Bad Faith Set-Up Fails

 Plaintiffs’ and their Counsel’s Bad Faith Defeats Suit Against Insurer

See the full video at https://rumble.com/v1pzspr-bad-faith-set-up-fails.html  and at https://youtu.be/j5gv1qc2ebI

No Good Deed Goes Unpunished –  Plaintiffs Abused the Tort of Bad Faith

Julio Palma and Miriam Cortez (the Plaintiffs) appealed an order granting summary judgment in a bad faith insurance case against Mercury Insurance Company (Mercury). Mercury insured Frank McKenzie, who killed Plaintiffs’ son in a car crash. Plaintiffs obtained a $3 million judgment in a wrongful death action against McKenzie. McKenzie then assigned Plaintiffs his rights against Mercury, and Plaintiffs brought the present action against Mercury on the basis that it failed to accept their reasonable offer to settle their wrongful death claims. The trial court granted Mercury’s motion for summary judgment after determining Plaintiffs never offered to settle their claims.

In Julio Palma et al. v. Mercury Insurance Company, B309063, California Court of Appeals, Second District, Third Division (August 23, 2022) the Court of Appeals refused to buy plaintiffs’ claims of bad faith.

FACTUAL BACKGROUND

In September 2012, Frank McKenzie was driving a vehicle that struck and killed Oscar Palma, who was riding a moped. At the time, McKenzie was insured under a Mercury insurance policy with bodily injury liability limits of $15,000 and property damage limits of $10,000.

On October 15, 2012, attorney Paul Zuckerman sent Mercury a settlement letter that identified “Oscar Palma (deceased) Estate of Oscar Palma” as “Our Clients” and states: “Oscar Palma (deceased) Estate of Oscar Palma, demands that Mercury Insurance tender full policy limits to Oscar Palma (deceased) Estate of Oscar Palma to resolve their claim.

The letter stated the offer was to remain open for 14 days, until October 29, 2012.

Mercury retained attorney Jeffrey Lim and instructed him to accept the offer. On October 19, 2012, Lim faxed the Carpenter firm a letter stating Mercury “is tendering to the estate and all heirs of Oscar Palma Mr. McKenzie’s $15,000 policy limits. [¶] In order to confirm that all heirs are included in the release for the policy limits, please have the heirs complete and sign the attached affidavit of heirs.” The Carpenter firm did not respond to the letter.

On October 24, 2012, Lim told Mercury that McKenzie agreed to a settlement. The same day, Lim wrote a letter to the Carpenter firm accepting the “offer to resolve the death claim of Oscar Palma.” Lim enclosed a check for $15,000 and represented that, aside from the Mercury policy, there were no other policies in existence for the loss. Lim, however, inadvertently failed to attach McKenzie’s declaration to the letter.

Lim included with the letter his office’s standard Release of Claims form, which required the release of all “bodily injury and personal injuries and property damage claims, and wrongful death claims ….” Lim told the Carpenter firm if “you have any changes to my release, please let me know prior to October 29, 2012.” The Carpenter firm did not respond to Lim’s letter or request any changes to the release.

Between March and July 2013, Mercury sent the Carpenter firm six letters “reiterat[ing]” its offer of the $15,000 bodily injury policy limits. Lim responded by sending the Carpenter firm a copy of McKenzie’s declaration. He represented that the “declaration had been received, but was inadvertently left out of my October 24, 2012, letter to the Carpenter firm. Mercury sent the Carpenter firm a separate response stating its position that it “timely offered its $15,000 bodily injury policy limits to your clients to settle their claims against Mr. McKenzie.

Plaintiffs’ Wrongful Death Action Against McKenzie

On August 28, 2013, the Carpenter firm filed a lawsuit against McKenzie on behalf of Plaintiffs, Ana Guzman-Palma, and the “Estate of Oscar F. Palma, a deceased individual.” The complaint asserted causes of action for negligence, “survival action,” and wrongful death. Following a jury trial, the court entered judgment against McKenzie and in favor of Plaintiffs for $3 million on their wrongful death claims.  Mercury paid Plaintiffs its $15,000 bodily injury policy limits.

Plaintiffs’ Bad Faith Action Against Mercury

McKenzie assigned his rights against Mercury to Plaintiffs in exchange for a covenant not to execute the judgment against his personal assets.

Mercury’s Motion For Summary Judgment

Mercury moved for summary judgment and submitted evidence establishing the facts summarized above.

The trial court granted Mercury’s motion for summary judgment after determining the Carpenter firm’s letter offered only to settle a survival action on behalf of the estate.

DISCUSSION

Plaintiffs contended the trial court erred in granting Mercury’s motion for summary judgment because there are disputed issues of fact concerning whether Mercury unreasonably failed to accept their settlement offer.

Bad Faith Refusal To Settle

California courts have derived an implied duty on the part of the insurer to accept reasonable settlement demands on such claims within the policy limits.

An insured’s claim for bad faith based on an alleged wrongful refusal to settle first requires proof the third party made a reasonable offer to settle the claims against the insured for an amount within the policy limits. The plaintiff must also prove the insurer failed or refused to discharge contractual responsibilities, prompted not by an honest mistake, bad judgment or negligence but rather by a conscious and deliberate act, which unfairly frustrates the agreed common purposes and disappoints the reasonable expectations of the other party thereby depriving that party of the benefits of the agreement. In evaluating whether an insurer acted in bad faith, the critical issue is the reasonableness of the insurer’s conduct under the facts of the particular case. To hold an insurer liable for bad faith in failing to settle a third party claim, the evidence must establish that the failure to settle was unreasonable.

Plaintiffs Did Not Offer To Settle Their Wrongful Death Claims

The Carpenter firm’s October 15, 2012 letter cannot reasonably be interpreted as an offer to settle Plaintiffs’ wrongful death claims. A wrongful death claim is a statutory cause of action that allows a decedent’s heirs to recover compensation for the economic loss and deprivation of consortium they personally suffered as a result of the decedent’s death. Wrongful death claims belong to the heirs, not the decedent or the decedent’s estate. The Carpenter firm’s letter, however, does not mention Plaintiffs or Palma’s heirs, let alone identify them as the offerors. It is clear that the Carpenter firm’s letter offered to settle the estate’s survival claim, and not Plaintiffs’ wrongful death claims.

Because Mercury’s undisputed evidence shows Plaintiffs did not offer to settle their wrongful death claims, they cannot state a cause of action for bad faith refusal to settle those claims.

Mercury Did Not Act In Bad Faith

Even if the Carpenter firm’s letter had offered to settle Plaintiffs’ claims, Mercury would be entitled to summary judgment because no reasonable trier of fact could conclude it acted in bad faith. The undisputed evidence shows Mercury directed Lim to accept the Carpenter firm’s settlement offer under the terms set out in its October 15, 2012 letter. The only reasonable conclusion from this evidence is that Mercury would have settled the claims under Plaintiffs’ terms, but for Lim’s negligence in failing to deliver McKenzie’s declaration. Mere negligence, however, is insufficient to support a claim for bad faith failure to settle.

There was no evidence showing Mercury refused to remove the property damage language from the release or otherwise required it as a condition of settlement. To the contrary, the undisputed evidence shows Mercury separately attempted to resolve any property damage claims in November 2012, before the Carpenter firm informed it that there was no settlement related to the bodily injury policy limits.

Mercury made substantial efforts to accept the Carpenter firm’s offer. Among other things, it informed McKenzie of the offer, obtained his consent to accept it, tendered its full bodily injury policy limits, made substantial efforts to obtain and deliver the requested information and documents, and expressed a willingness to modify the Release of Claims form

Plaintiffs pursued a legal action against McKenzie, knowing it would hurt his credit and subject him and his family to extremely distressing and embarrassing post-judgment collection proceedings. If anyone acted in bad faith, it was Plaintiffs and the Carpenter firm.

ZALMA OPINION

The Court of Appeal established an attempt to wrongfully take advantage of the tort of bad faith by the plaintiffs acting in bad faith to an insurer who reasonably attempted to resolve a dispute against its insured by immediately accepting the offer of settlement. The insurer’s good faith acceptance was ignored by the plaintiffs’ counsel who refused to accept the policy limits. Rather, counsel brought silly arguments like expecting payment of $10,000 property damage limit for a moped worth about $1,000.00. This was an incompetent attempt at a bad-faith set up where the court concluded that the Plaintiffs acted in bad faith, not the insurer.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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Now available Barry Zalma’s newest book, The Tort of Bad Faith, and How to Acquire, Understand, and Make a Successful Claim on a Commercial Property Insurance Policy: Information Needed for Individuals and Insurance Pros to Deal With Commercial Property Insurance” the New Books are now available as a Kindle book here, paperback here and as a hardcover here available at amazon.com.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library

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Pointing a Gun at a Person is not an Accident

Occurrence Must be an Accident

See the full video at https://rumble.com/v1pm7d4-occurrence-must-be-an-accident.html  and at https://youtu.be/f9YnvjJKOU0

Beverly Weathersby appealed the trial court’s order awarding summary disposition under MCR 2.116(C)(10) to plaintiff, Meemic Insurance Company (Meemic), and denying its insured, defendant Randal S. Ritchie, personal liability coverage under his homeowner’s insurance policy.

In Meemic Insurance Company v. Randal S. Ritchie, and Beverly Weathersby, No. 358929, Court of Appeals of Michigan (October 20, 2022) the Court of Appeals was asked to resolve the issue of coverage for a claimed assault under a homeowners policy.

FACTUAL BACKGROUND

The case arose out of an unfortunate encounter between two strangers, whose stories of the incident vastly differ. As Weathersby tells it, while making a home visit in rural Coldwater as part of her job as a social worker, she became lost and her GPS erroneously sent her to Ritchie’s house. She pulled her car into Ritchie’s driveway and approached the home. Then, according to Weathersby, Ritchie came out of his house, approached her, and aggressively confronted her while pointing a gun directly at her at close range. He questioned her regarding why she was on his property and told her to leave. Fearing for her life, Weathersby returned to her car and drove away. He testified in his deposition that he approached Weathersby cautiously, helped her locate the proper address, and kept his handgun on his side and pointing toward the ground at all times with his finger off of the trigger. He explained that there was no confrontation at all.

Weathersby brought a civil action against Ritchie, asserting that Ritchie committed the intentional tort of assault. She also claimed that Ritchie was negligent in an apparent effort to dip into Ritchie’s insurance since is always intentional.

She sought damages for the emotional distress and injury she sustained as a result of Ritchie’s conduct. At the time of the incident, Ritchie was insured under a homeowner’s policy issued by Meemic. The trial court denied coverage, ruling that Ritchie’s act was not an “occurrence.”

LEGAL ANALYSIS

The interpretation of an insurance contract is a question of law that is reviewed de novo. An insurance policy is an agreement between parties that a court interprets much the same as any other contract to best effectuate the intent of the parties and the clear, unambiguous language of the policy. The terms of a contract must be enforced as written where there is no ambiguity.

COVERAGE FOR AN “OCCURRENCE”

The main issue in the appeal was whether Ritchie’s alleged acts constituted an “occurrence” under Meemic’s policy, which would trigger an obligation to indemnify and defend Ritchie. To analyze the question, the Court of Appeal needed to turn to the language of the policy.

Meemic was obligated to provide coverage and defend against Weathersby’s lawsuit only if an “occurrence” took place. The Meemic policy defines an “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions, resulting in bodily injury, personal injury, or property damage during the term of the policy.” Thus, the pertinent question is whether Ritchie’s act of pointing a gun at Weathersby and aggressively confronting her could constitute an “accident” that would fall within the definition of an “occurrence.”

Michigan courts have adopted the common meaning of “accident” as an undesigned contingency, a casualty, a happening by chance, something out of the usual course of things, unusual, fortuitous, not anticipated, and not naturally to be expected.

If both the act and the consequences were intended by the insured, the act does not constitute an accident. On the other hand, if the act was intended by the insured, but the consequences were not, the act does constitute an accident, unless the intended act created a direct risk of harm from which the consequences should reasonably have been expected by the insured.

The record contained no evidence from which a court could conclude that Ritchie accidentally pointed his handgun at Weathersby.  On the basis of the record, Weathersby’s alleged emotional injury manifestly resulted from Ritchie’s alleged intentional act of pointing his gun at her.

Weathersby alleged in her complaint that Ritchie aggressively confronted her and pointed a handgun at her at close range without any provocation. Ritchie’s alleged act of pointing his gun at Weathersby intentionally created a direct risk of mortal fear and emotional injury. Therefore, Ritchie reasonably should have expected the consequences of his act because of the risk of harm he created. Therefore, the Court of Appeal concluded that the incident was not an “occurrence” triggering coverage, and Meemic had no duty to indemnify or defend Ritchie.

EXCLUSION FROM COVERAGE

Meemic also contends that it is entitled to summary disposition under MCR 2.116(C)(10) on the basis of a policy exclusion. For that exclusion to apply, an “occurrence” was required to trigger the policy. Since the incident was not an “occurrence” as defined by the policy because a reasonable person in Ritchie’s position should have expected that such conduct would cause an unarmed, nonthreatening stranger severe emotional distress.

THE EFFECT OF THE NEGLIGENCE CLAIM

Weathersby cannot avoid the policy provisions regarding the intentional nature of Ritchie’s conduct by relying upon her pleadings that characterize his conduct as negligent use, or misuse, of a firearm. Whether Weathersby describes Ritchie’s conduct as an assault or negligent conduct, she is suing Ritchie for damages for emotional injury resulting from Ritchie’s intentional acts. In light of the intentional nature of Ritchie’s alleged conduct underlying Weathersby’s claims, the Court of Appeal agreed that Meemic was not obligated to defend and indemnify Ritchie, regardless of whether Weathersby pleaded negligence, assault, or both. The intentional act underlying Weathersby’s claims and the alleged injury were the same under both theories.

The Court of Appeal’s conclusion did not change even if it accepted Ritchie’s version of events as that which is most favorable to Weathersby. Ritchie testified in his deposition that he approached Weathersby cautiously, helped her locate her client’s address, and kept his handgun at his side pointing toward the ground at all times with his finger off the trigger. Under his version of the encounter, coverage would still not be available.

If the finder of fact believed Ritchie’s version, Ritchie (and Meemic) could not be liable for her damages because the lack of proximate cause would defeat her negligence claim. If the finder of fact believed Weathersby’s account, Ritchie would have committed an intentional act that was not covered under the Meemic policy. Thus, no matter whose account is believed, Weathersby cannot conceivably recover under the policy, so the Court of Appeal concluded that Meemic had no duty to defend or indemnify Ritchie.

ZALMA OPINION

Insurance, by definition, only applies to contingent or unknown events. Pointing a gun at a stranger to force removal from one’s property and causing fear of instant death and emotional distress, cannot be contingent, unknown, accidental nor an occurrence. No one can obtain defense or indemnity if there is no occurrence. The Court of Appeal found that ever element of Weathersby’s claim was the intentional conduct of Richie and the attempt to tap into the coverage by alleging negligence did not work because to prove negligence Weathersby still needed to prove Ritchie pointed a gun at her and threatened her life.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

No alt text provided for this image

Now available Barry Zalma’s newest book, The Tort of Bad Faith, and How to Acquire, Understand, and Make a Successful Claim on a Commercial Property Insurance Policy: Information Needed for Individuals and Insurance Pros to Deal With Commercial Property Insurance” the New Books are now available as a Kindle book here, paperback here and as a hardcover here available at amazon.com.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library

 

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SLOTH IN LITIGATION FATAL TO CASE

No UM/UIM Coverage Supports Denial & Starts Running of Limitations

Statute of Limitations Ran From Denial of Claim

See the full video at https://rumble.com/v1p2adq-sloth-in-litigation-fatal-to-case.html  and at https://youtu.be/b5hP3MHorO8

In Glenna L. Novak And Estate Of Jeffery Leonard Novak, A/K/A Estate Of Jeffery L. Novak By And Through Glenna L. Novak, Executrix v. Mutual Benefit Insurance Company, No. 1592 MDA 2021, No. J-S23016-22, Superior Court of Pennsylvania (October 14, 2022) when the plaintiffs lawyer admitted a letter was a denial of a UM/UIM claim that denial started the running of the statute of limitations.

Glenna L. Novak and the Estate of Jeffrey Leonard Novak (collectively “Appellants”) appealed from the order granting summary judgment in favor of Mutual Benefit Insurance Company (“MBIC”).

FACTS

In June 2011, Jeffrey Leonard Novak (“Decedent”) was operating a motorcycle when a vehicle driven by Roy E. Wright made a left turn across Decedent’s lane of travel, causing the motorcycle to strike the vehicle. Decedent was thrown from his motorcycle and sustained injuries, including severe head trauma, which resulted in death.

Appellants sought recovery from Wright, who had an insurance policy through Progressive Specialty Insurance Company (“PSIG”). Wright’s policy had a bodily injury limit of $50,000, which PSIG tendered. Appellants also submitted a claim for underinsured motorist (“UIM”) coverage under Decedent’s motorcycle policy (“motorcycle policy”). The motorcycle policy was issued by Progressive Advanced Insurance Company (“PAIC”). PAIC informed Appellants that Decedent had rejected UIM coverage. Appellants sued, contending the UIM rejection was ineffective, and they eventually reached an agreement to resolve the suit for $20,000.

Appellants’ counsel wrote to MBIC, which had issued insurance on two of Appellants’ other vehicles, a car and a truck, seeking consent to settle the two claims. In a letter dated October 3, 2012, MBIC stated the motorcycle that Decedent was driving at the time of the accident was not insured by MBIC. Therefore, MBIC explained, UIM coverage was not available under its policy and its consent was not required for settlement.

Appellants later made a claim to MBIC for UIM coverage under the personal auto policy. MBIC denied UIM coverage, stating it had previously denied coverage in the October 2012 letter, when it explained that its consent was unnecessary for the settlements. Appellants sued in February 2018 (six years after the first denial), and they filed a complaint in May 2019. They alleged breach of contract, sought a declaratory judgment, and requested damages for bad faith.

MBIC ultimately filed a motion for summary judgment arguing, in part, that Appellants’ claims were barred by the statute of limitations.

DISCUSSION

Appellants maintain the accrual date for the action could not have occurred before August 2017, when they submitted a UIM claim to MBIC. Appellants contended that an unsolicited opinion or observation by an insurer that it may or may not have coverage applicable to a particular matter is different from an insurer processing a claim affirmatively stated and submitted by an insured to the insurer for action and denying that insured the specific benefits claimed.

Pennsylvania law provides for a four-year statute of limitations on breach of contract actions and related declaratory judgment actions. In this case the trial court concluded the limitations period began to run when MBIC denied coverage in the October 2012 letter and therefore the current case, commenced in 2018, was barred by the statute of limitations.

It cannot genuinely be disputed that MBIC denied coverage of the subject accident by letter dated October 3, 2012. Although Appellants had not yet made a claim under their MBIC Policy, a plain reading of the 2012 letter makes clear that MBIC was denying coverage for the subject accident. In order to file a timely breach of contract claim, Appellants should have filed their action no later than October 3, 2016, which they did not do.

Therefore, the Court of Appeal concluded that Appellants’ claims were untimely, and summary judgment should be entered in favor of MBIC on all claims.

The October letter stated that UIM coverage is not available under the policy. Even Appellants’ counsel admitted that upon receipt of the letter in 2012, he interpreted the letter as a denial of coverage. Therefore, the record supported the finding of a concession by counsel and an obvious failure to sue timely which defeated the suit.

ZALMA OPINION

When the lawyer for the plaintiff concedes that there was a denial in 2012 and the suit was not filed until 2018 he has conceded the statute of limitations applied and the suit was untimely probably because he agreed there was no coverage under the MBIC policy. When a plaintiff has a viable cause of action against an insurer there is no excuse for failing to sue within a four year statute of limitations.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

No alt text provided for this image

Now available Barry Zalma’s newest book, The Tort of Bad Faith, and How to Acquire, Understand, and Make a Successful Claim on a Commercial Property Insurance Policy: Information Needed for Individuals and Insurance Pros to Deal With Commercial Property Insurance” the New Books are now available as a Kindle book here, paperback here and as a hardcover here available at amazon.com.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library

 

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How To Defeat or Deter Insurance Fraud

Insurers Must be Proactive Against Insurance Fraud

Insurers Must Stop the Logarithmic Growth of Insurance Fraud

See the full video at https://rumble.com/v1petty-how-to-defeat-or-deter-insurance-fraud.html  and at https://youtu.be/6-iZqqx8d6I

Fraud is taking more money every year from the insurance buying public. The Coalition Against Insurance Fraud recently revised its estimates from $80 billion a year to announce that insurance fraud takes over $308 billion a year from the insurance industry. The US Department of Justice working with various federal police agencies have taken an active role to investigate, prosecute and convict those who defraud U.S. health programs and federally funded insurance like flood insurance and crop insurance. Yet, the arrests and prosecutions that happen are only creating a small dent in the amount of money stolen from private and federally funded insurance.

Since no one really knows how much is taken from insurers and federal programs – because most succeed – the best estimates, like that made by the Coalition Against Insurance Fraud, is nothing more than an educated guess. People who are actively involved in the investigation of insurance fraud believe that the more accurate estimate is an amount equal to 10% to 30% of premium collected.

Since the property and casualty insurance industry collected $394.8 billion in the first half of 2021 compared to $362.3 billion for the same period in 2020, fraud took in six months $39.48 billion to $118.44 billion a year for that small part of the insurance industry. [https://content.naic.org/sites/default/files/inline-files/Property-Casualty-and-Title-Insurance-Industries-2021-Mid-Year-Report.pdf] If the trend continues the amount stolen from the property and casualty insurance industry – a small part of the Coalition’s number – for the year would be doubled to almost $80 billion to $220 billion.

Insurers properly complain that the local district attorneys and police agencies give a low priority to the crime of insurance fraud,

Insurers have good reason to complain. They are universally ignored by police agencies when they report the crime. When insurance criminals are caught in the act they are seldom arrested, even less often prosecuted and almost never punished.

Insurance is the Only Crime Where The Victim Is Required To Pay For Investigation & Prosecution of the Criminal Or No Investigation Will Be Done

The California Department of Insurance, like similar entities across the country, compel insurers to fund and staff a Special Investigative Unit (SIU) to investigate and report to the state potential insurance fraud and maintain a detailed anti-fraud program. The California Department of Insurance audits insurers regularly to be sure that each insurer works hard to investigate and seek prosecution of the crime of insurance fraud and punish those the Department believes are not seriously working to defeat fraud.

Simultaneously, the same Department of Insurance punishes insurers for not paying claims rapidly or for not treating insureds or claimants fairly. Courts, and juries will often assess punitive and exemplary damages against insurers who accuse their insured’s of fraud while looking with 20/20 hindsight at the SIU investigation.

Similar businesses in the financial sector, who are also regular victims of fraud and other crimes are not taxed or compelled to investigate crimes committed against them. No one demands that the Bank of America or Wells Fargo or Chase pay for prosecuting embezzlers or bank robbers. No one demands that Southland Corporation pay for prosecuting people who hold up 7-11 stores. No Regulator requires stockbrokers to investigate money laundering or fraudulent transactions. The imposition upon the insurance industry – and the attendant cost passed to the insurance consumer – is unique.

Insurers are treated differently than all other businesses in the United States.

George Orwell was right when, to paraphrase, he had a character in his novel “Animal Farm” say that “all businesses are equal, some are more equal than others.”

Clearly, insurers are less equal with regard to crimes perpetrated against them than are other businesses.

Do Insurers Get Their Money’s Worth From Fighting Fraud?

Insurance fraud prosecutions and investigations are anemic.

I have heard the following excuses from prosecutors to whom insurance fraud cases were presented:

  1. A confession on the record with five corroborating witnesses is not enough to support a fraud prosecution.
  2. An insurance company can’t be a victim of a crime.
  3. You have a good case, but I don’t have time to prepare an indictment or take the case to a grand jury.
  4. Juries don’t like insurance companies.
  5. Are you bringing this case because you don’t want to pay a legitimate claim?
  6. I don’t understand what the claimant did wrong.
  7. Arson-for-profit cases take up too much time and effort unless someone dies in the fire.

What Can Insurance People Do to Change The Statistics?

It is the obligation of all of us whose work is to protect insurers against insurance fraud to do something to change the lack of sufficient arrest and prosecution of insurance fraud perpetrators. Methods that are available and that should be exercised by every person who wants to reduce the effect of insurance fraud include:

Lobby to change the system so that:

  • All the money must go to all kinds of insurance fraud at the discretion of the Commissioner of Insurance.
  • Prosecutors must be assigned to the Fraud Bureau and their only job must be to prosecute insurance fraud.
  • When the local D.A. does not file a criminal complaint, the fraud investigator or lawyer for the insurer, must complain, loudly.

Work within the system we have:

  • Report every suspected fraudulent claim to the Fraud Division or Fraud Bureau in you state with an effective report including admissible evidence.
  • Follow-up with the Fraud Division after you get the letter saying they won’t investigate.
  • Supplement the Suspected Fraudulent Claim (“SFC”) report with investigation results and transcripts of examinations under oath.
  • Develop a personal relationship with investigators at the Fraud Division.
  • Develop a personal relationship with supervising investigators at the Fraud Division.

When The Fraud Division refers a case to a prosecutor determine the identity of the prosecutor.

  • Make it clear to the prosecutor that you represent an interested and proactive victim.
  • Make it clear to the prosecutor that your insurance company is upset that it is the victim of a crime.
  • Make it clear to the prosecutor that you will make available to him or her anything required.
  • Make it clear to the prosecutor that you, and other employees of the insurance company, will be available to testify.
  • If you are in California and sixty days go by after the case is referred to the D.A. demand compliance with the requirements of the California Insurance Code. California Insurance Code § 1872.4 provides, in relevant part, as follows:

If prosecution by the district attorney concerned is not begun within 60 days of the receipt of the commissioner’s report, the district attorney shall inform the commissioner and the insurer as to the reasons for the lack of prosecution regarding the reported violations.

  • If you are not in California look for similar statutes in the state you are in or simply complain to the D.A. or State’s Attorney who are public servants.
  • The letter demanding an explanation for why there is no prosecution should go to the elected District Attorney. He or she will refer your letter for response to a head deputy. Often, they will be ashamed to tell you that the only reason for the failure is that other cases always have priority over insurance fraud. The District Attorney of every county must be made aware that he or she is obligated to inform the insurance company victims why the crime is not being prosecuted.

Enough letters, enough complaints, and insurance fraud will finally be recognized by prosecutors to be a serious crime.

It is also the obligation of everyone involved in the effort to hinder insurance fraud to:

  • Write articles for your local newspapers.
  • Telephone local reporters and complain that they don’t cover the crime.
  • Call talk-radio and explain the expense of insurance fraud.
  • Volunteer for your company’s speaker’s bureau and give talks on insurance fraud to every Rotary, Lions, BPOE or other service organization meeting.
  • Appear at the trial of every insurance fraud case.
  • Demand restitution when an insurance fraud is convicted.
  • Refuse to pay fraudulent claims.
  • When sued by people who are believed to have presented fraudulent claims insist that the case be tried to a jury before any payment is made.
  • Remember Pogo who was reported to have said: “We Have Met The Enemy and They Is Us!”

To defeat or deter insurance fraud, it must be prosecuted. To get it prosecuted the insurer must do the work because local police agencies or prosecutors will not, unless there is a serious violent crime included, deal with the fraud.

The Orphan Child of the Criminal Justice System

Insurance fraud is the orphan child of the criminal justice system and will never be defeated until the public and prosecutors recognize that insurance fraud is a serious problem that effects their own financial condition.

It is time that insurers stop complaining and do the work necessary to defeat this metastasizing crime before its growth eats away any chance insurers – and their shareholders – have of making a profit.

Everyone involved in the business of insurance and everyone who buys insurance must make it clear that they are angry at what is happening to their insurance premium dollar. When I, and everyone who has ever purchased a policy of insurance, hears that $300 out of every $1,000 we pay in premium goes to a criminal we should all want to scream out the window, as did the character in “Network”: “I’m mad as Hell, and I’m not going to take this anymore!”

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

No alt text provided for this image

Now available Barry Zalma’s newest book, The Tort of Bad Faith, and How to Acquire, Understand, and Make a Successful Claim on a Commercial Property Insurance Policy: Information Needed for Individuals and Insurance Pros to Deal With Commercial Property Insurance” the New Books are now available as a Kindle book here, paperback here and as a hardcover here available at amazon.com.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library

Posted in Zalma on Insurance | Leave a comment

New Books for Insurance Professionals Now Available at Amazon.com

Books by Barry Zalma, Esq., CFE

The Compact Book on Ethics for The Insurance Professional

How Ethical Doctrines from the Beginning of the Written Word to the Present Resulted in the Incorporation of the Covenant of Good Faith

Every Person Involved in the Business of Insurance Must Act Ethically in the Business of Insurance

Insurance is, by definition, a business of the utmost good faith. This means that both parties to the contract of insurance must act fairly and in good faith to each other and do nothing that will deprive the other of the benefits the contract of insurance promised.

Without the covenant of good faith and fair dealing, and ethical people who work in the insurance industry applying and fulfilling the covenant, effective insurance to spread the risk of loss to a large community of insurance professionals, is impossible. One cannot act fairly and in good faith without being a person with a well-formed ethical compass.

In 1776, Lord Mansfield acting as an appellate judge serving in the House of Lords of Britain (the predecessor of the United Kingdom) for the first time referred to the covenant of good faith and fair dealing. In the case designated: Carter v. Boehm S.C. 1 Bl. Burr 1906, 11th May 1766. 593, 3 Lord Mansfield in the British House of Lords stated the rule of uberrimae fide (Latin for utmost good faith).

Ethics & Ethical Behavior are Essential to Every Insurance Professional

Good faith forbids either party by concealing what he privately knows, to draw the other into a bargain, from his ignorance of that fact, and his believing the contrary.

The implied covenant is simply stated by explaining that no party to a contract of insurance should do anything to deprive the other of the benefits of the contract.

Since at least 1766, the business of insurance is a business of the utmost good faith. Each party to a contract of insurance must deal with each other ethically. This book will consider and explain different ethical concepts from the Code of Hammurabi more than 3000 years ago to modern ethical philosophers.

The general duty of good faith and fair dealing incorporated by reference into every policy of insurance requires a complete understanding of ethics and ethical behavior.

The covenant is mutual, and the principles of good faith and fair dealing impose an affirmative obligation on the insured to cooperate as much as it requires the insurer to treat the insured fairly with regard to every claim presented.

Without the covenant of good faith and fair dealing, and ethical people who work in the insurance industry applying and fulfilling the covenant, effective insurance to spread the risk of loss to a large community of insurance professionals, is impossible. One cannot act fairly and in good faith without being a person with a well-formed ethical compass.
In 1776, Lord Mansfield acting as an appellate judge serving in the House of Lords of Britain (the predecessor of the United Kingdom) for the first time referred to the covenant of good faith and fair dealing. In the case designated: Carter v. Boehm S.C. 1 Bl. Burr 1906, 11th May 1766. 593, 3 Lord Mansfield in the British House of Lords stated the rule of uberrimae fide (Latin for utmost good faith):

What is The Purpose of the Book

This book considers and explains different ethical concepts from the Code of Hammurabi more than 3000 years ago to modern ethical philosophers.

The book covers, at least:

  • What is Insurance?
  • Ethics & Ethical Behavior.
  • Ethical Insurance
  • The Development of the Implied Covenant of Good Faith & Fair Dealing.
  • The Tort of Bad Faith
  • The Ethical Insurance Professional
  • Applying Ethics to the Work of the Insurance Professional
  • Sarbanes Oxley & the Ethical Insurance Professional
  • What Happens When a Cort Creates an Ethical Conflict When None Exists?
  • Ethics and Insurance Fraud
  • Ethics in the Insurance Industry
  • Case Studies of Ethical Breach

The Covenant of Good Faith and Fair Dealing is a statement of the ethical basis of the insurance business.

The book is available as a Kindle book, a Paperback or a Hardcover

“How to Acquire, Understand, and Make a Successful Claim on a Commercial Property Insurance Policy: Information Needed for Individuals and Insurance Pros to Deal With Commercial Property Insurance”

The New Book is now available as a Kindle book here, paperback here and as a hardcover here

Commericial Property Insurance is a necessity for any person or entity owning a piece of commercial property whether it is small or large, whether it is an office building or a warehouse or a factory.

A property owner – unless exceptionally wealthy – cannot afford the risk of losing that property, what it earns from tenants paying rent or from the product produced at the property.

Commercial property insurance is a specialized form of insurance designed to to protect the owner or lessee of the property from loss due to perils like fire, lightning, windstorm, hail, earthquake, flood, tornado or other risks of loss.

Most commercial property insurance policies are written on a “direct risk of physical loss” or “all risk of physical loss” basis subject to exclusions that are directly related to to the risks faced by the property or some standard exclusions.

This books explains the coverages provided by a commercial property insurance policy, how to acquire a policy of commercial property insurance, what the policy of commercial property insurance insures, how to present a claim, and how to successfully present a claim and collect the funds needed to repair or replace the structure and indemnify the insured against the losses incurred because of the interruption of the business of the insured.

The Tort of Bad Faith

What Every Insurance Professional, Every Insurance Coverage Lawyer, Every Plaintiffs Bad Faith Lawyer, and Every Insurance Claims Person Must know About the Tort of Bad Faith

A Book Needed by Every Insurance Claims Professional

The implied covenant of good faith and fair dealing is a concept of insurance law at least three centuries old. It first appeared in British jurisprudence in a case decided by Lord Mansfield sitting in the House of Lords as the highest court in Britain. In Carter v. Boehm. 3Burrow, 1905, Lord Mansfield explained that insurance is a contract upon speculation; the special facts upon which the contingent chance is to be computed, lie, most commonly, in the knowledge of the insured only. The underwriter trusts to his representation, and proceeds upon confidence that he does not keep back any circumstance in his knowledge, to mislead the underwriter into a belief that the circumstance does not exist, and to induce him to estimate the risk as if it did not exist.The keeping back such circumstance is a fraud, and therefore the policy is void.

Lord Mansfield stated the rule still followed to this day: “Good faith forbids either party by concealing what he privately knows, to draw the other into a bargain, from his ignorance of that fact, and his believing the contrary.

Available as a Hardcover   Available as a paperback  Available as a Kindle Book

The Equitable Remedy of Rescission of Insurance

An Effective Tool to detect, deter and defeat insurance Fraud Hardcover – June 17, 2022

The Equitable Remedy of Rescission

Rescission is an equitable remedy first created in the ecclesiastical courts of Elizabethan England.

Following the common law tradition, legal principles were referred to courts of equity to “mitigate the rigor” of the common law.

The new United States of America adopted British common law as the law once the U.S. Constitution was adopted in 1789. British common law was only modified by the limitations placed on the central government by the Constitution.

The viability and ability to enforce contracts was recognized as essential to commerce. Courts of law, following the British Common Law, were charged with enforcing legitimate contracts and rendering money judgments against the party who breached the contract.

It became clear, however, that some contract disputes cannot be resolved with a money judgment. Rather, it needed the assistance of the courts of equity whose judges, in the Elizabethan era were presided over by priests who were believed to be better able to render fair judgments.

It was not until 1875 that equity was practiced in the common law courts. The existence of a dual system entailed that, for example, when a defendant had an equitable defense to a common law action, he would have to go to the Court of Chancery to obtain an injunction to suspend the proceedings in common-law court. He would then begi

n a fresh action for relief in the Court of Chancery. Facing duality persisted until the Judicature Acts which created the Supreme Court of Judicature and allowed all courts to exercise both a common law and equitable jurisdiction.

The judge in a court of equity can weigh many different sides to a case and explore different perspectives to arrive at a judgment.

Available as: A Kindle book A Paperback or a hardcover .

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Now available Barry Zalma’s newest book, The Tort of Bad Faith, and How to Acquire, Understand, and Make a Successful Claim on a Commercial Property Insurance Policy: Information Needed for Individuals and Insurance Pros to Deal With Commercial Property Insurance” the New Books are now available as a Kindle book here, paperback here and as a hardcover here available at amazon.com.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library

 

Posted in Zalma on Insurance | Leave a comment

Plaintiff Only Gets One Bite at the Apple

When You Sue & Lose You Can’t Sue the Same Defendants Again

Res Judicata

See the full video at https://rumble.com/v1owep1-plaintiff-only-gets-one-bite-at-the-apple.html and at https://youtu.be/gH-EZvHBNRo

In DAB Three, LLC, et al. v. Sandra Fitzpatrick, Allen Fischer et al. v. Lawyers Title Corporation et al., No. AC 44393, Court of Appeals of Connecticut (October 18, 2022) the plaintiff attempted to avoid the effect of the doctrine of res judicata.

FACTS

After a suit to recover damages for fraudulent concealment the trial court granted the defendant’s motion for summary judgment in the first action and the defendant Lawyers Title Insurance Corporation’s motion for summary judgment in the second action and rendered judgments from which the plaintiff Alan Fischer appealed.

