Danger – Don’t Let a Claims Made Policy Lapse

Why a Claims Made Policy Requires Claim Be Made During Policy Period

Claims Made and Claims Made and Reported policies contain traps for unwary insureds who do not understand the limitations of that coverage. Unlike “occurrence” based policies if a claim is not made during the effective dates of the policy there is no coverage at all although premium has been paid to the insurer for years.

In The ACT-1 Group, Inc. v. Alternative Care Staffing, Inc., Slip Copy, 2015 WL 4967133 (E.D.Mich., 8/20/2015 Evanston Insurance Company (“Evanston”) and Markel Corporation’s (“Markel”) were sued to provide defense and indemnity to The ACT-1 and filed motions for summary judgment which were ruled upon by the District Court for the Eastern District of Michigan.

Background

On March 6, 2007, Gloria Brown died at the Henry Ford Hospital in Detroit, Michigan while being treated by Alisha Noel, a nurse employed by defendant Alternative Care Systems (“ACS”). The Henry Ford Health System (“HFHS”) contracted with plaintiff, ACT–1 Group, Inc. (“ACT–1”), a staffing company, to provide nursing staff for HFHS hospitals. (ACT–1 then subcontracted with ACS to provide the Henry Ford Hospital with nurses.

On August 21, 2008, the estate of Gloria Brown sued HFHS for medical malpractice, alleging that Noel was negligent in treating Brown (“the Brown litigation”). The Estate of Gloria Brown did not name ACS or Evanston as defendants in that lawsuit.

At some time between January and March of 2010, the Brown litigation settled for $877,243.03. Neither ACS nor Evanston participated in that lawsuit or settlement.

On September 10, 2010, HFHS sued ACT–1 and ACS in Michigan state court for indemnification in the Brown lawsuit. The court entered judgment against ACT–1 and ACS in that suit for $877,247.03. (Dkt. 1–2 at 159.)

ACS’ Insurance Policy

ACS purchased medical malpractice insurance through Evanston. However, ACS financed its insurance premiums through loans from the National Premium Budget Plan (NPBP), and the NPBP cancelled ACS’ insurance policy when ACS failed to make its monthly payments on the loan. ACS’ policy was cancelled effective March 25, 2009. Between March 25, 2009 and June 24, 2009, ACS did not have medical malpractice insurance coverage through Evanston or anyone else.

On June 23, 2009, an application was submitted and confirmed that it was unaware of “any circumstances which may [have] result [ed] in a malpractice claim or suit being made or brought against [ACS] or any of [ACS’] employees.” As a result of the application, ACS began a new Evanston insurance policy on June 24, 2009, with no retroactive coverage. That policy lasted until June 24, 2010.

HFHS Contacts ACS

On September 9, 2008, Paradiso sent a letter to Corner asking her to tell ACS about the Brown litigation. In his deposition, Paradiso referred to this letter as a “notification letter” that contained “no claim request.”

No one at Evanston or on behalf of Evanston had any discussion with the owners of ACS or Corner until Fall 2009.  On September 15, 2009, an insurance broker forwarded the Brown litigation papers, including the May 11, 2009 claim from Paradiso, and a copy of an email from ACT–1’s attorney to the claims services manager at Markel. Two days later, John Foley, the claims manager for Evanston, contacted ACT–1’s attorney for additional information. Foley then assigned the claim to Jagady Blue, senior claims manager for Markel, for handling. Blue searched the record and concluded that no claim was made against ACS during ACS’ policy period that would have triggered coverage. ACS’ policy through Evanston expired on June 24, 2010.

Indemnification Suit

On September 10, 2010, HFHS sued ACT–1 and ACS in Michigan state court for its settlement costs, plus additional costs and fees. On August 5, 2011, that court ordered ACT–1 to indemnify HFHS and entered judgment against ACT–1 for $877,243.03.
ACT–1 sued ACS, Evanston, and Markel on July 15, 2013, claiming that ACS breached its subcontracting agreement by failing to indemnify ACT–1 in the Brown litigation.  ACT–1 also sued Evanston and Markel as a third-party beneficiary under MCL § 600.1405, claiming that Evanston breached its 2008 insurance agreement with ACS by failing to indemnify ACS in the Brown litigation.

Legal Standard

Defendant moves for summary judgment on two grounds: (1) that ACT–1 failed to file a claim with ACS or Evanston during the period of ACS’ insurance coverage and (2) that Markel Corporation is not an insurer.

ACS’ insurance contract provides claims-made coverage, which means that only claims first made during the policy period will be covered. ACS was covered by Evanston insurance from May 28, 2003 to March 25, 2009, under a policy with a retroactive date of May 28, 2003, and from June 24, 2009 to June 24, 2010, with a retroactive date of June 24, 2009. The retroactive dates in the policies bar claims first made against the insured before those dates. Accordingly, plaintiff must show that HFHS first made a claim against it during one of these policy periods.

On May 11, 2009, eight months after sending the first letter, Paradiso sent a second letter to the office manager of ACS. This letter stated that HFHS “ha[s] provided [ACS] with a copy of the Summons and Complaint which [have] been served upon Henry Ford Hospital.” It then conveyed the intent to hold ACS liable for the harm caused by ACS’ employee, Noel, advising ACS that HFHS had decided to apply the contract provision requiring ACT–1 to indemnify and defend HFHS with regards to the claims against Noel. The letter further counseled ACS that “it will be important for ACS to contact Noel and make arrangements for representation.”

However, Paradiso’s letter of May 11, 2009 was sent and received in the three-month period during which ACS lacked Evanston insurance. ACS’ 2008–2009 policy was cancelled on March 25, 2009, and its next policy began on June 24, 2009, with a retroactive date of June 24, 2009. Because ACS first received Paradiso’s insurance claim on May 11, 2009, during the three-month period in which ACS lacked insurance coverage, Evanston is not contractually bound to provide insurance coverage for any restitution related to the Brown litigation that ACS may have to pay.

Because there is insufficient evidence for a reasonable juror to conclude that ACT–1 properly filed an insurance claim against ACS during the period of ACS’ Evanston insurance coverage, summary judgment must be granted.

ZALMA OPINION

Had the insured paid the loan payments its policy would not have been cancelled by the premium finance company it would have had coverage available. Because of the three month lapse in coverage the loss that occurred during the lapse was not covered.

