZALMA OPINION

Insurance policies are contracts like any other. The job of a court when presented with a contractual dispute is to determine the rights and responsibilities of the parties under the contract. In this case, it was Brumit’s responsibility to notify State Auto that he had been in an accident that might lead to a claim. He failed to do so, and his failure was inexcusable under Illinois law. Therefore, under the terms of the contract, State Auto has no duty to defend or indemnify Brumit in the personal injury suit arising out of the accident.


© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of 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://zalma.com/zalma-books/

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

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 May Not Subrogate Against Its Own Insured

Motor Home Renter as Permissive Driver Is Insured on Motor Home Policy

When a vehicle is rented the renter is given permission by the owner to operate the vehicle. If the owner is insured for material damage and its insurer pays a claim the insurer is subrogated to the rights of the owner/insured.

In Depositors Insurance Company v. Craig Dollansky, Julie Dollansky, A17-0631, State Of Minnesota In Court Of Appeals (December 11, 2017) the insurer sued the operator of a motor home that was destroyed by fire. The operator argued he was insured by the owner’s insurer as a permissive driver and, as a result, the insurer could not subrogate against its own insured.

Minnesota Statutes section 60A.41(a) (2016), prohibits an insurer from subrogating against its own insured for the same loss even when the insured is not a named insured in the policy.

FACTS

In December 2013, respondent Craig Dollansky rented a motor home from Karavan Trailers. The rental contract provided as follows:

INSURANCE: Renter is responsible for all damage or loss, including damage or loss you cause to others. Renter has provided us with an insurance binder indicating that Renter has Vehicle liability, collision, and comprehensive insurance covering Renter, [Karavan] and Vehicle.

RENTAL, INDEMNITY, AND WARRANTIES: . . . Renter agrees to indemnify [Karavan], defend [Karavan], and hold [Karavan] harmless from all claims, liability, cost and attorney fees incurred by [Karavan] resulting from, or arising out of, this rental and Renter’s use of the vehicle.

RESPONSBILITY FOR DAMAGE: Renter is responsible for all damage to the Vehicle . . . regardless of whether or not Renter is at fault.

In January 2014, Dollansky was driving the motor home when it caught fire, causing damage to the motor home in the amount of $204,895.05.

Depositors insured Karavan at the time of the fire; American Family Insurance was Dollansky’s automobile insurer. Karavan submitted a claim for the entire amount of the fire damage to American Family, who paid Karavan part of its insurance deductible but denied the balance of the claim. Depositors then paid Karavan $204,895.05 and brought this action against Dollansky for breach of the rental contract, as the subrogee of Karavan.

The district court granted summary judgment in favor of Dollansky, concluding that he was an “insured” under Depositors’ policy and that Minnesota Statutes section 60A.41(a) therefore prohibits Depositors from proceeding in a subrogation action against him.

ANALYSIS

Subrogation in the insurance context involves the substitution of an insurer (subrogee) to the rights of the insured (subrogor). Upon payment of a loss, the insurer is subrogated in a corresponding amount to the insured’s right of action against any third party whose wrongful conduct caused the loss.

Depositors argued that the district court erred by concluding Minnesota Statutes section 60A.41(a) bars its suit. This argument required the appellate court to interpret section 60A.41, as well as the insurance policy issued by Depositors. Where the legislature’s intent is clearly discernable from plain and unambiguous language, statutory construction is neither necessary nor permitted and courts apply the statute’s plain meaning.  Similarly, courts must read an insurance policy as a whole, reading provisions in context with all other relevant in and ordinary meaning.

Under Minnesota law, an insurance company is prohibited from subrogating against its insured. Minn. Stat. § 60A.41(a). Specifically, the statute provides: “(a) An insurance company providing insurance coverage or its reinsurer for that underlying insurance coverage may not proceed against its insured in a subrogation action where the loss was caused by the nonintentional acts of the insured.”

Depositors argued that in determining that its suit is barred by section 60A.41(a), the district court erred in finding that the ‘controlling contract’ was Depositors’ contract because the correct contract to examine would have been Dollansky’s policy with American Family.

However, the plain language of Minn. Stat. § 60A.41(a) provides that “[a]n insurance company providing insurance coverage . . . may not proceed against its insured in a subrogation action.” Minn. Stat. § 60A.41(a) (emphasis added). Here, Depositors is the “insurance company providing insurance coverage.”

Depositors contended that section 60A.41(b) “distinguishe[s] between claims against the subrogating insurance company’s own named insured and claims against another party who happened to be insured by the subrogating insurance company.”

Under settled law, an appellate court cannot add to a statute words that were intentionally or inadvertently omitted by the legislature. Nowhere does the statute refer to a “named insured.” Rather, the plain language of Minn. Stat. § 60A.41(a) provides that an insurance company “may not proceed against its insured in a subrogation action.” (Emphasis added.)

The statute does not require the insured and the other person to be insured by the same policy or to seek coverage under the same policy. Although not required for application of the subrogation preclusion in section 60A.41(b), in this case, Dollansky and Karavan are “insureds” under the same policy.

Because the term “insured” is not defined by statute, the court limited itself to the dictionary definition. The dictionary definition of the term “insured” is “[s]omeone who is covered or protected by an insurance policy.” Black’s Law Dictionary 928 (10th ed. 2014) The “Who Is An Insured” policy provision provides that an “insured” is “[a]nyone . . . using with your permission a covered ‘auto’ you own, hire or borrow.”

It is without dispute that Dollansky entered into a contract with Karavan for the motor-home rental. As the district court concluded, “[b]y entering into the rental contract, handing over the keys, and allowing Dollansky to drive away in the [motor home], Karavan gave permission for the Dollanskys to use a vehicle Karavan owned.” Dollansky therefore is an “insured” under Depositors’ policy issued to Karavan. Because Dollansky is an insured under Depositors’ policy, the plain language of Minn. Stat. § 60A.41(a) prohibits Depositors from subrogating against Dollansky.

Because Dollansky is an insured under Depositors’ insurance policy, even though not a named insured, and because Minnesota Statutes section 60A.41(a) bars Depositors’ subrogation action against its own insured for the same loss, the district court did not err by granting summary judgment in favor of Dollansky.

ZALMA OPINION

Subrogation is an important tool available to insurers. It does not, in Minnesota, and elsewhere do not allow an insurer to subrogate against its own insured since, to do so, would confuse matters exponentially. The subrogating insurer might find itself defending the suit it brought against its insured. That is the reason for the statute. Since a permissive user is an insured there was no reasonable basis for the subrogation action.


© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of 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://zalma.com/zalma-books/

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

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 – December 15, 2017

 The Essential Resource For The Insurance Fraud Professional  

December 15, 2017

   A Christmas Fable of Fraud 

In this, the holiday season ZIFL repeats its annual Christmas Fable of Fraud dealing with the insurance fraud perpetrator who made an excellent living at insurance fraud at Christmas time.  The Christmas present I would like is a state government willing to prosecute every insurance fraud to the limit of the law. I dream of an insurance industry willing to spend the money necessary to fight insurance fraud and make sure the fraud perpetrators are prosecuted and sued to regain any money paid.  Santa, this is what I want as a gift to me and the entire world: Governments and insurers willing to fight insurance fraud and give no quarter to the fraud perpetrator.