OPINION

Alan Fischer appealed and claimed that the court incorrectly determined that both of his complaints were barred by the doctrine of res judicata.

The plaintiff was the sole owner, designee, managing partner, and assignee of DAB Three, LLC (DAB Three), and he was the sole person acting through and for DAB Three. In August, 2006, DAB Three sued (the 2006 action) against seven defendants.

In the 2006 action, DAB Three alleged that the 2006 defendants were insurance brokers and/or agents. DAB Three further alleged that it had contracted with the 2006 defendants to procure for DAB Three “a pollution legal liability policy with full and complete coverage for all environmental conditions” with respect to a parcel of real property located at 60 High Meadow Road in Brookfield (property). Over the course of the next decade, the court issued a series of rulings fully resolving the 2006 action in favor of the 2006 defendants.

In March and April, 2019, the plaintiff sued twice both of which involved the current appeal (2019 actions).

The gravamen of the 2019 suits is that the defendants are liable for the $2,049,185.62 judgment rendered in the 2006 action because the defendants failed to procure adequate insurance coverage with respect to the property. The plaintiff alleged that, prior to and throughout the 2006 action, the defendants intentionally misrepresented and fraudulently concealed which of the 2006 defendants was:

  1. the broker of the policy,
  2. Fitzpatrick’s employer, and
  3. the party financially liable to the plaintiff.

The plaintiff alleged that the defendants “withheld” the identity of the individual or entity that brokered the policy so as to force DAB Three “to try the case and obtain a judgment in the [2006 action] against a defendant purportedly without assets.” Both of the complaints in the 2019 actions assert three claims:

  1. fraudulent concealment pursuant to General Statutes § 52-595,
  2. common-law fraud, and
  3. violation of Connecticut Unfair Trade Practices Act (CUTPA)

The defendants moved for summary judgment in the 2019 actions on at least eight different grounds, including res judicata. The court granted both motions for summary judgment and overruled the plaintiffs objections.

DISCUSSION

The doctrine of res judicata provides that a valid, final judgment rendered on the merits by a court of competent jurisdiction is an absolute bar to a subsequent action between the same parties upon the same claim or demand. Res judicata prevents a litigant from reasserting a claim that has already been decided on the merits. Moreover, claim preclusion prevents the pursuit of any claims relating to the cause of action which were actually made or might have been made. Res judicata is based on the public policy that a party should not be able to relitigate a matter which it already has had an opportunity to litigate.

In order for res judicata to apply, four elements must be met:

  • the judgment must have been rendered on the merits by a court of competent jurisdiction;
  • the parties to the prior and subsequent actions must be the same or in privity;
  • there must have been an adequate opportunity to litigate the matter fully; and
  • the same underlying claim must be at issue.

The doctrine of res judicata prevents the plaintiffs attempt to relitigate claims on the basis of his purportedly new evidence.

The Court of Appeal concluded that the same underlying claim was at issue in the 2006 action and the 2019 actions. The allegations are related in time because the 2006 action and the 2019 actions stem from the defendants’ alleged procurement of insufficient insurance coverage.

The 2006 action and the 2019 actions seek the same redress, specifically the $2 million in damages that the plaintiff allegedly sustained due to the defendants’ failure to procure adequate insurance coverage for the property. The 2006 action and the 2019 actions arise from the same common nucleus of facts, particularly the actions and inactions taken by the defendants in connection with the alleged procurement of the policy.

Both cases form a convenient trial unit that conforms to the parties’ expectations. There would have been considerable overlap of witnesses and proof relevant to the 2006 action and the 2019 actions. The fact that the legal claims in the 2006 action (breach of contract and CUTPA) are distinct from the 2019 actions (fraudulent concealment, common-law fraud, and CUTPA) does not preclude the application of res judicata.

This case exemplified the policy considerations supporting the doctrine of res judicata — which is to promote judicial economy, minimizing repetitive litigation, preventing inconsistent judgments and providing repose to parties as balanced against the competing interest of the plaintiff in the vindication of a just claim.

The plaintiffs attempt to relitigate which of the defendants is liable for his lack of insurance coverage is merely a veiled attempt to collect his $2 million judgment from other parties against which he already has litigated his claim and lost. This is the precise type of action to which the preclusive effect of the doctrine of res judicata applies.

The judgments were, therefore, affirmed.

ZALMA OPINION

The plaintiff was a sore loser and found he was responsible for a judgment greater than $2 million that he believed should have been covered by insurance. He sued and failed in 2006 action and then, in 2019, sued again on the same set of facts. The law allows anyone aggrieved to sue for damages. However, when the aggrieved party litigates to judgment and loses he cannot sue again. The old judgment stands and the new suit isn’t new and it fails.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Now available Barry Zalma’s newest book, The Tort of Bad Faith, and How to Acquire, Understand, and Make a Successful Claim on a Commercial Property Insurance Policy: Information Needed for Individuals and Insurance Pros to Deal With Commercial Property Insurance” the New Books are now available as a Kindle book here, paperback here and as a hardcover here available at amazon.com.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library

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Insurers Should Not Sue Each Other

Pedestrian’s No Fault Claim Belongs to Insurer Assigned

See the full video at https://rumble.com/v1oqgsc-insurers-should-not-sue-each-other.html and at https://youtu.be/Aea4HFKmh74

Insurers are professional litigants. They are sued and sue often. Usually they avoid suing other insurers for fear of making precedents that will effect the entire industry. In Beth Bracy, Plaintiff, and ZMC Pharmacy, LLC, Riverview Macomb Home & Attendant Care, and Michigan Spine and Pain, Intervening Plaintiffs v. Yolanda Yvette Nichols, Defendant, and Farmers Insurance Exchange, Defendant/Cross-Plaintiff-Appellant, and GEICO Indemnity Company, Defendant/Cross-Defendant-Appellee, No. 359397, the Court of Appeals of Michigan (October 13, 2022) the insurers involved should have avoided the litigation against each other and voluntarily resolved the dispute with the injured and each other.

FACTUAL BACKGROUND

On March 7, 2012, Geico issued an automobile insurance policy to Marcus Nichols (Marcus). Three years later, Marcus added a 1993 Chevrolet Lumina owned by his mother, defendant, Yolanda Nichols (Nichols), to the policy. Nichols was identified as a driver on the policy, but she was not a named insured on the policy. Nichols was driving the Lumina when she was involved in an automobile accident with plaintiff, Beth Bracy, a pedestrian, on August 23, 2014. Bracy sought personal protection insurance (PIP) benefits under the Michigan no-fault act, MCL 500.3101 et seq., through the Michigan Assigned Claims Plan (MACP). MACP assigned the claim to Farmers, and Farmers paid Bracy PIP benefits for her accident-related injuries.

Bracy filed a complaint against Farmers and Nichols, alleging bodily injury liability against Nichols, and alleging Farmers had unreasonably and unlawfully refused to pay her PIP benefits in accordance with the no-fault act. Farmers filed a third-party complaint against Geico for reimbursement under MCL 500.3172. Later, Farmers sought summary disposition against Geico, contending Geico was highest in priority for Bracy’s benefits. Geico also filed a motion for summary disposition against Farmers, arguing that Farmers was highest in priority for Bracy’s benefits. The trial court granted Farmers’ motion.

Geico appealed to the Michigan Court of Appeal which remanded to the trial court for entry of an order granting summary disposition in favor of Geico “because GEICO was not the insurer of the owner, registrant, or operator of the Lumina and, therefore, had no obligation to pay Bracy’s PIP benefits under MCL 500.3115(1).”

NO-FAULT COVERAGE

Farmers contended that Nichols’ vehicle was insured under Marcus’s Geico automobile insurance policy, and thus, Bracy was entitled to recover no-fault benefits under that policy.

LAW AND ANALYSIS

An uninsured pedestrian who suffers accidental bodily injury must seek PIP benefits from insurers in the following order of priority:

(a) Insurers of owners or registrants of motor vehicles involved in the accident.

(b) Insurers of operators of motor vehicles involved in the accident.

When no such insurer exists, the uninsured pedestrian may seek PIP benefits through the MACP.

In this case, the trial court did not err in granting summary disposition to Geico because Geico is not the insurer of the owner, registrant, or operator of the Lumina, and therefore, was not obligated to pay Bracy’s PIP benefits under MCL 500.3115(1).

In this case, it is undisputed that Marcus was neither the owner nor registrant of the Lumina; thus, the Lumina was not an auto for which he was “required to maintain security under Chapter 31 of the Michigan Insurance Code[.]” Accordingly, Bracy was not an “eligible injured person” under the terms of the Geico policy.

The named insured must have an “insurable interest” to support the existence of a valid policy. An insurable interest in property is broadly defined as being present when the person has an interest in property, as to the existence of which the person will gain benefits, or as to the destruction of which the person will suffer loss.

Marcus had no insurable interest in the Lumina because the Lumina was solely owned and operated by Nichols. And there was neither evidence that Marcus had use of the Lumina such as to be considered an owner under MCL 500.3101, nor that he intended to acquire the vehicle. The Lumina’s existence did not afford Marcus any benefits, and the destruction of the Lumina would not have caused him any loss.

Geico argued that the trial court’s grant of summary disposition in its favor was also proper because the insurance policy was void in light of Marcus’s misrepresentations in obtaining that policy for a vehicle in which he had no insurable interest.

The trial court dismissed Geico’s misrepresentation argument as moot because it was granting Geico’s motion for summary disposition “on the basis of priority” The argument remains moot on appeal for the same reason.

As a general rule, an appellate court will not decide moot issues.

ZALMA OPINION

Why this litigation between insurers took place is difficult to comprehend. Farmers was assigned by the state under the MCAP to provide benefits to the injured pedestrian and it did so, as assigned. Then it claimed Geico was obligated to pay the benefits even though it did not have an obligation to do so and the trial court and Court of Appeal agreed. The lawyers fees and time of the court could have easily avoided by the two insurers working together to resolve their differences, especially after they lost twice.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

No alt text provided for this image

Now available Barry Zalma’s newest book, The Tort of Bad Faith, and How to Acquire, Understand, and Make a Successful Claim on a Commercial Property Insurance Policy: Information Needed for Individuals and Insurance Pros to Deal With Commercial Property Insurance” the New Books are now available as a Kindle book here, paperback here and as a hardcover here available at amazon.com.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library

 

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I Am Honored to Speak at the 44th Anti-Fraud Conference in Palm Springs

Barry Zalma will Speak on November 8 on “The Examination Under Oath, a Perfect Tool to Defeat Insurance Fraud”

Meeting Event Information

2022 CONFERENCE

November 08, 2022
8:00 AM – 1:00 AM
Add to Calendar

The Riviera Palm Springs – Margaritaville Resort
1600 North Indian Canyon Dr.
Palm Springs, CA 92262
Venue website
Directions

CONFERENCE INFORMATION

Register online or download the registration form HERE

Room Reservations: Click HERE

In Addition to my Talk Conference Speakers Include:

  1. Natalie Chandler, CFE and Sergeant Ruben Lino, California Department of Insurance “Suspected Fraudulent Claims”
  2. Detective Laila Ashaq and Detective Steven Bravo, California Department of Insurance “Disability Insurance Fraud Investigations”
  3. Fire Cause Analysis, “Car-B-Qing, Vehicle Arsonists, Liar, liar, pants on fire!”
  4. Frank Sztuk, Delta Group, Jonathan Colman, Colman Perkins “Update on Anti-Fraud Issues”
  5. Richard Harer, Specialized Investigations , “Creative Techniques for Investigating by Private Investigators”
  6. Barry Zalma, Barry Zalma, Inc. “The Examination Under Oath, a Perfect Tool to Defeat Insurance Fraud”
  7. Nancy Ogelsby, Justice 3D, “Empathy Based Interviewing”
  8. Eve Korff, Esq, Shaver, Korff & Castronovo, LLP “Medical Fraud, Identifying it, Defining It, and Dealing with it.”
  9. Kurt Cotrell, Dustin Merrit, WCF Insurance, “To investigate or not investigate, that is the question”
  10. David Bogan, DMB Investigations “Locating the Uncooperative Insured or Claimant”
  11. Captain Richard Edmonson, Regina Garay, Department of Insurance “Staged Collisions and Organized Rings”
  12. Steven Beltz, NICB “Metadata for Fraud Investigators”
  13. Daniel Bartlett, Berkshire Hathaway “Worker’s Comp Case Study, Payroll Underreporting”
  14. Amie Savona, ProNet Group, Inc. “Vehicle Forensics, Technology, Fraud Investigations”
  15. Eric Johnson, Department of Insurance, “The Market Conduct Examination and how it relates to Fraud”
  16. Chris Patton, Esq, Patton Trial Group, “Medical Mayhem, the Ever Evolving History of Medical Billing Admissibility”

44TH ANNUAL SCFIA CONFERENCE SPONSORSHIP OPPORTUNITIES
NOVEMBER 8-10, 2022

VENDORS AND SPONSORS STILL NEEDED!
For more info, contact:
Cheron Browning – Cheron.browning@gmail.com
or Cecilia Laija – cclaija@gmail.com

Contact David C. Williams
DCW & Associates Investigations and Research
16691 Gothard Street, Suite D
Huntington Beach, CA 92647

dwilliams@dcwpi.com

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

No alt text provided for this image

Now available Barry Zalma’s newest book, The Tort of Bad Faith, and How to Acquire, Understand, and Make a Successful Claim on a Commercial Property Insurance Policy: Information Needed for Individuals and Insurance Pros to Deal With Commercial Property Insurance” the New Books are now available as a Kindle book here, paperback here and as a hardcover here available at amazon.com.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library

Posted in Zalma on Insurance | Leave a comment

Clear & Unambiguous Exclusion Effective

Trade Dress Infringement is Different From Trademark Infringement

See the full video at https://rumble.com/v1okehb-clear-and-unambiguous-exclusion-effective.html and at https://youtu.be/OxvMXRWT3Jg

In State Farm Fire And Casualty Company v. Jason Hines, Individually and doing business as Dedicated Business Systems International LLC; Dedicated Business Systems International, LLC; Tri-State Communication Services LLC, doing business as U.S. Voice and Data, LLC Jason Hines; Dedicated Business Systems International, LLC, No. 21-2354, United States Court of Appeals, Third Circuit (October 14, 2022) an insurer was found to have no duty to defend because of a trade mark infringement exclusion.

FACTUAL BACKGROUND

An insurance coverage dispute arose concerning the scope of two commercial liability insurance policies. The policies covered advertising injuries arising out of infringement upon another’s trade dress, but they exclude injuries arising out of trademark infringement.

When the insured was sued for trademark infringement, the insurer initially agreed to defend the insured with reservations. After completing its investigation State Farm sought permission to withdraw from that representation. The insurer sued, seeking a declaratory judgment, and the District Court entered summary judgment in its favor: the policies’ coverage of trade dress infringement claims did not extend to the suit for trademark infringement.

The Insurance Policies

The two commercial insurance policies at issue were issued by State Farm. In 2013, both policies used the same language in providing coverage for “personal and advertising injury.” That coverage included the obligation to defend against suits arising out of infringement “upon another’s copyright, trade dress or slogan in your ‘advertisement.'” (emphasis added). But that advertising injury coverage excluded claims “[a]rising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights.” (emphasis added). Under both policies, that exclusion did not apply to infringement in an advertisement “of copyright, trade dress or slogan.” (emphasis added).

Dedicated Business Systems International (‘DBSI’) purchased those policies from State Farm for itself and its officers when conducting DBSI business.

The Underlying Lawsuit

For a time, DBSI was an authorized reseller of Avaya communications technology. The authorized-reseller arrangement terminated in 2013, but DBSI and one of its officers allegedly continued to access Avaya software license portals afterwards – without Avaya’s authorization. By doing so, they were allegedly able to distribute pirated licenses to customers for a handsome profit, all the while using Avaya’s trade name and marks to falsely represent that the software was “valid and authorized by Avaya.”

Believing that DBSI engaged in a “massive illegal software piracy operation,” Avaya sued DBSI and its officer. Avaya’s eight-count complaint included federal claims for trademark infringement and copyright infringement. In response, State Farm sent a letter to DBSI and the officer to inform them that it had appointed counsel to defend them in the Avaya lawsuit but that letter reserved State Farm’s right to withdraw if it determined that the claims were outside of the policies’ scope.

Consistent with that reservation of rights, State Farm initiated a lawsuit for a judgment declaring that it did not have to defend or indemnify DBSI and its officer in the Avaya lawsuit, moved for summary judgment, and the motion was granted. DBSI appealed.

DISCUSSION

Since neither policy specifically defines the two critical terms – “trade dress” infringement and “trademark” infringement, the Third Circuit determined that as a matter of intellectual property law, the concepts of trademark and trade dress have much in common, with trade dress often treated as a subspecies of trademark. The case did not concern trademark and trade dress in the abstract; it concerned insurance policies that exclude claims for trademark infringement and cover claims for trade dress infringement.

Claims for trademark infringement and trade dress infringement have distinct elements.

First: A claim for trademark infringement has three elements:

  1. a valid and legally protectable mark;
  2. owned by the plaintiff;
  3. that, when used by the defendant to identify goods or services, is likely to create confusion concerning the origin of the goods or services.

Second: A claim for trade dress infringement requires an articulation of the specific features of the distinct trade dress sought to be protected followed by proof that an infringing design is nonfunctional; distinctive, either inherently or through secondary meaning; and likely to confuse consumers.

For State Farm to have a duty to defend the Avaya lawsuit against DBSI and its officer, Avaya’s operative complaint must potentially state a claim for trade dress infringement. But it does not.

The operative complaint never mentions “trade dress.” Nor does it provide a basis for reasonably inferring such a claim. It does not contain the requisite description of the specific features of a trade dress that it seeks to protect.

Avaya’s complaint lacked allegations necessary for a trade dress claim, and the District Court did not err in applying New Jersey law to conclude that State Farm did not have to defend DBSI and its officer in the Avaya litigation.

The judgment of the District Court was, therefore, affirmed.

ZALMA OPINION

Infringing a trademark is the type of lawsuit that is often contentious and expensive to defend. Insurers, like State Farm, prefer to avoid such actions and exclude defense or indemnity for trademark infringement. On the other hand, trade dress infringement, putting out a product with a label that looks almost exactly like another’s – a Rolex watch is not a Bolex that looks like a Rolex  but is not the same; a Mont Blanc pen is not the same as a Mont Blank pen even if it has a snow cap.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Now available Barry Zalma’s newest book, The Tort of Bad Faith, and How to Acquire, Understand, and Make a Successful Claim on a Commercial Property Insurance Policy: Information Needed for Individuals and Insurance Pros to Deal With Commercial Property Insurance” the New Books are now available as a Kindle book here, paperback here and as a hardcover here available at amazon.com.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library

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Killing Two Dogs is an Intentional Act

No Duty to Defend or Indemnify Intentional Acts or Person not Insured

See the full video at https://rumble.com/v1oehjm-killing-two-dogs-is-an-intentional-act.html and at https://youtu.be/A7ZBSMgooac

Norma Hudson and the Hudson Revocable Trust (the Trust) appealed from a summary judgment entered in favor of Farm Bureau Mutual Insurance Company of Arkansas, Inc. (Farm Bureau). In the summary-judgment order, the trial court found as a matter of law that Farm Bureau had no duty of defense or indemnification to the appellants arising from a lawsuit filed against the Trust by Dewayne Evans, Mark White, and Billy Taylor. In Norma Hudson And Hudson Revocable Trust v. Farm Bureau Mutual Insurance Company Of Arkansas, Inc., No. CV-21-396, Court of Appeals of Arkansas, Division II (October 5, 2022) the Court of Appeal resolved the coverage dispute.

FACTS

Benjamin Hudson (Norma’s adult grandson) shot and killed two coon dogs and allegedly traumatized a third on property owned by the Trust. The dog owners sued Benjamin Hudson (Benjamin) and the Trust, raising claims for destruction of property, negligence, and tort of outrage and seeking compensatory and punitive damages. The allegations in the complaint against the Trust were that Benjamin was employed to oversee the Trust property, that he was acting in a scope of that authority, and that his outrageous conduct was ratified by the Trust.

Norma has two insurance policies with Farm Bureau. One policy is a homeowner’s policy that insures the property where the shootings occurred, and the other is a property owner’s policy. After the dog owners’ sued Norma and the Trust made a claim with Farm Bureau for coverage under the insurance policies. Farm Bureau subsequently sued seeking a declaratory judgment that it owed no duty to defend or indemnify Benjamin, Norma, or the Trust based on exclusionary language in the policies relating to bodily injury or property damage arising out of intentional acts.

The policies provided that Farm Bureau provided that there is no coverage for “bodily injury or property damage caused intentionally by you or any covered person or at the direction of you or any covered person” and that “[t]he expected or unexpected results of such acts are not covered.” (Emphasis added.)

Farm Bureau asserted that the dog owners’ complaint alleged that Benjamin was acting as an agent of the Trust when he shot the dogs. Farm Bureau argued that because the insurance policies expressly excluded liability coverage for damage arising out of an intentional act, it had no duty to defend or indemnify Norma or the Trust and that it should be granted summary judgment.

The trial court agreed and entered an order granting Farm Bureau’s summary-judgment motion. Specifically, the trial court found:

  • Liability insurance coverage is expressly and unambiguously excluded under both the Homeowner Policy and the Property Owners Policy for bodily injury or property damage arising out of the intentional conduct of an insured.
  • That it is alleged in the underlying lawsuit Benjamin C. Hudson was acting on behalf of Hudson Revocable Trust at the time of the subject incident, and it is undisputed in this matter that Benjamin C. Hudson acted intentionally in shooting the dogs in the course of the subject incident.
  • That, as a matter of Arkansas law, liability insurance coverage is excluded under the Homeowner Policy and Property Owners Policy from covering Dewayne Evans, Mark White, and Billy Taylor’s alleged damages in the Underlying Lawsuit and relating to the dog-shooting event.

ANALYSIS

Once the moving party has established a prima facie entitlement to summary judgment, the opposing party must meet proof with proof and demonstrate the existence of a material issue of fact. On appellate review, the appellate court must determine if summary judgment was appropriate based on whether the evidentiary items presented by the moving party in support of the motion leave a material fact unanswered. The Court of Appeal views the evidence in the light most favorable to the party against whom the motion was filed, resolving all doubts and inferences against the moving party. The review focuses not only on the pleadings but also on the affidavits and other documents filed by the parties.

Arkansas law regarding the construction of insurance contracts is well settled and requires the language in an insurance policy is to be construed in its plain, ordinary, and popular sense. If the language of the policy is unambiguous, the Court of Appeal will give effect to the plain language of the policy without resorting to the rules of construction.

Once it is determined that coverage exists, it then must be determined whether the exclusionary language within the policy eliminates coverage. Exclusionary endorsements must adhere to the general requirements that the insurance terms must be expressed in clear and unambiguous language. If a provision is unambiguous, and only one reasonable interpretation is possible, the court will give effect to the plain language of the policy without resorting to the rules of construction.

The appellants state that the undisputed facts show that the insured, Norma, did not shoot the dogs, nor did she direct or encourage Benjamin to shoot the dogs. The appellants state it is implicit in the trial court’s ruling that Benjamin was acting on behalf of the Trust when the unrebutted evidence – the affidavits submitted by Norma and Benjamin-proved otherwise.

The Court of Appeal disagreed and held that Farm Bureau was properly granted summary judgment. In the dog owners’ complaint against Benjamin and the Trust, they alleged that Benjamin intentionally shot the dogs while acting in a scope of authority to oversee Trust property and that his outrageous conduct was ratified by the Trust. In reviewing the actual allegations in the complaint, the insurance policies unambiguously exclude coverage for “bodily injury or property damage caused intentionally by you or any covered person or at the direction of you or any covered person.” (Emphasis added.)

The duty to defend arises when there is a possibility that the damage falls within the policy coverage. Where there is no possibility that the damage alleged in the complaint may fall within the policy coverage, there would be no duty to defend.

The Court of Appeal concluded that there is no possibility that the damage alleged in the complaint falls within the policy coverage because if Benjamin acted at the direction of the Trust, as alleged in the dog owners’ complaint, the policy exclusion for committing an intentional act would apply and defeat coverage. Conversely, if Benjamin acted unilaterally and not on behalf of the Trust, the Farm Bureau policy would not provide coverage because Benjamin was not a named insured as defined in the policies.

Therefore, the trial court’s order of summary judgment was affirmed.

ZALMA OPINION

The Trust denied causation claiming the shooter did not act for it. If he did act for the trust there was no coverage because of the intentional act. If he did not act for the trust, he was not an insured, and there is no coverage. Intentionally killing two coon dogs could never be a covered event under any liability insurance policy.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Now available Barry Zalma’s newest book, The Compact Book on Ethics is available as a Kindle book, a paperback or as a hard cover.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library

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Sanctions Against Lawyer Suing Insurance Broker Affirmed

It is Frivolous to File Same Suit Against Another Defendant After First is Dismissed

See the full video at https://rumble.com/v1nyzr2-sanctions-against-lawyer-suing-insurance-broker-affirmed.html  and at https://youtu.be/VJSW7Qf6k2Q

Dimitri Enterprises, Inc. (“Dimitri”) and its attorney, Richard J. Flanagan, appealed from the district court’s June 24, 2021 order imposing $24,675.00 in sanctions pursuant to Federal Rule of Civil Procedure 11. Dimitri, a roofing contractor, filed this lawsuit in connection with a dispute regarding insurance coverage for an employee’s injuries on a construction project.

In Dimitri Enterprises, Inc. v. Spar Insurance Agency LLC, NIF Services of New Jersey, Inc., and Scottsdale Insurance Company, No. 21-1722-cv, United States Court of Appeals, Second Circuit (October 6, 2022) the complaint asserted claims against defendant Scottsdale Insurance Company (“Scottsdale”), which was Dimitri’s commercial general liability insurance carrier, and defendant NIF Services of New Jersey, Inc. (“NIF”), which was originally alleged to be Dimitri’s broker.

ORIGINAL CLAIM DISMISSED AS TIME BARRED

The district court granted NIF’s motion to dismiss both claims against it, reasoning that the negligence claim was time-barred, and the breach of contract claim was inadequately pled because Dimitri did not allege any contractual terms that NIF breached. Dimitri then filed a second amended complaint (the “SAC”) against an additional defendant, Spar Insurance Agency, LLC (“Spar”), which was the retail insurance broker for Dimitri’s policy.

In its SAC, Dimitri brought claims against Spar for negligence and breach of contract that were identical to the negligence and breach of contract claims that the district court already dismissed against NIF. The district court granted Spar’s Motion to dismiss.

In addition, the district court granted Spar’s subsequent motion for sanctions, explaining that “plaintiff’s counsel knew or should have known that the claims against Spar were likewise subject to dismissal” because “identical claims against NIF were previously dismissed as either time-barred or inadequately pled.”

DISCUSSION

The Second Circuit reviewed the district court’s imposition of sanctions pursuant to Rule 11 of the Federal Rules of Civil Procedure for an abuse of discretion. This deferential standard is applicable to the review of Rule 11 sanctions because the district court is familiar with the issues and litigants and is thus better situated than the court of appeals to marshal the pertinent facts and apply a fact-dependent legal standard. An abuse of discretion only occurs if the district court based its ruling on an erroneous view of the law or on a clearly erroneous assessment of the evidence or rendered a decision that cannot be located within the range of permissible decisions.

RULE 11 SANCTIONS

Rule 11 explicitly and unambiguously imposes an affirmative duty on each attorney to conduct a reasonable inquiry into the viability of a pleading before it is signed. The standard for triggering the award of fees under Rule 11 is objective unreasonableness and is not based on the subjective beliefs of the person making the statement.

In particular, with respect to the statute of limitations on the negligence claim, Dimitri asserts that “the suggestion of a later date for the accrual of a negligence claim was not frivolous, rather it was responsible and zealous.” Regardless, the Second Circuit, concluded it could discern no abuse of discretion in the district court’s decision to impose sanctions.

Under Rule 11, a litigant’s obligations with respect to the contents of filings are not measured solely as of the time they are filed with or submitted to the court but include reaffirming to the court and advocating positions contained in those pleadings and motions after learning that they cease to have any merit. The Second Circuit has upheld sanctions where an attorney or litigant may have initially filed a non-frivolous claim but, after the district court’s dismissal of that claim, re-filed a similar or identical claim in an amended pleading without any good-faith basis for overcoming the district court’s prior ruling.

Finding that the district court did not abuse its discretion by the Second Circuit concluded that imposing sanctions against Dimitri’s counsel because Dimitri brought the exact same negligence and breach of contract claims against Spar that had already been dismissed against NIF. Although the claims were brought against a different party, the particular grounds for dismissal of the claims against NIF (the wholesale broker) applied with equal force to the assertion of the same claims against Spar (the retail broker).

With respect to the negligence claim, the district court had ruled that the claim against NIF was time-barred because the claim accrued, at the latest, when Dimitri received notice that the coverage was denied. In the wake of that ruling, Dimitri made no argument as to how a different accrual date could possibly apply as to its identical claim subsequently brought against Spar, which related to the exact same denial of coverage. Moreover, at a hearing on the sanctions motion, Dimitri’s counsel conceded to the district court that the negligence claim against Spar was time-barred.

Plaintiff’s counsel filed the same defective claims against a new defendant. Therefore, the Second Circuit concluded that such claims were not made in good faith.

It was “patently clear” from that reasoning that amending the pleading to assert the same claims against Spar had absolutely no chance of success.

ZALMA OPINION

Some people and their lawyers believe that suing an insurance company or an insurance agent/broker is always a slam-dunk suit that cannot lose. In this case the client and his lawyer were surprised by an obvious dismissal because the suit was time barred and just filed the same suit against another defendant that they knew was also time barred. The case was dismissed and counsel was properly sanctioned under Rule 11 for submitting a frivolous suit.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. The new book is available as a Kindle book, a paperback or as a hard cover.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library

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Jailhouse Lawyer Annoys Federal Courts

137 Years in Prison for Insurance Fraud & Arson

See the full video at https://rumble.com/v1o47us-jailhouse-lawyer-annoys-federal-courts.html  and at https://youtu.be/zHVwTNkUQhI

How to Deter Insurance Fraud

A prisoner seeking relief from a lengthy sentence failed after multiple efforts as a pro se applicant. In Ali Darwich v. Warden Lewisburg USP; Attorney General United States Of America, No. 22-2280, United States Court of Appeals, Third Circuit (October 14, 2022), Ali Darwich, a federal prisoner currently confined at the United States Penitentiary in Lewisburg, Pennsylvania (“USP Lewisburg”), appealed pro se from the District Court’s order dismissing his petition for a writ of habeas corpus under 28 U.S.C. § 2241.

FACTS

In 2013, a jury in the Eastern District of Michigan convicted Darwich of thirty-three counts related to arson and insurance fraud, including seven counts of using fire to commit fraud in violation of 18 U.S.C. § 844(h)(1). He was sentenced to a total term of 1647 months or 137 years of imprisonment.

He tried multiple times to avoid the sentence only to have the United States Court of Appeals for the Sixth Circuit affirmed, and the United States Supreme Court denied Darwich’s petition for a writ of certiorari in United States v. Darwich, 574 Fed.Appx. 582 (6th Cir. 2014), cert. denied, 574 U.S. 1200 (2015). Darwich then moved to vacate, set aside, or correct his sentence under 28 U.S.C. § 2255. The District Court denied the motion, in United States v. Darwich, No. 2:10-CR-20705, 2016 WL 146662 (E.D. Mich. Jan. 13, 2016), and the Sixth Circuit denied Darwich’s request for a certificate of appealability, in Darwich v. United States, No. 16-1151 (6th Cir. August 5, 2016) (order). Darwich continued to file numerous unsuccessful motions for authorization to file second or successive § 2255 motions.

In 2022, Darwich filed a petition for relief under § 2241, which the District Court construed as raising three claims: (1) that Darwich’s conviction and sentence are unlawful under United States v. Davis, 588 U.S.__, 139 S.Ct. 2319 (2019), Bailey v. United States, 516 U.S. 137 (1995), and Deal v. United States, 508 U.S. 129 (1993); (2) that he was subjected to selective prosecution because of his race or ethnicity; and (3) that the sentencing court erred by imposing consecutive sentences. The District Court dismissed the petition, concluding that Darwich failed to show that § 2255 was an “inadequate or ineffective” remedy so that his claims could be considered under § 224.

ANALYSIS

Motions pursuant to 28 U.S.C. § 2255 are the presumptive means by which federal prisoners can challenge their convictions or sentences. A habeas corpus petition under § 2241 accordingly “shall not be entertained” unless a § 2255 motion would be “inadequate or ineffective to test the legality of [petitioner’s] detention.” A § 2255 motion is inadequate or ineffective only where the petitioner demonstrates that some limitation of scope or procedure would prevent a § 2255 proceeding from affording him a full hearing and adjudication of his wrongful detention claim.

The Third Circuit agreed with the District Court’s determination that Darwich failed to make the showing necessary to meet the safety-valve exception.

First: Darwich alleged that his conviction no longer qualifies as a violent felony. Darwich was sentenced as required by 18 U.S.C. § 844(h)(1).

Second: The District Court’s determination that it lacked jurisdiction to consider Darwich’s selective prosecution and consecutive sentencing claims.

Third: Darwich has had numerous earlier opportunities to present these claims and the fact that his prior challenges have been unsuccessful and/or a new one would be barred as successive does not make § 2255 an inadequate remedy. Even colorable claims of actual innocence whereby a petitioner is being detained for conduct that was subsequently rendered noncriminal by a Supreme Court decision may meet the § 2255(e) requirement when the petitioner had no earlier opportunity to raise the claims but do not apply, therefore, to Darwich.

The Third Circuit affirmed the judgment of the District Court.

ZALMA OPINION

This case establishes, without doubt, that people who commit insurance fraud have unmitigated gall and deserve their sentences. Arson and arson-for-profit is a violent crime that can cause firefighters or innocent by-standers or tenants to be injured or killed. The sentence was deserved and the making of multiple appeals and motions that are specious deserve sanctions but it would do little to add to a 137 year sentence. The only sanction that will work is to ignore any further move by Darwich.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. The new book is available as a Kindle book, a paperback or as a hard cover.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library

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Zalma’s Insurance Fraud Letter – 10-15-2022

ZIFL – 10/15/2022

See the full video at https://rumble.com/v1nti9e-zalmas-insurance-fraud-letter-10-15-2022.html  and at https://youtu.be/wGVzbQ8Gs-w

You can read all 18 pages of Volume 26 Issue 2o here.

Short teases about the articles in this issue can be read at ZIFL-10-15-2022 

  1. Ethics & Insurance Fraud
    1. Insurance fraud is a crime in most jurisdictions. In California it is a felony subject to five years in prison upon conviction. By definition a person who commits the crime of insurance fraud is not acting ethically. In State v. Whitaker, 175 P.3d 136, 117 Hawai=i 26 (Haw. App. 12/31/2007) Whitaker, after presenting a claim to his insurer, was indicted, convicted, and sentenced for Insurance Fraud in violation of Hawaii Revised Statutes (HRS) ‘ 431:10C‑307.7(a)(1) and (b)(2) (2005), and Attempted Theft in the Second Degree (Attempted Theft 2) in violation of HRS ‘ 708‑831(1)(b) (Supp. 2000) and HRS ‘ 705‑500 (1993).
  2. RICO Judgment Allows Disgorgement Damages
    1. Fraudsters Must Disgorge Profits of Crime – In Diane Creel and Lynn Creel v. Dr. Says, LLC, et al., Civil Action No. 4:18-CV-00615, United States District Court, E.D. Texas, Sherman Division (September 27, 2022) the plaintiffs obtained a verdict against Defendants Dr. Yupo Jesse Chang; MD Reliance, Inc.; Universal Physicians, PA; Dr. Says, LLC; Office Winsome, LLC; and Yung Husan Yao (aka Angela Yao) for violations of the civil Racketeer Influenced and Corrupt Organization Act (“RICO”) and RICO conspiracy. The Court, after the verdict, needs to enter its findings of fact and conclusions of law regarding equitable disgorgement.
  3. New California Fraud Statutes
    1. SB 1040, authored by Senator Susan Rubio, authorizes the Insurance Commissioner to order restitution from persons who sell insurance without the necessary license from the Department of Insurance, including “extended vehicle warranties” sold illegally through robocalls and misappropriation of consumers’ and businesses’ premiums, among other insurance scams.