 

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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

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

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

Legal Disclaimer:

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

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Posted in Zalma on Insurance | Comments Off on Danger – Don’t Let a Claims Made Policy Lapse

Insurance Claims Expert’s Testimony Limited

Plaintiff’s Bad Faith Expert Exceeded Proper Limits of Testimony

Plaintiffs suing insurance companies find it necessary to retain the services of an expert who will testify that the conduct of an insurer in denying a claim, breached the custom and practice of the industry and the claims handling standards in the jurisdiction set by statute, regulation and claims handling experience. Since the expert seems more knowledgeable than any lay person or insurance company employee the expert’s testimony can prejudice the insurer in favor of the person retaining the expert. It is the obligation of the trial court to limit the expert’s testimony to expert testimony that will be helpful to the trier of fact to understand the evidence or to determine a fact in issue.

In response to an order to prevent an expert from testifying the U.S. District Court for the District of Colorado was asked by the insurer defendant to limit the expert testimony of plaintiffs’ expert because he went too far and stated opinions that were findings of fact and law and some that were outside his expertise. The plaintiffs tried to keep all of his testimony available. The court reached its conclusions in Weldesamuel Gebremedhin, an individual, Terhas Desta, an individual, Abrham Giday, a minor, by and through his guardians and natural parents, Weldesamuel Gebremedhin and Terhas Desta, Plaintiffs, v. American Family Mutual Insurance Company, Defendant, Slip Copy, 2015 WL 4979742 (D.Colo., 8/21/15)

BACKGROUND AND RELEVANT PROCEDURAL HISTORY

This case involves third-party breach-of-contract and bad faith claims arising out of an insurance coverage dispute between Glen and Veronica Turner (the “Turners”) and American Family. The Turners were foster parents insured by an American Family homeowner’s insurance policy in the spring of 2009 while then infant Plaintiff Abrham Giday suffered severe brain injuries while placed under the Turners’ foster care. Abrham Giday and his birth parents (also the Plaintiffs in the instant litigation) subsequently filed suit in a Colorado state court against the Turners (the “underlying litigation”).

The Turners sought a defense and indemnity from American Family under their homeowner’s policy. American Family in turn denied any obligation to provide any coverage in the form of indemnity or a defense, citing that the facts as alleged in the underlying litigation triggered intra-insured bodily injury and business pursuits exclusions in the insurance agreement.

Plaintiffs served the expert report of Garth Allen (“Professor Allen”).  His education, training and experience was sufficient to be allowed to testify as an expert. American Family filed a Motion to strike a wide range of the opinions proffered by Professor Allen. American Family contends that many of Professor Allen’s opinions improperly reach the ultimate issues in this case in contravention of Rules 702 and 704 of the Federal Rules of Evidence, improperly interpret the relevant legal standards and the contract, and improperly seek to instruct the jury of the relevant legal standards and the contract.

ANALYSIS

Even when the court is satisfied that the expert opinion is not an impermissible legal opinion or conclusion. The Tenth Circuit has repeatedly recognized that trial courts have the discretion to exclude expert testimony regarding the “industry standard,” absent an adequate showing of helpfulness to the jury.

In urging the court to deny Defendant’s Motion to Strike, Plaintiffs note that expert testimony in a bad faith action as to relevant industry custom and practice is not per se barred by Rules 702 and 704, and in a number of cases, both within and outside this jurisdiction, has been held to be admissible.

After analysis of the opinions the court noted that in some places, Professor Allen’s opinions can only be described as pronouncements of law. For example, Opinion No. 24 states “I would note that under federal law, payments received by foster parents for a qualified foster care placement agency are not considered income and are not reported on a tax return.” In another example, Opinion No. 28 states “[t]erms undefined in the policy must be given their ordinary meaning and when the terms are incorporated into an exclusion, they must be construed narrowly so as to favor coverage according to insurance industry standards and Colorado case law.”  Professor Allen himself acknowledges that there is “substantial overlap between industry standards and the law because the standard is to never act in violation of the law.”

In addition, many of Professor Allen’s challenged opinions are simply directions to the jury on how to rule that do not even refer to, let alone explain, industry standards. For instance, Opinion No. 20 states “[T]he removal of Giday from his parents’ home by DHS was temporary as a matter of law.”

Moreover, there are two opinions offered by Professor Allen that do not appear based on his expertise, and are therefore, improper and unduly prejudicial. Opinion 39, which states that foster care is “much more likely to be a humanitarian” rather than profit-driven activity, and Opinion 40, which states that Ms. Turner would have informed American Family that she wished to help out young children through such care if American Family had inquired as to her motivations, raise a different issue. The court concluded that Professor Allen cannot testify to challenged Opinions 39-40.

Finally, the court concluded that the majority of the challenged testimony, even assuming that the proffered opinions are considered to go to ultimate issues of fact rather than law, is not helpful to a properly instructed jury. In applying these standards, the court found that Plaintiffs have failed to meet their burden of demonstrating the admissibility and/or the helpfulness of Expert Opinion Nos. 1-6, 9-12, 14, 16-18, 20-25, 27-28, 32-34, 36-37, and 39-40. These challenged opinions were stricken from Professor Allen’s Report.

However, Professor Allen may testify to the following opinions:

Expert Opinions 7 that stated: “Reliance on the Business Pursuits exclusion, like the reliance on the Intra-Insured exclusion, was improper and contrary to insurance industry standards.”

Expert Opinion 8 that stated: “It was unreasonable and contrary to insurance industry standards for American Family to reject, disavow, and thus fail to meet its duty to defend.”

Expert opinion 13 that stated: “American Family acted unreasonably and contrary to insurance industry standards by failing to timely acknowledge and accept its duty to defend.”

Expert opinion 15 that stated: “As a practical matter, liability claims against the insured can seldom be denied in full, including a refusal to defend.”

Expert opinion 19 that stated: “At bottom, the allegations of the Amended Complaint gave rise to the possibility that Giday’s erroneous five-night stay with the Turners did not make him a resident of their household for the purposes of the policy’s Intra-Insured exclusion.”

Expert opinion  26 that stated: “American Family was required, by law and insurance industry standards, to determine if it was possible that Giday was not a resident of the Turner household and provide a defense if that possibility existed.”