In California, violation of Penal Code Section 550, Insurance Fraud, will result in five years in prison. Similarly, across the country insurance fraud is a felony. It is time that prosecutors in every state and federal jurisdiction arrest fraud perpetrators and courts convict and sentence to long terms those convicted. That, friends, would be a true Christmas miracle.

The Current Issue Contains the Following  

  • A Christmas Fable of Fraud
  • Become a Certified Expert in Corporate Property Insurance and a Certified Expert in Corporate Liability Insurance
  • Books from Barry Zalma
  • Fugitive Lawyer-Fraudster Captured
  • Barry Zalma Speaks at Your Request
  • Insurer Failed With the Aid of a Disbarred Lawyer
  • Wisdom
  • Barry Zalma
  • Insurance Fraud Investigation in Official Capacity is Immune From Suit
  • Good News From the Coalition Against Insurance Fraud
  • California Division of Workers’ Comp Suspends 21 More Medical Providers for Fraud
  • Health Insurance Fraud Convictions
  • Zalma’s Flat Rate Opinions
  • Other Insurance Fraud Convictions
  • Books from the American Bar Association
  • Zalma’s Insurance Fraud Letter

Zalma’s Insurance Fraud Letter, Volume 21, No. 24

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

 Zalma’s Insurance 101 

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

The videoblog is adapted from my book, Insurance Claims: A Comprehensive Guide available at the Zalma Insurance Claims Library.
Regards,
Barry Zalma
Barry Zalma, Inc.
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No Excuse to Lie to Professional Liability Insurer

Poor Advice from Broker Eliminates Professional Liability Coverage

Every professional liability insurer asks – because the policy is usually a claims made and reported policy – about the insured’s knowledge of a potential claim or a claim made before the inception of the policy. Prudent insured are totally honest when applying for a professional liability policy. The imprudent, however, attempting to save money, don’t report fearing doing so would result in a higher premium.

In Admiral Insurance Company v. The Superior Court Of San Diego County, Respondent; A Perfect Match, Inc., Real Party in Interest, D072267, Court Of Appeal, Fourth Appellate District Division One State Of California (November 21, 2017) the insured, A Perfect Match, Inc. (Perfect Match), was imprudent.

THE POLICY

The California Court of Appeal was asked to establish the meaning of a professional liability insurance policy. The policy in question was issued by Admiral Insurance Company (Admiral) to the real party in interest, Perfect Match, a company that “match[es] surrogates and egg donors with infertile families.” On the first page of the policy Admiral promised to provide coverage for certain claims made during the policy period arising from a “professional incident, . . . provided that prior to the inception date of the policy, no insured knew, nor could have reasonably foreseen, that the professional incident might result in a claim.” (Emphasis added) In other words, Admiral was excluding coverage for potential claims that Perfect Match knew or reasonably should have known about, but failed to disclose.

FACTS

In 2011, Monica Ghersi and Carlos Arango utilized the services of Perfect Match to locate an egg donor and gestational surrogate. The surrogate gave birth to a baby girl who developed a retinoblastoma, a rare cancer of the eye. Following an investigation, Ghersi and Arango retained counsel who sent Perfect Match three letters in June 2012, one on behalf of each parent and one on behalf of their infant daughter. Each letter announced an intent to file a complaint against Perfect Match alleging “negligent and unprofessional . . . conduct, while in the performance of professional duties, intentionally or recklessly causing physical and emotional harm. . . .” The letters on behalf of Ghersi and Arango stated the complaint would be based on “medical negligence and lack of informed consent.”

Prior to purchasing the Admiral policy Perfect Match knew about a potential claim former clients Monica Ghersi and Carlos Arango intended to file arising from the birth of their daughter with a rare form of eye cancer. A lawyer representing Ghersi and Arango sent a letter to Perfect Match in June 2012 giving notice of their intent to file a complaint alleging professional negligence. After consulting with its insurance broker, Perfect Match made the decision not to disclose the potential Ghersi/Arango claim to its current insurer out of concern it would result in a higher premium.

When it applied for the Admiral policy in October 2012 two months after receiving notice, Perfect Match likewise did not mention the potential Ghersi/Arango claim. However, once the Ghersi/Arango complaint was filed and ultimately served in March 2013, Perfect Match claimed potential coverage under the Admiral policy based on a “professional incident” and asserted its right to a defense. Admiral denied coverage and refused to defend, citing the policy language that excluded coverage for claims the insured reasonably should have foreseen prior to inception of the policy. Perfect Match responded by suing Admiral for breach of contract and bad faith.

ANALYSIS

In denying Admiral’s summary judgment motion, the superior court determined that triable issues of fact were created by Admiral’s reliance on an application form that was designed for “medical laboratories, medical imaging centers and blood plasmapheresis centers.” As a result, it concluded there was a disputed question whether Perfect Match could truthfully answer “no” to the question whether it was aware of anything that might result in a malpractice claim, since it was not a health care provider that rendered professional medical services.

The interpretation of a written contract such as an insurance policy is generally a question of law for the court unless the foundational extrinsic evidence is in conflict. Here, although the parties dispute the inferences to be drawn from the extrinsic evidence, the evidentiary facts themselves are not in conflict. With no conflict in the foundational extrinsic evidence, it is left to the court to decide the question of law by determining the meaning of the contract in light of the undisputed evidence and the objectively reasonable expectations of the insured.

Perfect Match’s opposition to Admiral’s summary judgment motion focused on the uncertainties created by Admiral’s reliance on an application form that was ill-suited to the type of business it operated. The form was plainly designed for medical laboratories, imaging centers, and similar health care facilities. Because Perfect Match was not a health care provider, we can assume for purposes of argument that it was not being untruthful when it represented on the application form that it was unaware of any existing basis for a “malpractice claim.”

But the application form and the responses to the questions on it are largely a red herring because the policy (i.e., the parties’ agreement) itself explains there is no coverage for a claim arising from a “professional incident” if, prior to the inception of the policy, the insured “knew” or “could have reasonably foreseen, that the professional incident might result in a claim.” Relying on the letters sent by the lawyer representing Ghersi and Arango, Admiral persuasively argues that the plain meaning of this “prior notice” provision precludes any coverage.

The ultimate question is whether the document and surrounding context will support a meaning to which the language of the instrument is reasonably susceptible. Perfect Match’s argument fails to offer a reasonable meaning for the language of the policy. The “prior notice” provision is an integral part of the insuring agreement itself. It specifies there is no coverage if the insured knew or reasonably could have foreseen that the professional incident might result in a claim. Coverage is tied to a “professional incident.” The policy provides coverage for amounts the insured is required to pay as damages “caused by a professional incident.” If “professional incident” were construed to mean “medical malpractice,” Perfect Match (which is concededly not a licensed health care provider) would have no coverage for anything. Such a result would be inconsistent with the reasonable expectations of all the parties.

Here, the undisputed facts demonstrate that Perfect Match had notice prior to the inception of the policy that Ghersi and Arango intended to file a lawsuit for breach of contract and negligence. Even if there was some confusion as to whether Ghersi and Arango properly labeled their claim as a “medical negligence” action or invoked the appropriate code section, the policy only requires that the insured be able to foresee that a claim “might” be made. Counsel’s June 2012 letters provided indisputable notice to Perfect Match that its professional services rendered to Ghersi and Arango “might result in a claim.” Accordingly, by the clear terms of the policy, there was no coverage.