  4. Good News From the Coalition Against Insurance Fraud
    1. Dead patients couldn’t stop Thomas G. O’Lear from billing taxpayers $3.7M for fraudulent X-rays in the Indianapolis area. O’Lear ran a portable-X-ray firm that zapped patients in nursing homes, skilled nursing facilities and long-term care facilities. He billed for thousands of X-rays that he and his business did not perform. That included 151 X-rays on dates after the patients had died. He also billed Medicare and Medicaid for services at nursing facilities on dates when patients were either hospitalized and not on-site at the facilities. O’Lear took multiple X-rays in one visit and falsely claimed that each was done on a different day, requiring separate reimbursement for transporting the portable equipment on each date. And he falsely billed for multiple images of patients when only one image was done — thus requiring a higher reimbursement. O’Lear covered up his scheme by forging medical records, falsifying X-ray images and forging signatures of his employees and the doc he said had ordered X-rays.
  5. Insurer Takes the Profit out of Fraud
    1. Insured’s Suit for Fire Insurance Benefits Defeated by Qui Tam Claim by Insurer

      In Lisa A. McCullough v. Metlife Auto & Home, No. 4:20-CV-01807, United States District Court, M.D. Pennsylvania (September 30, 2022) McCullough sued seeking to force MetLife to pay Plaintiff for an insurance policy on the McCullough’s home, which was destroyed in a fire in 2019.

  6. A Resource for the Insurance Professional
    1. After practicing insurance law for over five decades, Barry Zalma, an internationally recognized and award-winning insurance expert and author, is releasing multiple education books on Amazon.com. The publications are designed to inform claims people, special investigation unit investigators, coverage lawyers, plaintiffs’ bad faith lawyers, insurance management and the insurance buying public on insurance claims procedures and insurance fraud. Each resource leverages key insights and learnings from Zalma’s 55+ years of practical experience as a claims person and insurance coverage attorney.
  7. INSURER AWARDED DAMAGES FOR FRAUD
    1. Insured’s Suit for Fire Insurance Benefits Defeated by Qui Tam Claim by Insurer == In Lisa A. McCullough v. Metlife Auto & Home, No. 4:20-CV-01807, United States District Court, M.D. Pennsylvania (September 30, 2022) McCullough sued seeking to force MetLife to pay Plaintiff for an insurance policy on the McCullough’s home, which was destroyed in a fire in 2019.
  8. Health Insurance Fraud Convictions
    1. Doctor Admits Illegally Prescribing 120,000 Opioid Pills — Dr. Dzung Ahn Pham of Tustin, California pleaded guilty to writing prescriptions for more than 120,000 opioid pills over a six-year span, including to an impaired driver who struck and killed a bicyclist. In his plea agreement, Dr. Pham admitted distributing the pills without a legitimate medical purpose in exchange for cash and insurance payments. He pleaded guilty in October to conspiracy to distribute controlled substances, the Orange County Register reported. Pham faces up to 20 years in federal prison when he is sentenced on Jan. 6, 2023.
  9. Other Insurance Fraud Convictions
    1. Onetime Brewery Owner and Financial Advisor Found Guilty of Murdering Client for Life Insurance Benefits — Keith Todd Ashley, 50, was found guilty by federal jurors in the Eastern District of Texas on charges of wire fraud, mail fraud, carrying a firearm in relation to a crime of violence, and bank fraud. Ashley, a North Texas man was found guilty of several fraud-related felonies in federal court earlier this week. Prosecutors say the frauds were part of a wide-ranging series of crimes that eventually came to include a murder and coverup orchestrated to obtain life insurance benefits.

Barry Zalma

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

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

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

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe. Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome. Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; I publish daily articles at https://zalma.substack.com, Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

 

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Insurer Awarded Damages For Fraud

Insured’s Suit for Fire Insurance Benefits Defeated by Qui Tam Claim by Insurer

See the full video at https://rumble.com/v1nnebu-insurer-awarded-damages-for-fraud.html and at https://www.youtube.com/watch?v=zvS61B9ydPE

In Lisa A. McCullough v. Metlife Auto & Home, No. 4:20-CV-01807, United States District Court, M.D. Pennsylvania (September 30, 2022) McCullough sued seeking to force MetLife to pay Plaintiff for an insurance policy on the McCullough’s home, which was destroyed in a fire in 2019.

BACKGROUND

MetLife moved the case to the USDC and filed an answer to complaint, along with a counterclaim against Plaintiff for insurance fraud. MetLife served the counterclaim on Plaintiff’s attorney that same month, alleging insurance fraud under Pennsylvania law.  Plaintiff failed to respond to the counterclaim. In March 2021, MetLife moved for entry of default against Plaintiff, and default was subsequently entered by the Clerk of Court.

MetLife moved for a default judgment. In January 2022, this Court granted MetLife’s motion and requested briefing and evidence of any damages sought by MetLife. MetLife has submitted a brief and evidence listing its damages. MetLife has additionally moved for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c). For the following reasons, MetLife’s Rule 12(c) motion will be granted and its motion for a default judgment will be granted in part and denied in part.

DISCUSSION

When considering a motion for judgment on the pleadings a court assumes the truth of all factual allegations in the plaintiff’s complaint and draws all inferences in favor of that party. It does not, however, assume the truth of any of the complaint’s legal conclusions

Pennsylvania law provides that an individual commits the offense of insurance fraud if she “[k]nowingly and with the intent to defraud any insurer or self-insured, presents or causes to be presented to any insurer or self-insured any statement forming a part of, or in support of, a claim that contains any false, incomplete or misleading information concerning any fact or thing material to the claim.”

Although these elements are set forth in a criminal statute, the statute further allows aggrieved insurers to file a civil action against violators of the statute “to recover compensatory damages, which may include reasonable investigation expenses, costs of suit and attorney fees.”

Additional facts indicated that Plaintiff set the fire, such as her relocation of important documents before the fire and the discovery of newly purchased gas cans with residual gasoline in them at her home, after the fire. Plaintiff “submitted a claim to Defendant for the alleged loss as a result of the fire,” thereby presenting “false, incomplete and/or misleading information concerning the claim and the cause of the fire.”

As Plaintiff did not appear before the Court, the Court, by rule of practice, must conclude that there are no disputed material facts. MetLife’s factual allegations lead to a reasonable inference that Plaintiff committed insurance fraud. Accordingly, MetLife’s motion under Rule 12(c) was granted.

MetLife’s Damages

Having found that MetLife satisfactorily alleged a civil claim for insurance fraud, the Court then considered its damages. MetLife sought $26,069.01 in “pre-suit investigation costs.” It has provided the Court with invoices for the firms hired to investigate the fire in McCullough’s home to support its request for pre-suit costs. The Court found this evidence sufficient to award the pre-suit costs without an evidentiary hearing.

MetLife also sought “$29,998.04 in litigation costs of suit and attorney fees” for a total of $56,067.05.

The invoices MetLife submitted did not indicate if multiple attorneys worked on this matter or only William J. McPartland, Esq. Additionally, the invoices did not explain how many hours were billed for or the hourly rates for Mr. McPartland and any other attorneys working on the matter. Nor are there affidavits to substantiate those hourly rates as the prevailing market rates in the community. Without this information, the Court could not determine a reasonable fee for counsel’s efforts.

Accordingly, MetLife’s motion for a default judgment was granted in part and denied in part with respect to the damages it sought and the court offered to reconsider if provided sufficient detail concerning the attorneys fees sought.

ZALMA OPINION

Insurance fraud, especially an arson for profit, are both crimes and defenses to breach of contract claims by the insured arsonist. When Met Life filed its cross-claim the insured and her counsel saw the writing on the wall and refused to participate. As a result the insurer obtained a judgment against the insured which may or may not be collectible. The judge, with a finding of fraud, should have referred the case to the local U.S. Attorney for prosecution.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. The new book is available as a Kindle book, a paperback or as a hard cover.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library

 

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Duty to Defend Required but not for Additional Insured

No Duty to Defend Additional Insured if Named Insured not Claimed to be Negligent

See the full video at https://rumble.com/v1ni0ve-duty-to-defend-required-but-not-for-additional-insured.html  and at https://youtu.be/K111EOaSwjg

A casino owner unhappy with the quality of construction on its new casino sued its general contractor and others in Maryland state court. The general contractor filed a third-party complaint against a subcontractor, and that subcontractor’s insurer filed suit in the United States District Court for the Southern District of Florida, seeking a declaratory judgment that it need not defend the general contractor and subcontractor. In The Cincinnati Specialty Underwriters Insurance Company v. KNS GROUP, LLC, GM&P Consulting And Glazing Contractors, Inc., Gemini Insurance Company, No. 21-13628, United States Court of Appeals, Eleventh Circuit (October 6, 2022) the Eleventh Circuit entered a Solomon-like decision making some happy and others not.

FACTS

The parties in this case came together to build the Maryland Live! Casino and Hotel in Anne Arundel County, Maryland. Tutor Perini Building Corporation (“Tutor Perini”), the general contractor leading the construction project, hired GM&P to provide exterior glazing for the building. GM&P, in turn, enlisted subcontractor KNS to assist it by glazing glass and installing window walls. The parties signed a contract on June 5, 2017, in which KNS agreed to “take out, maintain, and pay all premiums for” commercial general liability and other types of insurance, and to indemnify GM&P for liability for damages “to person or property caused in whole or in part by any act, omission, or default by the sub-contractor[.]”

KNS acquired commercial liability insurance (“the Policy”) from Cincinnati for the relevant period. The Policy covered losses due to “property damage,” which it defined as “[p]hysical injury to tangible property” or “[l]oss of use of tangible property that is not physically injured.” The Policy “include[d] as an additional insured” any party that KNS, the named insured, provided in writing that it would insure under its policy.

The Policy warned that it would cover those additional insured parties: “only with respect to ‘bodily injury,’ ‘property damage’ or ‘personal and advertising injury’ caused, in whole or in part, by  1. [The named insured’s] acts or omissions in the performance of [its] ongoing operations for the additional insured; 2. The acts or omissions of those acting on [the named insured’s] behalf in the performance of [its] ongoing operations for the additional insured[.]”

THE UNDERLYING ACTION

On June 25, 2020 lawsuit (“the Underlying Action”) brought by PPE Casino Resorts Maryland, LLC (“PPE”), the casino’s owner, against its general contractor and subcontractors in the Circuit Court for Anne Arundel County. The state-court complaint alleged, inter alia, that GM&P installed a defective “Glass Façade” that has “loose gaskets between window panels, damaged sealants and panel frames, and misaligned window wall panels creating the risk of property damage.” PPE asserted that GM&P’s negligent furnishing of materials and negligent installation of the Glass Façade was a breach of GM&P’s duty to PPE to complete the façade “in a safe manner and without causing property damage to PPE or creating the risk of property damage.”

GM&P responded with a third-party complaint in the Underlying Action against KNS and two other third-party defendants that played roles in the construction process. In it, GM&P brought claims against KNS for breach of contract and negligence due to KNS’s alleged defective construction of the casino.

In July 2020 Cincinnati sued in federal district court, seeking a declaratory judgment that it has no duty to defend and no duty to indemnify KNS or GM&P in the Underlying Action.

ANALYSIS

An insurer’s duty to defend an insured in a legal action based on Florida law arises when the complaint alleges facts that fairly and potentially bring the suit within policy coverage and does not require delving into the merits of a case. The Eleventh Circuit analyzes the duty to defend by comparing the allegations in the complaint with the language of the policy.

An insurer need not defend an insured party if a policy exclusion applies. If an insured satisfies its initial burden of showing that policy coverage applies, the burden shifts to the insurer to prove that the loss arose from a cause which is excepted.

NO DUTY TO DEFEND ADDITIONAL INSURED

The court concluded that Cincinnati’s additional insured endorsement does not provide coverage to GM&P. The Policy limits GM&P’s coverage to “bodily injury,” “property damage” or “personal and advertising injury” caused, in whole or in part, by KNS or KNS’s agents. The complaint in the Underlying Action alleges that GM&P was negligent in its furnishing of materials and installation of the Glass Façade. It alleges no negligence by KNS nor any of its agents. Without more, Cincinnati has no duty to defend GM&P in the Underlying Action. Nor, moreover, does Cincinnati have a duty to indemnify GM&P.

There is a clear difference between “caused” and “caused in part by.” The latter term means that even if the complaint alleged KNS was only 1% responsible for causing the faulty workmanship, then Cincinnati would have a duty to defend GM&P.

DUTY TO DEFEND NAMED INSURED

Cincinnati must defend KNS in the Underlying Action because all doubts as to whether a duty to defend exists in a particular case must be resolved against the insurer and in favor of the insured. An insurer is required to offer a defense in the underlying action unless it is certain that there is no coverage for the damages sought by the insured party in the action.

The complaint in the Underlying Action alleges that the “Glass Façade supplied and installed by” GM&P and other entities, including Tutor Perini and C.I. Energia Solar S.A.S. E.S. Windows (“CI Energia”) “is fraught with systemic defects, including loose gaskets between window panels, damaged sealants and panel frames, and misaligned window wall panels creating the risk of property damage.” In turn, GM&P’s third-party complaint, says that, if proven, the alleged property damage was the fault of KNS and/or its agents.

The policy includes a breach-of-contract exclusion that reads:

This insurance does not apply to any claim for ‘bodily injury’ or ‘property damage’ arising directly from or indirectly from breach of express or implied contract, including breach of an implied in law or implied in fact contract. This exclusion does not apply to liability for damages that an insured would have in the absence of the contract.

Cincinnati has a duty to defend this whole suit if any claims fall within its scope of coverage. Because PPE’s complaint in the Underlying Action includes allegations that plausibly fit within the Policy’s definition of “property damage,” and plausibly are not captured by the Policy’s exclusions, Cincinnati has a duty to defend KNS in the Underlying Action.

INDEMNITY ISSUE IS PREMATURE

The district court’s assessment that it is still premature to rule on Cincinnati’s duty to indemnify KNS for any damages that it might be liable for in the Underlying Action was appropriate since indemnity depends on evidence not present in the current set of motions.

Therefore, the Eleventh Circuit concluded that it granted:

  1. summary judgment in favor of Cincinnati on the basis that it has no duty to defend or indemnify GM&P Consulting and Glazing Contractors, Inc. (“GM&P”) in the underlying lawsuit;
  2. summary judgment in favor of KNS on the basis that Cincinnati has a duty to defend KNS; and
  3. affirmation of the trial court’s decision that it is premature to ascertain whether Cincinnati has a duty to indemnify KNS.

ZALMA OPINION

The Eleventh Circuit, unlike the litigants, read the full policy (RTFP) and reached the only logical decisions based on the evidence before it. The named insured was entitled to defense because there was property damage and no applicable exclusion. The additional insured was not entitled to defense because the property damage was not alleged to have been caused by the named insured.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. The new book is available as a Kindle book, a paperback or as a hard cover.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library

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Insurers Must Thank & Educate its Personnel

How to Add to the Professionalism of Insurance Personnel

See the full video at https://rumble.com/v1nnsaw-how-to-add-to-the-professionalism-of-insurance-personnel.html and at https://youtu.be/7PWzRCHFJyI

The insurance industry has been less than effective in training its personnel. Their employees, whether in claims, underwriting or sales, are hungry for education and training to improve their work in the industry.

Insurers without sufficient personnel to make a classroom training program practical have available options. If the insurer desires to honor its employees who wish to improve their knowledge and skills can do so inexpensively by adding to each employee’s library a complete insurance library by internationally recognized insurance coverage, claims handling, fraud, and insurance law expert and author, Barry Zalma, Esq., CFE.

If funds are not available for training vendors can be willing to assist. Although vendors are usually prohibited from making gifts to the insurer’s employees they may agree to donations to the insurer of educational materials that will help the employees improve their abilities for acknowledgement of the presentation.

Every insurer, insurance syndicate, insurance brokerage, insurance sales agency, insurer branch office, and vendors to the insurance industry should add to the libraries of their various offices or employees.

To add to the professionalism of the staff of insurance professionals, the insurer should make available to each the following books that are available at reasonable prices from amazon.com, the American Bar Association, Thomson Reuters, or Full Court Press, written by Barry Zalma. Details about each book are available at Barry Zalma’s Insurance Claims Library at https://zalma.com/blog/insurance-claims-library/:

  • The Compact Book on Ethics for the Insurance Professional
  • The Compact Book of Adjusting Property Insurance Claims – Third Edition
  • The Compact Book of Adjusting Liability Claims – Third Edition
  • How to Acquire, Understand, and Make a Successful Claim on a Commercial Property Insurance Policy
  • The Tort of Bad Faith
  • The Equitable Remedy of Rescission
  • Insurance Fraudsters Deserve No Quarter
  • The Examination Under Oath to Resolve Insurance Claims
  • Insurance Fraud – Volume I and Volume II
  • Construction Defects and Insurance Second Edition (8 volumes)
  • Insurance Fraud Costs Everyone
  • California SIU Regulations 2020
  • California Fair Claims Settlement Practices Regulations 2022
  • Zalma’s Mold & Fungi Handbook
  • Zalma on Insurance Claims – Third Edition (ten volumes)
  • Mold Claims (two volumes)
  • Several True Insurance Crimes Novels and Novellas
  • From the American Bar Association
    • Getting the Whole Truth: Interviewing Techniques for the Lawyer
    • The Commercial Property Insurance Policy Deskbook
    • The Insurance Fraud Deskbook
    • Diminution in Value Damages
  • From Full Court Press
    • The Insurance Law Deskbook
    • California Insurance Law Deskbook
    • Zalma on Property and Casualty Insurance
    • Insurance Bad Faith and Punitive Damages Deskbook
  • From Thomson Reuters
    • Property Investigation Checklists Uncovering Insurance Fraud, 13th Edition

Details about each book available at the Insurance Claims Library at https://zalma.com/blog/insurance-claims-library/

Free Resources

In addition you should make available the following free services: the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Zalma’s Insurance Fraud Letter at https://zalma.com/zalmas-insurance-fraud-letter-2/; Mr. Zalma is on Twitter at https://twitter.com/bzalma; Barry Zalma videos are available at Rumble.com at https://rumble.com/c/c-262921; Barry Zalma videos on YouTube- at https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts and GTTR at https://gettr.com/@zalma;  the podcast Zalma On Insurance at https://anchor.fm/barry-zalma.

Subscription Services

You can subscribe, for only $5 a month or $50 a year, to special videos from “Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe; and “Excellence in Claims Handling” at https://barryzalma.substack.com/welcome.

On Line Training

Mr. Zalma, for a fee, will prepare a full Excellence in Claims or Excellence in Insurance training program. If interested in a specialized, directed to your needs alone training program, contact Mr. Zalma at zalma@zalma.com or 310-390-4455.

 

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Denial of Defense Not Bad Faith

Insurance Coverage Dispute Alone Not Bad Faith

See the full video at https://rumble.com/v1niom4-denial-of-defense-not-bad-faith.html   and at https://www.youtube.com/watch?v=ype1O2hX7UI

The tort of bad faith requires, for an insured to recover, that the insurer act intentionally to deprive the insured of the benefits of the policy of insurance. Garo Alexanian (d/b/a) Vet Mobile and Companion Animal Network, Inc. (“CAN,” and together with Alexanian, “Plaintiffs”) sued Government Employees Insurance Company (“GEICO”) and Travelers Casualty Insurance Company of America (“Travelers,” and together with GEICO, “Defendants”) seeking a declaration that Defendants have a duty to defend and indemnify Alexanian against counterclaims filed against him New York, plus tort damages for the insurers bad faith denial of his claim for defense.

In Garo Alexanian d/b/a Vet Mobile and Companion Animal Network, Inc. v. Government Employees Insurance Company and Travelers Casualty Insurance Company Of America. No. 21-CV-05427 (LDH) (TAM), United States District Court, E.D. New York (September 30, 2022) dealt with both the claims for defense and the allegations allowing extracontractual damages.

BACKGROUND[

Alexanian is an officer of CAN, which is a not-for-profit corporation that provides veterinary services. Alexanian purchased general liability business insurance from Travelers (the “Travelers Policy”).  As relevant here, the Travelers Policy defines personal injury as: “[I]njury, other than advertising injury, caused by . . . oral or written publication, including publication by electronic means, of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services, provided that the claim is made or the suit is brought by a person or organization that claims to have been slandered or libeled, or that claims to have had its goods, products or services disparaged.”

The Travelers Policy excluded from coverage, however, personal injury to a person “arising out of . . . employment-related practices, policies, acts or omissions, such as coercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation or discrimination directed at that person.”

Alexanian also purchased an umbrella policy from GEICO (the “GEICO Policy”).

On January 15, 2021, Alexanian sued Rosa Morales claiming back rent, damage to property, and removal of property (the “Underlying Action”). In the Underlying Action, Alexanian alleged that “[Alexanian] entered into a contract with [Morales] requiring [Morales] to pay a monthly rent . . . for residing in the residential apartment managed by [Alexanian] and his business.” The complaint in the Underlying Action alleged that Morales was “an employee of [Alexanian] and [Alexanian’s] business from September 2015 until October 2019.” It also referred to Morales as a tenant.

Morales filed a counterclaim alleging that Alexanian defamed her. Travelers refused to defend Alexanian since Morales was an employee.

DISCUSSION

The duty to defend is exceedingly broad and an insurer will be called upon to provide a defense whenever the allegations of the complaint suggest a reasonable possibility of coverage. It follows then that an insurer must afford its insured a defense unless it can show that the allegations of the complaint put it solely within the policy exclusion. If the claims asserted, though frivolous, are within policy coverage, the insurer must defend irrespective of ultimate liability. When an insurer claims that an exclusion applies, it must satisfy the burden which it bears of establishing that the exclusions or exemptions apply in the particular case, and that they are subject to no other reasonable interpretation.

The Court must determine only whether, assuming Alexanian’s allegations are true, the defamation claim is solely “within the policy exclusion.” The answer to that question is no. Thus, the breach of contract claim cannot be dismissed.

Travelers also argues that “to the extent the Counterclaims do not arise out of employment practices, they fall outside the limited scope for which Alexanian is an ‘insured’ under the Travelers Policy.” But, to support this point, Travelers directs the Court to a deed annexed to the declaration of Meg Reid, which is information outside of the amended complaint and which, even if dispositive, cannot be considered by the court on the motion before the USDC.

In short, Travelers failed to establish that the Underlying Action falls within the employment practice related exclusion or is otherwise outside the Travelers Policy, and therefore, the motion to dismiss Alexanian’s breach of contract claim must be denied.

Breach of the Covenant of Good Faith and Fair Dealing, Common Law Bad Faith, and Common Law Fraud

Travelers and GEICO both argue that Alexanian’s extracontractual claims are duplicative of his breach of contract claims and must be dismissed.

Alexanian’s arguments to the contrary amount to nothing more than referring to disagreements about policy terms as deception and falsehoods. Therefore, Alexanian’s implied covenant claims are dismissed. Alexanian argues, pointing to Travelers’ refusal to cover the defamation suit and alleged failure to consider Alexanian’s evidence, that Defendants’ refusal to defend him was a gross disregard of the interests of its insured. But a disagreement concerning interpretation of the policy, which is all Alexanian’s allegations demonstrate, does not amount to bad faith. There is no separate tort for bad faith refusal to comply with an insurance contract.

Alexanian’s fraud claims must be dismissed as well because “the alleged false representations are the essential terms of the contract and failure by [Defendants] to honor these terms gives rise for breach of contract, not one in tort.”

The alleged misrepresentations are not collateral or extraneous to the policies, but concern the policies themselves, and therefore, there is no parallel fraud claim here.

Alexanian’s allegations establish nothing more than a private dispute between parties.

Attorney’s Fees

Defendants argued that Alexanian’s claims for attorney’s fees must be dismissed. The Court agreed for the same reasons it denied the bad faith claims.

CONCLUSION

GEICO’s motion to dismiss all extracontractual claims against it was granted. Traveler’s motion to dismiss was granted in part and denied in part. Alexanian’s breach of contract and declaratory judgment claims against both GEICO and Travelers survive, but all other claims were dismissed.

ZALMA OPINION

A dispute over coverage is a contract action where the only remedy available to the insured is to require the insurer to fulfill the terms of the contract. When both parties to the policy, in good faith, dispute the benefits promised and the contract was breached in this case, Alexanian was entitled to a defense of the cross-claim but was not entitled to any extracontractual damages. Bad faith requires more than a simple disagreement over coverage.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

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

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

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

Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. The new book is available as a Kindle book, a paperback or as a hard cover.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library

Posted in Zalma on Insurance | Leave a comment

Liars Never Prosper

Insurance Void Because Insured Lied on Application

See the full video at https://rumble.com/v1ncyrm-liars-never-prosper.html  and at https://youtu.be/0py5QubDzjc

As my mother taught me when I was a child: “Liars Never Prosper!” She was more definite than reality although in insurance the maxim about liars must be followed.

In Saul Valdez v. Nationwide Insurance Company Of America, No. 3:20-CV-01196-YY, United States District Court, D. Oregon, Portland Division (September 30, 2022) Saul Valdez sued Nationwide Insurance Company of America alleging a claim for breach of contract, including counts for breach of express contract terms and implied covenant of good faith and fair dealing. Nationwide claimed Valdez obtained the policy by misrepresentation of material facts.

FACTUAL BACKGROUND

Plaintiff called defendant, seeking to add an insurance policy to one of his properties (referred to hereafter as “the property”). Defendant’s representative asked plaintiff a series of questions about the property to gather information and gauge eligibility. After plaintiff answered those questions, the representative informed plaintiff that he would “receive at some point over the next six days.” Defendant emailed plaintiff an application and insurance binder for his review and signature via DocuSign.

Plaintiff signed the application on May 21, 2020, and defendant mailed plaintiff a physical copy of the policy (sans application). Around that time, and in accordance with the company’s underwriting guidelines for newly-insured properties, defendant opened an independent investigation to verify the information plaintiff had provided about the property. A third-party independent investigator visited the property and provided a report to defendant. Before a report was obtained a fire then occurred at the property, resulting in a total loss.

When plaintiff did not receive any adjustments or payments from defendant, he sued. Roughly a month-and-a-half later, on August 25, 2020, defendant issued a letter to plaintiff declaring that the insurance policy for the property was rescinded “back to the 05/15/2020 inception date.” The letter explained that plaintiff “at the time of application, misrepresented, concealed, or omitted multiple points of important (i.e., material) information” and that “[i]f truthful information had been provided, [defendant] would not have accepted the application for multiple underwriting reasons.”

The Parties’ Motions

Plaintiff’s motion sought summary judgment on all five of defendant’s affirmative defenses: (1) policy rescission, (2) breach of policy condition, (3) real party in interest, (4) lack of insurable interest, and (5) failure to state a claim. In its response to plaintiff’s motion, defendant stipulated “to the dismissal of its Fourth and Fifth Affirmative Defenses.” Therefore, defendant conceded summary judgment on its fourth and fifth affirmative defenses but demanded rescission based on the other defenses.

Misrepresentation or Concealment Concerning the Insurance

The first element that an insurer must demonstrate to void a fire insurance policy is that the insured either willfully concealed, misrepresented, or falsely swore any fact or circumstance concerning the insurance. Defendant submitted distinct examples where plaintiff’s representations on his application differed from the true state of the property.

  1. plaintiff represented on his application that the property was not “currently undergoing extensive remodeling or additions.” The realtor later provided deposition testimony that the property was “being remodeled, for sure.” Plaintiff conceded during his deposition that “the electrical [work] wasn’t complete”; there was no finished flooring; no hung sheetrock; no installed countertops or appliances; no bathroom fixtures or toilets; and no insulation or wood paneling in the upstairs sections.
  2. in a similar vein, plaintiff also represented that the property was suitable for occupancy, specifically as a one-family home. But in his deposition, plaintiff’s architect, Lawler, opined that he did not believe “an inspector would give a certificate of occupancy for a building in the condition it was in at that time.”
  3. plaintiff claimed on his application that there was no “business on [the] premises” of the property. By his own admission, plaintiff was running his business on the premises of the property, and his representation that there was no “business on [the] premises” was false.
  4. plaintiff denoted on his application that the property was not subject or liable to any additional insured parties or interests. However, the deed on the property was in the name of plaintiff’s property management company, Renaissance Properties, LLC.
  5. plaintiff claimed that there was “no prior insurance” on the property. The property was insured for at least the first year after the sale.
  6. Finally, plaintiff indicated on his application that the condition of the dwelling was “[e]xcellent.”  Yet both the third-party inspector and plaintiff’s architect, Lawler, observed that the windows of the property were boarded up in late May 2020, close in time to when plaintiff submitted his application to defendant. Both individuals also confirmed the presence of graffiti on the property, and the third-party inspector observed that the property contained an “attractive nuisance” of inoperable vehicles, junk appliances, farm equipment, and excessive trash and debris.

Insurance fraud or false swearing is a purely a civil dispute, and accordingly, the measure of proof is by a preponderance of the evidence. In civil cases the word “wilful,” amounts to nothing more than this: “that the person knows what he is doing, intends to do what he is doing, and is a free agent.”

On balance, defendant’s evidence, which demonstrates blatant misrepresentations surrounding the condition and status of the property, along with plaintiff’s silence regarding his state of mind when reviewing and signing the application, overwhelmingly tips the scales in favor of a finding that plaintiff made willful misrepresentations when completing his application.

Application Attached to the Policy

The requirement that the application be attached to the issued policy, in essence, serves as a consumer protection mechanism, ensuring that the insured is aware of the terms of the policy when it is issued. While the text of the binder itself is indeed short, the entire document provided to plaintiff-the binder and application- contains crucial details about the policy that was being contracted for. Thus, plaintiff was provided with “everything that the insurer [relied] on in issuing the policy, i.e., the entire agreement of the parties.” The binder produced to plaintiff meets the definition of a “policy” under O.R.S. § 742.208.

In sum, the binder produced to plaintiff meets the definition of a “policy” under O.R.S. § 742.208, and because plaintiff’s application was attached to that binder when it was provided to plaintiff, the second element of the statute is met.

Representations Were Material

It was established that had plaintiff provided accurate answers about the condition of the property, defendant would not have accepted the application for insurance.

Reasonable Reliance on Representations

Lastly, to void a fire insurance policy, an insurer must demonstrate that it relied upon the applicant’s material misrepresentations. Defendant proffered evidence sufficient to establish a prima facie case of reliance.

Nationwide established the four elements required under O.R.S. § 742.208 to effectuate a successful voidance of plaintiff’s fire insurance policy. Because Nationwide successfully voided the policy, plaintiff’s claim for breach of the express terms of that contract falls. Defendant’s motion for summary judgment is therefore appropriate for plaintiff’s claim alleging an express breach of the contract.

Having found that the policy was successfully voided as to any party, the court need not reach defendant’s argument that plaintiff is not the proper party in interest. Nationwide’s motion for summary judgment was granted in full.

ZALMA OPINION

Insurance has always been a business of the utmost good faith. An applicant for insurance who lies on an application for insurance about facts that are material to the decision of the insurer to either insure or refuse to insure a person against the risk of loss by fire. In this case the lies on the application were obvious and egregious. Valdez lied to get the insurance and was faced with the effect of the lie he showed a serious effort of unmitigated gall by filing suit against Nationwide. The court found six clear misrepresentations of material fact when one would have been sufficient. Valdez should have been sanctioned for bringing a spurious and frivolous lawsuit and reported to prosecutors for the fraud in the inception of the policy and the claim knowing the policy was void.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. The new book is available as a Kindle book, a paperback or as a hard cover.

Write to Mr. Zalma at zalma@zalma.comhttp://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalmaGo to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0ExpgGo to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library

 

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Taking Assignment Against Insurance is a Loser

Even With Assault & Battery Coverage Exclusion Applies

Hitting Plaintiff on Head with Metal Pole is a Battery

See the full video at https://rumble.com/v1mzfq8-taking-assignment-against-insurer-is-a-loser.html and at https://www.youtube.com/watch?v=iiqoxKxgt4g

Paul Semien (“Semien”), appealed the district court’s dismissal of his breach of contract claim for defense and indemnity against the Burlington Insurance Company (“Burlington”) after he was injured by a convenience store employee who hit him on the head with a metal pole. In Paul Semien v. The Burlington Insurance Company, No. 22-20195, United States Court of Appeals, Fifth Circuit (October 3, 2022) the Fifth Circuit applied the Eight Corners Rule and resolved the dispute in favor of the insurer.

BACKGROUND

Semien, a customer at a convenience store became embroiled in a dispute with the store’s clerk, Tam Truong, over Semien’s entitlement to store credits based on awards that he won from the store’s video poker machines. Truong left his post behind a glass-enclosed counter and hit Semien on the head with a metal pole, causing Semien severe injuries. Semien sued T&T and Truong in Texas state court (the “Underlying Lawsuit”) for negligence and assault against both Truong and his employer.

T&T had a general commercial liability insurance policy issued by Burlington (the “Policy.) “Coverage D” of the Policy provides for coverage up to $100,000 for assault and battery. But, Coverage D also excluded coverage when the assault or battery is “committed by any insured or agent of any insured.” The Policy defines “insured” to include T&T’s employees, but “only for acts within the scope of their employment by [T&T] or while performing duties related to the conduct of [T&T’s] business.”

Burlington denied that it had a duty to defend or indemnify T&T and Truong in the Underlying Lawsuit. Semien subsequently entered into a settlement agreement with T&T and Truong. As part of the settlement agreement, they assigned Semien “all rights they have jointly or separately to pursue claims and remedies under [their] insurance contract with The Burlington Company.”

Semien then sued Burlington. The district court granted the motion. Plaintiff timely appealed.

DISCUSSION

Under Texas law, an insurer’s duty to defend arises when a third party sues the insured on allegations that, if taken as true, potentially state a cause of action within the terms of the policy. But, if “the petition only alleges facts excluded by the policy, the insurer is not required to defend. Texas courts follow the eight-corners rule. Under this rule, courts determine whether an insurer has a duty to defend its insured by looking at the facts alleged within the four corners of the latest pleading upon which the insurer based its refusal to defend the action and the language within the four corners of the relevant insurance policy.

Since the Policy excludes coverage for assault or battery committed by an insured for acts within the scope of their employment and since Truong was working in the course and scope of his employment with  T&T Global Enterprises Inc. when he hit Semien and Semien so alleged there was no coverage to defend or indemnify the insureds.

Reading the underlying pleading negates plaintiff’s contention that Truong was outside the scope of his employment at the time of the assault, and therefore was not an “insured” or “agent of an insured” under the Policy. This is true even reading the pleading liberally in favor of insurance coverage. Burlington had no duty to defend the insured in the Underlying Lawsuit.

ZALMA OPINION

Semien took an assignment of his claim against the people who injured him in favor of an attempt to get money from an insurer. If T&T or Truong had no assets then it was the only possible means of collecting damages. If, however, since T&T owned a convenience store it had some assets that Semien could have obtained with a judgment, the decision to let them off and sue the insurer who obviously owed nothing, was a waste of time and effort. The eight corners ruled eliminated coverage for T & T, Truong and Semien’s attempt to obtain damages.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. The new book is available as a Kindle book, a paperback or as a hard cover.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library

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The Compact Book on Ethics for the Insurance Professional

New Book from Barry Zalma

The Compact Book on Ethics

How Ethical Doctrines from the Beginning of the Written Word to the Present Resulted in the Incorporation of the Covenant of Good Faith

Every Person Involved in the Business of Insurance Must Act Ethically in the Business of Insurance

See the full video at https://rumble.com/v1n4avu-the-compact-book-on-ethics-for-the-insurance-professional.html  and at https://youtu.be/LB6g6O7c0hA

Insurance is, by definition, a business of the utmost good faith. This means that both parties to the contract of insurance must act fairly and in good faith to each other and do nothing that will deprive the other of the benefits the contract of insurance promised.

Without the covenant of good faith and fair dealing, and ethical people who work in the insurance industry applying and fulfilling the covenant, effective insurance to spread the risk of loss to a large community of insurance professionals, is impossible. One cannot act fairly and in good faith without being a person with a well-formed ethical compass.

In 1776, Lord Mansfield acting as an appellate judge serving in the House of Lords of Britain (the predecessor of the United Kingdom) for the first time referred to the covenant of good faith and fair dealing. In the case designated: Carter v. Boehm S.C. 1 Bl. Burr 1906, 11th May 1766. 593, 3 Lord Mansfield in the British House of Lords stated the rule of uberrimae fide (Latin for utmost good faith).

Ethics & Ethical Behavior are Essential to Every Insurance Professional

Good faith forbids either party by concealing what he privately knows, to draw the other into a bargain, from his ignorance of that fact, and his believing the contrary.

Insurers, when deciding to insure or not insure a risk, rely on the information provided to them by the insured. As Lord Mansfield instructed, the insured must provide the information requested thoroughly, honestly and in good faith.

The implied covenant is simply stated by explaining that no party to a contract of insurance should do anything to deprive the other of the benefits of the contract.

The implied covenant of good faith and fair dealing imposes obligations on all parties to the contract of insurance. It not only applied to claims by an insurer, a first party property insured, a third party liability policy insured, the insurer, the insurer’s employees, underwriters, and claims personnel.

Since at least 1766, the business of insurance is a business of the utmost good faith. Each party to a contract of insurance must deal with each other ethically. This book will consider and explain different ethical concepts from the Code of Hammurabi more than 3000 years ago to modern ethical philosophers.

The general duty of good faith and fair dealing incorporated by reference into every policy of insurance requires a complete understanding of ethics and ethical behavior. For Example, the California Supreme Court noted that: “In every insurance contract there is an implied covenant of good faith and fair dealing that neither party will do anything which will injure the right of the other to receive the benefits of the agreement.” [Gruenberg v. Aetna Insurance Co., 9 Cal.3d. 566, 108 Cal. Rptr. 480 (1973)].