Expert opinions 29-31 that stated: “29. If American Family questioned the residency status of Giday, it could have explored beyond the Amended Complaint, not in order to deny the claim, but to find clarification in order to provide a defense; 30. Most importantly, even without any information beyond the operative complaint, American Family was required by law and insurance industry standards, to determine if it was possible that Giday was not a resident of the Turner household and provide a defense if that possibility existed; and 31. Typically, the insurer either must, or out of an abundance of caution should, elect to defend a claim so that more information can be accumulated during the litigation process, information that can then be used to make an informed decision regarding indemnity, including settlement of the claim.”

Expert opinion 35 that said: “Both overlooked the critical issue if Giday’s residency at the time of the denial and during their deposition testimonies.”

Expert opinion 38 that said: “In Colorado, the standard and custom in the insurance industry is to defend almost all tendered claims due to the extraordinary broad nature of the defense obligation and the high cost to the insurers that improperly fail to defend their insured.”

However, even though the court will allow the testimony described, if, with respect to Opinion Nos. 26, 30, and 38, the professor attempts to testify with any reference to “the law” or in the case of No. 38, to “the extraordinary broad nature of the defense obligation,” will be stricken if brought up at trial.

ZALMA OPINION

The court performed its duty as a gate keeper over expert testimony. It limited the testimony of the expert to testimony about the custom and standard in the insurance industry but refused to allow him to testify about the law or any legal opinions. It is the duty of the expert to help the jury or judge to determine facts outside normal understanding. It is wrongful for an expert to try to instruct the jury about the law or opinion on subjects where the expert has no expertise. Bad faith litigants should never allow an expert to exceed the purpose for which he or she was retained.

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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

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

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

Legal Disclaimer:

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

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Insurance Fraud & Weapons to Defeat Fraud

A New Book from Barry Zalma

Insurance Fraud & Weapons to Defeat Fraud

Insurance fraud continually takes more money each year than it did the last from the insurance buying public. There is no certain number because most attempts at insurance fraud succeed. Estimates of the extent of insurance fraud in the United States range from $87 billion to more than $300 billion every year.

Insurers and government backed pseudo-insurers can only estimate the extent they lose to fraudulent claims. Lack of sufficient investigation and prosecution of insurance criminals is endemic. Most insurance fraud criminals are not detected. Those that are detected do so because they became greedy, sloppy and unprofessional so that the attempted fraud becomes so obvious it cannot be ignored.

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

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

The e-book contains the full text of the most important insurance fraud cases in over 2000 pages of material essential to every insurance fraud professional.

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Is Reliance & Materiality Required to Rescind Marine Insurance?

The Eighth Circuit Adds to Proof Needed For Rescission of Marine Insurance

Traditionally, any misrepresentation, concealment, or failure to disclose information concerning the sea worthiness of a vessel is sufficient to rescind the policy. The Eighth Circuit, ruling on a case where the trial court granted an insurer summary judgment, was faced with whether the insurer needed to prove it relied upon the concealed facts and if those facts were material, before rescission is appropriate.

In St. Paul Fire & Marine Ins. Co. v. Abhe & Svoboda, Inc., — F.3d —-, 2015 WL 4939878 (C.A.8 (Minn., 8/20/2015) the insurer denyied its insured’s claim for coverage for a barge that sunk during a storm. The insurer brought action against the insured, seeking a declaration that its marine insurance policy was void under the doctrine of uberrimae fidei because the insured failed to disclose material facts in its application for coverage. The United States District Court for the District of Minnesota granted summary judgment in favor of insurer.

Abhe & Svoboda, Inc. (“Abhe”), filed a claim for insurance coverage after a barge sunk.  St. Paul Fire denied Abhe’s claims and then filed suit in the district court seeking a declaration that the policy was void under the doctrine of uberrimae fidei. That doctrine requires that parties to an insurance contract must accord each other the highest degree of good faith. Since Abhe failed to disclose material facts in its application for insurance coverage the trial court granted St. Paul’s motion for summary judgment.

FACTS

Abhe leased two barges from Sterling Equipment, Inc. to assist it in painting a bridge. These barges were “dumb” barges, meaning that they had no motor or means of propulsion and were intended to serve solely as stationary equipment platforms. The barges are SEI–34 and SEI–120.

Abhe purchased a package marine insurance policy from St. Paul Fire. St. Paul Fire did not request that Abhe complete an application for insurance, but instead accepted the application that Abhe provided to its previous insurer in May 2010. On May 3, 2011, Abhe sent St. Paul Fire an updated schedule of vessels, which included SEI–34 as a leased barge with a value of $225,000, reflecting its agreed value on its charter application with Sterling. Abhe did not provide St. Paul Fire with the November 2010 survey of SEI–34, and St. Paul Fire did not attempt to survey any of Abhe’s marine equipment, as it was entitled to do under the policy. St. Paul Fire issued Abhe a Marine Hull and Protection and Indemnity Policy effective July 1, 2011, through July 1, 2012.

On October 29, 2011, a severe nor’easter struck  and SEI–34 sank to the bottom of Narragansett Bay and landed upside down, crushing most of the equipment that was welded to its deck.

St. Paul Fire filed this action in the district court, seeking a declaratory judgment that it had no duty to defend or indemnify Abhe for several reasons.

ANALYSIS

This dispute concerns a marine insurance contract and therefore is governed by the principle of uberrimae fidei, or utmost good faith. This duty of good faith requires the insured to disclose to the insurer all known circumstances that materially affect the risk being insured.  Because the insured is in the best position to know of any facts that may be material to the risk, the insured is obligated to disclose those facts to the insurer, regardless of whether the insurer makes a specific inquiry.

The parties agree that Abhe was required to disclose all material facts to St. Paul Fire, but they dispute whether there is another element to an insurer’s claim that a policy is void for non-disclosure. Abhe argues that an insurer cannot void a policy under the doctrine of uberrimae fidei without showing both that the insured failed to disclose a material fact and that the non-disclosure induced the insurer to issue the policy.

The principal case to address the question directly is Puritan Insurance Co. v. Eagle Steamship Co. S.A., 779 F.2d 866 (2d Cir.1985), which held that reliance is a necessary element of the uberrimae fidei defense.

The insured in Puritan failed to disclose two losses suffered by two of its vessels on its application for insurance.  Even though the insurer had no knowledge of the second loss, the Second Circuit upheld the district court’s finding that while the insured should have disclosed the second loss to the insurers, the insurers “failed to prove that they would not have undertaken the risk had they been fully informed of this loss.” Puritan thus requires that an insurer seeking to void a policy show reliance on an insured’s non-disclosure, regardless of whether the insurer had knowledge of the undisclosed material fact at the time that it decided to issue the policy.