DISPOSITION

Admiral was entitled to insist that Perfect Match disclose all potential claims of which it was, or should have been, aware; it could and did exclude from coverage any such claim that was not disclosed. The superior court therefore erred in failing to grant summary judgment in favor of Admiral. Accordingly, we will issue a writ of mandate directing the superior court to vacate its order denying Admiral’s motion for summary judgment and instead enter an order granting the motion.

ZALMA OPINION

The trial court was confused by arguments about the application for insurance when it should have limited its analysis to the policy wording. Since the insuring agreement clearly refused to insure against a professional incident known before the inception of the policy three could be no coverage for the later filed suit. I do not feel for Perfect Match because it is not without a remedy. It received bad advice from its agent or broker who told it to not report the potential claim to its prior insurer nor on the application for the Admiral policy.


© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of 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://zalma.com/zalma-books/

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

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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Electronically Delivered Policy is the Same as Mail Delivery

Failure to Read Electronically Delivered Policy No Excuse

Insurance companies have moved into the 21st Century and now deliver policies by e-mail or other electronic means rather than sending a paper copy of the policy by the U.S. Postal Service. Electronically delivered policies, like paper policies, are seldom – if ever – read. When a loss occurs the insured will then claim the policy was never delivered to him so he was prevented from knowing about the applicable policy exclusions.

In David Jackson v. Esurance Insurance Company, No. 75506-4 -I, Court Of Appeals Of The State Of Washington Division One, (December 11, 2017) a single car accident during a training session at Pacific Raceways, a road and drag racing facility in Kent, Washington, resulted in a claim denial because of an exclusion.

David Jackson asserted a claim for collision coverage under his personal auto policy with Esurance Insurance Company (Esurance). Esurance denied coverage based on an exclusion in the Esurance policy excluding collision coverage “for any vehicle located inside a racing facility for the purpose of . . . or participating in any . . . driving school, driver training, [or] skills training.” Jackson sued Esurance.

The trial court dismissed his claims and he appealed.

FACTS

In February 2006, Jackson purchased a personal auto insurance policy with a six-month term from Esurance. Esurance is an internet-based insurance company that offers policyholders a paperless delivery system, whereby a policyholder can elect to receive his or her policies, billings, and other documents through an online system called “the online management platform.” To participate in the platform, the policyholder must affirmatively consent to receive documents electronically as opposed to through U.S. Mail. The online management platform allows the policyholder to access and review all prior policy documents that have been delivered at any time during the life of the policy.

A policyholder who consents to electronic delivery may request paper copies of insurance policy documents at any time.  Jackson consented to receive his documents electronically via Esurance’s paperless delivery system when he purchased his initial policy. Jackson never requested paper copies of documents.

Because Jackson’s auto policy had a six-month term, Esurance renewed Jackson’s policy every six months by posting a “Renewal Offer” to the online management platform and providing an e-mail notification to Jackson that the policy was up for renewal and that he should review the terms and conditions.

Jackson’s original February 2006 personal auto policy excluded losses that occurred inside a racing facility when the car is driven to compete in or practice for any race. In January 2010, four years after his initial policy, Esurance provided Jackson an offer for the policy renewal effective February 2010. The e-mail notification included the following statement: “By renewing your policy, you’re agreeing to Esurances’s current Terms and Conditions.” The phrase Terms and Conditions was set out in blue and was a hyperlink to the terms and conditions of the renewal. The renewal offer included a copy of the policy declarations page, renewal offer, a notice of policy changes, and a complete copy of the new personal auto policy form. The renewal offer, and all documents, were posted to Jackson’s online management platform. The notice of policy changes included with the renewal offer stated that Esurance had expanded the racing exclusion:

“We added language excluding coverage for any vehicle while competing in, or practicing or preparing for, any prearranged or organized racing or speed contest.” It also advised: “We added an exclusion for any vehicle located inside a racing facility for the purpose of competing in, practice or preparing for any prearranged or organized racing or speed contest, or participating in any racing school, driving school, driver training, skills training, race driving experience, or racing adventure program.” (Emphasis added)

Jackson apparently never accessed the online portal and never read the policy. Jackson’s Esurance policy continued to renew every six months and remained in effect.

In late June 2014, Jackson planned to attend an Audi driving-skills training program offered at the Pacific Raceways racecourse. Before attending the event, he logged into his Esurance online account to check to make sure that the insurance policy covered any damages that might occur during the event. He did not find what was there: the current policy with the current exclusion.

On June 27, 2014, Jackson was driving his car at Pacific Raceways participating in a driving-skills event when he crashed.  Jackson sought coverage from Esurance for the damages to his car. Esurance denied coverage explaining that his policy excluded coverage for participating in any racing school, driving school, or skill training at a facility designed for racing. Esurance’s denial letter quoted the specific language from Jackson’s then current policy.

ANALYSIS

By statute, an original insurance policy must be delivered to the insured within a reasonable period of time after its issuance.  Before amending or modifying an insurance contract, an insurer must give the policyholder notice and obtain the policyholder’s agreement. Washington law does not dictate the manner in which notice of changes or amendments are to be delivered to the insured. Indeed, the statute RCW 48.185.005, specifically allows an insurer to deliver insurance notices and documents electronically.

It is undisputed that on January 27, 2010, Jackson accepted the renewal offer by paying the first installment amount due under the policy. No changes were made to the policy until January 2013.

Finally, it is undisputed that on January 6, 2013, Esurance delivered a renewal offer for an updated policy. The racing exclusion in the January 2013 policy was identical to the racing exclusion included in the prior policy. Jackson accepted the new policy by paying the installment premium. This policy renewed every six months, on July 6, 2013, January 6, 2014, and July 6, 2014, and was in force on June 27, 2014—the day that Jackson crashed.

Because Esurance provided notice within a reasonable amount of time before amending Jackson’s policy, the appellate court concluded that the policy is enforceable.

Esurance’s electronic delivery was valid and the racing exclusion is enforceable. Dismissal of Jackson’s breach of contract claim on summary judgment was appropriate.

Esurance reasonably denied coverage because the policy’s racing-facility exclusion clearly excluded the loss. Because Esurance acted reasonably Jackson cannot establish a bad faith claim based on Washington state statutes.

ZALMA OPINION

I have written until my fingers bleed on my keyboard that insured’s and their counsel must read the policy before filing suit seeking damages from an insurer. Esurance delivered the policy promptly to Jackson and advised him promptly of the changed exclusion. He admitted he did not read the policy. The exclusion, which dealt with the increased risk of loss of operating a vehicle on a race track, was clear and unambiguous and was enforceable. Had Jackson read the policy he would not have taken his car onto the race track or would not have sued if he did have the crash on the track.


© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of 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://zalma.com/zalma-books/

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

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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Evidence Required to Prove a Fire Claim Over Amount Paid

No Good Deed Goes Unpunished

It seems axiomatic that no one is happy with a fire claim settlement.  This is so even when reached by an insurance company even when payment is made within ten days of the adjuster’s inspection. Because the insured usually wants more than the insurer paid, suits are often filed.

To succeed, the plaintiff must present admissible evidence showing the insurer was in error. It is never sufficient to simply state the insurer paid too little and should have declared the house a total loss.