The covenant is mutual, and the principles of good faith and fair dealing impose an affirmative obligation on the insured to cooperate as much as it requires the insurer to treat the insured fairly with regard to every claim presented.

This is a duty imposed by tradition, by the need to deal fairly and by court precedent and statutory law, not one arising from the terms of the contract itself.

The duty to deal fairly and in good faith is nonconsensual in origin rather than consensual. It is an unwritten, but essential part of every insurance contract.

It is imposed to fulfill the spirit, as well as the letter, of the insurance relationship and the implied covenant of good faith and fair dealing.

The Covenant of Good Faith and Fair Dealing is a statement of the ethical basis of the insurance business.

Without the covenant of good faith and fair dealing, and ethical people who work in the insurance industry applying and fulfilling the covenant, effective insurance to spread the risk of loss to a large community of insurance professionals, is impossible. One cannot act fairly and in good faith without being a person with a well-formed ethical compass.
In 1776, Lord Mansfield acting as an appellate judge serving in the House of Lords of Britain (the predecessor of the United Kingdom) for the first time referred to the covenant of good faith and fair dealing. In the case designated: Carter v. Boehm S.C. 1 Bl. Burr 1906, 11th May 1766. 593, 3 Lord Mansfield in the British House of Lords stated the rule of uberrimae fide (Latin for utmost good faith):

Good faith forbids either party by concealing what he privately knows, to draw the other into a bargain, from his ignorance of that fact, and his believing the contrary.

Insurers, when deciding to insure or not insure a risk, when deciding to honor or reject a claim, rely on the information provided to them by the insured. As Lord Mansfield instructed, the insured must provide the information requested thoroughly, honestly and in good faith.

The implied covenant of good faith and fair dealing imposes obligations on all parties to the contract of insurance. It not only applied to claims by an insurer, a first party property insured, a third party liability policy insured, the insurer, the insurer’s employees, underwriters, and claims personnel.Since at least 1766, the business of insurance is a business of the utmost good faith. Each party to a contract of insurance must deal with each other ethically.

What is The Purpose of the Book

This book considers and explains different ethical concepts from the Code of Hammurabi more than 3000 years ago to modern ethical philosophers.

The book covers, at least:

  • What is Insurance?
  • Ethics & Ethical Behavior.
  • Ethical Insurance
  • The Development of the Implied Covenant of Good Faith & Fair Dealing.
  • The Tort of Bad Faith
  • The Ethical Insurance Professional
  • Applying Ethics to the Work of the Insurance Professional
  • Sarbanes Oxley & the Ethical Insurance Professional
  • What Happens When a Cort Creates an Ethical Conflict When None Exists?
  • Ethics and Insurance Fraud
  • Ethics in the Insurance Industry
  • Case Studies of Ethical Breach

The general duty of good faith and fair dealing incorporated by reference into every policy of insurance requires a complete understanding of ethics and ethical behavior.

It is imposed to fulfill the spirit, as well as the letter, of the insurance relationship and the implied covenant of good faith and fair dealing.

The Covenant of Good Faith and Fair Dealing is a statement of the ethical basis of the insurance business.

The book is available as a Kindle book, a Paperback or a Hardcover

Who Needs This Book?

If you employ people in the business of insurance your business will be improved if every one of your employees reads and applies the ethical concepts described in the book.

If you are an insurance claims professional, an adjuster, supervisor, claims manager, defense counsel, or insurance coverage counsel the book will provide the knowledge necessary to apply the ethical concepts described in this book.

If you are a person insured or about to be insured you need this book to understand your ethical obligations to the insurer and the insurer’s ethical obligations to you.

The Author

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. The new book is available as a Kindle book, a paperback or as a hard cover.

Write to Mr. Zalma at zalma@zalma.comhttp://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalmaGo to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0ExpgGo to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library

 

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FIREARMS EXCLUSION ELIMINATES COVERAGE

SHOOTING A PERSON IN THE BACK TWICE IS NOT AN ACCIDENT

See the full video at https://rumble.com/v1mv474-firearms-exclusion-eliminates-coverage.html  and at https://youtu.be/jvvz4OiBTOg

Great American Alliance Insurance Company (“GAAIC”) was granted summary judgment when the trial court determined that a GAAIC umbrella insurance policy did not cover an insurance claim made by Star Residential, LLC (“Star”), and Terraces at Brookhaven, LLC (“Terraces,” collectively, the “Insureds”), based on a shooting injury suffered by Manuel Hernandez (collectively with the Insured, the “Claimants”).

In Hernandez v. Great American Alliance Insurance Company Star Residential, LLC et al. v. Great American Alliance Insurance Company, Nos. A22A1147, A22A1211, Court of Appeals of Georgia, Third Division (October 4, 2022) the Court of Appeals resolved the dispute.

The Issue

The Claimants argued that the trial court erred by ruling that the umbrella policy did not cover the Insureds’ claims because:

  • GAAIC’s conduct waived its policy defenses, and
  • the GAAIC umbrella policy did not “follow form” to certain underlying insurance that excluded coverage for events using firearms.

Facts

The undisputed record showed that Star and Terraces own and/or operate an apartment complex where Hernandez lived. In May 2017, Hernandez was shot twice in the back by two assailants as he approached the door to his apartment one night.

Within days, Star generated an incident report, notified Terraces about the shooting, and notified its primary insurance carrier, Associated Industries Insurance Company, Inc. (a/k/a AmTrust North America, herein “AIIC”). Two weeks after that, counsel for Hernandez notified the Insureds that he represented Hernandez. At that time, the Insureds did not notify GAAIC about any potential claim.

In early December 2017, primary carrier AIIC received a formal demand letter from Hernandez seeking $1.5 million in compensation. The Insureds gave GAAIC notice of the claim on February 2, 2018. A few days later, GAAIC acknowledged the notice and stated that it had logged the matter as “incident only,” and it did not expect to take any further action at this time, reminding the Insureds to report the claim to their primary insurance carrier if they had not already.

Hernandez sued the Insureds and served them in April 2018. In May 2018, AIIC sent the Insureds a letter denying coverage and declining to represent the Insureds in the litigation. In June 2018, GAAIC began paying for legal representation for the Insureds. Within a day of initiating representation, on June 20, 2018, GAAIC sent the first of three reservation of rights letters to the Insureds.

Among other things, GAAIC’s June 2018 reservation of rights letter noted AIIC’s denial of primary insurance coverage of bodily injury because: AAIC only covered injury due to “accident,” as opposed to intentional conduct, and AAIC’s primary policy also excluded coverage for bodily injury arising from the use of firearms.

The GAAIC policy defines it as an accident, as opposed to intentional conduct, similar to the AIIC policy. In May 2020, GAAIC sent a second supplemental reservation of rights letter. In that letter, GAAIC explained that for the Insureds, “the [GAAIC] policy states that ‘coverage applies only if the organization is included under coverage provided by the [underlying policies] . . . and then for no broader coverage than is provided under such ‘underlying insurance.'” Therefore, the letter explained, the AIIC exclusions “apply equally to bar coverage in the [GAAIC] policy,” including the firearms exclusion in the AIIC policy.

THE DECLARATORY RELIEF ACTION

GAAIC sued seeking declaratory judgment resolving the coverage issue with respect to GAAIC’s policy. The trial court granted GAAIC’s motion for summary judgment and denied the Insured’s cross-motion for summary judgment. The Claimants now appeal.

It is undisputed that within 24 hours of a discussion about assuming the Insured’s defense, GAAIC sent the Insureds its first reservation of rights letter. This letter was sufficiently prompt and quoted the firearms exclusion in the underlying AIIC policy, as well as GAAIC’s umbrella coverage provision triggered by an “occurrence,” which is defined in GAAIC’s policy as “an accident.”

This prompt reservation of rights letter was sufficient to notify the Insureds that even though GAAIC had initiated its coverage of a legal defense, it would still rely on the terms, definitions, and provisions of the umbrella policy; that the underlying insurance (quoted in the reservation of rights letter) likely did not cover injuries caused by firearms; and that GAAIC was not waiving its policy defenses implicated by the terms of the GAAIC policy or the underlying AIIC policy, which policy GAAIC quoted in the reservation of rights letter.

In sum, the record showed that GAAIC was acting in good faith to provide a defense under a reservation of rights, and in light of the specific language in the initial reservation of rights letter, the court of appeal declined to penalize GAAIC for further clarifying those positions in supplemental reservations of rights.

The Court of Appeal concluded that the trial court correctly concluded that:

  • the Insureds are properly identified as members of the DPUM risk purchasing group covered by the umbrella policy,
  • the Insureds purchased AIIC as underlying insurance for purposes of the umbrella policy, and
  • the umbrella policy coverage is no broader than the underlying AIIC insurance purchased.
  • Otherwise, according to the GAAIC’s definition of “Insured,” if the AIIC policy is not included as underlying insurance, then the umbrella policy does not apply.

Accordingly, in light of the controlling language and structure of the GAAIC insurance contract, the trial court did not err by holding that GAAIC’s umbrella coverage could not be expanded beyond the underlying coverage and the trial court correctly granted summary judgment to GAAIC and denied the Insureds’ motion for partial summary judgment.

ZALMA OPINION

Insurance policies are contracts whether primary or umbrella/excess policies. Since the claim was based on the fact that Hernandez was shot in the back twice the firearms exclusion applied and since it applied in the underlying coverage it did not apply in the umbrella. A Reservation of rights letter, even if it doesn’t cover every possibility against coverage, especially when covered by supplemental reservations, cannot act as a waiver of the insurer’s rights and obligations since its intent is the opposite: preventing waiver.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. The new book is available as a Kindle book, a paperback or as a hard cover.

Write to Mr. Zalma at zalma@zalma.comhttp://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalmaGo to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0ExpgGo to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library

Posted in Zalma on Insurance | Leave a comment

Hospital Imprisons Patients for Profit

RICO Judgment Allows Disgorgement Damages

DISGORGEMENT IS AKIN TO EXEMPLARY DAMAGES

See the full video at https://rumble.com/v1mqlkm-hospital-imprisons-patients-for-profit.html  and at https://www.youtube.com/watch?v=StEIn-_O_5Q

In Diane Creel and Lynn Creel v. Dr. Says, LLC, et al., Civil Action No. 4:18-CV-00615, United States District Court, E.D. Texas, Sherman Division (September 27, 2022) the plaintiffs obtained a verdict against Defendants Dr. Yupo Jesse Chang; MD Reliance, Inc.; Universal Physicians, PA; Dr. Says, LLC; Office Winsome, LLC; and Yung Husan Yao (aka Angela Yao) for violations of the civil Racketeer Influenced and Corrupt Organization Act (“RICO”) and RICO conspiracy. The Court, after the verdict, needs to enter its findings of fact and conclusions of law regarding equitable disgorgement.

FINDINGS OF FACT

Plaintiff Lynn Creel (“Lynn”) accompanied his wife, Plaintiff Diane Creel (“Diane”) (collectively, “the Creels”), to the Behavioral Hospital of Bellaire (“BHB”) in August 2017. The Creels arrived at BHB planning to receive information on the hospital’s advertised “outpatient group women-centric grief counseling.”

Upon the nurse’s return, the Creels said they were leaving because they did not like the treatment plans that BHB had offered. The nurse informed the Creels that they were not allowed to leave because BHB had “filed an emergency warrant for [Diane’s] detention” and Diane would be placed under a 72-hour hold. The Creels then realized that the BHB medical staff had locked both the door out the front of the building and the door to the intake room. Diane was taken to the psychiatric unit against her will. BHB did not permit Lynn to visit Diane in person. In all this time, neither Lynn nor Diane ever saw the warrant for her detainment or even a shred of paperwork.

The Defendants’ Scheme

The scheme underlying the Creels’ experience began with the business activity of Dr. Yupo Jesse Chang (“Chang”), a family physician who has spent much of his career managing other medical practices. As Chang’s only notary, Yao kept a detailed notary book. The physician recommending commitment of a patient signed off on the notarized documents-but the physician was never physically in front of Yao, the notary, when he or she signed the document.

The notary documents reveal that in just three days between, August 6, and August 10, 2017, a psychiatrist employed by BHB signed applications for the involuntary commitment of twelve different patients.

The Lawsuit

Twelve plaintiffs sued twenty-two defendants, alleging various causes of action based upon their involuntary confinement and stay at BHB. The jury found that Defendants, (1) were employed or associated with a RICO enterprise (2) had participated, either directly or indirectly, in the conduct of the affairs of the enterprise, and (3) had participated through a pattern of racketeering activity. The jury assessed Plaintiffs’ compensatory damages at $300,000.00. The jury also found that all Defendants conspired together to violate RICO.

The jury awarded Diane damages in the amounts of: (1) $75,000.00 for physical pain and mental anguish sustained in the past; (2) $50,000.00 for physical pain and mental anguish that, in reasonable probability, Diane will sustain in the future; (3) $85,500.00 for loss of earning capacity sustained in the past; (4) $104,000.00 for loss of earning capacity that, in reasonable probability, Diane will sustain in the future; (5) $15,000.00 for medical care expenses incurred in the past; and (6) $50,000.00 for medical care expenses that, in reasonable probability, Diane will incur in the future.

Specifically, the Court upheld the jury’s verdict against Defendants for violations of RICO and RICO and is now dealing with disgorgement.

Equitable Disgorgement

Plaintiffs have long pleaded and disclosed a claim for equitable disgorgement in this case. The evidence attributed to equitable disgorgement mostly involves the medical documents that Yao falsely notarized. In January 2017 alone there were 276 documented applications for involuntary patient commitments sent through one of Chang’s companies.

Defendants produced no evidence to suggest they would change their activities following the lawsuit. Despite having had to pay back Medicare and private insurance companies for improper billings, Chang was still conducting his business affairs in the same manner.

The jury awarded $1,320,500 equitable disgorgement.

CONCLUSIONS OF LAW

A claim for disgorgement under the civil RICO statute is an equitable remedy. The jury’s finding on equitable disgorgement under civil RICO is an advisory opinion. The equitable nature of disgorgement requires a court to enter findings of fact and conclusions of law for any amount of the award to stand.

Disgorgement of ill-gotten gains is closely analogous to the equitable remedy of exemplary damages, as the principal purpose is not simply to punish the offending parties for having conspired to make the illicit profits but to convey a strong message, to the conspirators and to third parties alike, that there is yet another disincentive to engaging in such proscribed conduct.

Prevent and Restrain Future Unlawful Conduct

The Court found that the disgorgement in this case is properly sought to “prevent and restrain” Defendants from continuing the unlawful conduct. The conduct that led to this lawsuit was egregious. As previously discussed, in calendar year 2017 alone, hospitals that had contracted with Chang filed 3,955 applications “to hold human beings in psychiatric hospitals against their will.” Chang and Yao were aware this egregious activity was unlawful.

An award of disgorgement of Defendants’ ill-gotten gains will serve to prevent and restrain future illegal conduct. Moreover, the Court found that the jury awarded disgorgement for the purpose of preventing and restraining Defendants’ future conduct.

Calculation of Disgorgement

Before the jury deliberated, Plaintiffs’ most aggressive request for disgorgement was for the jury to multiply $75 by the number of detention warrants in Yao’s notary record for 2017 (3,955). In theory, this would result in a sum for just under $300,000. Inexplicably, however, the jury awarded more than four times that-presumably because it was outraged at Defendants’ conduct.

The Court noted that it was not bound by what the Plaintiffs requested from the jury for disgorgement, just as it is not bound by what the jury awarded. The complex nature of the illegal enterprise in the present matter complicates the calculation of disgorgement.

The Court recognized that Defendants may very well have secured ill-gotten gains that meet or exceed the $1,350,500 awarded by the jury. But there is no evidence of profits that would support such an award. While the Court agreed with Plaintiffs that “[t]here was overwhelming evidence of interactions and communications among [D]efendants showing a common purpose to defraud,” this is not enough.

For the purposes of restraining Defendants’ future conduct, the Court multiplied the cost of a telemedicine visit by Yao’s 3,955 notary book entries from 2017 to calculate Defendants’ profits causally related to their elaborate enterprise. For each telemedicine visit involving involuntary detention, Chang received $75, which comprises a $45 base fee, $5 patient fee, and $25 warrant fee. Multiplying $75 by 3,955, the Court found that the total profit equals $296,625.

Plaintiffs presented no evidence of any other profits derived by Defendants through unlawful conduct that violated RICO, which would support a greater award of disgorgement. For all these reasons, the Court concludes Plaintiffs are entitled to recover from Defendants equitable disgorgement of profits in the sum of $296,625.

ZALMA OPINION

The conduct of BHB and the physicians and nurses involved in this scheme were egregious and used the law to kidnap patients for profit. The disgorgement was a needed addition to the RICO damages to deter future conduct. Since these scofflaws billed Medicare and insurers for the alleged treatment – even if repaid to the insurers and the government – they were perpetrating a fraud that was proved beyond a preponderance. Since, as the court explained, the defendants are still confining people against their will the court should have referred the defendants to the Department of Justice for prosecution.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

 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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe. Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome. Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. The new book is available as a Kindle book, a paperback or as a hard cover.

Write to Mr. Zalma at zalma@zalma.comhttp://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalmaGo to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0ExpgGo to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library

 

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Insurer Can’t Prove Fraudulent Intent on Summary Judgment

Lies During Litigation do not Violate Policy’s Fraud Provision

See the full video at https://rumble.com/v1mlv7u-insurer-cant-prove-fraudulent-intent-on-summary-judgment.html and at https://youtu.be/HopAkGKaYdA

Mariana Gracia appealed the trial court’s grant of final summary judgment in favor of Security First Insurance Company (“Security First”). The trial court found Gracia had made affirmative misrepresentations regarding the pre-loss condition of her property, warranting forfeiture of coverage under the concealment or fraud provision of her homeowner’s insurance policy. Mariana Gracia v. Security First Insurance Company, No. 5D21-1456, Florida Court of Appeals, Fifth District (September 9, 2022)

FACTS

Security First insured Gracia for the risks of loss to her home located in Orlando, Florida. Gracia reported a loss due to roof damage allegedly caused by a storm. Security First investigated the claim and extended approximately $11,000 in coverage for damages. However, Gracia then submitted a sworn proof of loss, claiming more damages than what Security First had covered.

After Security First denied the supplemental claim, Gracia sued alleging breach of contract and seeking additional damages to cover roof repairs and interior water damage. During her deposition, Gracia revealed that a home inspection had been performed in 2015, prior to her purchasing the property. When asked the results of the inspection, she stated, “Everything was good” and that the “roof was in good condition.”

After Security First obtained the 2015 inspection report, it amended its affirmative defenses to include the concealment or fraud provision of the policy, as the inspection report indicated that the property had roof and interior ceiling damage in 2015. The inspection report contained photographs revealing the damage and specifically noted roof leaks around the chimney, water damage in the attic, and interior ceiling damage caused by water-areas consistent with those noted by Gracia in her instant claim.

Security First moved for summary judgment on several grounds but focused exclusively on its concealment or fraud defense at the summary judgment hearing. The trial court agreed with Security First. To obtain summary judgment Security First was required to establish that Gracia’s statements regarding the pre-loss condition of her property were made with the intent to mislead. Because this case was decided under the new Florida Rule of Civil Procedure 1.510, summary judgment is appropriate when “the evidence is such that a reasonable jury could not return a verdict for the nonmoving party.” In re Amends. to Fla. R. Civ. P. 1.510, 317 So.3d 72, 75 (Fla. 2021) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)).

The trial court interpreted this new standard as allowing it to weigh and judge the credibility of the evidence. Credibility determinations and weighing the evidence are jury functions, not those of a judge, when ruling on a motion for summary judgment. Gracia argued that where Security First relied upon subsection (3) of the concealment or fraud provision, it was required to meet its initial burden of establishing that her statements were made with an intent to mislead and were material. She contends there was no such showing and that the trial court effectively decided these fact questions when it granted summary judgment.

ANALYSIS

The Court of Appeal found it important to highlight the distinction between misrepresentation during the insurance application process and misrepresentation in the post-loss context. With respect to the former, the law in Florida is clear: an insurer can later void a policy based on an insured’s false statement without a showing of intent to mislead. A misrepresentation need not be fraudulently or knowingly made but need only affect the insurer’s risk or be a fact which, if known, would have caused the insurer not to issue the policy or not to issue it in so large an amount.

A different standard is applied to false statements in the post-loss context, requiring proof of intent to mislead. For post-loss conduct, the policy requires proof of knowing or intentional fraudulent conduct by the insureds to trigger the application of the “Concealment or Fraud” provision to void the policy. At least some portion of the “Concealment or Fraud” provision will be rendered superfluous if subsection (3) is read to dispense with an intent requirement then subsections (1) and (2)’s inclusion of an intent requirement are rendered superfluous: mere proof of incorrectness under subsection (3) would forfeit coverage thus eliminating any need for proof of intentional misrepresentation or fraud so prominently featured in subsections (1) and (2). In these circumstances, where either of the competing interpretations will render some language a nullity, the rule of construction requiring avoidance of interpretations that make any language superfluous loses traction.

The fault is not in the rule of construction but in the policy language. The Court of Appeal interpreted the reference to “false statements” in the “Concealment or Fraud” provision as requiring an element of fraudulent intent. Despite having maintained below that fraudulent intent was not required, Security First argues on appeal that affirmance is warranted because its evidence undoubtedly established Gracia’s intent to mislead. Simply put, factual questions relating to fraudulent intent or state of mind are generally not ripe for summary judgment determination.

ZALMA OPINION

Had Security First required Gracia to submit to an examination under oath and found that she lied about the inspection report that was prepared before the policy their summary judgment would have been granted and affirmed since the misrepresentation or concealment preceded the filing of suit. They only learned of the fraud in a deposition which is not part of the claims process. There is no question that Gracia had the report before she acquired a policy from Security First and should have disclosed that fact to her insurer. At trial Security First will bring in that evidence or will file a new summary judgment motion with an affidavit from the underwriter who will probably testify that the policy would not have been issued had the insurer known of the existing damage.

 

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. The new book is available as a Kindle book, a paperback or as a hard cover.

Write to Mr. Zalma at zalma@zalma.comhttp://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalmaGo to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0ExpgGo to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library

 

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GEICO v. Fraudulent Health Care Providers

Man Bites Dog Story – GEICO Sues Health Care Providers for Fraud

See the full video at https://rumble.com/v1mhmjs-geico-v.-fraudulent-health-care-providers.html and at https://youtu.be/_wWg9v-kq3A

The USDC for the Eastern District of New York dealt with GEICO’s motion to (1) stay all pending collection arbitrations; (2) enjoin Defendants from commencing any additional arbitration or state court collection proceedings until the resolution of this federal action; and (3) relieve Plaintiffs from their obligation to post security for the injunction. For the reasons stated below, In Government Employees Insurance Company, GEICO Indemnity Company, GEICO General Insurance Company, GEICO Casualty Company v. Liana Binns, N.P., et al, No. 22-CV-1553 (NGG) (PK), United States District Court, E.D. New York (September 28, 2022) the court dealt with a need to stop arbitration of billing for allegedly false medical treatment and claims under New York’s no fault law.

BACKGROUND

The Government Employees Insurance Company, together with certain related companies (collectively, “GEICO”), brought this action. GEICO alleges that it has been the target of a no-fault insurance fraud scheme carried out by the thirty-eight individuals and entities named in the Complaint and certain unidentified others. Most of the named Defendants are healthcare professionals and one professional limited liability company (the “Healthcare Defendants”). The remaining Defendants (the “Management Defendants”) are not healthcare professionals, but have “secretly and unlawfully owned, controlled, and derived economic benefit from” the services provided by the Healthcare Defendants “in contravention of New York law.”

New York’s No-Fault Insurance Scheme

In New York, an insurer is required provide certain no-fault insurance benefits (“Personal Injury Protection” or “PIP Benefits”) to the individuals that they insure. Under the no-fault insurance scheme, insurers must pay PIP Benefits within 30 days of the claimant’s provision of proof of the claim. In arbitration proceedings to recover no-fault benefits-which insurers must provide for in their contracts the process is an expedited, simplified affair meant to work as quickly and efficiently as possible.

Operation of the Alleged Scheme

According to GEICO, around June 2019, the Management Defendants recruited the Healthcare Defendants to “serve as the nominal or ‘paper’ owners of the professional healthcare practices operated in their names” in exchange for compensation. The Healthcare Defendants then worked in various clinics (the “Clinics”) throughout the New York area. The Healthcare Defendants treated patients who were referred to the Clinics by personal injury attorneys or “through a network of individuals… who were paid by the Management Defendants for each Insured that they delivered.”] The Healthcare Defendants treated the Insureds as if they had significant injuries and health problems in order to maximize reimbursements from insurance companies, despite the fact that most were involved in “relatively minor accidents, to the extent that they were involved in any actual accidents at all.” The no-fault claims were submitted through 34 different professional practices, all of which operated under the professional licenses belonging to the Healthcare Defendants. The claims were submitted through the 34 different entities, likely to reduce the amount of billing submitted through any single individual or entity or under any single tax identification number, thereby preventing GEICO from identifying the pattern of fraudulent charges In the course of this scheme, Defendants submitted bills seeking more than $6.4 million in no-fault benefits. There is more than $4.3 million in pending no-fault insurance claims that have been submitted to GEICO by Defendants.

Evidence of the Alleged Scheme

In support of its fraud claim, GEICO has submitted affidavits from two of the Healthcare Defendants, Julia Kay and Eyriney Azer, who have settled with the company, and a chart, totaling over 750 pages, of allegedly fraudulent no-fault claims submitted by Defendants, which are merely a “representative sample. The affidavits tell very similar stories of being hired by a woman named “Wilma,” presumably Wilma Tanglao, one of the Management Defendants. In their interviews, Wilma informed Kay and Azer that they would be providing dry-needling to motor vehicle accident patients in several Brooklyn clinics for an hourly wage. It was only after the fact that both affiants learned that the someone-presumably Wilma and the other Management Defendants-had been submitting no-fault claims to GEICO and other insurance companies for dry-needling and examinations under their social security numbers, had opened P.O. boxes and bank accounts in their names, and had been receiving checks issued to the affiants from GEICO and other insurance companies.

DISCUSSION

A movant must demonstrate (1) irreparable harm absent injunctive relief; and (2) either a likelihood of success on the merits, or a serious question going to the merits to make them a fair ground for trial, with a balance of hardships tipping decidedly in the plaintiffs favor.

Irreparable Harm

Courts in New York district have consistently found irreparable harm where there is concern with wasting time and resources in an arbitration with awards that might eventually be, at best, inconsistent with this Court’s ruling, and at worst, essentially ineffective. Thus, when “an insurer is required to waste time defending numerous no-fault actions when those same proceedings could be resolved globally in a single, pending declaratory judgment action,” courts regularly find irreparable harm. GEICO asserts that there are over 950 pending arbitration proceedings filed by Defendants, in addition to potentially hundreds more collection arbitrations and civil court collection suits. Since at least some of the pending arbitration proceedings and some of the potential arbitration and state court proceedings involve the Bu Defendants, there is a risk of inconsistent judgments between those other proceedings and this one. If Defendants are no longer in operation and permitted to prosecute ongoing collection proceedings, GEICO’s harm may not be limited to inconsistent judgments or the unnecessary expenditure of time and resources. Any dollar awarded to Defendants in a AAA or state court collection proceeding may be permanently unrecoverable, even if GEICO ultimately prevails in this case. Because GEICO has shown the irreparable harm of inconsistent judgments and of being potentially unable to collect damages, GEICO has shown irreparable harm.

Serious Question. Going to the Merits

For a court to issue a preliminary injunction, the moving party must show either a likelihood of success on the merits, or sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly in GEICO’s favor. GEICO has shown a serious question going to the merits. GEICO is seeking a declaratory judgment that the Defendants have no right to receive payment for any pending bills submitted to GEICO, an estimated $4.3 million in pending no-fault insurance claims.

The Complaint discusses at least fifty examples of fraudulent no-fault claims and explains precisely how it is able to ascertain that each claim is fraudulent. Given the extensive evidence of the overall scheme and of the Bu Defendant’s involvement, the court finds that there are serious questions going to the merits. Even if the defendants are rightfully owed the claim reimbursements, the reimbursements will merely be delayed, and they will be paid later with interest. Thus, the court dispensed with the bond requirement since the case implicates the enforcement of public interests, and the Bu Defendants have not established a likelihood of harm.

GEICO’s motion to (1) stay all pending collection arbitrations; (2) enjoin Defendants from commencing any additional arbitration or state court collection proceeding until the resolution of this federal action; and (3) relieve GEICO from its obligation to post security for the injunction,was GRANTED, as against the Bu Defendants.

ZALMA OPINION

The only way to defeat or deter insurance fraud is to take the profit out of the scheme since it is difficult, if not impossible, to get the state to prosecute. GEICO, in New York State,  has decided to fight because it seems to have been the victim of multiple fraud perpetrators taking advantage of the patient favored no-fault law that requires immediate payment and no time to investigate. GEICO has found, by serious investigation and confessions by some of the fraudsters, a massive insurance fraud program that will allow it – if proved at trial – to get a judgment for serious damages from the fraudsters. The court, recognizing the high probability that GEICO is right, has stayed the hundreds of arbitration actions that are probably fictitious and gave GEICO the peace it needs to prove its claims at trial.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

 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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe. Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome. Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. The new book is available as a Kindle book, a paperback or as a hard cover.

Write to Mr. Zalma at zalma@zalma.comhttp://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalmaGo to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0ExpgGo to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library

 

 

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October 1, 1979 – 2022 Another Anniversary

The Beginning & Continued Existence of Barry Zalma, Inc.

Forty three years ago, October 1, 1979 I left the world of the employed and became an entrepreneur by opening my own law firm. The law practice was incorporated shortly thereafter as Barry Zalma, Inc. When I opened for business on October 1, 1979 I had no clients and no certainty that I would have any in the future. I had borrowed money from the bank to carry me through the first six months and was concerned about my ability to pay the loan with my third child about to be born. Much to my surprise and pleasure, on October 1, 1979, at 8:10 a.m., the best claims handler in the London market, Alan Warboys, called from London and provided me with my first case as an independent lawyer to represent Certain Underwriters at Lloyd’s, London. He, and the Lloyd’s Underwriters he represented, showed faith in me as a lawyer and insurance expert. Alan is now, and will forever be, my law firm’s first client and a good friend. Since January 2, 1972, I practiced law in California until I turned 75 and asked the California Bar to make my license to practice law inactive. To those of you, in addition to Alan, who have honored me by retaining me as your lawyer, thank you for a long, productive and successful legal career. Since 2015 and in the future I will limit my work to acting as an insurance claims handling, insurance fraud and insurance bad faith consultant, expert witness, educator and author. That work continues to keep me busy at least 40 hours a week. I am not retired. I am fully recovered from open heart surgery and continue to work five days a week. I am only slowing from my time as a lawyer by limiting my work to consulting and testifying as an expert. I am now 80-years-old and I no longer practice law. I used that expertise when I testified in a deposition that helped resolve a massive claim of a motion picture company seeking benefits from their insurer as a result of Covid-19 shut downs and just before the Pandemic I testified in an Idaho trial court for a policyholder who was not treated well by his insurer and received a favorable verdict. I expect to continue working, using my 55 years experience in the insurance claims industry, forever, or, at least, until I reach the century mark my mother reached before she passed away. I will continue to publish, twice a month, Zalma’s Insurance Fraud Letter and will publish daily to my blog, Zalma on Insurance, digests of recent cases. I have now made available for anyone interested in being a claims professional a complete Insurance Claims Library available as paperbacks or Kindle books at Amazon.com where I have recently published How to Acquire, Understand, and Make a Successful Claim on a Commercial Property Insurance Policy, The Tort of Bad Faith, The Equitable Remedy of Rescission of Insurance, Insurance Fraudsters Deserve no Quarter,  Zalma on Insurance Claims Third Edition, and many more. For detail go to http://zalma.com/blog/insurance-claims-library/ where you can also find insurance books published by the American Bar Association, Thomson Reuters, and Full Court Press/fastcase.com. I will continue to serve you as a claims handling and bad faith consultant, expert witness, author, educator, arbitrator or mediator. Since my firm has been reduced to only me I will always answer the phone or respond to your inquiries by telephone, e-mail, fax or even via the U.S. Postal Service. Thank you again for your faith in me and my firm, Barry Zalma, Inc.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.comhttp://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalmaGo to Barry Zalma at Rumble.com.

Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. The new book is available as a Kindle book, a paperback or as a hard cover and a new book on Commercial Property Insurance purchase and claims that is now available as a Kindle book here, paperback here and as a hardcover here.
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It is Best to Buy Your Own UM/UIM Cover

Attempt to Create UM/UIM Coverage from Statute Fails

See the full video at https://rumble.com/v1m0blo-it-is-best-to-buy-your-own-umuim-cover.html and at https://youtu.be/KOjhheawNq8

Statue Limits Its Effect

In Scott C. Malzberg, a/k/a Scott Malzberg v. Caren L. Josey, James River Insurance Company, Portier, LLC, and Rider Insurance Company, No. A-2883-20, Superior Court of New Jersey, Appellate Division (September 27, 2022) Scott C. Malzberg appealed from the Law Division order granting summary judgment in favor of defendant James River Insurance Company (James River), dismissing plaintiff’s claim for underinsured (UIM) motorist coverage. The case presented a question of first impression regarding the scope of the Transportation Network Company Safety and Regulatory Act (TNCSRA or Act).

Plaintiff was injured in a motor vehicle accident while he was operating his motorcycle as an Uber Eats delivery driver. The sole legal issue raised by the appeal is whether the Act-which requires “transportation network companies” (TNCs) to provide at least $1.5 million in underinsured motorist coverage- applies to food delivery services, such as Uber Eats.

In granting summary judgment dismissal, the trial court held that the Act only regulates companies that use a digital network such as a mobile phone application (app) to connect a “rider” to a “prearranged ride” and that the Act applies only to the prearranged transport of persons and not to the delivery of food. The court found that nothing in the statutory text or legislative history of the TNCSRA suggested that the Legislature intended to regulate app-based food delivery services.

Plaintiff enrolled with defendant Portier, LLC (Portier) to use his personal vehicle-a motorcycle-to deliver food. The Uber Eats app allows food delivery service providers and restaurants to connect with each other so that they can fulfill orders placed by consumers.

On August 17, 2017, plaintiff was in the process of making a food delivery for Uber Eats when a vehicle driven by defendant Caren L. Josey (Josey) collided with plaintiff’s motorcycle. Plaintiff was thrown from the motorcycle and sustained significant injuries requiring multiple surgeries.

Josey was insured by CURE Auto Insurance with bodily injury liability coverage limited to $15,000 per person and $30,000 per accident. Plaintiff’s injuries exceeded the limits of Josey’s personal auto insurance policy. Portier had procured a business auto insurance policy from James River to protect it from liability as a result of actions of Malzberg.

However, the James River policy defines an “insured” to include “Delivery Drivers” who have entered into a contract to use the “UberPartner Application” and who have logged into the “UberPartner Application” but did not provide underinsured motorist benefits.

A stipulation of dismissal with prejudice was filed as to defendant Rider Insurance Company on June 29, 2020.

ANALYSIS

The New Jersey Supreme Court has clearly stated that “[t]he overriding goal of all statutory interpretation ‘is to determine as best we can the intent of the Legislature, and to give effect to that intent.'” State v. S.B., 230 N.J. 62, 67 (2017). Consequently, to determine the Legislature’s intent, the court looks to the statute’s language and give those terms their plain and ordinary meaning because the best indicator of that intent is the plain language chosen by the Legislature.

The core issue is whether the Act regulates app-based food delivery services or instead is limited to regulating companies and drivers that arrange and provide transportation services for passengers.

The Statute

“Transportation network company” means a corporation, partnership, sole proprietorship, or other entity that is registered as a business in the State or operates in this State, and uses a digital network to connect a transportation network company rider to a transportation network company driver to provide a prearranged ride.  “Transportation network company driver” or “driver” means a person who receives connections to potential riders and related services from a transportation network company in exchange for payment of a fee to the transportation network company, and uses a personal vehicle to offer or provide a prearranged ride to a rider upon connection through a digital network controlled by a transportation network company in return for compensation or payment of a fee.

Most notably, nothing in the Act refers to the delivery of food. The absence of any reference to food delivery in the definition section stands in stark contrast to the interrelated definitions that refer explicitly and repeatedly to “rides” and “riders,” which clearly denote the transport of human passengers.

The absence of any reference in the definition section to any vehicles that transport goods rather than passengers supports the court’s conclusion that the Legislature in enacting the TNCSRA was concerned only with vehicles while they are being used to transport persons.

Aside from the definition section, the text of the entire Act includes only one explicit reference to services that involve the transport of something other than persons, and that reference is done in the context of explaining what transportation network companies and drivers may not do if they are to remain within the scope of the Act.