The Eighth Circuit found the Second Circuit’s reasoning persuasive. Before a party can rescind a contract due to the other party’s non-disclosure or misrepresentation, he must show that the misrepresentation induced him to enter the contract. A party is required to show a causal connection between the other party’s omission and the issuing of the contract.

St. Paul Fire’s proposed rule also would create a moral hazard and have the perverse effect of encouraging insurers to assume unreasonable risks and to issue insurance polices that they otherwise would not have issued. Under the rule proposed by St. Paul Fire, if an insurer knows that an applicant for insurance failed to disclose or misrepresented a fact that other prudent insurers may deem to be material, that insurer would have an incentive to issue the policy anyway, collect premiums from the insured, and then use the doctrine of uberrimae fidei to void the policy if an accident occurs and the insured seeks to invoke the policy’s protection.

While most circuits have not explicitly recognized reliance as a distinct element of the uberrimae fidei defense, some courts have applied a subjective test for materiality that asks whether the insurer in fact would have found the omitted information to be material.

Clarity is enhanced by preserving actual reliance and objective materiality as distinct elements. In one of its earliest cases concerning a marine insurer’s uberrimae fidei defense, the Supreme Court applied an objective test for materiality, concluding that “[h]ad [the undisclosed fact] been known, it is reasonable to believe that a prudent underwriter would not have accepted the proposal as made.” Sun Mut. Ins. Co. v. Ocean Ins. Co., 107 U.S. 485, 509–10, 1 S.Ct. 582, 27 L.Ed. 337 (1883); see also AGF Marine Aviation & Transp. v. Cassin, 544 F.3d 255, 264–65 (3d Cir.2008); and Grande v. St. Paul Fire & Marine Ins. Co., 436 F.3d 277, 282–83 (1st Cir.2006).

St. Paul Fire argues that even if reliance is an element of the defense, there is no genuine issue of fact for trial on whether it relied on Abhe’s failure to disclose the 2010 survey. The insurer argues that its underwriter, Ed King, received, reviewed, and relied upon Abhe’s insurance application before deciding to insure SEI–34. King also testified that the 2010 survey of SEI–34, which indicated a lack of watertight bulkheads and pinholes in the hull, would have been “very important in underwriting [the] risk.” Abhe countered, however, with evidence that in June 2012, King renewed coverage for SEI–120, despite receiving an on-hire survey for that vessel that showed the vessel lacked watertight bulkheads.

The Eighth Circuit concluded that this evidentiary dispute is sufficient to create a genuine issue of material fact as to whether St. Paul Fire relied on Abhe’s failure to disclose SEI–34’s lack of watertight bulkheads in issuing the insurance policy for that barge.

If the case proceeds to trial on the defense of uberrimae fidei, the question of materiality should be submitted to a jury for resolution of disputed issues of fact.

Since reliance is an element of the defense, there are disputed issues of fact as to whether it is satisfied, so the judgment was reversed and returned to the District Court for determination of the factual issues.

ZALMA OPINION

The case relied, not on the defense of uberrimae fidei, but on the failure of evidence to convince the Eighth Circuit that there is an issue of fact to be determined. The insurer’s failure to present evidence from its underwriter that had it known the truth it would either have refused to issue the policy or would have issued the policy on different terms was why trial is required. If the jury believes the insurer rescission will apply. If, on the other hand, it believes the evidence provided by the insured, rescission will not lie because materiality is a necessary element. This is not a change as much as it is an inadequacy of proof.

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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

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

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Is Reliance & Materiality Required to Rescind Marine Insurance?

Insured Must Be Named In Policy To Obtain Coverage

Another Failure to Get Insurance Money Instead of Financially Viable Defendant

Insurance is nothing more than a contract. The contract must be read as written. If a person is not named as an insured nor made an insured by a definition, it has no right to the benefits and promises made by an insurance policy.

In Diseworth at Somerby v. Western Nat. Mut. Ins. Co., Not Reported in N.W.2d, 2015 WL 4994600 (Minn.App., 8/24/15) the Minnesota Court of Appeal was faced with an argument that because multiple corporations had similar or identical owners even if not named as an insured on a policy the insurer is required to defend and indemnify a corporation owned by the same people who own the named insureds, and resolved the dispute based on the clear and unambiguous language of the policy.

The appellant, an assignee of defendants in a construction defect suit, lost to an insurer’s motion for summary judgment in the appellant’s attempt to collect on a settlement of the underlying lawsuit against the insured for negligent design, contending that the insured’s policy covered negligent design services.

FACTS

The Somerby Project and the Wensmann Companies

Herbert Wensmann is the owner and CEO of Wensmann Homes, Inc (Homes). Homes had offices in Eagan and was in the business of building single and multi-family residential buildings around the greater Twin Cities area. From 2001 through 2007, respondent Western National Mutual Insurance Company insured Homes pursuant to a commercial general liability (CGL) policy.

In 2001, Herbert Wensmann undertook a project to build residential homes around a golf course in Byron, Minnesota. The residences were titled the Somerby Golf Community and were built in three phases, one of which called for the construction of the appellant Diseworth at Somerby community. The Diseworth community was to consist of 18 luxury townhomes to be constructed between 2003 and 2008. In anticipation of this project, Herbert Wensmann formed the subchapter S corporation Wensmann Homes of Rochester, Inc. (Rochester) in 2002.

Wensmann Holding Company, Inc. and Rochester were not named insureds by respondent, the insurer.  Diseworth contended that the Wensmann entities are all “legal fictions” created and controlled by Herbert Wensmann, and that they all qualify as “insureds” under the CGL policy.

On the contrary Homes and Rochester operated as two separate legal entities. Rochester had a separate office in Byron with its own employees and its own accounting and payroll records. Rochester, not Homes, filed a “Declaration for Planned Community: Diseworth at Somerby” with Olmsted county on September 11, 2002. That document named Rochester as the project owner.

Construction Problems

The first unit at the Diseworth community was completed in June 2003 and construction for the remaining units continued until December 2006. One feature of the Diseworth townhomes was brick arches located under a unit’s back deck. Rochester hired two subcontractors to construct these arches. No detailed specifications were provided and the subcontracted masons did the work based on their previous experience working with the Wensmann affiliates.  The performance standards of the windows, that allegedly leaked, were determined by representatives from Andersen Windows.