In Brian L. Villa v. United Services Automobile Association, 17-P-15, Commonwealth of Massachusetts Appeals Court (December 5, 2017) the plaintiff, representing himself, filed a complaint against United Services Automobile Association alleging breach of contract, breach of the covenant of good faith, negligence, and violations of G. L. c. 93A. Even though the insurer paid what it owed promptly and fairly it got sued four years later by an insured acting as his own lawyer. The trial court concluded that the various claims made by the plaintiff that the trial court found the plaintiff was unable to prove.The defendant moved for summary judgment. The trial judge allowed the defendant’s motion and denied the plaintiff’s subsequent motion for reconsideration.

BACKGROUND

The plaintiff’s home suffered serious damage in a fire on April 26, 2012. At the time of the fire, the home was insured by the defendant. The insurance policy terms provided coverage due to fire loss to the dwelling, other structures, and the contents of the home up to specified policy limits. Coverage for the dwelling itself was capped at $243,000. In accordance with the applicable statute, the policy provided for payment of the “actual cash value” of the damage after deduction of depreciation to the building and a $500 deductible.

After the plaintiff provided notice of the fire, the defendant inspected the property. The day after the fire occurred, the defendant sent an adjuster to the property to estimate the damage to the home. Following the adjuster’s inspection, the defendant determined that the estimated value to repair the damage to the home was $249,475.88. The defendant determined that the depreciation of the building was $65,315.87, and paid the “actual cash value” to the plaintiff, $183,660.01, within ten days of the appraisal of the damage.

The plaintiff was unhappy with the amount offered. He maintained that the damage appraisal was too low and that the defendant should have declared his house a total loss. He also contended that the house was underinsured, and he faulted the defendant for not automatically adjusting the insurance coverage over the years to account for rising property values.

Four years after stating he contested the insurer’s calculation, the plaintiff did hire three individuals who submitted affidavits that were critical of the defendant’s appraisal of the damage. However, even then, the three affiants did not provide their own calculations of how much it would have cost to repair the home. Nor did they state that the house needed to be razed.

DISCUSSION

The arguments that the plaintiff seeks to raise failed to rise to the level of adequate appellate argument and could be rejected on that basis alone. But, the appellate court, attempting to do justice for the plaintiff acting as his own lawyer, reviewed the issues as if they had been pleaded by a knowledgeable lawyer.

The plaintiff contends that his property was underinsured, for which he faults the defendant. Putting aside potential problems with the plaintiff’s proof that the property was underinsured, he has not shown how that would support a claim against the defendant since the damages determined by the insurer were within the limits of the policy and were paid. To the contrary, the insurance policy here expressly states that “[i]t is [the homeowner’s] responsibility to determine and maintain adequate amounts of insurance to totally replace or repair [the insured] dwelling.” Based on that unequivocal language, the plaintiff’s efforts to build a legal claim based on his underinsurance theory failed as a matter of law.

The plaintiff also contends that the defendant should have declared his property a total loss. Even if proven making the house a total loss would not materially assist the plaintiff in light of the coverage limits in the policy. He has not made a sufficient showing of a triable issue on this point. The plaintiff’s experts do not opine that the house should have been declared a total loss, and all that supports his claim are his own conclusory statements to that effect.

The defendant indisputably acted promptly in responding to the claim and utilized the pay-out formulas set forth in the policy. For example, although the plaintiff claims that the defendant erred by applying a “holdback” of $65,315.87 (based on the house being seventy-three years old and not having been updated beyond a closed-in porch), the language of the policy expressly allows such a practice. The policy clearly sets out the requirements for the appraisal of damage to the property and the procedure for the plaintiff to receive the full amount of the appraised damage.

The record showed that the defendant complied with the procedural requirements of the policy. Plaintiff’s experts did not even state what they thought the value should have been. Under these circumstances, the judge did not err in allowing the defendant’s motion for summary judgment.

Finally, the judge’s summary judgment ruling does not actually depend on his crediting the defendant’s expert whose testimony the plaintiff considered in error. Rather, it turned on the language of the policy and the plaintiff’s own failure of proof.

ZALMA OPINION

Just about every homeowners policy allows the insurer to pay the actual cash value loss and promise to pay the difference between actual cash value and full replacement value after the repairs are made. Acting as his own lawyer and doing nothing to repair the house for four years the suit was poorly drafted, the insurer did everything right, and proved the saying that “no good deed goes unpunished.”


© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of 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://zalma.com/zalma-books/

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

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 Based on False Information Can Be Rescinded

Mediation Settlement Based On Mistake Cannot be Enforced

There is not a court in the country does not approve of mediation and settlement of disputes to avoid trial. Those settlements must be based, however, on a fair reading of the facts and so that no one deceives another or takes advantage of another in a mediation or other settlement discussions.

It is usually assumed – with little basis in fact – that an insurance company knows the coverages it has provided to its insured. However, in, Joseph A. Zankl v. Artisan And Truckers Casualty Company, Dennis J. Gaedtke And Humana Insurance Company, Defendants, Auto-Owners Insurance Company, Appeal No. 2016AP2155, State Of Wisconsin In Court Of Appeals District II (December 6, 2017) neither the insured nor the insurer properly investigated the available coverages and based on the mistake about available coverages a settlement was reached.

THE DISPUTE

Auto-Owners Insurance Company (Auto-Owners) appealed from a non-final order denying its motion to enforce a mediation settlement agreement reached based on what the insured claimed was agreed to because of a mistake of the available coverages.

FACTS

On August 24, 2012, Joseph A. Zankl was seriously injured in an automobile accident after he was struck by a drunk driver. Zankl sued the drunk driver as well as Auto-Owners, with whom Zankl had an underinsured motorist (UIM) policy. Neither Auto-Owners nor Zankl’s attorney made an adequate investigation prior to mediation as to the amount of coverage available under Zankl’s UIM policy.

At mediation, Zankl initially requested $1 million from Auto-Owners to settle his claims. An Auto-Owners declarations page was exhibited, which reflected $500,000 in UIM coverage. Zankl said he had additional UIM coverage with Auto-Owners via an umbrella policy, but Auto-Owners said it was unaware of an umbrella policy. Zankl contacted his insurance agent during the mediation and was told that while he did have a $1 million umbrella policy with Auto-Owners, it did not provide UIM coverage.

Given this information, negotiations continued between Zankl and Auto-Owners with the understanding that $400,000 in insurance coverage was available. The parties reached a settlement for $185,000. Later that day, Zankl’s insurance agent contacted Zankl and informed him that his umbrella policy actually did provide UIM coverage, which meant that Zankl had $1.4 million in available coverage, rather than the $400,000 all parties thought was available at mediation.

THE RESCISSION

Zankl sought to rescind the settlement agreement. Auto-Owners moved the court to enforce the agreement. The court found that Auto-Owners had a duty to disclose the $1 million UIM coverage and the failure to disclose was a “material omission” and grounds for rescission of the settlement agreement.

Auto-Owners argued the circuit court erroneously exercised its discretion by not enforcing the settlement agreement. Auto-Owners asserts that the settlement agreement was a contract under WIS. STAT. § 807.05 (stipulations) and the court should have enforced it as such.

A circuit court’s order granting relief from a mediation settlement agreement is addressed to the appellate court’s discretion. A trial court may grant relief from a voidable contract, for example, mistake, inadvertence, surprise, excusable neglect, fraud, misrepresentation or other misconduct of an adverse party. The plain language of the statute does not prevent an appellate court from acting sua sponte under the statute’s authority.