In sum, the court concluded that the primary question posed in this case is easily resolved under a plain-text analysis. The statutory scheme comprehensively regulates app-based services that provide rides to human passengers. As the court stressed, nothing in the statutory text mentions, much less comprehensively regulates, the delivery of food. In these circumstances, the court did not need to consider extrinsic sources to determine legislative intent.

The appellate court found further extrinsic support for its interpretation of the Act in the regulations that have been promulgated by the MVC.

In the final analysis, it is for the Legislature, not trial or intermediate appellate courts, to fill the void to which plaintiff alludes where the statute fails to deal with those who deliver food, like the plaintiff, rather than those who deliver people.

The Court of Appeal refused to venture an opinion on whether that pending legislation supports or undermines plaintiff’s arguments on this appeal. Reliance on proposed or pending legislation to interpret existing statutes is of little value. There is no value from legislative proposals that are not enacted into law. The TNCSRA in its present form does not apply to the circumstances of this case.

ZALMA OPINION

The suit was imaginative and provided interpretations of a statute that are limited to people who deliver people not food or other products. Malzberg, through is employer, had liability coverage and, if he wanted to be protected, could have purchased UM/UIM coverage for himself. Neither he nor his agency/employer did so. He was appropriately unable to get the court to expand the meaning of a statute by suggestion. Insurance is not a right it is a choice.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. The new book is available as a Kindle book, a paperback or as a hard cover.

Write to Mr. Zalma at zalma@zalma.comhttp://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalmaGo to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0ExpgGo to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library

 

 

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Claims in a Catastrophe

How to Deal With Your Insurance Company After a Catastrophe

In 2008 I wrote a long article on what to expect after your property is damaged or destroyed in a catastrophe like a wildfire, a tornado, an earthquake or a hurricane. The attack on Florida and much of the East Coast by Hurricane Ian has encouraged me to make the article published by the CPA Journal, available by publishing the link to the Journal where it was published in 2017.

“At the request of the editors of the CPA Journal, insurance expert, Barry Zalma updated his blog for the benefit of our readers. In 2008, he wrote this article to help those faced with catastrophic losses. It is reprint here because of Hurricane Harvey and Irma in hopes it will help those victims of the catastrophes deal with their claims.” It is available at https://www.cpajournal.com/2017/09/26/claims-in-a-catastrophe/

In my opinion, insurers dealing with a catastrophe will usually be in a very generous mood. They will be seeking good publicity by taking care of victims of the catastrophe quickly and fairly. To make the claims process go easily the insured person must understand that both the insured and the adjuster have duties when damage-caused by fire, windstorm, flood or other insured perils are discovered.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.comhttp://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalmaGo to Barry Zalma at Rumble.com.

Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. The new book is available as a Kindle book, a paperback or as a hard cover and a new book on Commercial Property Insurance purchase and claims that is now available as a Kindle book here, paperback here and as a hardcover here.    

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Zalma’s Insurance Fraud Letter – October 1, 2022

Zalma’s Insurance Fraud Letter – October 1, 2022

Read the full article at https://lnkd.in/gb8WvSyH and see the full video at https://lnkd.in/g2iqwfTE and at https://lnkd.in/g7YWxZwC and at https://zalma.com/blog plus more than 4300 posts.

Read full Newsletter at https://lnkd.in/gC_ERGrP

Posted on September 30, 2022 by Barry Zalma

Insurer Proactive Against Fraud

CIGNA Obtains $14,371,384.95 Judgment Against Fraudulent Health Care Provider

CIGNA successfully sued a fake provider and obtained a default judgment for almost $15 million.

Another Florida Insurer Is Insolvent
FedNat Insurance Co. is now insolvent.

Free Insurance Videos

Barry Zalma, Esq., CFE has published five days a week videos on insurance claims, insurance claims law, insurance fraud and insurance coverage matters at https://lnkd.in/g8_7CzQs.
See the more than 500 videos at https://lnkd.in/g6i3cWu

Good News From the Coalition Against Insurance Fraud
Sharon Beighton was stunned to learn Bruce Saunders fell into a woodchipper and was ground up while clearing trees on her property near Brisbane, Australia.

A Resource for the Insurance Professional

To be an insurance professional requires continuous learning. That’s the motivation behind my writing; I have felt a need to share my experiences to help people in the industry learn how to properly handle claims and avoid accusations of the tort of bad faith.”

Health Insurance Fraud Convictions

U.S. Attorney & Feds Increase Efforts to Prosecute Fraud Perpetrators
Durable Medical Equipment Company Health Care Fraud Sentenced to Seven Years in Federal Prison

Read dozens more convictions at https://lnkd.in/gC_ERGrP

Prosecutors Allow Arson-for-Profit to Succeed

Stupid Plea Bargain Destroys Insurer’s Right to Restitution

Read the full story at https://lnkd.in/gC_ERGrP

Other Insurance Fraud Convictions

Salt of the Earth Michigan Farmer Will Pay $1.2 Million Settlement Over Crop Insurance Fraud
Read the full list of convictions at https://lnkd.in/gC_ERGrP

New Books:
“How to Acquire, Understand, and Make a Successful Claim on a Commercial Property Insurance Policy: Information Needed for Individuals and Insurance Pros to Deal With Commercial Property Insurance” – Details available at https://lnkd.in/gKCTg53

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

Subscribe to Zalma on Insurance at locals.com https://lnkd.in/gn5WAi6C.

Subscribe to Excellence in Claims Handling at https://lnkd.in/gNm9EWKJ. Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; I publish daily articles at https://zalma.substack.com, Go to the podcast Zalma On Insurance at https://lnkd.in/gxA7YGe; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://lnkd.in/gV9QJYH

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Vermont Did Not Find Coverage

Vermont’s Ruling in Favor of an Insured Seeking Business interruption Coverage due to Covid is a Pyrrhic Victory

See the full video at https://rumble.com/v1lvhgq-vermont-did-not-find-coverage.html and at https://www.youtube.com/watch?v=Nmn9n07Jkxs

In Huntington Ingalls Industries, Inc. et al. v. Ace American Insurance Company et al, No. 2021-173, 2022 VT 45Supreme Court of Vermont (September 23, 2022) the Supreme Court of Vermont reversed a decision refusing to allow an insured ship builder to recover business interruption losses as a result of government orders dealing with Covid-19 and remanded the case to the trial court to determine if Covid caused direct physical damage to property.

Insured Huntington Ingalls Industries, Inc. and insurer Huntington Ingalls Industries Risk Management LLC survived dismissal of the case seeking coverage under a property insurance policy for certain losses incurred by Huntington Ingalls Industries due to the COVID-19 pandemic.

FACTS

Insured, Huntington Ingalls Industries, Inc., is the largest military shipbuilding company in the United States and provides professional services to government and industry partners. It employs over 42,000 people, the majority of whom work at its shipyards in Virginia and Mississippi.

In March 2020, insured purchased a property insurance policy (Global Policy) from insurer Huntington Ingalls Industries Risk Management LLC, its captive insurance subsidiary and a Vermont corporation. The policy covers the period of March 15, 2020, to March 15, 2021. That same month the insurer purchased policies from multiple reinsurers to reinsure all its obligations to insured under the Global policy. Each reinsurer participated for a specified percentage of the reinsurance program. Reinsurers’ policies incorporate the Global Policy by reference, stating for example that their liability “shall attach simultaneously with that of [insurer] and shall be subject in all respects to the same risks, terms, conditions, rates, interpretations[,] and waivers” of the underlying policy issued to insured.

The policy, titled “Global Property Insurance,” contains relevant provisions that all real and personal property are insured against all risks of direct physical loss or damage to property. In the “business interruption” clause, it covers “[l]oss due to the necessary interruption of business conducted by [insured], whether total or partial . . . caused by physical loss or damage insured herein.” Recovery under the business-interruption provision is limited to the extent that insured is  (a) wholly or partially unable to produce goods or continue normal business operations or services during the [p]eriod of [r]ecovery; (b) unable to make up lost production within a reasonable period of time . . .; or (c) able to demonstrate a loss or reduction of Net Profit for the services or production prevented, impaired or interrupted.”

The period of recovery begins on “the date of . . . loss or damage” and “[s]hall not exceed such length of time as would be required with the exercise of due diligence and dispatch to rebuild, repair, or replace the property that has been destroyed or damaged.” The period of recovery also includes “[s]uch additional length of time to restore [insured’s] business to the condition that would have existed had no loss occurred.” The policy provides that Vermont law governs its construction.

THE VIRUS

SARS-CoV-2 is a virus that causes the disease COVID-19. In March 2020, civil authorities across the United States began to issue orders requiring certain businesses to close and recommending people stay home to reduce the virus’s spread. Civil orders generally required businesses to adhere to social distancing, employ enhanced sanitization practices on surfaces, and follow recommendations from the Centers for Disease Control and Prevention (CDC) and state health departments. However, they allowed businesses to operate at a level needed to provide essential services.

The insured kept its shipyards open but made changes to its operations to comply with CDC guidance and protect employees.

In September 2020, insured and insurer sued reinsurers seeking a declaratory judgment that they are entitled to coverage under the policy for property damage, business interruption, and other losses suffered as a result of SARS-CoV-2, the pandemic, and civil authority orders. The complaint alleges the pandemic caused “direct physical loss or damage to property” when the virus adhered to surfaces for several days and lingered in the air for several hours at the shipbuilding yards.

TRIAL COURT DECISION

The trial court granted reinsurers’ motion for judgment on the pleadings and consequently denied all of insured’s motions. The inquiry below focused on the meaning of “direct physical loss or damage to property” under the policy.

Interpretation of Policy

An insurance policy is construed according to its terms and the evident intent of the parties as expressed in the policy language. Terms in an insurance policy are interpreted according to their plain, ordinary, and popular meaning, and will enforce unambiguous terms as written.

When the Supreme Court of Vermont looks to determine if an insurance policy’s undefined terms have a plain meaning, it frequently refer to dictionary definitions.

First, the phrase “direct physical loss” concludes with “to property” and this is a property insurance policy, thus the analysis is framed with a focus on what is happening to the insured property. The centrality of property to this insurance policy requires that something must occur affecting personal or real property for “direct physical loss or damage to property” to occur.

Although all-risk policies are generally construed in favor of coverage, risk and loss are distinct concepts. The Supreme Court concluded that direct physical damage requires a distinct, demonstrable, physical change to property. When it combined the definitions of “direct,” “physical,” and “damage” provided above, the plain meaning is evident. However, a distinct, demonstrable, physical alteration need not necessarily be visible; alterations at the microscopic level may meet this threshold. The Supreme Court considered Ashland Hosp. Corp. v. Affiliated FM Ins. Co., No. 11-16-DLB-EBA, 2013 WL 4400516, at *4-5 (E.D. Ky. Aug. 14, 2013) the USDC for the Eastern District of Kentucky concluded that disk drives altered on microscopic level due to heat exposure causing decrease in reliability constituted “direct physical loss or damage to insured property.

The definition is consistent with the policy section on the period of recovery, which defines the time for which a business-interruption claim may be made. Insured may make a business-interruption claim under the policy for the period starting with the date of the coverage-triggering event and not exceeding the time needed to “rebuild, repair or replace” the damaged property and such additional time as needed to restore insured’s business to its pre-loss condition.

In order for something intangible to cause a direct physical loss, the cause of the loss must be so persistent as to require intervention, rather than the mere passage of time, to satisfactorily address it.

The insurance policy in this case is unambiguous and must therefore be afforded its plain meaning. The phrase “direct physical loss or damage to property” includes two distinct components, either of which will trigger coverage unless an exclusion applies: “direct physical damage” and “direct physical loss.”

“Direct physical damage” requires a distinct, demonstrable, physical change to property. “Direct physical loss” means persistent destruction or deprivation, in whole or in part, with a causal nexus to a physical event or condition.

Purely economic harm will not meet either of these standards. In applying the plain meaning of the policy language as interpreted in this case, the insured has the burden of proving that the losses it alleges are either “direct physical loss” or “direct physical damage” to property.

THE REMAND

Remanding this case and allowing further factual development in the trial court is consistent with the philosophy underlying notice pleading. Although the science when fully presented may not support the conclusion that presence of a virus on a surface physically alters that surface in a distinct and demonstrable way, it is not the Court’s role at this stage in the proceedings to test the facts or evidence.

To be clear, the opinion does not state that what occurred in insured’s shipyards is “direct physical loss or damage to property” under the policy. The Supreme Court merely concluded that insured has alleged enough to survive a motion to dismiss.

The Insured’s complaint contains sufficient allegations to survive a motion for judgment on the pleadings under Vermont’s extremely liberal pleading standards.

Justice Carroll Dissented

“As a matter of law, human-generated droplets containing SARS-CoV-2 cannot cause “direct physical loss or damage to property” under this insurance policy. No future litigation can change that reality. While I agree with the majority’s conclusion that the insurance contract term in dispute is unambiguous, I cannot agree that insured’s claim survives beyond the pleadings stage.” Accordingly, he dissented.

ZALMA OPINION

News stories about Vermont giving the first victory to an insured seeking business interruption coverage for losses resulting from Covid 19. The opinion was exceedingly long and dealt with definitions and interpretation of insurance policies, the essence of the decision was that the insureds alleged sufficient facts to avoid a motion to dismiss but must now go to the trial court and produce evidence and science that the virus caused direct physical damage to the property of the insured. Something courts across the country have found that there was no direct physical loss or damage.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.comhttp://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalmaGo to Barry Zalma at Rumble.com.

Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. The new book is available as a Kindle book, a paperback or as a hard cover and a new book on Commercial Property Insurance purchase and claims that is now available as a Kindle book here, paperback here and as a hardcover here.

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Excellence in Claims Handling

Insurance News: Barry Zalma Releases More Insurance Education Books on Amazon and Has Created a Locals Community of Insurance Education Videos.

After practicing insurance law for over five decades, Barry Zalma, an internationally recognized and award-winning insurance expert and author, is releasing multiple education books on Amazon.com. The publications are designed to inform claims people, special investigation unit investigators, coverage lawyers, plaintiffs’ bad faith lawyers, insurance management and the insurance buying public on insurance claims procedures and insurance fraud. Each resource leverages key insights and learnings from Zalma’s 55+ years of practical experience as a claims person and insurance coverage attorney.

Barry Zalma, Esq., CFE

To be an insurance professional requires continuous learning. That’s the motivation behind my writing; I have felt a need to share my experiences to help people in the industry learn how to properly handle claims and avoid accusations of the tort of bad faith.”  See his latest interview for new adjusters at https://player.fm/series/daily-claims/episode-11-advice-for-new-and-aspiring-adjusters.

Visit Zalma’s Insurance Claims Library to view all publications that can be purchased through Amazon as Paperback and Kindle e-books. A selection of some of the books written by Barry Zalma that are available include:

  • How to Acquire, Understand, and Make a Successful Claim on a Commercial Property Insurance Policy: Information Needed for Individuals and Insurance Pros to Deal With Commercial Property  Insurance”
  • The Tort of Bad Faith
  • The Equitable Remedy of Rescission of Insurance
  • Insurance Fraud & Weapons to Defeat Insurance Fraud, Volume 1 & Volume 2, including full text insurance fraud decisions from the courts of appeal
  • The Compact Book on Adjusting Liability Claims, a handbook for the liability claims adjuster
  • The Compact Book on Adjusting Property Claims, a basic manual for the first party property claims adjuster
  • Zalma on Insurance Claims – a ten volume treatise.
  • Ethics for the Insurance Professional, the necessity of ethical behavior in the insurance business
  • Rescission of Insurance, what is needed to rescind an insurance policy, including full text appellate decisions regarding rescission
  • The Insurance Examination Under Oath, covering who, when, where, why and how to take an examination under oath.

Would you be interested in sharing this news with your readers, listeners or viewers or insurance claims employees? Please let me know if you would like more information or to arrange an interview with Barry Zalma or presentation of an Excellence in Claims Handling program.

Additional books by Zalma are available from Fastcase.com, Thomson Reuters and the American Bar Association. He has also published numerous articles, blogs, white papers, videos and education courses for insurance practitioners. Visit www.zalma.com and https://zalma.com/blog/insurance-claims-library/ Locals.com https://zalmaoninsurance.locals.com/subscribe and substack.com for more information.

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What is Actual Cash Value?

Insurers, working without legislative or judicial direction, created a working definition of the term “actual cash value.”

See the full video at https://rumble.com/v1lqhqf-what-is-actual-cash-value.html and at https://youtu.be/6oj9bqtaEg4

Insurers recognized that ACV in a fire insurance policy was designed to establish a dollar value for items of destroyed property that were not new at the time of loss. Since the insurers had no easy means to establish the used value of property, they selected the following as their working definition of “actual cash value”: “Actual cash value is the cost to replace with like kind and quality less physical depreciation.” [Jefferson Insurance Company of N.Y. v. Superior Court, 3 Cal. 3d 398 (1970).]

The working definition, although it did not always provide the complete indemnity contemplated by the insureds and by the various legislatures, was eminently practical.

A burned-out shell of a house only leaves clues as to what its actual cash value was before the fire. With minimal investigation the cost of rebuilding can be readily ascertained. If the insurer paid to its insured the full cost of replacement (since the number was easy to compute) it would violate the traditional concept of indemnity.

Payment of replacement cost puts the insured in a better position than he was in before the fire. Deducting from the replacement cost a reasonable percentage representing the physical depreciation, comes as close as possible to providing the insured with true indemnity for the loss.

Over time, courts have developed three primary tests to measure the actual cash value of property. They are:

  1. Fair market value, usually described as the price a willing buyer would pay to buy property from a willing seller in a free market.
  2. Replacement cost less depreciation, generally accepted to mean the cost to replace property at the time of the loss, minus its physical depreciation.
  3. The Broad Evidence Rule. A judicious application of either 1 or 2 to the unique circumstance of the claim, whichever is more favorable to the insured.

Some insurers have taken the hint first expressed in 1970 in Jefferson Insurance Company v. The Superior Court of Alameda County, 3 Cal. 3d 398, and now define the term in most policies issued in California and across the country. Depending on the insurer any one of the three options chosen by the courts across the country has now been incorporated into the policy.

Some insurers elected to calculate ACV by deducting 20% from the full cost of repair or replacement. Since the basic charge had no relation to obtaining true ACV, the practice was widely condemned. For example, the Court of Appeals of Michigan went even further in decrying the practice of withholding 20% for a contractor’s overhead and profit. In Salesin v. State Farm 581 N.W.2d 781, (1998) the court said this about the calculation of actual cash value: “State Farm’s insurance Policy in this case does not contain a definition of “actual cash value,” nor does it set out the basis on which State Farm determines actual cash value. The process by which actual cash value would be determined was contained in State Farm’s Operation Guide. In accordance with the provisions of that document, State Farm routinely deducts contractor’s overhead and profit as well as depreciation when it makes an “actual cash value of the damage” payment under section I.c.(l) of its insurance policy. There was deposition testimony that this procedure is contrary to industry norms and practices.”

In Bradley v. Allstate Ins. Co., USCA, Fifth Circuit, 620 F.3d 509 (2010) the court found Under Louisiana law, actual cash value owed by property insurer is determined by calculating the cost of duplicating the damaged property with new materials of like kind and quality, less allowance for physical deterioration and depreciation. ACV is not, in the Fifth Circuit, necessarily synonymous with market value at the time of the loss.

The touchstone for determining ACV is the basic principle that an adequately insured person should incur neither economic gain nor loss when his property is destroyed.

The term obsolescence appears within the contract definition of “actual cash value,” which is one of several methods insurers use to value a property in the event of a loss. Other methods are market value, reproduction value, and replacement value.

Many courts, including those in Michigan, adopted what is known as the “broad evidence” rule to determine the actual cash value when the term is undefined in a contract. [Davis v. Nat’l Am. Ins. Co., 78 Mich.App. 225, 259 N.W.2d 433, 438 (1977)]. Under the rule, fact finders or appraisers may consider “any evidence logically tending to the formation of a correct estimate” of the value of the property, including “market or reproduction or replacement values.”

The Standard Fire Insurance Policy has provided, in essentially the same language since 1909:”In consideration of the provisions and stipulations herein … this company does insure the above-named insured … to the extent of the actual cash value of the property at the time of the loss.”

The intent of the legislature of the various states that have enacted a statutory fire policy, by enacting a mandatory form of fire insurance policy, was to codify and implement the traditional concept of fire insurance. Insurance exists to indemnify or compensate the insured for the actual loss he has sustained, without necessarily placing him in a better position than he was at the time of the fire. [Breshears v. Indiana Lumbermans Mutual Ins. Co., 256 Cal. App. 2d 245, 63 Cal. Rptr. 879 (1967).]

Appellate courts have rarely been called upon to explain this basic purpose of fire insurance, as codified. When called upon, the courts have limited their decisions to the fact situations presented to them. They have always confirmed that the purpose of insurance is to provide indemnity. It was only the methods by which such indemnity was to be achieved that was subject to interpretation.

Perhaps to ease the burden on the courts, the state legislatures provided a means by which the traditional concept of indemnity could be measured. For example, the California Legislature stated: “The measure of indemnity in fire insurance is the expense to the insured of replacing the thing lost or injured in its condition at the time of the injury, such expense being computed as of the time of the commencement of the fire”. [California Insurance Code § 2051.]

The legislature failed, however, to explain how one was to compute the cost of replacing a 30-year-old building. There is almost no supply of 30-year-old plumbing or lumber for the insured to purchase. A carpenter cannot construct a 30-year-old dwelling, he can only construct a new dwelling. It is physically impossible to put an insured exactly as he was before the fire.

It took 30 years of hard weather to pit the siding; many windstorms to wear and loosen the shingles, an earthquake or two to tilt the foundation, and four growing children to beat it up mercilessly. The problem of creating old with new, the legislature left to the courts, litigants, and the agile minds of adjusters and lawyers.

Analysis

Courts have touched the issue, gingerly. They have paid lip service to the statutory mandate that the insured is only entitled to recover under the policy such loss as he has actually sustained. [Whitney Estate Co. v. Northern Insurance Co. of London, 155 Cal 521, 101 P. 911 (1909).] Sometimes, the courts simply reduced an award to a sum less than full replacement cost with no explanation as to why the deduction was made. [Koyer v. Detroit F & M Ins. Co., 9 Cal. 2d 340 (1937).]

The question of how the actual cash value of Covered Property should be determined when calculating the value of any applicable premium is essential. Three different tests exist to determine the actual cash value of property when the policy is silent on the definition. Those tests are:

1. the fair market value test;

2. the replacement costs minus depreciation test; and

3. the broad evidence rule.

This article came from my newest book, “How to Acquire, Understand, and Make a Successful Claim on a Commercial Property Insurance Policy: Information Needed for Individuals and Insurance Pros to Deal With Commercial Property Insurance” Now Available as a Kindle book here, paperback here and as a hardcover here

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.comhttp://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalmaGo to Barry Zalma at Rumble.com.

Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. The new book is available as a Kindle book, a paperback or as a hard cover and a new book on Commercial Property Insurance purchase and claims that is now available as a Kindle book here, paperback here and as a hardcover here.

Posted in Zalma on Insurance | Leave a comment

New Book from Barry Zalma

“How to Acquire, Understand, and Make a Successful Claim on a Commercial Property Insurance Policy: Information Needed for Individuals and Insurance Pros to Deal With Commercial Property Insurance”

The New Book is now available as a Kindle book here, paperback here and as a hardcover here

Commerical Property Insurance is a necessity for any person or entity owning a piece of commercial property whether it is small or large, whether it is an office building or a warehouse or a factory.

A property owner – unless exceptionally wealthy – cannot afford the risk of losing that property, what it earns from tenants paying rent or from the product produced at the property.

Commercial property insurance is a specialized form of insurance designed to to protect the owner or lessee of the property from loss due to perils like fire, lightning, windstorm, hail, earthquake, flood, tornado or other risks of loss.
Most commercial property insurance policies are written on a “direct risk of physical loss” or “all risk of physical loss” basis suject to exclusions that are directly related to to the risks faced by the property or some standard exclusions.


This books explains the coverages provided by a commercial property insurance policy, how to acquire a policy of commercial property insurance, what the policy of commercial property insurance insures, how to present a claim, and how to successfully present a claim and collect the funds needed to repair or replace the structure and indemnify the insured against the losses incurred because of the interruption of the business of the insured.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. The new book is available as a Kindle book, a paperback or as a hard cover.

Write to Mr. Zalma at zalma@zalma.comhttp://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalmaGo to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921.

Posted in Zalma on Insurance | Leave a comment

Prosecutors Allow Arson-for-Profit to Succeed

Stupid Plea Bargain Destroys Insurer’s Right to Restitution

See the full video at https://rumble.com/v1llnhx-prosecutors-allow-arson-for-profit-to-succeed.html and at https://www.youtube.com/watch?v=3eMD-1ZF6cE

Intentionally burning a dwelling and the concomitant presentation of an insurance claims is an arson for profit and a two serious felonies. However, in The People v. Damon Lawrence George, C095325, California Court of Appeals, Third District, Placer (September 12, 2022) Damon Lawrence George was allowed by the prosecution to plead guilty only to the unlawful burning of his house. The People, failing to understand the implications upon an insurer, allowed the insurance fraud to succeed by dismissing several related charges against defendant, including insurance fraud, without obtaining a People v. Harvey (1979) 25 Cal.3d 754 (Harvey). waiver, and allowing the defendant to keep the money paid.

The trial court imposed $122,377.91 in victim restitution to defendant’s insurer and as a condition of probation. Defendant appealed, arguing: (1) his insurer did not incur economic losses as a result of his convicted crime; and (2) the restitution imposed as a condition of probation serves no rehabilitative purpose and must be stricken. Of course, Farmers suffered damages due to the arson-for-profit and the fraudulent insurance claim but the prosecution dismissed those charges.

FACTUAL BACKGROUND

The People charged defendant with arson of an inhabited structure; attempted arson of an inhabited structure; insurance fraud; and misdemeanor unlawful burning of an inhabited structure. Defendant pleaded no contest to count six, and the People dismissed the remaining charges without obtaining a Harvey waiver. The trial court then placed defendant on one year of informal probation and imposed fines and fees. As a condition of probation, defendant was ordered to serve 66 days in county jail with credit for time served.

In a written ruling issued after the hearing, the trial court ordered defendant to pay victim restitution to Farmers and as a condition of probation. It further concluded the payments Farmers made to defendant and the fire investigation expenses Farmers incurred constituted economic losses directly caused by the defendant’s criminal activity within the meaning of California Constitution. The restitution amount totaled $122,377.91, consisting of $81,297.66 for alternate living expenses Farmers paid to defendant, and $41,080.25 for fire investigation services.

DISCUSSION

Defendant contends: (1) Farmers did not suffer economic losses as a result of his crime of conviction and is therefore not entitled to victim restitution; and (2) the restitution as a probation condition serves no rehabilitative purpose and must be stricken.

Although a court has a constitutionally mandated duty to order restitution to a victim who “has suffered economic loss as a result of the defendant’s conduct. A business entity is a” ‘victim'” under section 1202.4 when the entity is “a direct victim of a crime.”

Direct Victim

Generally, “an insurer d[oes] not become a ‘direct victim’ of crime . . . by paying the crime-related losses of its insured under the terms of an insurance policy.” An insurance company does not become a victim of a crime simply because it “made good on its obligation”. An insurer may still have to provide coverage for reckless crimes committed by its policyholders. Insurance companies are entitled to restitution where they are the object of insurance fraud. The elements generally necessary to find a violation of insurance fraud are the defendant’s knowing presentation of a false claim, with the intent to defraud.

Unlike insurance fraud, unlawfully burning a house does not require willful conduct, but only recklessness. A violator of section 452 must not intend to cause the burning of property.

Defendant’s crime of conviction was unlawful burning, not insurance fraud. Defendant admitted only to the elements of section 452, which does not include the intent to cause the burning of his house. Also absent was evidence of defendant’s intent to defraud Farmers because the People dismissed the insurance fraud count.

While the People cited facts established in the preliminary hearing relating to the insurance fraud claim the trial court cannot order defendant to pay restitution for crimes of which he was not convicted.

The Harvey Rule And Section 1192.3

In Harvey, the California Supreme Court held “it would be improper and unfair to permit the sentencing court to consider any of the facts underlying” a count dismissed pursuant to a plea bargain “for purposes of aggravating or enhancing defendant’s sentence.”

Defendant’s admitted unlawful burning count did not result in any damage for which restitution may be ordered. Farmers’ claim for restitution rests entirely upon the dismissed insurance fraud claim, not the reckless burning.

Restitution as a Condition of Probation

A trial court is prohibited from imposing a condition of probation based on facts underlying a dismissed count absent a Harvey waiver unless those facts are “transactionally related to” the admitted offense. Since the defendant admitted only to the elements of the unlawful burning, which does not include any intent to burn his house, much less the intent to defraud Farmers the burning and the filing of the claim were, at most, temporally related. And as anomalous as the result might be in this case, defendant is entitled to coverage from Farmers for his reckless conduct since accidentally setting fire to a house is an insured against peril.

By basing the probation condition on the facts underlying the dismissed insurance fraud claim by concluding Farmers incurred economic losses “directly caused by defendant’s criminal activity,” the trial court violated the Harvey rule.

The restitution order was reversed. The judgment was modified by striking the $122,377.91 in direct victim restitution awarded to Farmers and as a condition of probation. As modified, the judgment was affirmed.

ZALMA OPINION

Much to the surprise of lay people – including the prosecutors in this case – arson is not an excluded peril. Arson is covered. Setting fire to your house without intent and without intent to defraud, are insured against perils. By failing to get a Harvey waiver and accepting the unlawful burning conviction and dismissing the insurance fraud and arson charges the prosecutors allowed the defendant to succeed in his fraud and only serve a few days in jail and pay small fines. Farmers, of course, can sue Mr. George for fraud in civil court and may find it impossible to collect a judgment while making restitution as a condition of probation would incentivize George to pay rather than spend years in jail. The Prosecutors blew their obligation to protect the true victim of the crime, Farmers.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. The new book is available as a Kindle book, a paperback or as a hard cover.

Write to Mr. Zalma at zalma@zalma.comhttp://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalmaGo to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0ExpgGo to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library

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Insurer Sues Fraudsters

Physicians Cheat Insurer for Covid Testing

Health Care Providers Created Fraudulent Billing for Covid Instant Tests

See the full video at https://rumble.com/v1ll4ep-insurer-sues-fraudsters.html and at https://youtu.be/VXSzxoNxEgc

In OPEN MRI AND IMAGING OF RP VESTIBULAR DIAGNOSTICS, P.A. v. HORIZON BLUE CROSS BLUE SHIELD OF NEW JERSEY, Civ. No. 21-10991 (WJM), United States District Court, D. New Jersey (September 19, 2022) an insurer sued for not paying bills cross-claimed for fraud damages and violation of the the New Jersey Insurance Frauds Prevent Act (IFPA).

Open MRI and Imaging of RP Vestibular Diagnostics, P.A. sued Horizon Blue Cross Blue Shield of New Jersey (“Horizon”) for violations of the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq., based on Horizon’s alleged failure to pay insurance claims for COVID-19 rapid testing.

Horizon’s operative pleading, which the Court refers to as the Second Amended Consolidated Counterclaim and Third-Party Complaint, asserts twelve counts for violations of the common law and the New Jersey Insurance Fraud Prevention Act, N.J.S.A. 17:33A-1, et seq., based on an alleged scheme to defraud Horizon. Horizon brings its claims against Plaintiff/Counterclaim Defendant Open MRI et al (collectively, the “Third-Party Defendants”).

BACKGROUND

Horizon is an insurance company with its principal place of business in Newark, New Jersey. It provides healthcare benefits for insured subscribers pursuant to a variety of healthcare plans and policies issued or administered throughout the state.

Open MRI and others are medical practices all located in Rochelle Park, New Jersey.

The Alleged Scheme to Defraud Horizon

In April of 2020, as the novel COVID-19 virus spread throughout the United States, Open began offering rapid COVID-19 tests to members of the public at their joint practice location. Overall, these rapid test “appointments” at Open MRI as reported by Horizon members, were very brief, taking no longer than five minutes and involved little to no interaction with a licensed physician. Open MRI charged patients $35 at the time of service and then submitted claims to Horizon for further payment.

To submit a health insurance claim, healthcare providers must complete standard billing forms. The billing forms require providers to use specific numeric codes that describe the services for which the provider seeks payment. Federal regulations designate the standard code systems that providers use in order to ensure that health insurance claims are processed efficiently and consistently. In turn, insurance companies like Horizon rely on providers to input codes that most appropriately and accurately describe the services provided to patients so that the insurer can adjudicate claims and secure reimbursement pursuant to the patient’s health benefits plan.

According to Horizon, from April of 2020 onward, the cross-defendants submitted insurance claims seeking grossly inflated billed charges for medical services that were performed unlawfully or not performed at all, and that were unnecessary or inappropriate to administering rapid COVID-19 tests.

Billing for Services Rendered Unlawfully

From April of 2020 through September of 2020, the cross-defendants were not certified as “Authorized Laboratories” under the Comprehensive Laboratory Improvement Act (“CLIA”), and thus were not permitted to administer rapid COVID-19 tests. Nonetheless the cross defendants, administered rapid COVID-19 tests to patients and then submitted claims to Horizon for reimbursement. Horizon ultimately paid more than $140,000, and these claims for services that were rendered unlawfully.

Billing for Services That Were Not Rendered

Each time the cross-defendants submitted a claim for a rapid COVID-19 test rendered on a Horizon member, they also billed for “specimen handling,” which requires the sample collected for testing to be transferred from the provider’s office to a laboratory. Rapid COVID-19 tests, however, do not require transfer of the patients’ specimens to a laboratory for testing because they are “point of care tests” performed in the provider’s office. Yet, the cross-defendants knowingly submitted claims for “specimen handling” services that never occurred and were unnecessary in administering rapid tests. Horizon collectively paid them more than $7,000 on these claims.

Additionally, each time the cross-defendants submitted a claim for a rapid COVID-19 test rendered on a Horizon member, they also billed for moderate- and high-level evaluation and management (“E&M”) services. These moderate- and high-level E&M billing codes are to be used where a healthcare provider spends thirty to sixty minutes face-to-face with a patient, takes a detailed medical history and performs a detailed examination, and utilizes medical decision making of low, moderate, or high complexity. Even though Horizon members’ minutes-long encounters for a rapid COVID-19 test involved only a temperature check, a few “prescreen” questions, and a nasal swab, and cross-defendants nonetheless billed Horizon for more significant E&M services that were not actually rendered. Horizon collectively paid them in excess of $300,000 on these claims.

Horizon’s Claims Against the Third-Party Defendants

Horizon asserts twelve causes of action against the Third-Party Defendants all involving illegal or fraudulent billing.

DISCUSSION

A claim for common law fraud resembles a private action brought by an insurance company under the IFPA, but because the IFPA New Jersey Insurance Frauds Prevent Act (IFPA) sweeps more broadly than common law fraud plaintiffs are required to establish fewer elements when alleging fraud in violation of the statute. Unlike common law fraud, the IFPA does not require proof of reliance on the false statement or resultant damages, nor proof of intent to deceive. A plaintiff need only establish that (1) defendant presented false or misleading information in connection with submitting an insurance claim; (2) defendant knew the information was false or misleading; and (3) information was material to a claim for reimbursement under an insurance policy.

Horizon has pleaded ample details of the who, what, when, where, and how of the underlying fraudulent scheme to state a claim for common law fraud and violations of the IFPA.

ZALMA OPINION

Horizon should be commended for using the IFPA to defeat fraud related to alleged COVID-19 testing and medical treatment that was neither rendered nor necessary. The group of testers and physicians had the unmitigated gall to sue for payment of claims that they new or should have known were not appropriate, were provided by unlicensed professionals and were were inflated billing for 30 minutes face to face with a patient when they never spent more than 5 minutes if any time at all. Fraud will only be defeated or deterred if the profit motive is taken from the act and hopefully the evidence collected in this civil action is also evidence of multiple crimes.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. The new book is available as a Kindle book, a paperback or as a hard cover.

Write to Mr. Zalma at zalma@zalma.comhttp://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalmaGo to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0ExpgGo to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library

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Duty to Defend is Exceptionally Broad

The Eight Corners Rule Strikes Again

See the full video at https://rumble.com/v1ky7jz-duty-to-defend-is-exceptionally-broad.html and at https://youtu.be/_VHsHeG7fBA

M/I Homes of Chicago, LLC (M/I Homes), appealed from the circuit court’s entry of summary judgment in favor of Acuity, a mutual insurance company. The circuit court found that Acuity had no duty to defend M/I Homes in an underlying lawsuit-stemming from damages caused by the allegedly defective construction work of one of M/I Homes’s subcontractors- because the complaint in that case did not allege “property damage caused by an occurrence.

In Acuity, a Mutual Insurance Company v. M/I Homes Of Chicago, LLC, and Church Street Station Townhome Owners Association, No. 1-22-0023, 2022 IL App (1st) 220023, Court of Appeals of Illinois, First District, Sixth Division (September 9, 2022) the Illinois Court of Appeals resolved the dispute.