Beginning in 2005, Rochester was made aware that some of the brick arches were failing. The masonry subcontractors performed repair work on the arches of two units, and the bill was charged to Rochester. After being notified of the work request on the arches, Tim Houge hired Kent Jones, a structural engineer with Encompass, Inc. (Encompass) to create a design plan for future arches. Jones observed that the arches were getting cracks where the arch met the post.

ANALYSIS

Interpretation of an insurance policy is a question of law. If the language of an insurance contract is unambiguous, it must be given its plain and ordinary meaning. Coverage provisions are construed according to the expectations of the insured. While the insured bears the initial burden of demonstrating coverage, the insurer carries the burden of establishing the applicability of exclusions. Insurance contract exclusions are construed narrowly against the insurer, and, like coverage, in accordance with the expectations of the insured.

Where, as here, both the scope of an insurance policy’s coverage and the enforceability of a Miller–Shugart judgment (where the defendant assigns its rights against an insurer) are at issue, the court analyzes the former prior to the latter. “If there is found to be no coverage for the Miller–Shugart judgment, that ends the matter; there is no recovery against the insurer and the reasonableness of the settlement becomes a moot issue.” Alton M. Johnson Co. v. M.A.I. Co., 463 N.W.2d 277, 279 (Minn.1990).

The policy limited its coverage if such services are provided only for work “contracted for or completed by the insured or the insured’s employees.”  (Emphasis added).

First, Homes and Rochester were not part of the same entity.

Rochester was a separately formed corporation and had separate headquarters in Byron. Rochester had separate employees and its own accounting and payroll records. Appellant claims, but was unable to prove, that respondent’s policy names all Wensmann entities as insureds. In fact, the policy only lists Wensmann Homes, Inc., Wensmann Realty, Inc., Wensco, Inc., Wensmann Properties, Inc., Wensmann, Management Co., and Herbert and Elaine Wensmann. Notably absent in the list of those insured is Wensmann Holding Company as well as Rochester. Accordingly, because Rochester is neither directly listed nor insured indirectly through its owner, the Wensmann Holding Company, it cannot qualify as an insured. The policy does not apply because the drafting services were not performed for work “completed by [an] insured.”

Second, even if assuming that Rochester and Homes were both insureds, appellant’s argument still fails because appellant has not shown how the insured’s negligent designs caused the damaged arches and water infiltration.

Exclusion (l)

But even if the court assumed that Homes and Rochester are both insureds, appellant’s claims are still precluded from coverage under exclusion (l). Exclusion (l) of the policy states: “This insurance does not apply to: ¶  l. Damage to your work. ¶ ‘Property damage’ to ‘your work’ arising out of it or any part of it and included in the ‘product-completed operations hazard.’”

“Your work” is defined as “[w]ork or operations performed by [the insured] or on [the insured’s] behalf.”

The district court relied on this exclusion to conclude that any work that Homes may have done on the Diseworth project is not covered under the policy.

But even if Rochester is an insured, then construction of the arches and windows certainly qualified as “[w]ork or operations performed by [insured] or on [insured’s] behalf” because the construction was in fact done by Rochester or on Rochester’s behalf. Apellant’s argument would only be persuasive if Rochester was not an insured. But if Rochester is not an insured, then the design services liability endorsement would not provide coverage and the court did not need to consider whether the exclusion to coverage applies.

ZALMA OPINION

The appellant in this case was taken advantage of by the entities with whom they reached a settlement based upon the right to sue an insurer. Since the construction defects were the responsibility of a corporate entity not a named insured and not an insured by definition, there was no potential for coverage. Further, even if it was an insured, the policy clearly and unambiguously excluded coverage. This case teaches that before entering into an agreement to take a defendant’s right against an insurer the plaintiff should retain the services of a competent insurance coverage lawyer who would have told them, in this case, to not waste their time and money.

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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

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

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

Legal Disclaimer:

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

 

Posted in Zalma on Insurance | Comments Off on Insured Must Be Named In Policy To Obtain Coverage

Why You Can Assign A Claim After Loss

When Does an Insured Loss Occur

The California Supreme Court concluded it had erred in the past and that since an insured loss occurs or happens at the time of injury during the policy period, and well before there might be any judgment or approved settlement for a sum of money. In such a situation the policy is not being assigned – as prohibited by most policies – but the right to defense and indemnity (no longer a contingent event) – is being assigned.

In Fluor Corp. v. Superior Court, — P.3d —-, 2015 WL 4938295 (Cal., 8/20/2015) the California Supreme Court, Cantil-Sakauye, J., held that after injury resulting in loss occurs within the time limits of a policy, an insurer must honor an insured’s assignment of the right to invoke defense or indemnification coverage regarding that loss, overruling by applying the provisions of California Insurance Code Section 530, that provides: “An agreement not to transfer the claim of the insured against the insurer after a loss has happened, is void if made before the loss … ”

Addressing the point in time at which “injury or damage” that is continuous and occurs during successive policy periods triggers the insurer’s duty to defend under occurrence-based CGL policies, the California Supreme Court explained that the insurer’s duty arises when there is a potential for coverage, and even though there ultimately may be no duty to indemnify.  The Supreme Court rejected the insurer’s position that manifestation (the latest possible trigger time) should be used, and determined that the fourth option was the most appropriate under the words of the CGL policies and the relevant majority-rule cases.

Accordingly, the Supreme Court concluded in Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645, 664, 42 Cal.Rptr.2d 324, 913 P.2d 878 (Montrose ) that bodily injury and property damage that is “continuous or progressively deteriorating” throughout successive policy periods is covered by all insurers’ policies in effect during those periods even though, it acknowledged the injuries at issue in such cases are latent, unknown and unknowable at the time the insurance policies were issued.

In the process of reaching these determinations concerning the trigger of the insurers’ duty to defend, the Supreme Court repeatedly employed and equated the term “loss,” not with a judgment or settlement for a sum of money, as Hartford urged it should do, but as synonymous with occurrence of bodily injury and property damage. In the third party context, the relevant risk is the insured’s act or omission, and the resulting damage, injury, or loss to another, which together form the basis of legal liability.  In State of California v. Continental Ins. Co. (2012) 55 Cal.4th 186, 145 Cal.Rptr.3d 1, 281 P.3d 1000 (Continental), the Supreme Court extended its analysis and holding in Montrose to cover not only the duty to defend, but also the duty to indemnify.