Beginning with the undisputed fact that everyone operated under the mistaken belief that available coverage was $400,000, rather than the true amount of $1.4 million. A “mistake” is grounds for relief from a judgment, order, or stipulation. The mistake in the amount of coverage was material and that the settlement negotiations were based on inaccurate information. As a first-party insurer, Auto-Owners had a good faith duty to deal fairly with its insured.

Who is at fault for the material mistake of fact is immaterial. The circuit court properly exercised its discretion by requiring that all parties have the correct information as to available coverage at the mediation in order for a settlement agreement to be enforced.

ZALMA OPINION

An insurance company is obligated under the covenant of good faith and fair dealing to advise an UM/UIM insured to advise the insured of all coverages available to the insured. Failure to advise accurate limits or claim that the umbrella policy provided no UM/UIM coverage – whether intentionally or innocently – is a breach of the covenant. Trying to confirm the settlement agreement after learning of the true limits is unfair, contumacious and wrong.


© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of 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://zalma.com/zalma-books/

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

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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Court Should Never “Nudge” a Jury Toward a Verdict

Only Non-Excluded Perils Provide Coverage

Insurers who write insurance in catastrophe prone areas limit the coverage available by clear, specific exclusions. In hurricane areas windstorm is excluded, in earthquake prone areas earthquake is excluded and in wildfire prone areas fire is excluded. With government assistance flood insurance, earthquake insurance, and fire insurance is available to those who have the good sense to buy it. Those who recognize the risk but do not pay for the limited catastrophe coverage gamble they will not be a victim of such a loss. When the loss occurs they then try to have a court interpret the policy to emasculate the exclusion.

In James C. Iler And PoliticsLinda Iler v. RVOS Farm Mutual Insurance Company, No. 09-16-00011-CV, Court of Appeals Ninth District of Texas at Beaumont (November 16, 2017) James and Linda Iler (“the Ilers” or “Appellants”) appeal the trial court’s take-nothing judgment pursuant to the jury’s verdict in favor of RVOS Farm Mutual Insurance Company (“RVOS”).

BACKGROUND

After RVOS denied their claim for damages allegedly caused by Hurricane Ike in 2008, the Ilers sued RVOS, with whom the Ilers contracted for property insurance for their home in Liberty. In their suit, the Ilers alleged claims for breach of contract, breach of duty of good faith and fair dealing, and violations of certain sections of the Texas Insurance Code.

The relevant policy exclusion provided as follows:

PART 8 “Losses Not Covered”
1. The following exclusions apply to loss to property described under Part 3 – PROPERTY COVERAGE, but they do not apply to an ensuing loss caused by fire, smoke or explosion.

. . . .

  1. We do not cover loss caused by windstorm, hurricane or hail to:

. . . .

(4) the interior of a covered building or to personal property contained in a covered building unless direct force of wind or hail makes an opening in a roof or wall and rain enters through this opening and causes the damage.

The Ilers requested that the trial court “find that the words ‘wind makes an opening in a wall’ include wind-created separations between a door and a doorframe, between two doors, and between a window and a window frame[.]” RVOS filed a response to the motion and argued that neither the definition of wall nor the definition of door in the Merriam-Webster dictionary supports the Ilers’ contention that a door is considered part of a wall.

At a pre-trial hearing, the trial court found, based on the four corners of the contract, that the exclusion was not ambiguous, there was no conflict in the law, and that any conflict in the evidence would be for the jury to decide. The trial court further explained:

Trial Testimony and Post-Judgment Pleadings

Linda Iler (Linda) testified that she and her husband were aware that Part 8 of the policy was the exclusion portion of the policy, and that they were aware of that portion at the time they bought the policy.

Hurricane Ike made landfall. According to Linda, she was present at the home when the hurricane made landfall and she became concerned that the French doors in the back of her house that opened inward into the house might be pushed open by the winds. She testified she pushed a recliner chair against the doors so “that for some reason if the doors did give that would maybe stop the doors from opening completely.”

According to Linda, she noticed water on the floor in front of the French doors the morning after the worst of the storm had passed. She testified she used three or four bath towels to clean up the water.

Linda explained at trial that she made an insurance claim with RVOS, two adjusters inspected her home, and she told the adjusters that the weather stripping around the doors was gone and that she thought the wind and the rain had caused the floor damage. After inspection by adjusters RVOS advised that Part 8 of their insurance policy excludes “loss caused by or resulting from flood, surface water, waves, tidal water or tidal waves, overflow of streams or other bodies of water or spray from any of these whether or not driven by wind.”

The policy was admitted into evidence at trial. According to Linda, she latched the French doors before the hurricane hit because she knew there would be strong wind, and the doors did not open as a result of the storm. Linda testified that she believed either the wind blew causing the doors to bulge and allowing water to go in or that the weather stripping was blown away or damaged allowing water to get in.

James Iler (James) testified that the Ilers were charged almost $31,000 for the repairs. James further agreed on cross-examination that the exclusion at issue specifically stated that an opening has to be made in a wall for coverage to exist, that his definition of a wall is something that you cannot walk through, and he agreed that you can walk through a door.

The jury found that RVOS did not fail to comply with the insurance policy with respect to the Ilers’ claim arising from Hurricane Ike.

STANDARD OF REVIEW AND APPLICABLE LAW

In determining a question of insurance coverage, the court must look first to the language of the policy because it presumes parties intend what the words of their contract say. Terms in insurance policies that are subject to more than one reasonable construction are interpreted in favor of coverage.

Initially, the insured has the burden of establishing coverage under the terms of the policy. To avoid liability, the insurer then has the burden to plead and prove that the loss falls within an exclusion to the policy’s coverage. Where the suit is on an insurance contract which insures against certain general hazards, but contains other provisions limiting such general liability, the party suing on such contract shall never be required to allege that the loss was not due to a risk or cause coming within any of the exceptions specified in the contract, nor shall the insurer be allowed to raise such issue unless it shall specifically allege that the loss was due to a risk or cause coming within a particular exception to the general liability. If the insurer proves that an exclusion applies, the burden shifts back to the insured to show that an exception to the exclusion brings the claim back within coverage.

While it is true that the jury should not be called upon to construe the legal effect of an instrument the submission of a jury question is not error where the wording in the question does nothing more than present a question to the jurors based upon the facts.

Question number one proposed by the Ilers was identical to question number one presented in the charge to the jury except that the Ilers requested the following additional instruction: “You are further instructed that an opening between or through a door and its frame or threshold, between two doors, and between or through a window and its frame created by direct force of wind or hail through which rain or snow enters and causes damages is a covered loss under the policy.”

The proffered instruction instructed the jury how to construe the relevant contract terms.

Because the relevant words in the insurance policy were to be given their ordinary meaning, as the jury was instructed, the instruction was correctly refused. The requested instruction addition would have constituted “nudging” and would have been an improper comment on the weight of the evidence.

ZALMA OPINION

Judges rule on the law and instruct the jury on the law before they deliberate. The instructions must be fair, accurately describe the law, and should never favor one party over the other. This, the trial court did. Had the trial court nudged the jury with the plaintiff’s’ proposed instruction it would have been error because it would have instructed the jurors to find as the plaintiffs requested. It would have been more than a “nudge” – it would have been an order to rule as the plaintiffs wanted.


© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of 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://zalma.com/zalma-books/

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

Legal Disclaimer:

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

 

 

 

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Plain, Clear and Conspicuous Exclusion Must Be Enforced

Trying Every Possible Argument to Gain Coverage Fails

When her husband died in an airplane crash the spouse attempted to claim accidental death benefits despite a plain, clear and conspicuous aviation exclusion. The plaintiff attempted, by suing the insurer for multiple causes of action that they would give up and settle. The insurer, to the surprise of the plaintiff refused to settle in Rivka Ofir, Ph.D. v. Transamerica Premier Life Insurance Company, Case No.: 17cv1544-MMA (JMA), United States District Court Southern District Of California (December 6, 2017).

BACKGROUND

On or around August 1, 2014, Defendant Transamerica and Plaintiff entered into a written insurance agreement, which replaced Plaintiff’s then-existing written insurance contract with Hartford Life and Accident Company (“Hartford”). Transamerica provided the terms of the insurance contract to Plaintiff in a written certificate, which Plaintiff alleges was an adhesion contract. Pursuant to the insurance contract, Transamerica agreed to provide Plaintiff accidental death benefits amounting to $150,000 if her then-spouse, Moshe, died as a result of injuries suffered in an accident.

On or about July 14, 2015, Moshe died accidentally as a result of injuries suffered when the aircraft he was operating crashed. Thereafter, Plaintiff claimed accidental death benefits pursuant to the terms of the insurance contract in the amount of $150,000. On December 12, 2016, Transamerica refused to pay Plaintiff the death benefits pursuant to the aviation exclusion, allegedly breaching the insurance contract.

The insurance contract contained an “aviation exclusion” provision, which Plaintiff alleges “was not plain, was not clear, and was not conspicuous.” Plaintiff further alleges that the aviation exclusion provision in the insurance contract differed from the aviation exclusion provision in the Hartford insurance contract. Plaintiff did not attach a copy of the policy or certificate of insurance and argued that the policy wording claimed by the insurer was not accurate.

DISCUSSION

Defendant moved to dismiss each of Plaintiff’s causes of action for failure to state a claim. Plaintiff opposes each of Defendant’s arguments.

Breach of Contract

Plaintiff alleges Defendant breached the insurance contract by refusing to pay $150,000 in accidental death benefits to Plaintiff following her husband’s accidental death. Specifically, she contends the aviation exclusion is unenforceable because it is not plain, clear and conspicuous, the notice of change of insurance coverage was not plain, clear, and conspicuous, and because the aviation exclusion is unconscionable under California Civil Code § 1670.5.

Whether the Aviation Exclusion is Plain, Clear, and Conspicuous

While insurance contracts have special features, they are still contracts to which the ordinary rules of contractual interpretation apply. Accordingly, the mutual intention of the parties at the time the contract is formed governs interpretation, and if possible, the Court infers intent from the written provisions of the insurance policy. If the language is clear and explicit, it governs.

Provisions which purport to exclude coverage or substantially limit liability must be set forth in plain, clear and conspicuous language. To be plain, clear, and conspicuous, coverage exclusions and limitations must meet two separate tests: (1) the exclusion must be conspicuous, meaning it must be placed and printed so that it will attract the reader’s attention; and (2) the exclusion “must be stated precisely and understandably, in words that are part of the working vocabulary of the average layperson.

The court concluded that plaintiff insufficiently pleads that the exclusion is unenforceable because it is not plain, clear, and conspicuous. Plaintiff’s allegations omit any explanation of how the aviation exclusion is not conspicuous, and as a result, are conclusory and unsupported by factual allegations.

Defendant contends, and Plaintiff does not dispute, that the Transamerica Policy exclusion states: “We will not pay a benefit for a Loss which is caused by, results from, or contributed to by: . . . operating or riding in any aircraft except as a fare-paying passenger on a regularly scheduled commercial flight or as a passenger in a transport plane operated by the Air Mobility Command (AMC) of the United States of America…”

This language is plain and clear. Plaintiff offers nothing meaningful to challenge Defendant’s contention that the language of the aviation exclusion is understandable.

Whether the Aviation Exclusion is Unconscionable

Plaintiff also alleges that the aviation exclusion is unenforceable because it is both procedurally and substantively unconscionable. Unconscionability is a defense to the enforcement of an entire contract or particular contractual provisions. Unconscionability has generally been recognized to include an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party. Under California law, procedural unconscionability can be established by showing the contract is one of adhesion.

Plaintiff has not sufficiently pleaded that the insurance contract with Defendant is a contract of adhesion. Plaintiff has not pleaded the contract is a standardized contract that was presented to Plaintiff without any opportunity to negotiate its terms, and has not pleaded that Defendant had superior bargaining strength or that Plaintiff had no real alternatives available to her at the time she entered into the contract. In fact, Plaintiff asserts that she did have real alternatives available to her at the time. Plaintiff’s conclusory allegation that the Transamerica Policy is an adhesion contract, particularly without providing the Court with an undisputed copy of the Transamerica Policy, is insufficient to allege that the contract may be one of adhesion.

Plaintiff solely alleges that the insurance contract contains an aviation exclusion, that it is unconscionable, and that her husband died as a result of injuries suffered when the aircraft he was operating crashed.  Plaintiff failed to allege any facts pertaining to the harshness or one-sidedness of the terms contained within the aviation exclusion. As a result, Plaintiff insufficiently pleaded that the aviation exclusion is unenforceable because it is unconscionable.

Whether the Notice of Change of Insurance Coverage was Plain, Clear, and Conspicuous

Under California law, changes to insurance coverage must be in a clear and conspicuous writing. Any notice of changes to the policy must adequately bring such changes to the members’ attention.

Because Plaintiff disputes the authenticity of the documents containing the aviation exclusion terms, the Court is unable to conclusively determine whether the aviation exclusions were similar enough to negate the need for a notice of change of insurance in plain, clear, and conspicuous language. Plaintiff insufficiently pleaded unenforceability of the aviation exclusion as a result of insufficient notice of change of insurance.

Fiduciary Duty

Plaintiff alleges in her third cause of action that Defendant breached its fiduciary duty as an administrator of the group insurance plan issued by The Hartford by falsely representing in the March 10, 2014 letter that accidental death benefits under the Transamerica Policy were similar to accidental death benefits under the Hartford policy.

Under California law, a breach of fiduciary duty claim requires the existence of a fiduciary relationship, its breach, and damage proximately caused by that breach. While California courts have imposed special and heightened duties upon insurers in recognition of their unequal bargaining power in which the insured must depend on the good faith and performance of the insurer, these fiduciary-like duties arise because of the unique nature of the insurance contract, not because the insurer is a fiduciary.

As a matter of California law, no true fiduciary duty arises from the insurer-insured relationship and an insured therefore cannot maintain a claim for breach of fiduciary duty based solely on the insurer-insured relationship.

CONCLUSION

The court granted the insurer’s motion and dismissed Plaintiff’s claims.

ZALMA OPINION

The fact that Plaintiff is an elderly widow who was ultimately denied accidental death benefits does not necessarily mean the terms of the aviation exclusion are overly harsh or one-sided. Rather, since the exclusion was plain, clear and conspicuous the plaintiff’s suit failed regardless of the attempts to obfuscate the issues by charging multiple causes of action.


© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of 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://zalma.com/zalma-books/

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

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 Staged Insurance Claim

Creating Insurance Fraud

© 2017, Barry Zalma, Esq., CFE

A staged insurance claim is an insurance claim based on a fictitious loss created for the sole purpose of defrauding an insurer.

Wherever insurance exists in the world there is insurance fraud.  It is an equal opportunity crime performed by every race, religion, language spoken or national origin.

The number of variations on types of staged claims is limited only by the imagination of the insurance criminal. This article describes some of the variations and how an insurer should deal with a fraudulent claim when it is discovered.

Staged Auto Theft

A staged theft occurs when the owner contracts with an intermediary to dispose of a vehicle. The owner “gives up” the vehicle and then reports it to the insurer as stolen. The person to whom the vehicle is given up will pass it to a salvor, also known as a “chop-shop,” because it breaks the vehicle up into its component parts and sells the parts.

The staged theft is difficult to detect unless the perpetrator is sloppy, aggressive or forgets his prepared script as to the loss facts. A staged theft of an automobile performed to defraud an insurer is a crime in almost every jurisdiction in the world and can be punished in both criminal and civil courts.

Abandonment

The owner abandons a vehicle upon which he or she hopes to make a fraudulent claim unlocked with the key in the ignition, on a city street or in a parking lot. Doing so creates what insurers describe as a morale hazard. The temptation is too great for people with an inclination to crime and the vehicle will be taken.  The person insured reports the vehicle stolen and collects from an insurer before the vehicle is recovered.

Dumping

Some creative insurance fraud perpetrators cannot rely on the dishonesty of their neighbors and dispose of a vehicle by dumping it into a lake or other body of water. Some cars have even been found buried underground while others have changed the level of some ponds and lakes where hundreds of allegedly stolen automobiles were found underwater.

Fires to Avoid Auto Lease Penalties

Many people, rather than purchase an automobile will lease the automobile because the monthly payments are lower than a vehicle loan. What the purchasers don’t recognize until near the end of the lease is that the lessor puts a limit on the amount of miles on the odometer. If the vehicle is driven more than the limit set by the lease – usually 10,000 to 15,000 miles a year – the lease will include penalties of $0.10 to $0.15 per mile over a pre-set limit. That amount grows rapidly as the vehicle is driven.  I have seen some very expensive cars with a penalty of $2.00 per mile additional lease payment over a pre-set limit.

Upon learning that at the end of the lease the owner will have to pay a considerable sum that the owner does not have the owner will consider fraud as his only way to avoid the payment. The insured-lessee will often take the vehicle to a remote location, set it afire so that it is totally destroyed, and then report it stolen to avoid payment of the excess charges. The lessor will get the market value of the vehicle at the time of the fire and the insured/lessee will walk free with no expense if he can convince the insurer that the theft and fire was true.

The Staged Auto Accident

A typical scenario for a staged accident involves an insured person, in collusion with others, who will drive his vehicle into the rear of a car occupied by four co-conspirators. The insured reports the “accident” to his insurer as his fault. The occupants of the other car all claim to suffer soft tissue injuries (strains, sprains, sore backs, necks, headaches) and make claims against the insured. Since there is no physical evidence of soft tissue injuries there are no effective tests available to a physician to accurately determine whether a person is being honest when he or she complains of pain. Quick settlement is reached with the “victims” of the “accident” share the money received with the insured.

A variant of this is the Short-Stop accident, sometimes called the “swoop and squat.” The claimant, driving an old and dented automobile, deliberately stops suddenly in front of an expensive automobile. The driver cannot stop in time and has no choice but to rear-end the old vehicle. A claim is presented for extensive injuries.

In the typical swoop and squat setup, at least two conspirators drive through the streets looking for an expensive vehicle that is obviously insured. Once the victim is observed the car driven by these co-conspirators is a car with little value. The target is usually a lone driver with no passengers. The fraudsters usually concentrate on city roads with two lanes traveling in each direction. When they spot a victim driving alone in an area with no potential eyewitnesses, one “swoops” – pulling in front of the other car and then “squats” – hitting the brakes so that the scam victim rear ends their vehicle.

Staged Water Damage Or Mold Claim

Not all staged losses deal with automobiles. Real and personal property can be the victim of a staged loss.

Mold and fungi can be destructive and unhealthy. It can also create a major insurance claim for a person anxious to defraud an insurer. The fraud perpetrator first acquires an old, inexpensive dwelling which is then insured for full replacement cost. They turn the heat up to maximum and then soak the interior with hoses or interior water sources. The high humidity and heat is sufficient to start the growth of mold and fungi. The insured waits a week or two allowing the mold to grow and then report a claim to the insurer saying they returned from a short two-week holiday to find the mess. The house is usually extensive and can result in a total loss. The insurer repairs or replaces the dwelling and the fraud perpetrators sell the house at a profit.

The most famous staged mold claims occurred in Texas in 2002. The seven conspirators were arrested on June 27, 2002 by federal investigators, working in conjunction with the Texas Department of Insurance. The defendants were charged with presenting insurance claims for water and mold damage to a succession of homes that they purchased, bought policies for and then intentionally flooded the houses with water hoses or by damaging water pipes. At least one house was overheated (cooked) to speed up mold growth.

Other members of the ring, posing as vendors and contractors, filed false claims to repair the damage and sold the homes to each other to repeat the process.  Six of the conspirators were eventually arrested, tried and found guilty.

As the 21st Century began public hysteria about mold grew.  As insureds and their representatives became knowledgeable about mold the temptation to create a covered loss scenario where none would otherwise exist became almost irresistible.

It is important, therefore, for an adjuster or SIU claims investigator to confirm the actual existence of the broken pipe, ruptured hot water tank or other covered cause of loss before adjusting a mold damage claim. Furthermore, during this early adjustment period, corroborating information should be obtained from plumbers, repairmen and dry-out companies that the loss occurred as claimed, and that the water intrusion appeared in areas that are now claimed to be ruined by a mold infestation.

Conclusion

Fraud perpetrators should face prosecution and jail and, at the least, an inability to recover from the insurers. Insurance adjusters and insurer SIU fraud investigators must conduct a thorough investigation recognizing that most police agencies are not interested in insurance fraud. The thorough investigation, conducted to defeat the fraudulent claim, can then be packaged for the police and prosecutors who will prosecute since their work has been completed other than trial. The insurer should, if convinced that fraud has been perpetrated, should seriously consider presenting their cases to the local prosecutor. Staged accident perpetrators who, in the past, understood that if they were caught they faced no more than an order of restitution and probation must be convinced that, if caught, they will face hard time in prison.

No matter how the loss is staged if it was done to deceive and defraud an insurer it is a crime in almost every jurisdiction in the world where insurance is sold. When the fraud is prosecuted successfully those tempted to commit fraud will be deterred.

Insurance fraud is a serious crime taking billions from the insurance industry every year. Everyone who buys insurance must understand that if fraud is defeated or reduced they could save from 10% to 30% of the premium they pay.


© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of 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://zalma.com/zalma-books/

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

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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Four Corners Rule Effectively Destroys Exclusion Again

When is Shooting a Plaintiff in the Face Not an Intentional Act?