BACKGROUND

The Townhomes’ owners association sued for breach of contract and the implied warranty of habitability against M/I Homes as the successor developer/seller of the Townhomes, and M/I Homes asked Acuity to defend it in that underlying lawsuit, as the additional insured on a policy Acuity had issued to one of its subcontractors, H&R Exteriors Inc. (H&R). Acuity denied that it had a duty to defend M/I Homes under the policy and filed the declaratory judgment suit that is before the court.

The Policy

Acuity issued to H&R a fairly standard commercial general liability and commercial excess liability policy-policy. M/I Homes was listed as an additional insured on the Policy.

The Underlying Lawsuit

The Church Street Station Townhome Owners Association (the Association), by its board of directors, sued for breach of contract (count I) and breach of the implied warranty of habitability (count II). In the amended complaint, the Association sued M/I Homes as the successor developer/seller for the Townhomes, having succeeded to the entire remaining interests of the initial developer/seller, Neumann Homes Inc. (Neumann).

The Association alleged Neumann and M/I Homes constructed and sold Townhomes with substantial exterior defects, including moisture-damaged or water-damaged fiber board, water-damaged OSB sheathing, deteriorated brick veneer, poor condition of the weather-resistive barrier, improperly installed J-channel and flashing, and prematurely deteriorating support members below the balcony deck boards. The Association further alleged that Neumann and M/I Homes did not perform the construction work themselves, but that all work on the Townhomes was performed on their behalf by subcontractors and the designer.

The Association alleged that the property damage was an accident in that M/I Homes did not intend to cause the design, material and construction defects in the Townhomes, and the resulting property damage. The Association claimed damage to other building materials, such as windows and patio doors, including but not limited to water damage to the interior of units, and that the damages were neither expected nor intended from their standpoint.

The Declaratory Judgment Action

Acuity filed its complaint for declaratory judgment against M/I Homes and the Association. The Association is not a party to this appeal.

Acuity sought a declaration that it did not have a duty to defend or indemnify M/I Homes. In turn, M/I Homes filed a counterclaim against Acuity, asking for a declaration that Acuity did owe it a duty to defend.

The parties filed cross-motions for summary judgment. M/I Homes argued in its cross-motion for partial summary judgment that Acuity owed it a duty to defend because the underlying complaint’s allegation that there was damage to “other property” was an allegation of damage beyond just repair and replacement of the construction work. According to M/I Homes, “property damage” caused by an “occurrence” was therefore sufficiently alleged.

The circuit court granted summary judgment in favor of Acuity and denied summary judgment in favor of M/I Homes.

ANALYSIS

The construction of an insurance policy and a determination of the rights and obligations thereunder are questions of law for the court which are appropriate subjects for disposition by way of summary judgment.

The duty to defend is determined solely from the allegations of the complaint. [ISMIE Mutual Insurance Co. v. Michaelis Jackson & Associates, LLC, 397 Ill.App.3d 964, 968 (2009) (citing Thornton v. Paul, 74 Ill.2d 132, 144 (1978), overruled in part on other grounds by American Family Mutual Insurance Co. v. Savickas, 193 Ill.2d 378, 387 (2000).] The duty to defend exists if the allegations in the underlying complaint fall within or potentially within a policy’s coverage provisions, even if the allegations are legally groundless, false, or fraudulent.

In Illinois, the insurer’s duty to defend does not depend upon a sufficient suggestion of liability raised in the complaint; instead, the insurer has the duty to defend unless the allegations of the underlying complaint demonstrate that the plaintiff in the underlying suit will not be able to prove the insured liable, under any theory supported by the complaint, without also proving facts that show the loss falls outside the coverage of the insurance policy. [American Economy Insurance Co. v. Holabird & Root, 382 Ill.App.3d 1017, 1022 (2008).]

The Policy, which is a fairly standard commercial general liability (CGL) policy raises the question of M/I Home’s potential for coverage, and Acuity’s duty to defend, that hinges on whether the underlying complaint alleges “property damage” caused by an “occurrence.”

M/I Homes contends that, based on the Association’s allegations, the underlying complaint sufficiently alleged property damage caused by an occurrence. M/I Homes also argued that this damage to other property was alleged to have been caused by an “occurrence” because the underlying complaint alleged the damage was an accident-caused by the defective work of the subcontractor-that was neither expected nor intended by M/I Homes.

Acuity argued that the allegations of damage to “other property” are not enough to trigger its duty to defend because the allegations are unconnected to a theory of recovery and the underlying complaint fails to both identify the owner of the “other property” and explain how the Association has standing to sue for the damage to that property.

In Travelers Insurance Co. v. Eljer Manufacturing, Inc., 197 Ill.2d 278, 308 (2001), the supreme court held that, in determining whether there was CGL coverage, the predicate of “property damage” is satisfied only “when property is altered in appearance, shape, color or in other material dimension, and does not take place upon the occurrence of an economic injury, such as diminution in value.”  The supreme court in Eljer also cautioned against expanding CGL coverage such that it functioned as a “performance bond” for the contractual work of the insured.

Some of our cases have noted that the “other property” requirement is not grounded in the policy language itself. As we have acknowledged, this line of cases establishing an “other property” requirement has been criticized by some commentators.

The underlying complaint in this case contains allegations that could support an obligation to defend M/I Homes. It alleges that “the work of subcontractors and the designer caused damage to other portions of the Townhomes that was not the work of those subcontractors.”

The Association-as “a common interest community association’s board of managers or board of directors” by statute shall have standing and capacity to act in a representative capacity in relation to matters involving the common areas or more than one unit, on behalf of the members or unit owners as their interests may appear.

The threshold for finding a duty to defend is low and any doubt regarding such duty is to be resolved in favor of the insured. Since the Association clearly has standing to act in a representative capacity in relation to matters involving the common areas the allegations of damage to “other property” can be a reference to the Association’s own property in the common areas, and there are no allegations that would clearly exclude coverage.

Accordingly, these allegations are enough to potentially fall within the Policy’s coverage requirement of “property damage” caused by an “occurrence” and thus trigger a duty to defend.

The circuit court’s grant of summary judgment in favor of Acuity was reversed and remanded to the circuit court to enter summary judgment in favor of M/I Homes on the issue of the duty to defend.

ZALMA OPINION

It is almost impossible to refuse to defend an insured based on lack of standing or property damage to property not involved in the loss. In this case the court found a duty to defend because there could be damage to the common property owned by the Association. Unless there is clear and convincing evidence that there is no coverage for defense or indemnity, demands for defense should be resolved with a reservation of rights including the right to demand return of monies paid for defense.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

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

Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. 

The new book is available as a Kindle book, a paperback or as a hard cover.

Write to Mr. Zalma at zalma@zalma.comhttp://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalmaGo to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0ExpgGo to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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New York Court Slaps Insurers Who Subrogated Against Their Own Insureds

Not Nice to Subrogate Against Your Own Insured

See the full video at https://rumble.com/v1ktd3f-new-york-court-slaps-insurers-who-subrogated-against-their-own-insureds.html and at https://youtu.be/YEpi5Yi8GBY

Zurich American Insurance Company (“Zurich American”) and American Zurich Insurance Company (“Zurich”) sued Defendants Certain Underwriters at Lloyd’s, London Subscribing to Policy Number B12630308616 (“Lloyd’s”) and Arch Insurance Company (“Arch”) over an insurance coverage dispute arising from a personal injury lawsuit. Zurich moved for summary judgment against Lloyd’s seeking a declaration that the anti-subrogation rule precludes Lloyd’s from commencing a claim for common law indemnification or contribution against Skanska-Walsh Joint Venture (“Skanska”).

In Zurich American Insurance Company and American Zurich Insurance Company v. Certain Underwriters At Lloyd’s Of London Subscribing To Policy Number B12630308616 and Arch Insurance Company, No. 21-CV-6755 (JPO), United States District Court, S.D. New York (September 12, 2022) the USDC applied New York’s anti-subrogation law.

BACKGROUND

The Port Authority of New York and New Jersey (“Port Authority”) operates LaGuardia Airport and hired LaGuardia Gateway Partners LLC (“LGA”) as the developer of a construction project at LaGuardia (“LGA Project”).  In April 2017, LGA entered into a sub-contract with Skanska (the “Contract”) to perform work on the LGA Project. Section 20.1 of the Contract requires LGA to procure a commercial general liability policy, under which Skanska would be the first named insured and LGA would be a named insured. The contract required Skanska to “indemnify, defend and hold harmless [LGA] for any losses suffered or costs incurred by [LGA] . . . to the extent caused by . . . any third-party claims for bodily injury . . . arising out of (1) [Skanska’s] negligent performance . . . or (2) any breach of [the Contract] by any [Skanska] party or any breach thereof by [LGA] directly caused by the acts or omissions of any [Skanska] party.” The Contract contains a similar clause requiring Skanska to indemnify Port Authority for its losses.

Skanska and LGA obtained a Contractors Controlled Insurance Program (“CCIP”) for the LGA Project, which afforded $300 million in commercial general liability insurance coverage to Skanska, LGA, and Port Authority. Zurich American issued the primary commercial general liability policy in the CCIP tower with a $5 million limit (“Zurich American Policy”), Arch issued the first layer excess policy with a $5 million limit (“Arch Policy”), and Lloyd’s issued a second layer excess policy with a $20 million limit (“Lloyd’s Policy”). American Zurich also issued workers’ compensation and employer’s liability to Skanska.

On January 21, 2018, Quentin Mayo, a Skanska employee, was working at the LGA Project when he was injured..) As a result, he filed a lawsuit against Port Authority and LGA. Port Authority and LGA then requested coverage under the Zurich American Policy, which Zurich American agreed to provide.

Fabiani Cohen & Hall (“FCH”) was hired as defense counsel for LGA and Port Authority. In March 2021, Lloyd’s emailed FCH and asked why it had not instituted a third-party action against Skanska for common law indemnity because Mayo was employed by Skanska. Following discussions among Lloyd’s, Zurich, and FCH, Zurich American filed this suit for declaratory judgment.  

DISCUSSION

Zurich sought a declaratory judgment from the USDC that any claim potentially brought by Lloyd’s against Skanska for common law indemnification or contribution was barred by the anti-subrogation doctrine of New York. The sole issue before the USDC was whether the anti-subrogation rule bars Lloyd’s from causing its insureds, LGA and Port Authority, to sue its other named insured, Skanska, for common law indemnification or contribution.

Under New York law, the anti-subrogation rule provides that that “[a]n insurer… has no right of subrogation against its own insured for a claim arising from the very risk for which the insured was covered.” N. Star Reins. Corp. v. Continental Ins. Co, 82 N.Y.2d 281, 294 (1993).

The rule was established both to prevent the insurer from passing along a loss to its own insured and to diminish the possibility of a conflict of interest between the insurer and insured that may otherwise affect the insurer’s incentive to provide a defense for the insured.

The USDC agreed with Zurich that the anti-subrogation rule applies here because the two essential elements are met.

First, Lloyd’s is seeking to subrogate against its named insured, Skanska.

Second, the risk of injury to Skanska employees is covered by the Lloyd’s Policy. The Lloyd’s Policy provides for an Employer’s Liability exclusion and an insured contract carveout, meaning that any contractual indemnity claim asserted by LGA or Port Authority against Skanska is covered.

In sum, while the theoretical possibility exists for a contractual indemnity claim in practice its application is blunted by the paragraphs which immediately follow. Lloyd’s contended that a claim for indemnification or contribution against Skanska is not a covered risk and if there is no viable claim, there is no conflict of interest for which the anti-subrogation rule is meant to guard against.

However, the decision in ACE American Insurance Company v. American Guarantee & Liability Insurance Company, 257 F.Supp.3d 596 (S.D.N.Y. 2017) ACE American Insurance Company and American Guarantee & Liability Insurance Company were in a dispute over which insurance company was responsible for funding a $5 million share of a settlement for a personal injury lawsuit. ACE had issued workers’ compensation and employers’ liability policy to a company called Wager Contracting, while American Guarantee had issued to it a commercial umbrella liability policy. American Guarantee sought to bring an indemnity claim as the subrogee of one of its insureds against another one of its insureds. The court concluded that the antisubrogation rule prohibited American Guarantee from bringing such a claim.

Zurich’s motion for summary judgment was granted because the USDC declared, as a matter of New York law, that the anti-subrogation rule precludes Lloyd’s from commencing a claim for common law indemnification or contribution against Skanska, its insured.

ZALMA OPINION

The covenant of good faith and fair dealing requires that an insurer should do nothing to deprive an insured of the benefits of the policy. Instructing counsel to sue an insured on behalf of another insured is depriving an insured of the benefits promised by the insurer to the insured sued. No prudent insurer will sue its own insured. It makes no sense, is not nice, and is a waste of time and effort.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

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

Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. 

The new book is available as a Kindle book, a paperback or as a hard cover.

Write to Mr. Zalma at zalma@zalma.comhttp://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalmaGo to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0ExpgGo to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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Plaintiff Must be an Insured to Receive Defense

Even the Eight Corners Rule Cannot Stretch a Policy to Provide Coverage

Asbestos Plaintiffs Ran Out of Viable Insurers

See the full video at https://rumble.com/v1kotah-plaintiff-must-be-an-insured-to-receive-defense.html and at https://www.youtube.com/watch?v=MzwDtp89n-4

Brilliant National Services, Inc. (“Brilliant”) appealed a summary judgment rendered in favor of the defendant, Lexington Insurance Company (“Lexington”), which dismissed all of Brilliant’s claims against Lexington with prejudice and declared that Lexington has no duty to defend or indemnify Coastal Chemical Company, LLC (“CCC, LLC”).

In Brilliant National Services, Inc. v. The Travelers Indemnity Company And Lexington Insurance Company, No. 2021 CA 1471, Court of Appeals of Louisiana, First Circuit (September 7, 2022) the Louisiana Court of Appeals resolved the coverage dispute.

FACTS

Brilliant sued Lexington (among other defendants), seeking contribution for the costs of defending CCC, LLC in a number of asbestos exposure personal injury lawsuits filed in various state courts in Louisiana, beginning in 2011. Brilliant alleged that Lexington issued a general liability insurance policy to its insureds for the period of August 20, 1986, through August 20, 1987 (“Lexington policy”).

Brilliant alleged that certain plaintiffs in the asbestos lawsuits claimed that CCC, LLC was the successor to an insured entity under the Lexington policy that was alleged to have manufactured, distributed, marketed, or sold asbestos-containing products. Brilliant claimed that if CCC, LLC was found to be the successor to an insured entity under that Lexington policy, then the insured entity’s rights under the policy transferred to CCC, LLC by operation of law. Brilliant further alleged that regardless of whether CCC, LLC was the successor of an entity insured under the policy, Lexington owed CCC, LLC a duty to defend based on the allegations raised in the asbestos lawsuits and the terms and conditions of the Lexington policy.

Brilliant sought declaratory judgment that Lexington owed a duty to defend CCC, LLC in the asbestos lawsuits. Brilliant also sought judgment in its favor and against Lexington for 1/7 of all attorney’s fees and costs paid by Brilliant in defense of CCC, LLC in the asbestos lawsuits, together with legal interest, costs, and all other relief to which Brilliant may be entitled.

Lexington answered, raising numerous affirmative defenses and moved for summary judgment, seeking a judgment in its favor declaring that CCC, LLC has no rights under the Lexington policy; dismissing the claims asserted by Brilliant; and awarding judgment in favor of Lexington on itsdemand against Brilliant and CCC, LLC. Brilliant and CCC, LLC opposed the motion. The trial court granted Lexington’s motion for summary judgment; dismissed all of Brilliant’s claims against Lexington with prejudice; and declared that Lexington has no duty to defend or indemnify CCC, LLC.

SUMMARY JUDGMENT ON INSURANCE COVERAGE

Summary judgment declaring a lack of coverage under an insurance policy may not be rendered unless there is no reasonable interpretation under which coverage could be afforded when applied to the undisputed material facts shown by the evidence supporting the motion. Where the facts are undisputed and the matter presents a purely legal question, summary judgment is appropriate.

DISCUSSION

An insurer’s duty to defend its insured arises solely under contract. Generally, the insurer’s obligation to defend suits against its insured is broader than its liability for damage claims. An insurer’s duty to defend its insured is determined by the allegations of the plaintiffs petition, with the insurer obligated to furnish a defense unless from the petition, it is clear the policy unambiguously excludes coverage. An insurer’s duty to defend suits on behalf of an insured presents a separate and distinct inquiry from that of the insurer’s duty to indemnify a covered claim after judgment against the insured in the underlying liability case.

Lexington’s Insureds

In moving for summary judgment, Lexington argued that it had no duty to defend or indemnify CCC, LLC, nor its subrogee, Brilliant, because CCC, LLC is not and has never been one of Lexington’s “insureds.”

The Lexington policy defined “named insured” as: “‘named insured’ means the person or organization named in Item 1 of the declarations of this policy[.]” The policy lists the “named insured” as Coastal, Inc. and Coastal Chemical Co.

Coastal, Inc. and Coastal Chemical Co. were the “Persons Insured” under the Lexington Policy. The parties do not dispute that the Lexington policy expired prior to the formation of CCC, LLC’s predecessor, the second Coastal Chemical Co., Inc., which was incorporated on December 8, 1987. Because neither CCC, LLC nor its predecessor was a party to the Lexington policy, CCC, LLC cannot be a “named insured” under the Lexington policy. Furthermore, neither CCC, LLC nor its predecessor falls into the definition of “Persons Insured” under the Lexington Policy.

Successor Liability

Lexington argued that CCC, LLC could only be entitled to defense and indemnity under the Lexington policy if CCC, LLC or its predecessor acquired the named insureds’-Coastal, Inc. or Coastal Chemical Co.-rights and interests in the Lexington policy. Lexington explained that its policy has never been transferred to CCC, LLC or its predecessor. In 1987, Coastal Chemical Co., Inc. acquired the chemical distribution business of Lexington’s insured, Coastal, Inc. Brilliant and CCC, LLC identified the 1987 asset transfer agreement as the only documents through which the Lexington policy could have been conveyed, sold, or otherwise transferred from Lexington’s insured to Coastal Chemical Co., Inc. The 1987 asset transfer agreement documents shows a list of transferred assets and the Lexington policy is not listed nor referenced in the asset transfer agreement.

Lexington avers that because its policy was not transferred from its insureds to Coastal Chemical Co., Inc. in the 1987 asset transfer agreement, CCC, LLC never acquired the policy nor any rights thereunder from its predecessor. Accordingly, Lexington argued it has no obligation to defend or indemnify CCC, LLC or its subrogee, Brilliant.

The key consideration is whether the successor is in fact a “continuation” of the predecessor. The threshold requirement to trigger a determination of whether successor liability is applicable under the “continuation” exception is that one corporation must have purchased all or substantially all the assets of another. In the instant case, CCC, LLC admits that Coastal Chemical Co., Inc. did not purchase all the assets of Coastal, Inc., only all the assets “necessary to operate a chemical distribution business.” There is no dispute that Coastal, Inc. retained assets and remained in business after the 1987 asset transfer.

Since the 1987 asset transfer agreement excluded the Lexington policy from the list of assets acquired by CCC, LLC’s predecessor from Lexington’s insured. To conclude that CCC, LLC acquired the Lexington policy, the appellate court would have to ignore the parties’ contract.

The Eight-Corners Rule

Lexington contended that the appellants could not point to any factual allegations made by the plaintiffs in the underlying asbestos lawsuits which, if assumed true, transforms CCC, LLC into a “Persons Insured” under the Lexington policy.

Cases applying the “eight-comers rule” hold that an insurer owes a duty to defend if, assuming the factual allegations are true, there would be both (1) coverage under the policy, and (2) liability to the plaintiff.

The allegations of the petition are liberally interpreted in determining whether they set forth grounds that bring the claims within the scope of the insurer’s duty to defend. An insurer’s duty to defend arises whenever the pleadings against the insured disclose even a possibility of liability under the policy. Although the allegations of the petition may ultimately turn out to be incorrect or untrue, the insurer would still be obligated to provide a defense.

Even though the asbestos plaintiffs allege that CCC, LLC “negligently and defectively designed, manufactured, marketed, distributed, supplied, sold and used” the “asbestos products,” those allegations do not trigger coverage under the four comers of the Lexington policy. The pertinent Lexington policy provision clearly defines “Persons Insured” and includes only specific individuals. None of the asbestos plaintiffs’ allegations could, even if proven, transform CCC, LLC into an individual defined as a “Persons Insured” under the Lexington Policy-i.e., an executive officer, director, or stockholder of the “named insured” Coastal, Inc. or Coastal Chemical Co.

The Court of Appeal affirmed the trial court’s judgment.

ZALMA OPINION

Asbestos claims have destroyed or bankrupted multiple insurers. As a result those insurers still viable are, like Lexington in this case, the targets of defendants seeking defense and indemnity for claims of injury by exposure to asbestos. In this case the Louisiana Court of Appeal could find no coverage because there was no way that they could stretch the language of the policy to make the plaintiffs fit within the definition of “insured” in the Lexington policy. No stranger to a liability insurance policy can be allowed defense or indemnity.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

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

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Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. 

The new book is available as a Kindle book, a paperback or as a hard cover.

Write to Mr. Zalma at zalma@zalma.comhttp://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalmaGo to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0ExpgGo to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/



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Plaintiff Must Prove General Business Practice to Get Bad Faith Damages

See the full video at https://rumble.com/v1kble9-plaintiff-must-prove-general-business-practice-to-get-bad-faith-damages.html and at http://Video link https://youtu.be/365Lm11FNw

In Paul Harrigan v. Fidelity National Title Insurance Company, No. AC 44424, Court of Appeals of Connecticut (September 6, 2022) the dispute was resolved after a lengthy and detailed examination of the facts and law digested below.

FACTS

Paul Harrigan, appealed from the judgment of the trial court, following a bench trial, rendered in part in favor of the defendant, Fidelity National Title Insurance Company, in connection with a title insurance policy (title policy) issued by the defendant to the plaintiff. Harrigan challenges the judgment in favor of the defendant only with respect to count two of the operative complaint, the third revised complaint, which alleges that the defendant’s conduct in handling an insurance claim filed by the plaintiff pursuant to the title policy violated the Connecticut Unfair Insurance Practices Act (CUIPA); General Statutes § 38a-815 et seq.; and that such unfair and deceptive acts or practices of the defendant thereby violated the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42-110a et seq. Harrigan claims on appeal that:

  • the court applied an incorrect standard in its analysis of whether the defendant violated CUIPA by requiring a finding of common-law bad faith by the defendant for the plaintiff to establish a violation of CUIPA,
  • when the proper standard is applied, the record sufficiently demonstrates that the defendant violated the relevant provisions of CUIPA, and
  • the evidence submitted by Harrigan establishes that the defendant’s unfair practices were part of a general business practice, as required under General Statutes § 38a-816 (6).

The court found that sometime in the late fall of 2011, Harrigan conclusively learned that he did not, in fact, hold title to the disputed area. By letter to the defendant Harrigan made a claim upon his title insurance policy regarding the disputed area. By letter to Harrigan the defendant acknowledged receipt of his claim and the defendant essentially accepted his claim. The issue between the parties always involved the claim’s value.

In a third revised complaint, the plaintiff alleged four counts against the defendant. The second count, which alleges a violation of CUTPA, is the only count at issue in this appeal. In count two, the Harrigan alleged that the defendant was involved in the trade or commerce of providing title insurance coverage to individuals and entities who hold title to real property and that the defendant engaged in unfair and deceptive acts or practices in its administration of the title policy and handling of the plaintiff’s claim in violation of CUIPA.

The matter was tried to the court, which rendered judgment in part in favor of the defendant with respect to counts two, three and four of the third revised complaint.

ANALYSIS

In order to sustain a CUIPA cause of action under CUTPA, a plaintiff must allege conduct that is proscribed by CUIPA. A plaintiff cannot bring a CUTPA claim alleging an unfair insurance practice unless the practice violates CUIPA.

If the factual basis of a trial court’s decision is challenged, the clearly erroneous standard of review applies. A court’s determination is clearly erroneous only in cases in which the record contains no evidence to support it, or in cases in which there is evidence, but the reviewing court is left with the definite and firm conviction that a mistake has been made. The legal conclusions of the trial court will stand, however, only if they are legally and logically correct and are consistent with the facts of the case.

There was no evidence presented that could have supported a finding that the defendant violated the statute. Indeed, the trial court specifically found that the primary issue in the case was the value of the plaintiffs claim, not its legitimacy, that at no time did the defendant indicate any unwillingness to pay the claim, and that the defendant never denied the claim and, in fact, essentially accepted the plaintiffs claim not long after receiving his demand letter.

The evidence presented by Harrigan which shows that the parties disagreed about various matters such as the date of loss, the relocation of the septic system, and the value of the plaintiffs claim, simply does not demonstrate any misrepresentations by the defendant, nor did the court find any. In fact, the court specifically found that at no time during the claims settlement process did the defendant’s personnel act in bad faith or come within close proximity of doing so.

Moreover, the evidence presented shows numerous communications between the plaintiff and representatives of the defendant concerning the status of the plaintiffs claim and why its resolution had been delayed for more than five years, which could support a finding of a violation of subdivisions (B) and (F) of § 38a-816 (6), both of which relate to delays in communications and settling the claim.

During the trial, the plaintiff sought to admit into evidence exhibit 44, which consisted of the consumer complaints

The Court of Appeal next set forth general principles governing its resolution of this issue. The Supreme Court has concluded “that claims of unfair settlement practices under CUIPA require a showing of more than a single act of insurance misconduct.”  [Mead v. Burns, 199 Conn. 651, 659, 509 A.2d 11 (1986)]

In the present case, the court specifically found that the defendant’s actions in this case clearly did not represent shining examples of sterling claims management practices, and that the issues that arose and the delay that resulted in this case were due, in no small part, to Harrigan’s unrealistic expectations colliding with the defendant’s maddening corporate inefficiency. Furthermore, in the present case, a great deal of the delay was attributable to the issue raised by the plaintiff concerning the septic system, which the court found not to be relevant to the diminution in value figure. The delays in the present case, therefore, were caused by both the plaintiff and the defendant and resulted, in part, from corporate inefficiencies and mismanagement of the defendant. The evidence in the present case does not support a finding that the defendant ignored communications from the plaintiff

The plaintiff, having failed to establish a general business practice of the defendant, has failed to set forth a valid CUIPA claim, which is fatal to his CUTPA claim in count two. The court, therefore, properly rendered judgment in favor of the defendant with respect to the CUTPA claim in count two.

ZALMA OPINION

Delay in resolving a claim due to actions of the insured and the insurer – whether less than competent claims handling – is not evidence of bad faith or violation of the state statutes requiring insurers to treat the insured fairly and in good faith. The trial court and the appellate court decided there was no evidence of a general business practice to act in bad faith and the claim of Harrigan that the insurer acted in bad faith failed after a lengthy and detailed opinion.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

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

Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. 

The new book is available as a Kindle book, a paperback or as a hard cover.

Write to Mr. Zalma at zalma@zalma.comhttp://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalmaGo to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0ExpgGo to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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Federal Insurance Company Regrets Agreement to Pay Insured and Resolve Coverage Dispute Later

Attempt to Avoid Reimbursement of Excess Insurer Fails

See the full video at https://rumble.com/v1kazdh-federal-insurance-company-regrets-agreement-to-pay-insured-and-resolve-cove.html and at https://www.youtube.com/watch?v=63A3OgXTmnc

No Good Deed Goes Unpunished

In Western World Insurance Company v. Federal Insurance Company, Defendant, 2d Civ. No. B311994, California Court of Appeals, Second District, Sixth Division (September 8, 2022) two insurers disputed about the priority of coverage arising from a single incident.

FACTS

In May 2014, Elliot Roger murdered his two roommates and their friend at the Capri Apartments (Capri) in Isla Vista, California. The victims’ heirs brought an action for wrongful death (Chen v. Hi-Desert Mobile Home Park (Super. Ct. Santa Barbara County, 2015, No. 15CV04163) (Chen action) against the owner of the apartments, Hi-Desert Mobile Home Park, LP (Hi-Desert) and the manager, Asset Campus Housing, Inc. (ACH). The action alleged that ACH and Hi-Desert had notice of Roger’s violent propensities but assigned him to be the victims’ roommate.

Insurance Coverage

Associated Industries Insurance Company (AIIC) provided general liability coverage for both Hi-Desert and ACH. Federal Insurance Company (Federal) provided coverage in excess of AIIC’s coverage for both Hi-Desert and ACH. Western World Insurance Company (Western) provided excess general liability coverage for ACH, but not Hi-Desert.

The insurers did the right thing by their insureds. They each contributed funds for a settlement of the underlying action, leaving the question of priority of coverage to separate litigation among the insurers.

Instant Action

Western filed a complaint against AIIC and Federal seeking a declaration that Western’s coverage was in excess of both AIIC and Federal’s coverages. Western’s first amended complaint added causes of action for equitable subrogation and equitable indemnity against Federal. Western sought the return of all of its contributed funds on the ground that the settlement of the underlying action was not in excess of Federal’s coverage.

AIIC filed a cross-complaint seeking a declaration that Western’s coverage was co-primary for ACH. Federal cross complained against Western seeking a declaration that Federal’s coverage for ACH is in excess of Western’s coverage and granted Western’s motion for summary judgment.

The trial court found that Western’s coverage of ACH is in excess of both AIIC’s and Federal’s coverage. The court’s grant of summary adjudication in favor of Western resolved all claims against Federal. Federal appeals.

DISCUSSION

Western’s Coverage Is Not Primary

Western’s policy provides two kinds of general liability coverage. One is for 54 locations specifically designated by their names and addresses. It is undisputed that this is primary liability coverage. But Capri is not one of those properties.

Western’s other coverage is by an endorsement to the policy under the heading “Real Estate Property Managed-Contingent.” It provides coverage for property managed but not owned by ACH. The contingency is that the property owner must maintain personal injury insurance with limits equal to or greater than $1 million.

The endorsement provides that Western’s coverage is excess to any other insurance ACH has whether primary or excess. The language in Western’s endorsement could not be clearer.

Here Western is not using its other insurance clause to transform its policy from primary to excess. Instead, it is using the clause to show that its policy is ab initio excess over all other insurance. That is the bargain Western made with its insured.

The only insurer named in the Schedule of Underlying Insurance is AIIC with underlying limits of $1 million.

Thus, the only contingency for Federal’s liability under its policy is the exhaustion of AIIC’s primary $1 million policy limits. Federal’s liability was not contingent on the exhaustion of limits under Western’s policy. Instead, Federal undertook to provide coverage immediately upon exhaustion of AIIC’s policy limits, whereas Western obligated itself to provide coverage only when the limits of all other available coverage, both primary and excess, were exceeded.

Western’s coverage is in excess of Federal’s coverage.

Federal is attempting to stitch together an argument gathered from bits and pieces of its policy. Its needlework has failed to create even a plausible ambiguity. Any such ambiguity would be interpreted against Federal in any event. Had Federal intended that its coverage not attach until the exhaustion of all other insurance, it could have easily said so. It did not. The trial court correctly concluded that Western’s coverage is in excess of Federal’s coverage.

The elements of an insurer’s cause of action for equitable subrogation are:

  • the insured suffered a loss for which the defendant is liable, either as the wrongdoer whose act or omission caused the loss or because the defendant is legally responsible to the insured for the loss caused by the wrongdoer;
  • the claimed loss was one for which the insurer was not primary liable;
  • the insurer has compensated the insured in whole or in part for the same loss for which the defendant is primarily liable;
  • the insurer has paid the claim of its insured to protect its own interest and not as a volunteer;
  • the insured has an existing, assignable cause of action against the defendant which the insured could have asserted for its own benefit had it not been compensated for its loss by the insurer;
  • the insurer has suffered damages caused by the act or omission upon which the liability of the defendant depends;
  • justice requires that the loss be entirely shifted from the insurer to the defendant, whose equitable position is inferior to that of the insurer; and
  • the insurer’s damages are in a liquidated sum, generally the amount paid to the insured.

Primary Liability

Prior to the settlement of the Chen action, ACH had an assignable cause of action against Federal because Federal refused to acknowledge its duty to indemnify that ACH was primary to Western’s coverage. It would be absurd to allow Federal to use Western’s money to settle Federal’s debt to ACH, and hold the settlement deprived Western of the right to recover the money from Federal. Perhaps the most bizarre of Federal’s arguments is that Western did not suffer any damages caused by Federal. Federal is preventing money that rightly belongs to Western from being returned to it.

Equitable Position

Western’s coverage is in excess to Federal’s coverage; the settlement of the Chen action did not exhaust the limits of Federal’s coverage; therefore, Western is entitled to the return of its money.

Prejudgment Interest

The trial court awarded Western prejudgment interest at the rate of 10 percent pursuant to Civil Code section 3287, subdivision (a). The court has no discretion in awarding interest under Civil Code section 3287, subdivision (a).

Federal is wrong for two reasons: Western is subrogated to ACH’s breach of contract against Federal, and Western and Federal entered into a written contract giving each party the right to litigate priority of coverage in the Chen action and reimbursement.

ZALMA OPINION

Western World Insurance Company did the right thing when a dispute arose between the various insurers about which insurer was primary, which excess, and which – of two excess insurers – must exhaust before the other must pay. It turned out Western was the last in line and needed reimbursement from the others of the money it paid subject to this later suit to determine who was on first, second and third. Federal tried to avoid doing the right thing only to have the Court of Appeal slap their cobbled together arguments down. Western World acted fairly and in good faith the insured and the other insurers only to have Federal try to not pay what it owed.

022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

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

Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. 

The new book is available as a Kindle book, a paperback or as a hard cover.

Write to Mr. Zalma at zalma@zalma.comhttp://www.zalma.comhttp://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalmaGo to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0ExpgGo to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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Zalma’s Insurance Fraud Letter

Zalma’s Insurance Fraud Letter September 15, 2022

See the full video summary at https://youtu.be/4I7d8iR8pNo and at https://rumble.com/v1k2b5h-zalmas-insurance-fraud-letter-september-15-2022.html

Read the full Adobe pdf version at http://zalma.com/blog/wp-content/uploads/2022/09/ZIFL-09-15-2022-1.pdf

Quote of the Issue

Many Of Life’s Failures Are People Who Did Not Realize How Close They Were To Success When They Gave Up.”Thomas Edison

Conviction Affirmed for Multiple Counts and One Reversed

Small Victory but Stay in Jail

The appellate court modified the judgment, as a matter of discretion in the interest of justice, by vacating the conviction of insurance fraud in the third degree under count 57 of the indictment and the sentence imposed thereon and dismissing that count of the indictment; as so modified, the judgment is affirmed.

The defendant waived his claim that one count of insurance fraud in the third degree with respect to a certain insurance policy issued by GMAC Insurance, of which he was convicted, was barred by the statute of limitations by not making a timely, written motion to dismiss on that ground.

In The People of the State of New York v. Jean M. Davilmar, also known as Jean Myrtho Davilmar, No. 2018-05468, Ind. No. 4334/16, 2022 NY Slip Op 04975, Supreme Court of New York, Second Department (August 17, 2022) the defendant Jean M. Davilmar appealed from a judgment of the trial court convicting him of larceny in the third degree (2 counts), scheme to defraud in the first degree, insurance fraud in the third degree (17 counts), criminal possession of a forged instrument in the second degree (5 counts), and offering a false instrument for filing in the first degree (4 counts), after a nonjury trial, and imposing sentence.

The defendant only partially preserved for appellate review his challenge to the legal sufficiency of the evidence supporting his convictions of grand larceny in the third degree (2 counts), insurance fraud in the third degree (16 counts), and scheme to defraud in the first degree (see CPL 470.05[2]. In any event, viewing the evidence in the light most favorable to the prosecution the appellate court found that it was legally sufficient to establish the defendant’s guilt of grand larceny in the third degree beyond a reasonable doubt (Penal Law §§ 155.05[1], [2][a], [b]; 155.35[1]. Likewise, the evidence was legally sufficient to establish the defendant’s guilt of insurance fraud in the third degree beyond a reasonable doubt (Penal Law § 176.20. Moreover, the evidence was legally sufficient to establish the defendant’s guilt of scheme to defraud in the first degree. Further, in fulfilling the court’s responsibility to conduct an independent review of the weight of the evidence it was satisfied that the verdict of guilt on each of those counts was not against the weight of the evidence.

The sentence imposed was not excessive. The defendant’s remaining contentions were found to be without merit.