California Insurance Code Section 520

The recognized rationale for enforcing a consent-to-assignment clause is to protect an insurer from bearing a risk or burden relating to a loss that is greater than what it agreed to undertake when issuing a policy. It is undisputed that an insured may not transfer the policy itself to another without the insurer’s consent, and in this sense all parties agree. But the post-loss exception to the general rule restricting assignability, recognized in the many cases discussed earlier and codified in section 520, is itself a venerable rule that arose from experience in the world of commerce.

The general rule permitting post-loss assignment is a good rule—which is why the courts have crafted it over the years even though it appears to contradict the clear text of many insurance policies and the courts’ expressed fidelity to contract language. The post-loss exception to the general rule of restricted insurance assignability is a venerable rule borne of experience and practicality. The post-loss rule prevents an insurer from engaging in unfair or oppressive conduct—namely, precluding assignment of an insured’s right to invoke coverage under a policy attributable to past time periods for which the insured had paid premiums.

Only this interpretation of the statute’s language barring veto of assignment by an insurer honors the clear intent demonstrated by the history of section 520 to avoid any “unjust” or “grossly oppressive” enforcement of a consent-to-assignment clause.  If the insurer were able to prevent its insured from assigning rights to assert such claims unless first reduced to a money judgment or approved settlement, it would effectively exert precisely the type of unjust and oppressive pressure on the insured that the early decisions, California Code Commissioners, and Legislature sought to foreclose.

“Loss” As Used in Section 108

Section 108 provides: “Liability insurance includes: [¶] (a) Insurance against loss resulting from liability for injury, fatal or nonfatal, suffered by any natural person, or resulting from liability for damage to property, or property interests of others but does not include worker’s compensation, common carrier liability, boiler and machinery, or team and vehicle insurance.”

Contrary to Hartford’s view, liability can arise simultaneously with loss and injury—at the same time someone causes a compensable injury—and not only when someone loses a lawsuit. There is no indication from section 108 or section 520, or other related contemporaneous statutes proposed by the California Code Commissioners and enacted by the 1935 California Legislature, that anyone understood the term “loss” as used in section 520 to have the meaning that Hartford proposes now—as arising only upon imposition of liability by entry of a judgment or approved settlement for a sum of money.

The Supreme Court rejected the related suggestion that section 520 is entitled to less judicial respect. In any event, we perceive a simple explanation for any prior relative obscurity or absence of express reliance on section 520 in any published case becayse it appeared generally unnecessary for litigants or courts to cite or rely upon it.

It was not until 2009 that Hartford for the first time asserted that assignment of claims for defense and indemnification coverage under its policies had been improperly made without its consent and hence was ineffective. This conduct further demonstrates that until insurers recently began to disallow and contest such assignments, there was little cause for insureds to think about, much less rely on Section 520 until very recently remained relatively obscure affords no basis to decline to construe and apply it now .

Stare Decisis

Of course, a rule once declared in an appellate decision constitutes a precedent that should normally be followed in cases involving the same problem.  As Witkin observes, however, courts have articulated reasons for overruling a prior decision—among them

(1) that it overlooked an existing statute; and

(2) that it is contrary to the general law as reflected in other cases, including out-of state cases before and after the decision.

In Henkel Corp. v. Hartford Accident & Indemnity Co., 29 Cal.4th 934, 129 Cal.Rptr.2d 828, 62 P.3d 69, a post-loss assignment of rights to invoke coverage under a third party liability policy, the Supreme Court rendered a common law-based holding, concluding that such an assignment is subject to consent by the insurer unless “the benefit has been reduced to a claim for money due or to become due.”

The Supreme Court now concludes that this determination, reached without consideration or analysis of section 520, conflicts with the rule prescribed by that statute. In analogous circumstances the Supreme Court has overruled our own prior authority. (Martin v. Palmer Union Oil Co. (1920) 184 Cal. 386, 389, 193 P. 950; Alferitz v. Borgwardt (1899) 126 Cal. 201, 207–209, 58 P. 460.) In light of section 520, the Henkel decision is overruled to the extent it is inconsistent with this opinion’s analysis.

Conclusion

Insurance Code section 520 applies to third party liability insurance. Under that provision, after personal injury (or property damage) resulting in loss occurs within the time limits of the policy, an insurer is precluded from refusing to honor an insured’s assignment of the right to invoke defense or indemnification coverage regarding that loss. This result obtains even without consent by the insurer—and even though the dollar amount of the loss remains unknown or undetermined until established later by a judgment or approved settlement. The contrary conclusion announced in Henkel Corp. v. Hartford Accident & Indemnity Co., supra, is overruled to the extent it conflicts with this controlling statute and this opinion’s analysis.

ZALMA OPINION

The California Supreme Court in a lengthy and well reasoned decision, corrected an earlier error and now allows an insured, once a claim for damage is presented, to assign the right to claim defense and indemnity to another entity. In this case Flour assigned the right to a new Flour entity that took over its rights and liabilities. Insurance Code Section 520 clearly gives every insurer the right to assign a claim, whether first or third party, and eliminated the right of the insurer to enforce an agreement against such assignment.

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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

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

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

Legal Disclaimer:

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

 

 

Posted in Zalma on Insurance | 1 Comment

What is The Trigger for Wrongful Arrest?

Insurers Only Obligated to Defend or Indemnify for Losses that Occur During Policy Term

A group of consolidated cases represent a dispute among insurance companies about who ends up paying some or all of a five million-dollar settlement paid on behalf of the City of Elkhart’s civil rights liability to Christopher Parish.

FACTS

The wrongful arrest and prosecution of Mr. Parish caused a deluge of litigation. It began in November 1996, when Parish was charged with armed robbery and attempted murder based on the report of a home invasion and shooting of Michael Kershner. Elkhart Police Department Detective Steve Rezutko was the principal investigating officer. Parish was convicted in June 1998, but in December 2005, an Indiana appellate court overturned the conviction and ordered a new trial, after which the criminal case was dismissed in December 2006.

Parish, wrongly forced to spend eight years in prison, brought a civil action in federal court asserting federal and state law claims for relief. Parish contended that the city and county were liable under the Indiana Tort Claims Act for false arrest, false imprisonment and intentional infliction of emotional harm. Parish’s complaint also alleged that Rezutko falsely implicated him by staging a phony crime scene, fabricating and tampering with evidence, manipulating and coercing witnesses, and giving perjured testimony.