Many states like Pennsylvania apply the four-corners rule when interpreting insurance coverage and compel that the decision on coverage is based upon the allegations of the complaint rather than actual facts determined by discovery. In so doing the four corner rule allows a lawyer who is a careful scrivener to compel coverage for a defendant tortfeasor where none exists. Many courts, unlike Pennsylvania, allow coverage to be determined using facts extrinsic from the allegations of the complaint.

In Erie Insurance Exchange v. Tracy L. Moore And Harold E. Mccutcheon, III, Individually And As Administrators Of The Estate Of Harold Eugene Mccutcheon, Jr., And Richard A. Carly, Appeal Of: Richard A. Carly, J-A12014-17, No. 869 WDA 2016, Superior Court Of Pennsylvania, 2017 PA Super 372 (November 22, 2017) a carefully pleaded complaint attempted to allow coverage for the defendant even after he shot the plaintiff in the face while fighting over the gun.

Richard A. Carly appealed from the summary judgment entered on June 15, 2016, in favor of Appellee Erie Insurance Exchange in Erie’s action for a declaration that it is not obligated to defend or indemnify the Estate of Harold Eugene McCutcheon, Jr. in a personal injury action filed by Carly.

FACTS

On September 26, 2013, McCutcheon went to the home of his former wife, Terry L. McCutcheon, killed her, and then committed suicide. Before McCutcheon killed himself, Carly arrived unexpectedly at the home, struggled with McCutcheon, and was seriously injured by shots fired from McCutcheon’s gun. Erie contends that policies that it issued to insure McCutcheon do not cover Carly’s injuries because McCutcheon inflicted them intentionally. Carly contends that, as alleged in his complaint against McCutcheon’s Estate, the discharge of the gun and resulting injuries were unintentional, and Erie therefore is required to provide a defense and indemnity.

As a result of being shot in the face, Carly obviously suffered “severe, serious and catastrophic injuries.”.

AVAILABLE INSURANCE

On September 26, 2013, the date of the shooting, McCutcheon was an insured under two policies issued by Erie. One, a homeowner’s insurance policy (“Homeowner’s Policy”) and another Erie policy was an excess liability policy (“Excess Policy”). Both excluded intentional acts.

DECLARATORY JUDGMENT ACTION

The declaratory judgment action requested a declaration that Erie “has no duty to provide a defense, indemnity, or other coverage” to Moore, McCutcheon III, or the Estate “for the claims asserted against them in the [Carly’s suit], or any other claims arising from the September 26, 2013 incident.”

Both parties moved for summary judgment.

Both Policies exclude coverage for conduct that is “expected or intended” by the insured.

TRIAL COURT DECISION

On May 31, 2016, the trial court granted Erie’s motion and denied Carly’s motion.

The trial court explained its decision with references to some of the facts adduced during discovery in the personal injury case: “The shooting of Carly plainly resulted from human agency. Moreover, the prospect of injury from a gun firing during a physical struggle over that gun was no less plainly and reasonably anticipated. As such, while tragic, the shooting of Carly by McCutcheon, Jr. cannot fall within the definition of an accident. According to Carly, he grabbed McCutcheon, Jr.’s wrist in an attempt to try to get the gun off of him and the two men engaged in a physical fight during which a couple of shots were fired. McCutcheon, Jr. shot Carly in the face once. After Carly was shot and fell to the floor, McCutcheon, Jr. did not verbally indicate that he did not mean to injure Carly nor did he attempt to assist Carly in any way. Collectively, this evidence led this Court to the conclusion that McCutcheon, Jr. expected or intended to cause serious harm to Carly within the meaning of the homeowner’s policy and excess liability policy. … In that complaint, Carly states that “there was a strong probability of harming [Carly]” and charges McCutcheon, Jr. with “using conduct that created an unreasonable risk of physical harm to [Carly].”

THE MERITS

An insurer’s duty to defend and indemnify the insured may be resolved via declaratory judgment actions. In such actions, the allegations raised in the underlying complaint alone fix the insurer’s duty to defend.

The duty to defend is a distinct obligation, separate and apart from the insurer’s duty to provide coverage. Moreover, the insurer agrees to defend the insured against any suit arising under the policy even if such suit is groundless, false, or fraudulent. Since the insurer agrees to relieve the insured of the burden of defending even those suits which have no basis in fact, the obligation to defend arises whenever the complaint filed by the injured party may potentially come within the coverage of the policy.

The question of whether a claim against an insured is potentially covered is answered in Pennsylvania by comparing the four corners of the insurance contract to the four corners of the complaint. The language of the policy and the allegations of the complaint must be construed together to determine the insurers’ obligation.

An injury therefore is not “accidental” if the injury was the natural and expected result of the insured’s actions.

In the trial court’s words, “the prospect of injury from a gun firing during a physical struggle over that gun was . . . plainly and reasonably anticipated.”  Firearms are dangerous instrumentalities, and although their danger makes the risk of potential harm foreseeable, the question whether an insurance policy covers injury from a gun does not turn merely on whether harm should have been reasonably anticipated.

Insurance coverage to the Pennsylvania court is “not excluded because the insured’s actions are intentional unless he also intended the resultant damage.” The exclusion is inapplicable even if the insured should reasonably have foreseen the injury which his actions caused.

It is not the actual details of the injury, but the nature of the claim which determines whether the insurer is required to defend. In making this determination, the factual allegations of the underlying complaint against the insured are to be taken as true and liberally construed in favor of the insured.

After McCutcheon killed his ex-wife Terry, Carly arrived at the home and rang the doorbell. Carly “was suddenly pulled inward by [McCutcheon,] who grabbed [Carly] by his shirt and pulled him into the home.” McCutcheon had a gun in his hand, and was “screaming, swearing, incoherent, and acting ‘crazy.'” Carly and McCutcheon then fought, and during their struggle, McCutcheon “toss[ed] . . . around” the arm in which he held the gun, “thereby recklessly shooting off various rounds in and about the room where [McCutcheon and Carly] were struggling.” McCutcheon, the suit alleged, “knock[ed] things around” and fired the gun “negligently, carelessly, and recklessly.” The gunshots hit “various parts of the interior of the residence,” and one of the shots hit Carly in the face, causing his injuries.

Carly alleged that “[a]ll of the injuries and damages sustained by [him] were solely and wholly, directly and proximately caused by the negligence, carelessness and recklessness of [McCutcheon]. The court concluded that “these allegations, when taken as true and liberally construed in favor of the insured, cannot be intentional.” Because the complaint alleges that the shooting of Carly was accidental, the shooting must be considered an “event occurring unintentionally” that is within the coverage of the Policies.

Because, under the allegations, McCutcheon did not “intend[] the resultant damage,” the exclusions do not apply. The court, therefore held that Erie has a duty to defend the defendants in Carly’s tort action.

ZALMA OPINION

This case is a perfect example of form over substance. Carly was shot in the face by McCutcheon, who tried to kill Carley. He failed in his intent. McCutcheon, the insured, who had murdered his wife intended to do Carly harm by firing the weapon while they interacted several times until he shot Carly in the face. Yet, because the complaint alleged the acts were negligent the insurer was ordered to defend when the actual facts establish the opposite. Justice is blind. She should not be required to stupidly accept the allegations of a plaintiff and ignore reality, to allow a plaintiff to dip into the deep pockets of an insurer by carefully wording a complaint charging an intentional act to be accidental.


© 2017 – Barry Zalma

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

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

Mr. Zalma is the first recipient of 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://zalma.com/zalma-books/

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

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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