Wisdom

“Age is not a particularly interesting subject. Anyone can get old. All you have to do is live long enough.”  — Groucho Marx

“What do automobiles, guns, and home-schooling all have in common that makes the liberals hate them? All these things reduce individual dependence on the government and on the grandiose schemes for other people’s lives created by liberals and imposed by government.” —Thomas Sowell

“Better a good enemy than a bad friend.” — Jewish saying

“The transformation of charity into legal entitlement has produced donors without love and recipients without gratitude.” – Antonin Scalia

“I do not think that we should be over-anxious. We can make sense of the future if we understand the lessons of the past.”- Elizabeth II

“The art of living lies less in eliminating our troubles than in growing with them.” —  Bernard M. Baruch

“The unions might be good for the people who are in the unions, but it doesn’t do a thing for the people who are unemployed. Because the union keeps down the number of jobs, it doesn’t do a thing for them.” — Milton Friedman

“Things turn out best for the people who make the best of the way things turn out.”John Wooden

“Semicolons only prove that the author has been to college.” – E. B. White

“Sometimes in this life, under the stress of an exceptional emotion, people do say what they think.”Marcel Proust

“If our country, when pressed with wrongs at the point of the bayonet, had been governed by its heads instead of its hearts, where should we have been now? Hanging on a gallows as high as Haman’s. —Thomas Jefferson

“Those who know do not speak. Those who speak do not know.” Tao Te Ching

“Ultimately a genuine leader is not a searcher for consensus but a molder of consensus.” Martin Luther King Jr.

“We must always take sides. Neutrality helps the oppressor, never the victim. Silence encourages the tormentor, never the tormented.” Elie Wiesel

“Keep away from people who try to belittle your ambitions. Small people always do that, but the really great make you feel that you, too, can become great.” Mark Twain

“Of those men who have overturned the liberties of republics, the greatest number have begun their career by paying an obsequious court to the people, commencing demagogues and ending tyrants.” —Alexander Hamilton

The Coalition Against Insurance Fraud’s Calculation of Insurance Fraud in the U.S.

The Coalition Against Insurance Fraud’s Report Came up With the Following Conclusions:

Final Estimate Of The Cost Of Insurance Fraud In The United States:

All numbers are in billions and figures are as of 2022:

  • Property & Casualty $45B
  • Workers’ Compensation $34
  • Premium Avoidance $35.1B
  • Healthcare $36.3B
  • Medicare and Medicaid Fraud $68.7B
  • Life $74.7B
  • Disability $7.4B
  • Auto Theft $7.4B

The report, when dealing with property and casualty insurance reveals that in 220 the industry collected $728.69 billion dollar in premium. If only 10% of that premium was paid to fraudsters – a fairly reasonable estimate used by the Insurance Information Institute (III) – they would receive $72.87 billion. The numbers should change enormously if the calculation follows the Insurance Research Council estimate that casualty fraud accounted for between 15% and 17% of total claims payments for auto insurance. A 15% calculation could result in $109.30 Billion and 17% the fraudsters would take $123.88 Billion.  

It’s good to see that the Coalition took into consideration inflation and the obvious growth of fraud since the institution of the tort of bad faith. In my opinion, however, they underestimated the true extent of fraud since the insurance industry has no admissible evidence about the true amount because most insurance fraud attempts succeed. As you read below about convictions for the crimes of insurance fraud, note how long the schemes went on before they were caught and recognize that those caught were amateurs who were so sloppy the seemed to beg the state and federal agencies to arrest them.

The report also includes auto theft in the analysis of the updated estimate of the cost of insurance fraud in the United States. At the current time, auto thefts in the United States are reported to be on the rise. These thefts directly impact insurers through increased claims, investigations of the theft, and policy payments where appropriate. Auto thefts also harm consumers. Obviously, those directly impacted are harmed but so too are all consumers who pay for auto theft crimes through higher premiums. Absent provable involvement of the insured in the theft, however, auto theft is not insurance fraud but an insurance crime for which virtually all automobile insurance policies extend coverage. The Coalition recognizes the extensive and excellent work being done by our partner, the National Insurance Crime Bureau, law enforcement agencies and others to fight back on the crime of automobile thefts. We include the information in this report, and the cost in our estimate of insurance fraud cost in the United States to assist those efforts and shed additional light on the problem of automobile thefts in our nation.

You can read the full report here.

You can also read about the extent of Workers’ Compensation Fraud here.

Free Insurance Videos

Barry Zalma, Esq., CFE has published five days a week videos on insurance claims, insurance claims law, insurance fraud and insurance coverage matters at https://www.rumble.com/zalma.https://rumble.com/c/c-262921.

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

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

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

See the more than 500 videos at https://www.rumble.com/zalma

California Agents & Brokers Must be Trained on Insurance Fraud

California Gov. Gavin Newsom signed bills in September creating an advisory committee to study the effects of extreme heat on workers and requiring agents and brokers to undergo training on how to identify insurance fraud.

S.B. 1242 requires mandatory training agents and brokers must complete to receive or renew a license. This includes at least one hour of study on insurance fraud. It also requires agents and brokers to report suspected fraudulent applications for coverage to the Department of Insurance and to report to the insurer suspected fraud on an active policy.

The effect, if any, of the law will take years to take determine. My guess is that that it will just ad an expense to the licensing process and make money for a few who will create the courses.

STOLI Fraud Victims & Return of Premium

Lack of Insurable Interest Makes Life Policy Void from Inception

Policy Acquired as Part of a STOLI Fraud Never Existed as a Matter of Law

In Geronta Funding, a Delaware Statutory Trust v. Brighthouse Life Insurance Company, No. 380, 2021, Supreme Court of Delaware (August 25, 2022) the Supreme Court was asked to determine whether premiums paid on insurance policies declared void ab initio for lack of an insurable interest should be returned. The trial court agreed with Brighthouse and relied on the Restatement (Second) of Contracts (the “Restatement”) to determine whether Geronta was entitled to restitution. Specifically, the court held that Geronta may obtain restitution under Section 198 of the Restatement (“Section 198”) if it could prove excusable ignorance or that it was not equally at fault.

Applying this test, the court ruled that Geronta was only entitled to the return of the premiums it paid after alerting Brighthouse to the void nature of the policy at issue.

RELEVANT FACTS AND BACKGROUND

On July 11, 2007, the fictitious Mansour Seck Irrevocable Life Insurance Trust (the “Seck Trust”) applied to MetLife Investors USA Insurance Company (Brighthouse’s predecessor) for a $5 million universal life insurance policy insuring the life of a fictitious man identified as Mansour Seck (the “Policy”), with a birthday of January 1, 1933. Seck was identified as a French citizen residing at 170 Academy Street, Jersey City, New Jersey.

After confirming that its procedures and guidelines were met, MetLife issued the Policy on or around July 24, 2007.

Pape Seck’s Arrest and Prosecution

In 2010, Pape Seck was the subject of numerous press releases issued by the State of New Jersey and other insurance industry publications; they stated that Pape Michael Seck, a New York City insurance agent, had been arrested and prosecuted for fraudulent insurance schemes. Pape Seck pleaded guilty to two counts of insurance fraud concerning fraudulent applications for Mansour Seck. T

Litigation and the Superior Court Ruling

On April 4, 2018, Brighthouse filed suit, seeking a judicial declaration that the Policy was void ab initio for lack of an insurable interest and arguing that it is entitled to keep all the premiums paid on the Policy. Geronta filed an answer, agreeing that the Policy was void ab initio, and a counterclaim, alleging that it was entitled to reimbursement of all premiums paid, with the exception of the premiums paid by the original owner of the Policy.

In its opinion, the trial court declared the Policy void ab initio. The court denied Geronta’s request for rescission and disgorgement, holding that rescission is not available where a contract is void because there is no contract to “unmake.” After trial, the Superior Court ruled that Geronta was only entitled to restitution of the premiums it paid after it informed Brighthouse that the Policy was void for lack of an insurable interest.

ANALYSIS

Overview of Potential Remedies for an Insurance Policy That Is Void Ab Initio for Lack of an Insurable Interest

A contract of insurance upon a life in which the insured has no interest is a pure wager that gives the insured a sinister counter interest in having the life come to an end. A court may never enforce agreements void ab initio, no matter what the intentions of the parties. Thus, when an agreement is void ab initio as against public policy, the courts typically will not enforce a remedy to any extent against either party. In other words, the courts typically will leave the parties where they find them.

Was Rescission Available?

Rescission would result in the return of any premiums paid by applying equitable principles and putting both parties back in the position they were in before the contract was made. Stranger-originated life insurance (“STOLI”) policies, like the one for Monsour Seck, when rescinded would require return of the premiums from the insurer to the investor. However, since the policy was void rescission was not available.

Restitution

Restitution is a body of substantive law in which liability is based not on tort or contract but on the defendant’s unjust enrichment. Restitution has been awarded under two separate approaches: (1) a fault-based analysis grounded in considerations specific to insurance policies declared void ab initio for lack of an insurable interest and (2) the Restatement.

Restitution Under A Fault-Based Analysis Grounded In Considerations Specific To Insurance Policies Declared Void Ab Initio For Lack Of An Insurable Interest

Most courts considering this issue have adopted a fault-based analysis in determining whether to return premiums paid on an illegal or void insurance policy.

Generally, when an illegal contract is voided, the parties will be left where they have placed themselves with no recovery of the money paid for illegal services. But there is an exception for the case in which the party that made the payments is not to blame for the illegality. The Insurers were the clear victims of the STOLI scheme as was Geronta who bought the policy.

If the downstream investor was equally at fault with, or more at fault than, the insurer, the trial court should leave the parties where it found them, allowing the insurer to keep the premiums. If the downstream investor was innocent or the insurer was more at fault, the court should return the premiums.

The Restatement (Second) of Contracts

Restatement Section 198 lays out two exceptions to the general rule-when a party is (1) excusably ignorant and (2) not equally in the wrong with the party from whom he seeks restitution.

The Supreme Court adopted a fault-based analysis, framed under the Restatement, that considers questions specific to insurance policies declared void ab initio as against public policy for lack of an insurable interest as the correct test to determine whether premiums should be returned.

The Supreme Court noted that a fault-based analysis incentivizes insurers to speak up when the circumstances suggest that a policy is void for lack of an insurable interest because they will not be able to retain premiums if they stay silent after being put on inquiry notice, and they might also be responsible for interest payments.

Thus, when analyzing a viable legal theory that seeks as a remedy the return of premiums paid on insurance policies declared void ab initio for lack of an insurable interest, Delaware courts are now required to analyze the exceptions outlined in Sections 197, 198, and 199 of the Restatement and determine whether any of those exceptions permit the return of the premiums. A court needs to determine whether:

  • there would be a disproportionate forfeiture if the premiums are not returned;
  • the claimant is excusably ignorant;
  • the parties are not equally at fault;
  • the party seeking restitution did not engage in serious misconduct and withdrew before the invalid nature of the policy becomes effective; or
  • the party seeking restitution did not engage in serious misconduct, and restitution would put an end to the situation that is contrary to the public interest.

The fault of the parties and public policy considerations will determine which party is entitled to the premiums paid on an insurance policy that is void ab initio for lack of an insurable interest.

The Superior Court Failed to Consider Whether Either Party Had Inquiry Notice of the Void Nature of the Policy

Here, prior to purchase

  • Geronta, in consultation with Leadenhall, made the deliberate decision to superficially look at the Seck Policy by solely focusing on whether it was active.
  • Geronta purposefully ignored the possibility that some of the unexamined policies in the bulk purchase might have been unenforceable.• “Geronta’s due diligence as to the Seck Policy was extremely limited.”[226]

The Superior Court also concluded that Brighthouse was not at fault because Geronta failed to show that Brighthouse had actual knowledge of the void nature of the Policy. In other words, the Court found that Brighthouse did not have actual knowledge of the Policy’s illegality.

Section 198 and the in pari delicto cases from Section III.A.b.i focus on whether a party had either actual knowledge or inquiry notice of the invalidity of the policy. Since the trial Court failed to consider whether Bighthouse was on inquiry notice of the void nature of the Policy.

The Supreme Court remanded the case for the Superior Court to reconsider its factual findings in light of this Court’s articulated test and specifically direct the court to consider whether either party had inquiry notice of the void nature of the Policy and reversed the court’s holdings regarding entitlement to premiums and remanded the case for consideration consistent with its opinion.

ZIFL OPINON

By waiting two years after inception of the policy for the fake insured the fraudsters defeated the ability of the insurer to rescind. However, since Mansour Seck did not exist the policy was not real, it was a gamble, that the criminal invested a great deal of money, sold the risk to another and profited from the crime only to have the victim sell again until Geronta found itself paying premium on a void policy. To do justice the Delaware Supreme Court has provided a means to determine who is free of guile and who is not when deciding who gets the premium back, if anyone.

Good News From the Coalition Against Insurance Fraud

Handed nearly 12 years in federal prison for doling out addictive opioids, Dr. Kurt Moran is lucky he didn’t get twice that time. Two of the Scranton, Pa. doc’s patients OD’d and died on drugs he prescribed them. He prescribed the potent opioid Subsys to 13 patients overall. Subsys is a fentanyl-based drug used by cancer patients who have excruciating pain. Yet Moran’s patients didn’t even have cancer. A drug company paid Moran $140K of illegal kickbacks to prescribe Subsys, disguising the bribes as speaker fees. Moran also liberally prescribed oxycodone. Dozens of patients testified they grew addicted to pain meds Moran handed out. He could’ve received double the prison time under federal sentencing guidelines.

The owner of house-cleaning firms tried to clean out his workers comp insurers. Attorney Robert Fitz owned 12 cleaning firms in Ohio. The Westlake man bought state-required coverage for one company, RCF Licensing, in 1996. He stopped paying premiums in 2003. The Ohio Bureau of Workers’ Compensation examined Fitz’s lack of payment. The state agency advised him it was illegal to run a business without proper comp coverage. Fitz was trying to reinstate his coverage, he replied. Yet in 2013, BWC discovered that Fitz had several policies that had lapsed or were canceled. BWC consolidated the comp policies and presented him with a payment plan to catch up on premiums he owed. Fitz still didn’t bring his policies into compliance. Owing more than $950K in restitution, he earlier was handed 30 days in jail for workers’ comp insurance fraud. The state Supreme Court now has suspended Fitz’s law license for two years this week.

Lies flowed easily for Mark Schena’s $77M scam by his fake Silicon Valley allergy-testing firm Arrayit Corporation. Schena tested every patient for 120 different allergies (ranging from hornet stings to codfish) regardless of medical need. He paid illegal kickbacks to marketers and lied to consumers that his allergy test was highly accurate. In fact, it wasn’t even a diagnostic test. Yet Schena billed more per patient to Medicare than any blood allergy lab in the U.S. He billed some insurers over $10K per test. Schema’s firm then went downhill because the COVID-19 pandemic and stay-at-home orders reduced demand for allergy testing. So, he lied he’d developed a COVID-19 test based on Arrayit’s blood testing technology — before bothering to develop the test. He also lied that Dr. Anthony Fauci and other prominent government officials required testing for COVID-19 and allergies at the same time. Schena said his COVID-19 test was more accurate than a PCR test for diagnosing infections — while hiding that the FDA refused to grant him an emergency-use authorization because his test wasn’t accurate enough. Schena also lied to investors. He said he invented revolutionary technology that tests for virtually any disease using only a few drops of blood. He claimed he was the “father” of this testing category and was on the shortlist for the Nobel Prize. Schena was convicted and faces potentially dozens of years in federal prison when sentenced Jan. 30.

Delays and lengthy negotiations took a decade to resolve the theft by independent agent Shawn Chambers of $100K of premiums from 25 clients. Clients of the Wichita Falls, Kans. man began complaining their coverage was canceled or claims weren’t paid despite paying their premiums. Chambers deposited their premium money into his personal bank account instead of with SIG Insurance. When re-submitting some claims, Chambers tried to refile them under new dates. SIG made good on the claims and premiums after the scam was discovered. Clients still incurred losses because of higher premiums when they bought new insurance. The charges date to 2013; it took five years for Chambers and court to reach a plea to 10 years of probation. The case was finalized recently after a decade of motions and delays. Chambers agreed to repay $145K to the insurer and will receive early release from probation. Chambers also lost his agent license and is dealing with serious medical issues placing him on a transplant waiting list.

Hurling yourself onto moving cars for fun and insurance profit gives video gamers fresh thrills with the new release of the next-gen edition of Saints Row. Yes, the popular Saints Row franchise is back and kicking. Saints gamers try to build vast money-grubbing criminal empires. Insurance scamming by launching yourself like a ragdoll onto oncoming vehicles is one of the dollar-stealing empires. “The name of the game here is getting hit as much as possible, hopefully by several cars in succession,” writes one reviewer. “Since you don’t know what vehicles will be driving your way during the match, it’s best if you try to find a strategy that works for you. The best thing you can do is find the busiest intersection near you and jump in front of cars there, as they’ll be coming from multiple directions. This will make it easy to bounce from one car to the other and build a nice combo.” Saints Row is available on PlayStation 5, PlayStation 4, Xbox Series X/S, Xbox One and PC.

Ivan Kriger made a claim for damage to the City of Spokane, Wash. for a paved parking lot he owned. A contractor the city hired to remove another building parked in his parking lot caused nearly $280K of catastrophic damage, he claimed. The city made the claim to Alaska National Insurance. The insurer found the parking lot was in disrepair for years and had no new damage. Kriger also filed three claims with Zurich Insurance for a building he owned in Spokane that suffered fire damage. The fire occurred at 5:50 a.m., yet Kriger bought a policy with Zurich several hours after the fire happened. He later filed several claims worth $324K total, trying to get the fire damage covered. Zurich denied the claims. The insurance department’s Criminal Investigation Unit then built the case, leading Kriger’s conviction in both cases for insurance fraud.

Two Aldermen of St. Louis fell hard after selling their influence to breed insurance schemes, bribery and graft. The insurance plot: A crash on Jan. 21, 2021 damaged three vehicles at an unnamed used-car lot owned by “John Doe.” Alderman Jeffrey L. Boyd’s used-car company The Best Place Auto Sales owned one of the damaged vehicles, and Doe owned the others. Doe learned his insurance wouldn’t cover the damage to his vehicles. So, Boyd suggested lying that his own used-car firm owned them. On Jan. 17, Boyd falsified and backdated vehicle sales records and Missouri Department of Revenue documents claiming he paid $22K for the vehicles on Jan. 2. So, the pair made the claim under Boyd’s policy and split the insurance money. Boyd also falsely tried to claim a $200 daily storage fee for the damaged vehicles. His insurer rejected the claim, despite his trying to have his insurance agent intervene. Boyd also took cash bribes to help Doe illicitly buy commercial property and earn other perks. Boyd also trafficked in illicit perks with another Alderman Lewis Reed. The pled guilty and could face decades in federal prison when sentenced Dec. 6. No word on Doe’s fate.

David Evans was a well-liked Baptist pastor at Harmony Church in Ada, Okla. He also was secretly a swinger —arranging threesomes with his wife Kristie and other men. She started having an affair with one swinger, Kahlil Square. Kristie convinced Square to shoot David in the head while he slept in the couple’s home early one morning. She was driven in part by a $250K life policy; the couple had recently declared bankruptcy. Kristie also wanted to escape what she said was an abusive marriage. So, she gave David’s gun and a box of bullets to Square, then left the back door unlocked. David had just returned from a mission trip in Mexico. Kristie showed no remorse after her arrest — she wrote “pornographic” letters in jail to Square and another inmate. Evans first wrote to Square only 19 days after her arrest to see if he was ok, still her man and had everything he needed. Evans pled guilty and was given life in prison. Now 49, she’ll be eligible for parole in her mid-80s. Square still faces trial.

Laden with NBA star potential he never achieved; Terrence Williams starred in another way: He masterminded an attempted $5M swindle of the NBA’s health plan for retired players. Williams was drafted 11th in 2009 by the New Jersey Nets, retiring in 2015. He’s now a felon, pleading federally guilty. Williams recruited players to submit false invoices for phantom medical and dental work, receiving $300K of kickbacks. Williams even impersonated a health plan manager to frighten a player who hadn’t paid him a kickback. Former Boston Celtics players Tony Allen and Glen Davis allegedly forged invoices for crowns on the same six teeth on the same day. Davis also claimed crowns on eight teeth in Beverly Hills when he was in Nevada. Williams agreed to pay the NBA $2.5M and forfeit $653.6K to the U.S. He could face 12 years in prison when sentenced. Six of the at least 24 suspects have pled guilty. They include a dentist, doc and chiro.

Patients waited for more than three hours in a dirty, crowded waiting room for painkillers doled out by husband-wife docs with no expertise in opioids. About 85% of patients received opioid prescriptions at Care Complete Medical Clinic in Birmingham, Ala. Dr. Patrick Ifediba kept his clinic open until 10 p.m., illegally prescribing up to 90K kilograms of drugs in total. Ifediba also did costly allergy tests on almost all patients with insurance. And he prescribed expensive allergy treatments for many patients, even if they tested negative for allergies. The allergy tests cost more than $500 per patient and shots cost $2.6K. Blue Cross Blue Shield of Alabama flagged the high numbers of allergy treatments. When the insurer audited the clinic, staff members altered documents and test results to support treatment. Ifediba’s sister, nurse Ngozi Justina Ozuligbo, gave the false allergy tests. Nigerian cultural norms dictated she was required to obey her brother, she argued without success at trial. Ifediba was handed 30 years in federal prison, and Ozuligbo three years.

Johnson & Johnson Conviction

Johnson & Johnson Has Agreed To Pay $40.5 Million To Settle New Hampshire’s Claims re Opiods

The September 1, 2022 settlement resolves a lawsuit brought in 2018 accusing Johnson & Johnson and its Janssen Pharmaceuticals unit of aggressively marketing opioids to doctors and patients, misrepresenting that the drugs were rarely addictive when used to treat chronic pain, and targeting vulnerable groups like the elderly.

New Hampshire will apply $31.5 million toward opioid abatement, after paying legal fees, and Johnson & Johnson will be banned from selling or promoting opioids there.

A trial had been scheduled for September 7 in Merrimack County Superior Court.

The New Brunswick, New Jersey-based drugmaker also said it will defend against other pending opioid litigation. New Hampshire was one of a few states that did not join Johnson & Johnson’s portion of February’s $26 billion nationwide opioid settlement with the company and the three largest U.S. drug distributors, hoping to recover more by suing on its own.

Zalma on Insurance at Locals.com

Excellence in Claims Handling

Create a Staff of Professional Claims Handlers

Click Here to Subscribe to the Excellence in Claims Handling Programs for Each of Your Claims Personnel for Only $5 A Month Or $50 A Year by Subscribing to Zalma on Insurance at Locals.

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In addition to the free materials, for a paid subscription of only $5 a month or $50 a year to Zalma on Insurance at Locals.com you or your staff of claims personnel can receive important, more detailed and informative information needed by everyone interested in insurance, insurance claims, insurance law or insurance fraud.

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Become a Professional Claims Handler

In search of profit, insurers have decimated their professional claims staff. They laid off experienced personnel and replaced them with young, untrained, unprepared people. A virtual clerk replaced the old professional claims handler. Process and computers replaced hands-on human skill, empathy and judgment. Money was saved by paying lower salaries. Within three months of firing the experienced claims people gross profit increased.

The promises made by an insurance policy are kept by the professional claims person. Keeping a professional claims staff dedicated to excellence in claims handling is cost-effective over long periods of time. A professional and experienced adjuster will save the insurer millions by resolving disputes, paying claims owed promptly and fairly, and by so doing avoid litigation.

The professional claims person is an important part of the insurer’s defense against litigation by insureds against insurers for breach of contract and the tort of bad faith. Claims professionals resolve more claims for less money without the need for either party to involve counsel. A happy insured or claimant satisfied with the results of his or her claim will never sue the insurer.

Insurers who believe they can professionally, fairly, and in good faith with young, inexpensive, inexperienced and untrained claims handlers should be accosted by angry stockholders whose dividends have plummeted or will plummet as a result. When an insurer compromises on staff, profits, thin as they may have been previously, will move rapidly into negative territory. Tort and punitive damages will deplete reserves. Insurers will quickly question why they are writing insurance. Those who stay in the business of insurance will either adopt a program requiring excellence in claims handling from every member of their claims staff, or they will fail.

Insurance is a business that must change if it is to survive. Insurers must rethink the firing of experienced claims staff and reductions in training to save “expense.” Insurers should, if they wish to succeed, adopt a program to promote excellence in claims handling that can help insurers keep the promises made by the insurance policy and avoid charges of breach of contract and the tort bad faith in both first and third party claims.

Conviction for Insurance Fraud Affirmed in New York

In The People of the State of New York v. Jean M. Davilmar, also known as Jean Myrtho Davilmar, 2022 NY Slip Op 04975, No. 2018-05468, Ind. No. 4334/16, Supreme Court of New York, Second Department (August 17, 2022) Jean M. Davilmar, also known as Jean Myrtho Davilmar, appealed from a judgment of the Supreme Court, Kings County (Danny K. Chun, J.), rendered March 13, 2018, convicting him of larceny in the third degree (2 counts), scheme to defraud in the first degree, insurance fraud in the third degree (17 counts), criminal possession of a forged instrument in the second degree (5 counts), and offering a false instrument for filing in the first degree (4 counts), after a nonjury trial, and imposing sentence.

One Count Dismissed at Request of Prosecution

The judgment was modified, as a matter of discretion in the interest of justice, by vacating the conviction of insurance fraud in the third degree under count 57 of the indictment and the sentence imposed thereon and dismissing that count of the indictment; as so modified, the judgment is affirmed.

The prosecution conceded that the defendant’s conviction of insurance fraud in the third degree under count 57 of the indictment should be vacated and that count of the indictment dismissed in the exercise of our interest of justice jurisdiction.

The defendant only partially preserved for appellate review his challenge to the legal sufficiency of the evidence supporting his convictions of grand larceny in the third degree (2 counts), insurance fraud in the third degree (16 counts), and scheme to defraud in the first degree People v Heron, 180 A.D.2d 750, 751).

In any event, viewing the evidence in the light most favorable to the prosecution the court found that it was legally sufficient to establish the defendant’s guilt of grand larceny in the third degree beyond a reasonable doubt. Likewise, the evidence was legally sufficient to establish the defendant’s guilt of insurance fraud in the third degree beyond a reasonable doubt.

Moreover, the evidence was legally sufficient to establish the defendant’s guilt of scheme to defraud in the first degree (Penal Law § 190.65[1][b]). The appellate court fulfilled its responsibility to conduct an independent review of the weight of the evidence and was satisfied that the verdict of guilt on each of those counts was not against the weight of the evidence and that the sentence imposed was not excessive and found that the defendant’s remaining contentions were without merit.

ZIFL OPINION

People who are convicted of insurance fraud are so surprised that a prosecutor would take the time and effort to try and convict them will invariably appeal their conviction using the funds they took in their successful crimes before they were arrested and convicted.  Mr. Davilmar exercised unmitigated “chutzpah” by filing this appeal and obtained a Pyrrhic victory by having one of 17 counts of insurance fraud dismissed and must still spend time in jail for the 16 others.

Health Insurance Fraud Convictions

Idaho Provider Sentenced to Jail for Defrauding State Medicaid Program

Janna Lyn Miller, 58-year-old of Kuna, Idaho, pleaded guilty on May 12, 2022.  She was sentenced on Thursday, August 25, 2022 for executing a scheme to defraud the Idaho Medicaid program.

Judge Samuel Hoagland sentenced Miller to a suspended sentence of five years with one year fixed. She was placed on probation for five years. The court ordered Miller to serve 180 days in the Ada County Jail and pay $82,607 in restitution, a fine of $2,000 and court costs. The Department of Health and Welfare’s Medicaid Program Integrity Unit recovered nearly $64,000 in restitution prior to sentencing.

In addition to the criminal restitution, Miller is also responsible for repaying another $169,465 in overpayments and $65,256 in related penalties.

Miller was the owner and operator of Inclusion, Inc., a company that provided home health, supervised employment, mental health counseling and social support services to Idaho Medicaid participants with developmental disabilities. In addition to its main office in Meridian, the company maintained satellite offices in Sandpoint, Coeur d’Alene and Twin Falls.

Investigators determined that from January 1, 2018 to March 21, 2021, Miller executed a scheme to wrongfully obtain Idaho Medicaid funds and property. She did so by either making false representations or directing billing personnel to make false representations regarding services provided to Medicaid participants.

Seven-Year Prison Sentence Against San Joaquin County Doctor for Medi-Cal Fraud Scheme California

Gary Wisner used both his patients and state resources to line his own pockets according to California Attorney General Rob Bonta.  Wisner, a San Joaquin County orthopedic surgeon was convicted for repeatedly defrauding the Medi-Cal and Medicare programs.

From 2012 to 2016, Wisner defrauded the Medi-Cal and Medicare programs by administering excessive and medically unjustifiable X-rays to his patients. In June, Wisner was convicted of 10 felony counts of health care insurance fraud. On Friday, Wisner was sentenced by the Sacramento Superior Court to serve a seven-year prison sentence.

In November 2016, representatives from the California Department of Justice, Division of Medi-Cal Fraud and Elder Abuse (DMFEA) were notified by multiple government offices of suspected fraud by Wisner in overbilling the Medi-Cal and Medicare programs. Wisner operated a medical clinic in Lodi, California where he had 26,000 patients under his care.

In DMFEA’s investigation into Wisner’s alleged misconduct, investigators randomly selected the files of five Medi-Cal patients and five Medicare patients — these 10 files became the basis of the 10 felony charges Wisner was convicted of in June. DMFEA’s investigation revealed Wisner would administer X-rays even in routine office visits and would X-ray multiple parts of a patient’s body — regardless of whether it had any relation to a patient’s medical condition.

Over the course of an approximate four-year period, evidence collected showed Wisner subjected ten individual patients to hundreds of unnecessary X-rays at his clinic. On Friday, Wisner was sentenced to a seven-year prison sentence by the Sacramento Superior Court.

This investigation was made possible through collaboration with the United States Department of Health and Human Services (HHS), the San Joaquin County District Attorney’s Office, and the California Department of Insurance.

Gary Wisner is also the subject of an independent criminal complaint filed by the San Joaquin County District Attorney’s Office for workers’ compensation fraud. The case is still pending, and Gary Wisner is presumed innocent until proven guilty of those charges.

Boca Raton Chiropractor Sentenced To Four Years’ Imprisonment For $20 Million Fraud Scheme

Jonathan Michael Rouffe (49, Boca Raton) was sentenced to four years in federal prison for conspiracy to commit health care fraud. The court also ordered Rouffe to forfeit assets from several bank accounts, which are traceable to proceeds of the offense. As part of his sentence, the court also entered an order of forfeiture in the amount of $3,127,290, the proceeds of the charged criminal conduct, and a restitution order in the amount of $10,725,607.15. Rouffe pleaded guilty on June 30, 2020.

According to court documents, in 2018, Rouffe and his conspirators established a conglomerate of durable medical equipment (“DME”) supply companies. During the creation of the companies, they lied to Medicare to secure billing privileges, including placing the companies in the names of straw owners. By concealing their true ownership, the conspirators gained control of more companies, which Medicare generally prohibits, enabling them to submit high volumes of illegal DME claims. Through the conglomerate, during the course of one year, Rouffe and his conspirators submitted more than $20 million in illegal DME claims, resulting in over $10 million in payments from Medicare and the Civilian Health and Medical Program of the Department of Veterans Affairs (“CHAMPVA”).

To attain such high volumes of claims, Rouffe and his conspirators used illegal bribes and kickbacks. Specifically, they illegally purchased thousands of DME claims from so-called “marketers.” On invoices, the parties disguised the illegal kickback transactions as marketing services and the conspirators claimed that the DME prescriptions had been generated through “telemedicine.” No telemedicine had actually occurred. Instead, doctors were bribed in exchange for DME approvals. Rouffe and his conspirators paid millions to secure the illegal DME claims for submission to Medicare and CHAMPVA.

Medical Director Convicted in Health Care Fraud Scheme

Dr. Sekhar Rao, 51, of Austin, was the medical director of the ADAR Group LLC. Rao authorized toxicology and genetic testing, including cancer genetic testing, for TRICARE beneficiaries without seeing, speaking to, or otherwise treating patients, and without incorporating the test results into ongoing treatment. In some cases, the patients did not know what they were being tested for. TRICARE beneficiaries were enticed to provide urine or saliva specimens in exchange for $50 gift cards. Evidence at trial demonstrated that Rao was paid in exchange for signing off on medically unnecessary and repetitive toxicology and genetic tests.

A federal jury convicted Rao, a Texas physician of engaging in a scheme that fraudulently billed TRICARE, the health care program for uniformed service members, retirees, and their families, for toxicology and genetic tests that were not provided as represented and/or were medically unnecessary.

According to court documents and evidence presented at trial, Rao was convicted of two counts of health care fraud. He is scheduled to be sentenced on March 27, 2023 and faces a maximum penalty of 10 years in prison for each health care fraud count. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

13 Novus Healthcare Fraud Defendants Sentenced to Combined 84 Years in Prison

CEO Bradley J. Harris eventually admitted to the fraud and testified against two physicians who elected to proceed to trial.

As a result, thirteen defendants involved in the $27 million Novus healthcare fraud were sentenced to a combined 84 years in federal.

According to plea papers and evidence presented to a jury, Novus Health Services, a Dallas-based hospice agency, defrauded Medicare by submitting materially false claims for hospice services, providing kickbacks for referrals, and violating HIPAA to recruit beneficiaries. Novus employees also dispensed Schedule II controlled substances to patients without the guidance of medical professionals and moved patients to a new hospice company to avoid a Medicare suspension.

He told the jury that instead of relying on the expertise of licensed medical professionals, he and Novus’ nurses determined which medications and dosages patients would receive, dispensing drugs like morphine and hydrocodone using pre-signed prescription pads. Novus medical directors, including Dr. Mark Gibbs and Dr. Laila Hirjee, were supposed to oversee the care of these patients and examine patients face-to-face to certify that they were terminally ill. Often, however, the medical directors signed off on patient care plans without properly reviewing patients files and falsely certified they had completed in-person examinations when they had not.

Director of Operations Melanie Murphey testified at trial, “I was the doctor.”

Mr. Harris and the nurses also determined which patients would be admitted to or discharged from hospice care without any physician involvement. Mr. Harris also admitted to paying Novus physicians kickbacks – disguised as medical director salaries – to induce them to refer patients to Novus facilities.

When Mr. Harris realized, he could avoid exceeding Medicare’s aggregate hospice cap by enrolling an influx of first-time hospice patients, he negotiated an agreement with a company called Express Medical that allowed him to access potential patients confidential medical information in return for using Express Medical for laboratory tests and home health visits. Novus staff attempted to recruit Express Medical patients for Novus services, regardless of their eligibility.

Those convicted in the scheme include:

  • Sam Anderson, Novus VP of Marketing, pleaded guilty to one count of conspiracy to commit healthcare fraud and was sentenced to 33 months in federal prison
  • Patricia Armstrong, Novus triage nurse, pleaded guilty to one count of conspiracy to commit healthcare fraud and was sentenced to 84 months in federal prison
  • Slade Brown, Novus Director of Marketing, pleaded guilty to one count of conspiracy to commit healthcare fraud and was sentenced to 48 months in federal prison
  • Dr. Mark Gibbs, Novus Medical Director, was convicted at trial of one count of conspiracy to commit healthcare fraud, two counts of healthcare fraud, and one count conspiracy to obstruct justice and was sentenced to 156 months in federal prison
  • Amy Harris, Novus VP of Patient Services and wife of Bradley Harris, pleaded guilty to one count of conspiracy to obstruct justice and was sentenced to 38 months in federal prison
  • Bradley Harris, Novus CEO, pleaded guilty to one count of conspiracy to commit healthcare fraud and one count of healthcare fraud and aiding and abetting and was sentenced to 159 months in federal prison
  • Dr. Laila Hirjee, Novus Medical Director, was convicted at trial of one count of conspiracy to commit healthcare fraud, three counts of healthcare fraud and one count of unlawful distribution of a controlled substance and was sentenced to 120 months in federal prison
  • Dr. Charles Leach, Novus Medical Director, pleaded guilty to one count of conspiracy to commit healthcare fraud and was sentenced to 57 months in federal prison
  • Tammie Little, Novus Registered Nurse, was convicted at trial of one count of conspiracy to commit healthcare fraud and three counts of healthcare fraud and aiding and abetting and was sentenced to 33 months in federal prison
  • Jessica Love, Novus Registered Nurse, pleaded guilty to one count of conspiracy to commit healthcare fraud and was sentenced to 102 months in federal prison
  • Melanie Murphey, Novus Director of Operations, pleaded guilty to one count of conspiracy to commit healthcare fraud and was sentenced to 66 months in federal prison
  • Ali Rizvi, Express Medical owner, pleaded guilty to one count of wrongful use of individually identifiable heath information and was sentenced to 18 months in federal prison
  • Taryn Stuart, Novus Licensed Vocational Nurse, pleaded guilty to one count of conspiracy to commit healthcare fraud and was sentenced to 96 months in federal prison

California Man Sentenced to Federal Prison for Role in Health Care Kickback Conspiracy

Vincent Marchetti, Jr., 58, was found guilty by a jury on December 16, 2021, following a month-long trial. He was sentenced to 48 months in federal prison by U.S. District Judge Robert W. Schroeder, III, on August 30, 2022.

Marchetti, a Coronado, California, man was sentenced to federal prison for conspiring to commit health care kickbacks.