Parish prevailed at trial but the jury’s award of only $73,125 in compensatory damages and $5,000 in punitive damages was “astoundingly low for cases of wrongful conviction.” Parish v. City of Elkhart, 702 F.3d 997, 999 (7th Cir.2012). On appeal, the Seventh Circuit affirmed the jury’s determination of liability but remanded for a new trial on the issue of damages. Parish ultimately settled his suit for a total of $5 million. At the time the case was settled, the sole remaining claim was that Parish’s due process rights were violated by a wrongful conviction.

One of the defendants in this case, National Casualty Company, had issued Elkhart a Law Enforcement Liability policy for the period from 1996 through 2000. The limits of liability under those policies were $1 million. NCC defended Elkhart and Rezutko in the civil case before Judge Lozano but it did so under a reservation of rights. No other insurer contributed to Elkhart’s defense. Ultimately, NCC paid the entire $5 million settlement amount plus all of the cost of the defense. Why NCC paid $5 million when its yearly policy limits were $1 million is a curious question that has no relevance to the pending action.

In this consolidated case, NCC seeks contribution toward the cost of defending the Parish suit and toward the settlement from other insurers who issued policies to Elkhart at various times. This case is greatly complicated by the number of years Mr. Parish’s nightmarish odyssey took to resolve and the number of different insurance companies that insured Elkhart during all those years.

MOTION OF GEMINI AND SWISS RE INTERNATIONAL

In their motion, Gemini and Swiss Re contend that they are entitled to a judgment that their policies provide no coverage for Elkhart because, within the meaning of the policies, the “wrongful act(s)” that caused Parish’s injury did not “occur during the policy period,” and because coverage is defeated by the policies’ exclusion for damages arising from fraudulent and dishonest acts.

The question is what event triggers insurance coverage in a wrongful conviction claim? Is it the date when the bad police behavior occurred and the prosecution was commenced? Or is it the date of exoneration—a date that may be several years down the road as it was in this case—that matters?

There is no Indiana case but there are two recent Illinois cases that have decided that insurance coverage is triggered in a wrongful prosecution claim under Illinois law when the wrongful prosecution is commenced, not when the defendant is exonerated.   Indian Harbor Ins. Co. v. City of Waukegan, ––– N.E.3d ––––, 2015 WL 995093 at *7 (Ill.App. March 6, 2015); St. Paul Fire and Marine Ins. Co. v. City of Zion, 18 N.E.3d 193, 200 (Ill.App.2014).

NCC argues unpersuasively that the Parish complaint “allege[s] wrongful acts that occurred during the Gemini and Swiss Re policy periods.” The most NCC can point to are allegations about Elkhart law enforcement policies that may have continued after Parish’s conviction and into the policy periods, but any continuing Elkhart practices did not cause Parish further injury at that point. The argument “conflates continuing harmful acts with the continuing effects of one harmful act” or earlier harmful acts. Northfield Ins. Co. v. City of Waukegan, 701 F.3d 1124, 1133 (7th Cir.2012).

For all these reasons, the court concluded as a matter of law that the Swiss Re and Gemini policies did not create a duty to defend Elkhart or provide liability coverage for settlement of the Parish matter.

MOTION OF TIG INSURANCE

TIG issued certain excess umbrella insurance policies to Elkhart for the period from June 1, 1997 through March 1, 2000, during which time NCC was Elkhart’s primary Law Enforcement Liability carrier. TIG’s motion for judgment on the pleadings contends that “the only remaining claim in the Underlying Lawsuit at the time of the settlement does not trigger the TIG Excess Policies,” and that the remaining claim did not involve “personal injury” within the meaning of the policies. TIG reasons that at the time of the Parish settlement, the sole remaining claim was for wrongful conviction, and that claim did not accrue until Parish’s exoneration in 2006.

Unlike Swiss Re and Gemini’s coverage based on “wrongful acts,” TIG’s excess policy was “occurrence” based. At bottom, I agree with the Illinois Appellate Court, when it said that what really matters in deciding coverage questions is what the individual insurance policy at issue actually says. In other words, it is the language of the insurance contract that governs coverage, not some blanket judge-made rule

With appropriate definitional substitutions, the TIG policy provides coverage for damages because of malicious prosecution caused by an accident during the policy period. Let’s set aside for the moment the question. The damage from the malicious prosecution was not “caused by” the accrual of the cause of action. There is a “clear majority” of courts that have held that the “tort of malicious prosecution occurs for insurance coverage purposes … when the underlying criminal charges are filed.”

Because an “occurrence” under the TIG policies includes “continuous or repeated exposure to substantially the same general harmful conditions,” a series of related acts of police misconduct (which would include perjured trial testimony or other misconduct after the false charges are brought) constitutes a single occurrence.

The “occurrence” here dates to 1996 when Parish was wrongly charged in violation of his due process rights, and quite simply TIG was not Elkhart’s insurer at that time. In sum, TIG has demonstrated that its policy created no coverage for the settlement of Parish’s § 1983 claim because the “occurrence” that caused Parish’s injury commenced prior to the policy period.

The court concluded that as an umbrella insurer under this policy language, TIG has no obligation with respect to costs of defense, and the parties, knowing that, have not spent time addressing it. The conclusion is bolstered by the strength of my determination that there is no coverage for the settlement itself because the “occurrence” that caused the injury was not within the policy period. TIG’s motion was granted as to both Elkhart’s settlement liability and the costs of defense.

MOTION OF ST. PAUL, NORTHFIELD AND CLARENDON

Defendants St. Paul and Northfield have filed a motion for judgment on the pleadings, in which defendant Clarendon has joined. St. Paul was Elkhart’s primary Law Enforcement Liability carrier for the years 2005, 2006 and 2007, and Clarendon was the excess carrier for those same years. Northfield was Elkhart’s primary carrier in 2003.

All three of these insurers are entitled to judgment as a matter of law concerning the Parish settlement. NCC’s pleading seeks contribution not only to the settlement but also to the costs of Elkhart’s defense. The lack of coverage is sufficiently clear that there is likewise no liability for the costs of defense.