According to information presented in court, Marchetti conspired with others to pay and receive kickbacks in exchange for the referral of, arranging for, and recommending health care business, specifically pharmacogenetic (PGx) tests. Pharmacogenetic testing, also known as pharmacogenomic testing, is a type of genetic testing that identifies genetic variations that affect how an individual patient metabolizes certain drugs. The illegal arrangement concerned the referral of PGx tests to clinical laboratories in Fountain Valley, California; Irvine, California; and San Diego, California. More than $28 million in illegal kickback payments were exchanged by those involved in the conspiracy.

In December 2019, twelve individuals from three states were charged for their roles in the kickback conspiracy. A federal grand jury in the Eastern District of Texas returned an indictment against Philip Lamb, 47, of Scottsdale, Arizona; Nicolas Arroyo, 40, of Tempe, Arizona; Vincent Marchetti, Jr.; William Flowers, 57, of Houston; Steven Donofrio, 48, of Temecula, California; James J. Walker, Jr. a/k/a Jimmy Walker, 48, of Frisco; Timothy Armstrong, 65, of Frisco; Virginia Blake Herrin, 57, of Frisco; Patrick Ridgeway, 53, of Jackson, Mississippi; Chismere Mallard, 42, of McAllen; Dr. Ray W. Ng, 66, of Dallas; and Ashley Kretzschmar, 37, of Aledo; for conspiring to commit illegal remunerations in violation of the Anti-Kickback Statute.

Philip Lamb, Nicolas Arroyo, Jimmy Walker, Timothy Armstrong, Virginia Blake Herrin, Patrick Ridgeway, Chismere Mallard, and Ashley Kretzschmar have pleaded guilty. Kimberly Willette, 61, of Friendswood, and Edwin Chad Isbell, 48, of Atascocita, also pleaded guilty to related charges.

On April 25, 2022, Nicolas Arroyo was sentenced to 21 months in federal prison. On August 23, 2022, Kimberly Willette was sentenced to one year and one day in federal prison, and Patrick Ridgeway was sentenced to a three-year term of probation and ordered to pay a $100,000 fine.

Global Healthcare Company to Pay $6.3 Million to Resolve False Claims Act Allegations

Novo Nordisk Inc., a global healthcare company has agreed to pay $6.3 million to resolve allegations that it violated the False Claims Act by selling items to the United States that were manufactured in non-designated countries in violation of the Trade Agreements Act of 1979.

The settlement resolves allegations that Novo Nordisk Inc. violated the Trade Agreements Act, which restricts the procurement of goods under certain government contracts to purchases from specific designated countries, by submitting false claims for payment for medical devices that were manufactured in non-designated countries.

The settlement resolves claims that from July 2012 through November 2020, Novo Nordisk sold to United States government agencies its NovoFine 30G 8 mm needles, and that from May 2016 through November 2020, Novo Nordisk sold to United States government agencies its NovoFine 32G 6 mm needles, all of which were manufactured in non-designated countries.

Philips Subsidiary to Brought Down by a Qui Tam Suit to Pay Over $24 Million for Alleged False Claims

Philips RS North America LLC, formerly known as Respironics Inc., a manufacturer of durable medical equipment (DME) based in Pittsburgh, Pennsylvania, has agreed to pay over $24 million to resolve False Claims Act allegations that it misled federal health care programs by paying kickbacks to DME suppliers. The affected programs were Medicare, Medicaid and TRICARE, which is the health care program for active military and their families.

The settlement resolves allegations that Respironics caused DME suppliers to submit claims for ventilators, oxygen concentrators, CPAP and BiPAP machines, and other respiratory-related medical equipment that were false because Respironics provided illegal inducements to the DME suppliers. Respironics allegedly gave the DME suppliers physician prescribing data free of charge that could assist their marketing efforts to physicians.

The Anti-Kickback Statute prohibits the knowing and willful payment of any remuneration to induce the referral of services or items that are paid for by a federal health care program, such as Medicare, Medicaid or TRICARE. Claims submitted to these programs in violation of the Anti-Kickback Statute give rise to liability under the False Claims Act.

The settlement provides that Respironics will pay $22.62 million to the United States, and in addition, will pay $2.13 million to the various states as a result of the impact of Respironics’ conduct on their Medicaid programs, pursuant to the terms of separate settlement agreements that Respironics has, or will enter into, with those states.

In addition to the civil settlement, Respironics entered into a five-year Corporate Integrity Agreement (CIA) with HHS-OIG. The CIA requires Respironics to implement and maintain a robust compliance program that includes, among other things, review of arrangements with referral sources and monitoring of Respironics’ sales force. The CIA also requires Respironics to retain an independent monitor, selected by the OIG, to assess the effectiveness of Respironics’ compliance systems.

The settlement resolves a lawsuit originally brought by Jeremy Orling, a Respironics’ employee, under the qui tam or whistleblower provisions of the False Claims Act. Under those provisions, a private party can file an action on behalf of the United States and receive a portion of any recovery. As part of this resolution, Orling will receive approximately $4.3 million of the federal settlement amount.

This settlement was the result of a coordinated effort by the Justice Department’s Civil Division, Commercial Litigation Branch, Fraud Section and the U.S. Attorney’s Office for the District of South Carolina with assistance from the HHS-OIG and HHS Office of Investigations; DCIS; the Defense Health Agency Office of General Counsel; and the National Association of Medicaid Fraud Control Units.

Fraud Lawsuit Against Non-Profit For Inflating Medicaid Reimbursements Settled

Quit Tam Suit Brings Down Maranatha Human Services Who Agreed to Cease Operations and Pay $850,000

Maranatha Human Services, Inc. (“MARANATHA”) entered a settlement with the United States for falsely claiming that millions of dollars expended to benefit for-profit ventures owned and controlled by MARANATHA and its founder Henry Alfonso Coley (“Coley”), as well as payments to cover Coley’s personal expenses and excessive payments to Coley’s family members, were reasonable and necessary costs in connection with MARANATHA’s provision of Medicaid-funded services to individuals with developmental disabilities. MARANATHA is a non-profit organization based in Poughkeepsie, New York; Coley founded MARANATHA in 1988 and served as its chief executive officer until last year.

Specifically, the Government’s complaint, which was filed in November 2021, alleges that MARANATHA, with its board’s approval, funded for-profit companies operated by Coley; paid excessive salaries and consulting fees to Coley’s family members, often in exchange for little to no work; and paid for tens of thousands of dollars of Coley’s personal expenses. The Government further alleges that, from 2010 to 2019, Coley and MARANATHA submitted to the State of New York cost reports that falsely claimed millions of dollars of these expenses as “allowable” costs, which fraudulently inflated MARANATHA’s Medicaid reimbursement rates and resulted in MARANATHA receiving millions of dollars in Medicaid funds to which it was not entitled.

Under the settlement approved September 1, 2022 by U.S. District Judge Kenneth M. Karas, MARANATHA agreed to cease operations after transitioning the operation of its programs to other providers under the supervision of the governing state regulatory agency. MARANATHA will also pay $340,000 to the United States and has admitted and accepted responsibility for conduct alleged by the Government in its complaint as further described below. In addition, MARANATHA agreed to pay $510,000 to the State of New York to resolve the State’s claims, for a total recovery of $850,000. The settlement amount is based on the Office’s assessment of MARANATHA’s ability to pay based on the financial information it provided and its commitment to cease operations. The United States previously resolved the claims against Coley through a settlement approved by Judge Karas on November 17, 2021. In addition to paying damages to the United States and the State of New York, COLEY was barred from working for any entity that bills federal healthcare programs; he also entered into a Voluntary Exclusion Agreement with HHS-OIG, which prohibits him from, among other things, billing Medicaid and other federal healthcare programs for 15 years.

According to the Government’s complaint, from 2010 through 2019:

  • MARANATHA was required to submit cost reports, called Consolidated Financial Reports (“CFRs”), to the State of New York each year, specifying the reasonable and necessary costs MARANATHA incurred in providing services for its Medicaid-funded programs. these costs were to be reported as “allowable” costs.
  • MARANATHA was required separately to report its other, “non-allowable” costs; “non-allowable” costs include costs unrelated to its Medicaid-funded programs, as well as any unreasonable or unnecessary costs.
  • With its board’s approval, MARANATHA funded for-profit companies operated by COLEY and owned by COLEY or MARANATHA, as well as various unincorporated pet projects started by COLEY. One of the chief purposes of these ventures was to serve as vehicles to funnel money to COLEY’s daughter, as well as others associated with COLEY, whom MARANATHA paid for work they purportedly did to support these ventures and projects.
  • Over the course of a decade, not one of these ventures ever launched a product or service or earned a single dollar in revenue. Coley and MARANATHA hired Coley’s family members as employees and consultants, some in connection with these for-profit ventures, and others in connection with MARANATHA’s Medicaid-funded services. Coley and MARANATHA paid excessive salaries and consulting fees to Coley’s family members, often in return for little to no work. MARANATHA also paid for tens of thousands of dollars of coley’s personal expenses, including more than $34,000 for personal training sessions at a gym.
  • Coley and MARANATHA knowingly submitted CFRs annually to the State of New York fraudulently reporting these expenses—totaling millions of dollars—as “allowable” costs.
  • On each CFR, Coley falsely certified to the completeness and accuracy of the report. Coley and MARANATHA knew that the State of New York relied on providers’ CFRs when setting provider-specific reimbursement rates for certain Medicaid-funded programs, including MARANATHA’s largest Medicaid-funded program. As a result of COLEY’s and MARANATHA’s falsely inflated cost reports, the State of New York awarded MARANATHA a higher reimbursement rate and MARANATHA received millions of dollars in Medicaid funds to which it was not entitled.

As part of the settlement, MARANATHA admits, acknowledges, and accepts responsibility for the following conduct:

  • COLEY made a presentation to MARANATHA’s board of directors acknowledging that “[i]t was always the plan for Maranatha to use government funds as a launching pad to create private enterprise that would enable it to not be dependent on [the] government while at the same time fulfilling its function” consistent with its mission.
  • MARANATHA knew of the requirement to distinguish “allowable costs” from “non-allowable costs” in its CFRs.
  • MARANATHA knew that the allowable costs reported in its CFRs are used by the New York State Department of Health, in part, to determine MARANTHA’s reimbursement rates for the provision of Medicaid services.
  • In each CFR that MARANATHA submitted from 2010 to 2019 (the “Covered Period”), MARANATHA’s CEO, COLEY, certified that (i) the “information furnished in this report… is in accordance with the instructions and is true and correct to the best of my knowledge”; and (ii) the statement attached to the CFR “fully and accurately represents all reportable income and expenditures made for services performed in accordance with the provision of the Mental Hygiene Law and approved budgets.”
  • Throughout the Covered Period, MARANATHA submitted CFRs every year that reported as “allowable costs” amounts expended not for MARANTHA’s provision of Medicaid-funded services but instead to pursue certain for-profit business ventures.
  • In particular, MARANATHA submitted CFRs reporting as “allowable costs” costs expended to benefit certain entities owned and/or operated by COLEY or MARANATHA that did not provide Medicaid-funded services (the “Non-Medicaid Ventures”).
  • MARANATHA’s board, which approved MARANATHA funding these Non-Medicaid Ventures, was briefed on them by COLEY.
  • MARANATHA paid COLEY’s family members to perform work related to the Non-Medicaid Ventures. For example, since 2010, MARANATHA paid COLEY’s daughter more than $300,000.  Though much of her time was spent on work related to the Non-Medicaid Ventures, MARANATHA reported her full compensation as an “allowable cost” in the CFRs.
  • Since 2010, MARANATHA paid COLEY more than $2 million in salary and benefits, and MARANTHA claimed the full amount of that compensation as “allowable costs” on its CFRs. However, COLEY devoted much of his time to working on the Non-Medicaid Ventures.
  • MARANATHA also paid for certain of COLEY’s personal expenses, including more than $34,000 spent on personal training sessions, as well as holiday gifts and jewelry. MARANATHA reported these expenses as “allowable costs” in its CFRs.

This lawsuit originated as a whistleblower lawsuit filed under seal pursuant to the False Claims Act.

Medicaid Recipients Agree to Pay $130,000 to Resolve False Claims and Health Care Benefit Fraud

Manpreet Kamboj and Gurdev Kamboj (aka David Singh) agreed to pay $130,000 to resolve allegations that they knowingly falsified income to unlawfully create eligibility for Mississippi Medicaid health care benefits for their dependents.

Despite Medicaid’s low-income requirement, the United States contends that Manpreet and Gurdev Kamboj collectively owned and/or were associated with 48 convenience store/gas stations located in Mississippi and Louisiana. The Kambojs also own a five-bedroom 7,850 square foot home located in Madison, Mississippi, most recently valued at 1.3 million dollars. 

According to the United States, the Kambojs falsely represented on various Mississippi Medicaid health care benefit applications and renewals that one of them was unemployed and that the household derived income from one convenience store/gas station. As such, the United States alleges that from August 29, 2011, to February 28, 2022, the Kambojs caused the MDOM to pay over $70,000 in health care coverage benefits to which they were not entitled.

Medical Technology Company President Convicted in $77 Million COVID-19 and Allergy Testing Scheme

Mark Schena, 59, of Los Altos, California, served as the president of Arrayit Corporation. According to court documents and evidence presented at trial, Schena engaged in a scheme to defraud Arrayit’s investors by claiming that he had invented revolutionary technology to test for virtually any disease using only a few drops of blood. In meetings with investors, Schena and his publicist claimed that Schena was the “father of microarray technology” and falsely stated that he was on the shortlist for the Nobel Prize. The evidence at trial showed that Schena also falsely represented to investors that Arrayit could be valued at $4.5 billion based on purported revenues of $80 million per year.

A federal jury convicted Schena, the president of a Silicon Valley-based medical technology company September 1, 2022 of participating in a scheme to mislead investors, commit health care fraud, and pay illegal kickbacks in connection with the submission of over $77 million in false and fraudulent claims for COVID-19 and allergy testing.

In furtherance of the scheme, the evidence at trial showed that Schena, among other things, failed to release Arrayit’s SEC-required financial disclosures and concealed that Arrayit was on the verge of bankruptcy. Schena lulled investors who were concerned that the company was a “scam” by inviting them to private meetings and issuing false press releases and tweets stating that Arrayit had entered into lucrative partnerships with companies, government agencies, and public institutions, including a children’s hospital and a major California health care provider. The tweets and press releases falsely claimed that such entities had agreed to use the Arrayit technology, when in fact no such agreements existed or were of minimal value. 

Schena also orchestrated an illegal kickback and health care fraud scheme that involved submitting fraudulent claims to Medicare and private insurance for unnecessary allergy testing. Arrayit ran allergy screening tests on every patient for 120 different allergens (ranging from hornet stings to codfish) regardless of medical necessity. To obtain patient blood specimens, Schena paid kickbacks to marketers in violation of the Eliminating Kickbacks in Recovery Act and orchestrated a deceptive marketing plan that falsely claimed that the Arrayit test was highly accurate in diagnosing allergies, when it was not, in fact, a diagnostic test. Arrayit billed more per patient to Medicare for blood-based allergy testing than any other laboratory in the United States, the evidence at trial showed, and billed some commercial insurers over $10,000 per test.

In early 2020, Arrayit’s allergy testing business declined because the COVID-19 pandemic and stay-at-home orders reduced demand for allergy testing. Schena then falsely announced that Arrayit “had a test for COVID-19” based on Arrayit’s blood testing technology, before developing such a test. Seeking to capitalize on the nationwide shortage of COVID-19 testing, Schena orchestrated a deceptive marketing scheme that falsely claimed that Dr. Anthony Fauci and other prominent government officials had mandated testing for COVID-19 and allergies at the same time and required that patients receiving the Arrayit COVID-19 test also be tested for allergies. Schena also falsely claimed that the Arrayit COVID-19 test was more accurate than a PCR test for diagnosing COVID-19 infections, while concealing from investors and patients taking the test that the Food and Drug Administration had informed him that the Arrayit test was not accurate enough to receive an Emergency Use Authorization for use in the United States.

Schena was convicted of one count of conspiracy to commit health care fraud and conspiracy to commit wire fraud, two counts of health care fraud, one count of conspiracy to pay kickbacks, two counts of payment of kickbacks, and three counts of securities fraud. He is scheduled to be sentenced on Jan. 30, 2023 and faces a maximum penalty 20 years imprisonment for the conspiracy to commit health care fraud and conspiracy to commit wire fraud; 10 years of imprisonment for each count of health care fraud; five years imprisonment for conspiracy to pay kickbacks; 10 years imprisonment for each count of payment of kickbacks; and 20 years imprisonment for each count of securities fraud. U.S. District Judge Edward J. Davila will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

$907,074.64 Health Care Fraud Settlement

Dr. Craig M. Morgan and Eye Consultants of Huntington Inc. have paid $907,074.64 to resolve allegations that they submitted false claims to Medicare and Medicaid.

From January 13, 2013 through April 12, 2019, Morgan routinely administered vascular endothelial growth factor inhibitor injections into the eyes of patients to treat purported wet age-related macular degeneration (Wet-AMD) or other ophthalmological conditions for which treatment with such injections is indicated. These injections were not medically necessary because the patients in question did not have treatable Wet-AMD or any other condition that would have warranted the invasive treatment at the time it was administered.

Morgan was identified by HHS-OIG as one of the top outliers for billing the Medicare program across all medical specialists in West Virginia, far exceeding the average of Medicare claims submitted by his peers. The vast majority of payments Morgan received from Medicare were for injections for purported treatment of Wet-AMD.  

Chiropractic Clinic Agrees to Settle Allegations of Improper Billing for Electro-Acupuncture Devices

Lifestyle Resumption Integrative Health (“Lifestyle Resumption”), a chiropractic clinic located in Fort Mitchell, Ky., and its owner, Klaude Kocan, D.C., have agreed to pay $200,000 to resolve allegations that they violated the False Claims Act, by improperly billing Medicare for services involving electro-acupuncture devices.

According to the Settlement Agreement, between July 2016 and March 2018, Lifestyle Resumption billed Medicare for the implantation of neurostimulator devices – a surgical procedure during which devices are implanted into the central nervous system or targeted peripheral nerves. The United States contends that these bills falsely represented the services provided, because Lifestyle Resumption did not actually perform surgical procedures. Instead, Lifestyle Resumption’s nurse practitioner applied electro-acupuncture devices to patients’ ears by inserting a limited number of needles and using an adhesive. Medicare does not pay for electro-acupuncture devices billed as implantable neurostimulators and did not reimburse for acupuncture at all during the relevant period.

Colorado Springs Company and Owner Pay $400,000 to Resolve Allegations That They Submitted False Claims For Aquatic Therapy

Dynamic Physical Therapy, LLC (“Dynamic”), a physical therapy company, and its owner, Emad Yassa, have agreed to pay the United States $400,000 to resolve allegations that they violated the False Claims Act by falsely billing federal health care programs for aquatic therapy services. 

Dynamic is a physical therapy company that operates two clinics in Colorado Springs, Colorado. Dynamic is owned by Mr. Yassa, who also practices as a physical therapist at the Dynamic clinics. Dynamic submitted bills for physical and aquatic therapy services to Medicare and other federal health care programs.

In 2019, a former employee of Dynamic filed a sealed civil “whistleblower” lawsuit under the False Claims Act alleging that Dynamic, at the direction of Mr. Yassa, was billing Medicare for medically unnecessary physical therapy services and for services that had not actually been provided. The lawsuit was filed in federal district court in Colorado under the “qui tam,” or whistleblower, provisions of the False Claims Act. Those provisions permit private parties to sue on behalf of the United States to bring claims based on the submission of false claims to the government and allow the whistleblower to receive a share of any funds recovered through the lawsuit. The whistleblower provisions encourage people with knowledge of fraud against the federal government to come forward when they believe fraud is being committed.

After the whistleblower complaint was filed, Mr. Yassa signed a “Stipulation and Final Board Order” with the State of Colorado’s Physical Therapy Board  In the stipulation, Mr. Yassa admitted that, from mid-2014 to mid-2017, he “routinely and improperly billed insurance companies, Medicare, and Medicaid for individual aquatic therapy sessions for his patients when they had actually participated in group aquatic therapy sessions,” and also “routinely failed to document in his patients’ records that they had participated in group aquatic therapy sessions.” 

In an investigation, the United States uncovered evidence indicating that Dynamic had also submitted false claims to TRICARE, a health care program for uniformed service members, retirees, and their families. The evidence indicated that Dynamic had falsely represented to TRICARE that its physical therapy services had been provided by an authorized physical therapy provider, when, in fact, they had been provided by an unauthorized physical therapy assistant.

The resolution obtained in this matter was the result of a coordinated effort between the U.S. Attorney’s Office for the District of Colorado, the Department of Health and Human Services – Office of the Inspector General, the Defense Criminal Investigative Service, and the Federal Bureau of Investigation.

Iowa Plastic Surgeon Agrees to Pay $800,000 to Resolve Allegations of Inappropriate Billing

Dr. Ronald Bergman and his medical practice, Bergman Cosmetic Surgery, P.C., of Des Moines, Iowa, have agreed to pay $800,000 to the United States and the State of Iowa to resolve allegations that Bergman wrongfully billed Medicare and Medicaid for services rendered by others and billed Medicare for medically unnecessary and unreasonable applications of skin substitute products.

Specifically, the government alleged that from 2013 to 2020, Bergman submitted inappropriate claims for payment to government healthcare programs in three ways. First, the government alleged that Bergman submitted claims to Medicare and Medicaid in his own name when, in fact, the services were rendered by auxiliary personnel, and when there was insufficient physician involvement for the claims to be billed in Bergman’s name. Second, the government alleged that Bergman submitted claims to Medicare and Medicaid in his own name when, in fact, the services were rendered by medical fellows without Bergman, as the teaching physician, being physically present. Third, the government alleged that Bergman submitted claims to Medicare for medically unnecessary and unreasonable applications of skin substitute products.

This civil matter arose from an action brought under the whistleblower provisions of the False Claims Act. Pursuant to that Act and the settlement agreements, the whistleblower will share in the United States’ financial recovery.

Pill Mill Operator Convicted For Oxycodone Diversion

PURIFICACION CRISTOBAL, was found guilty by a federal jury verdict September 7, 2022 for her participation in a conspiracy to distribute oxycodone without a legitimate medical purpose acting outside the usual course of professional practice. CRISTOBAL was also convicted of two counts of oxycodone distribution pertaining to specific prescriptions. She was found not guilty of other counts of oxycodone distribution pertaining to other prescriptions. Cristobal will be sentenced by U.S. District Judge Katherine Polk Failla, who presided over the approximately two-week trial.

As proven at trial, Purificacion Cristobal, a licensed nurse practitioner purporting to specialize in psychiatry, operated a clinic on Westchester Avenue in the Bronx. Between approximately June 2019 and June 2020, Cristobal prescribed tens of thousands of doses of oxycodone without a legitimate medical purpose outside of the usual course of professional practice. Oxycodone is a highly potent and addictive opioid that commands high prices in the black market because of demand by drug abusers. Cristobal often prescribed oxycodone in combination with Xanax (alprazolam) and/or Adderall (amphetamine), controlled substances that are themselves frequently abused and resold illicitly. 

Cristobal never performed physical examinations or medical tests, often asked patients to take their pick among different narcotics and was repeatedly warned by others that her patients were reselling or abusing the drugs she prescribed.  She encouraged existing patients to recruit others, regularly accepted cash, and charged different cash “fees” depending on how many prescriptions she wrote for a particular patient. Cristobal also coordinated with a nearby pharmacist, to whom she referred many of her patients, to shield her unlawful prescribing practices from law enforcement scrutiny.

Cristobal, 75, of Lyndhurst, New Jersey, was convicted of one count of conspiring to distribute oxycodone and two counts of distributing oxycodone without a legitimate medical purpose acting outside the usual course of professional practice. Those counts carry, in the aggregate, a maximum potential sentence of 60 years in prison. 

The maximum potential sentence is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Former NBA Player, Alleged ‘Ringleader’ of $5 Million Insurance Scheme Pleads Guilty

The Defendants Allegedly Engaged In A Widespread Scheme To Defraud The NBA Players’ Health And Welfare Benefit Plan

By submitting fake reimbursement claims for medical and dental services they never had players led by Terrence Williams learned he pleaded guilty to conspiring to commit health care fraud and identity theft in connection with a multimillion-dollar scam against the basketball league’s health plan, authorities said. Williams, selected 11th overall in the 2009 NBA draft by then-New Jersey Nets, pleaded guilty to one count of conspiracy to commit health care and wire fraud and aggravated identity theft. The latter charge carries a mandatory minimum sentence of two years in prison. Sentencing before Judge Caproni is scheduled for January.

Williams was one of 18 former players named in an indictment. The plea agreement announced by prosecutors includes a $2.5 million restitution payment to the NBA health plan and more than $650,000 to the government.

A judge remanded Williams to jail in May after text messages allegedly sent from the 35-year-old to a witness violated his pretrial release. The witness was “talking way to[o] f[—]ing much,” and Williams told them to “shut the f[–]k up,” according to prosecutors. More than a dozen former NBA players were charged in the alleged multi-million dollar health insurance fraud scheme to rip off the league’s benefit plan, with a former Nets player as the ringleader.

According to the grand jury indictment, the defendants allegedly engaged in a widespread scheme from at least 2017 up to around 2020 to defraud the NBA Players’ Health and Welfare Benefit Plan by submitting fake reimbursement claims for medical and dental services that were never actually rendered.

In some cases, the players who submitted the alleged false claims weren’t even in the United States at the times they allegedly received the treatments. They allegedly filed fake invoices saying they had to pay for the phantom procedures out of pocket.

Those allegedly fraudulent claims totaled about $3.9 million, from which the defendants got about $2.5 million in fraudulent proceeds, the indictment alleges.

Williams allegedly orchestrated the years-long scheme and recruited other NBA health plan participants to assist by offering them fake invoices to support their claims. He allegedly received at least $230,000 in kickback payments from 10 other players in return for providing the alleged false documentation.

The 34-year-old Williams also allegedly helped three co-defendants – Davis, Charles Watson Jr. and Antoine Wright – obtain fake letters of medical necessity to justify some of the services on which the false invoices were based.

Among the false reimbursement claims described in the indictment was a $19,000 claim that Williams filed for chiropractic services he allegedly never had and for which he received $7,672.55 in reimbursement. Williams also allegedly obtained a template for a fake invoice designed to appear as if it had been issued by the office.

Fake chiropractic treatment invoices were allegedly also created for Davis, Watson Jr. and Wright and emailed to Williams. The template had the date, invoice number, services and a charge of $15,000 filled in but left the “bill to” box, where the name of the patient would ordinarily be found, blank, according to the indictment.

Williams is accused of emailing those fake invoices to the other defendants named in the indictment. He and defendant Alan Anderson, who briefly played for the Nets from 2013 to 2015, allegedly helped get fake letters of medical necessity for Davis, Watson Jr. and Wright in furtherance of the fraud scheme as well.

According to the court documents, several of the fake invoices and medical necessity forms stood out because, “they are not on letterhead, they contain unusual formatting, they have grammatical errors” and were sent on the same dates from different offices.

Authorities said Terrence Williams received at least $300,000 in kickbacks from the others for his efforts.

In situations where others involved balked, authorities said Williams pretended to be other people and threatened them to gain compliance.

The National Basketball Players Association said in a statement that they were “aware of the indictment of former NBA players announced earlier today” and that they will “continue to monitor the matter.”

New York A.G. Secures $850,000 from Disability Services Not-for-Profit That Defrauded Medicaid

Guilty to Insurance Fraud in Iowa

D’Alan Thurmond, age 41, of Waterloo, pled guilty on April 25, 2022, to one count of Presenting False Information, a class “D” Felony, following an investigation by the Iowa Insurance Division’s Fraud Bureau.

The investigation began in December 2019 after the Iowa Insurance Divison’s Fraud Bureau received information indicating Thurmond had provided false information to an insurer following an automobile accident in Black Hawk County. 

The investigation determined Thurmond had made false representations regarding the nature of the loss in an effort to secure benefits of the policy. He claimed that his vehicle was stolen when, in fact, it was involved in a single-car accident while he was the driver.

“Insurance fraud is not a victimless crime. We all pay for insurance fraud in the form of higher insurance costs,” Iowa Insurance Commissioner Doug Ommen said. “I appreciate the hard work of our Fraud Bureau and the Blackhawk County Attorney’s Office in the prosecution of this case, so Mr. Thurmond was held accountable for his actions.”

Following his guilty plea, Thurmond received a five year prison sentence, which he is serving concurrently to an unrelated crime. Financial penalties were suspended.

Chiropractor Pleads Guilty to Insurance Fraud and Fraudulent Practices

Joshua David Blunt, age 41, of Bettendorf, recently pled guilty to one count of Insurance Fraud – Presenting False Information (Class D Felony) and one count of Fraudulent Practices 4th Degree (Serious Misdemeanor) following an investigation by the Iowa Insurance Division’s Fraud Bureau.

The investigation began in May 2019 after a complaint alleged Blunt, while employed as a chiropractor at New Life Chiropractic Clinic in Bettendorf, submitted multiple fraudulent claims to Wellmark, Inc. 

The investigation revealed Blunt utilized fraudulent billing practices which had been previously identified and addressed by Wellmark on at least two previous occasions. After being provided with education on these practices, and repaying Wellmark for fraudulently obtained claim payments, Blunt continued to submit fictitious billing information for chiropractic care and treatment services which had never been provided. As a result, Blunt illegally obtained $20,778 in claim payments.

Additionally, the investigation revealed that after purchasing a 2008 Flagstaff Travel Trailer in October 2017 for $8,500, Blunt provided false information to the Scott County Treasurer’s Office by reporting the purchase price as $1.00. As a result, Blunt avoided paying $424.90 in new registration fees.

Blunt was arrested on May 20, 2021 by the Scott County Sheriff’s Office and released after posting bond. 

Following his guilty plea, Blunt received a deferred judgment and was sentenced to two years of probation, ordered to pay a civil penalty of $1,455, restitution to Wellmark in the amount of $20,778 and to the State of Iowa in the amount of $425.

Other Insurance Fraud Convictions

Nebraska Farmer Ordered To Pay $1 Million For Crop Insurance Fraud

Ross Nelson, a farmer of Newman Grove, Nebraska was ordered to pay $1 million in restitution for profiting off a fraudulent crop insurance claim.

The U.S. Attorney’s Office for the District of Nebraska said Nelson provided false losses of soybeans and corn when he filed a claim in 2015 to an authorized insurance provider. Court documents revealed that he received more than $700,000 in reimbursement for losses, and the USDA’s Risk Management agency launched an investigation because Nelson’s losses didn’t match neighboring farms in Holt County.

Nelson has also been sentenced to 4 years’ probation and 16 weekends of intermittent confinement and a $30,000 fine.

Guilty Because a Hitting a Tree is not a Deer

Jared Simmons, age 42, of Davenport, pled guilty on September 1, 2022, to one count Presenting False Information, a class “D” Felony, following an investigation by the Iowa Insurance Division’s Fraud Bureau.

The investigation began in January 2021 after the Iowa Insurance Division’s Fraud Bureau received information indicating Simmons had provided false information to an insurer following an automobile accident in Scott County. 

The investigation determined Simmons had made false representations regarding the nature of the loss in an effort to secure benefits of the policy. Simmons claimed that his vehicle sustained damage after hitting a deer when, in fact, the damage was sustained when Simmons was involved in a single-car accident while he was intoxicated. Simmons was arrested on February 3, 2022.

Following his guilty plea, Simmons received a five year suspended prison sentence and placed on supervised probation for a period of two years. Simmons was also ordered to pay a fine of $1,025.

Disbarred After Forgeries, Misconduct When Insurance Defense Attorney Goes Bad

Erika Lynn Muller, until recently a partner with the Cole, Scott & Kissane firm, based in Fort Lauderdale, Florida, a former attorney with one of Florida’s top insurance defense firms has been disbarred after the Bar said she engaged in repeated acts of neglect, deception and forgery.

Muller can no longer practice in the state, the Florida Supreme Court said in an order last week. The court agreed with the Bar’s complaint and a referee’s recommendation that she be disbarred, following months of disciplinary proceedings.

The Bar’s complaint listed several bases for the disbarment:

  • lack of truthfulness,
  • misconduct and
  • lack of communication with regard to one case in particular that unfolded in 2020 and 2021.

In a slip-and-fall claim against Rooms To Go furniture company in Miami, Muller offered to settle the claim for $325,000, even though she was not authorized to do so. She then sent the plaintiff’s attorney a photocopy of a check that she had allegedly fabricated. The plaintiff’s lawyer filed motions to enforce the settlement, which resulted in a court judgment in March 2021 of $425,000.

Muller agreed to send $550,000 to stop the garnishments on the judgment. She allegedly sent a photocopy of another fabricated cashier’s check, then said she would hand-deliver the check. On the day of the planned transfer, she falsely said she was in an automobile accident.

Meanwhile, Muller told the furniture company and an adjuster for the insurance company that the case was still in mediation and on April 7, 2021, Muller informed Cole, Scott & Kissane attorneys that she was resigning. In an affidavit, Muller acknowledged that she made misrepresentations to multiple parties and presented altered documents to plaintiff’s counsel.

In her affidavit, Muller stated that she was suffering from a mental health crisis during the time of the misconduct. Muller failed to respond to any of the Bar’s inquiries into the matter. The Rooms To Go litigation, brought by an independent contractor who was injured at an RTG parking lot, was dismissed in June 2021.

A referee judge who reviewed the case against Muller agreed with the disbarment action.

The state Supreme Court, which in recent years has often disagreed with referees’ recommendations, accepted it in this case and said the disbarment will be effective September 25, 2022. Muller must also pay $1,315 to cover the Bar’s costs in investigating the case.

Muller is a graduate of the University of Miami School of Law and was a member of the Florida bar since 2008. The Cole, Scott & Kissane website notes that she focused on bad-faith litigation, personal injury defense, premises liability and insurance defense litigation.

New Books:

The Equitable Remedy of Rescission of Insurance

An Effective Tool to detect, deter and defeat insurance Fraud Hardcover – June 17, 2022

The Equitable Remedy of Rescission

Rescission is an equitable remedy first created in the ecclesiastical courts of Elizabethan England.
When the United States was conceived in 1776 the founders were concerned with protecting their rights under British common law.

Common Law is a form of law developed by judges through tribunals and decisions of courts rather than executive branch action and legislative statutes.

Following the common law tradition, legal principles were referred to courts of equity to “mitigate the rigor” of the common law.

The new United States of America adopted British common law as the law once the U.S. Constitution was adopted in 1789. British common law was only modified by the limitations placed on the central government by the Constitution.

The viability and ability to enforce contracts was recognized as essential to commerce. Courts of law, following the British Common Law, were charged with enforcing legitimate contracts and rendering money judgments against the party who breached the contract.

 It became clear, however, that some contract disputes cannot be resolved with a money judgment. Rather, it needed the assistance of the courts of equity whose judges, in the Elizabethan era were presided over by priests who were believed to be better able to render fair judgments.

The term “equity” is associated with notions of fairness, morality and justice. It is an ethical jurisdiction. On a more legalistic level, however, “equity” is the branch of law that was administered in the Court of Chancery prior to the Judicature Acts 1873 and 1875.

This was a jurisdiction evolved to achieve justice and to overcome the rigorous and deficiencies of the common-law. Although application of conscience pervades this aspect of the law, equity never bestowed an unfettered jurisdiction on the Court of Chancery to do what was fair in the settlement of a dispute. Embodying aspects of ecclesiastical law and Roman law, equity developed and gradually emerged as a distinct body of law.

 It was not until 1875 that equity was practiced in the common law courts. The existence of a dual system entailed that, for example, when a defendant had an equitable defense to a common law action, he would have to go to the Court of Chancery to obtain an injunction to suspend the proceedings in common-law court. He would then begin a fresh action for relief in the Court of Chancery. Facing duality persisted until the Judicature Acts which created the Supreme Court of Judicature and allowed all courts to exercise both a common law and equitable jurisdiction.

The courts of equity were charged with, among other things, protecting contracting parties from mistake, fraud, misrepresentation and concealment where no damages were involved. It was the obligation of the courts of equity to reach a result that was fair to all of the parties to the contract. The founders of the United States, and the British common law, concluded that equity required that enforcing a contract based on mistake, fraud, misrepresentation or concealment would not be fair.

A court of equity is a court which can apply equitable remedies to disputes. These courts operate within the legal system, but rather than focusing on the application of law, they look at cases and determine outcomes based on fairness. They can be found in many regions of the world. In modern usage in the United States trial courts are empowered to handle both legal and equitable remedies.

A court of equity can hand down a judgment which includes an equitable remedy such as an injunction, as opposed to simple monetary damages.

The judge in a court of equity can weigh many different sides to a case and explore different perspectives to arrive at a judgment.

NEW BOOKS

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Insurance Fraudsters Deserve No Quarter

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New Book That Explains How to Defeat or Deter Insurance Fraud

The Examination Under Oath to Resolve Insurance Claims

The Most Effective Tool Available to Insurers to Defeat Attempts at Insurance Fraud & to Resolve Questionable Claims

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