These insurers’ policies were in effect years after Parish was charged and convicted, during time periods when he was incarcerated and the state appellate process finally yielded Parish a victory and the dismissal of the charges. Nothing happened during these policy periods that could be the kind of “injury or damage” covered by these policies. Even the broader duty to defend is not broad enough to support for these insurers a duty to defend (or to share in the cost of defense) against Parish’s civil rights complaint.

ZALMA OPINION

This is an example of really poor claims handling by an insurer who owed defense and indemnity to its insured, paid five times its limit of liability and then tried to get contribution from insurers whose policies were not in effect when the Mr. Parrish was wrongfully charged. An insurer cannot cure its error by suing other insurers.

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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

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

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on What is The Trigger for Wrongful Arrest?

Never Bring a New Theory to Court of Appeal

Although Benefits Needed There Can Be No Insurance Coverage Without a Contract

Shawn Halvorson (Halvorson) challenged the summary-judgment dismissal of his declaratory-judgment action involving a dispute over insurance coverage. In Halvorson v. From, Not Reported in N.W.2d, 2015 WL 4877801 (Minn.App., 8/17/2015) the Minnesota Court of Appeal resolved the dispute applying common sense and precedential law.

FACTS

Halvorson was a backseat passenger in a rental vehicle that was involved in a single vehicle roll-over accident. Halvorson allegedly sustained injuries as a result of the accident. Respondent Reliance Leasing Inc. owned the vehicle, respondent National Interstate Insurance Company insured the vehicle, and Kari Dahlgren rented the vehicle under a rental agreement. Kristopher From was driving the vehicle when the accident occurred. The parties dispute whether From had Dahlgren’s permission to drive the vehicle, but no one disputes that From was not listed as an “additional driver” on the rental agreement.

Halvorson commenced a declaratory-judgment action against From, Reliance Leasing, and National Interstate, seeking a declaration that “From was an insured under the motor vehicle insurance policy issued by … National Interstate.” Reliance Leasing and National Interstate moved for summary judgment, arguing that From was not an insured under the terms of the vehicle’s insurance policy and that Halvorson lacked standing to bring the action because he had not obtained a judgment against From and had no rights under the insurance policy. The district court granted the motion and dismissed Halvorson’s complaint, determining that Halvorson lacked standing to bring an action against National Interstate and Reliance Leasing.

DECISION

By the time he arrived at the Court of Appeal, Halvorson acknowledged that he was no longer seeking the declaration requested in his complaint. Instead, Halvorson asserted a novel and untested in the trial court theory involving reparation security insurance coverage. He sought from the Court of Appeal, rather, a declaration that Reliance Leasing “is required by … Minnesota statutes to provide $30,000 in liability coverage” for his injuries.

Unfortunately for his case, Halvorson did not attempt to amend his complaint in district court to request the declaration that he sought from the appellate court, and noting that the trial court based its summary-judgment decision on the relief that Halvorson requested in his complaint.  The Minnesota Court of Appeal, as required by common sense and legal precedent, declined to analyze whether Halvorson was entitled to the declaration that he sought from it because a reviewing court must generally consider only those issues that the record shows were presented and considered by the trial court in deciding the matter before it.

Judgment in favor of the insurer was affirmed since Halvorson left the court with nothing to decide.

ZALMA OPINION

You just can’t make insurance coverage because you need it. There must be a contract between an insurer and an insured. When you fail, without amending your complaint, it is basically ridiculous to ask a court of appeal to consider an issue not raised at the trial court. The plaintiff was injured, probably through no fault of his own, but can’t get an insurance remedy where no insurance coverage exists.

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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

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

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Never Bring a New Theory to Court of Appeal

How an Easy to Read Policy Made Clear by Definitions

Definition Controls Insurance Policy Interpretation

Because insurance law requires insurers to write policies in “easy to read” language modern insurance policies contain multiple definitions to make the “easy to read” policy wording more precise. In Greater Community Bancshares, Inc. v. Federal Ins. Co., — Fed.Appx. —-, 2015 WL 4897467 (C.A.11 (Ga.) 8/18/2015) the Eleventh Circuit was called upon to resolve a dispute over insurance coverage for a bank where the definition of the bank’s “Professional Services” and “Lending Services” limited coverage where the insurer and the trial court concluded there was no coverage for a dispute brought by a bankruptcy trusteee.

Plaintiffs Greater Community Bancshares, Inc. and Greater Community Bank (collectively “GCB”) appeal the district court’s grant of summary judgment in favor of the Defendant Federal Insurance Company (“Federal Insurance”).

BACKGROUND FACTS

Insurance Policy

In 2008, GCB obtained a banker’s professional liability policy from Federal Insurance covering any claim by a customer for a wrongful act while performing “Professional Services.” The policy required Federal Insurance to defend any claim covered under the policy, even if any of the allegations were groundless, false or fraudulent.

Relevant to this appeal, an amendment to the policy defined “Professional Services” to mean “Lending Services.” And “Lending Services” was then defined as “any act performed by an Insured for a Lending Customer of [GCB] in the course of extending or refusing to extend credit or granting or refusing to grant a loan or any transaction in the nature of a loan, including any act of restructure, termination, transfer, repossession or foreclosure.” A lending customer was a “person or entity” to whom “an extension of credit, an agreement to extend credit, or a refusal to extend credit was made or negotiated on behalf of” GCB.

Underlying Bankruptcy Adversary Complaint

In 2010, GCB was named as a defendant in an adversary proceeding filed in the U.S. Bankruptcy Court in the District of Idaho. In the Chapter 7 bankruptcy adversary proceeding, the trustee for Payroll America Inc. (“Payroll America”) sued GCB.

According to the adversary complaint, Payroll America contracted with one of GCB’s bank account holders, Lori Duke d/b/a Data Processing Services (“DPS”), to complete certain payroll transactions, such as withholding taxes and then depositing those tax withholdings with the appropriate government agency. Using the Automated Clearing House (“ACH”) network and the Federal Reserve banking system, DPS collected funds from Payroll America’s client accounts and transferred them to the relevant taxing authority. Pursuant to a written agreement, GCB, the “Sending Bank,” allowed DPS, as the “Third–Party Sender,” to use GCB’s Originating Depository Financial Institution routing number to obtain direct access to the Federal Reserve Bank in Atlanta and perform these payroll functions.

The bankruptcy trustee’s initial complaint sought only an accounting, but subsequent amendments added claims of fraudulent transfers by Payroll America through GCB’s bank. Specifically, the trustee’s second amended complaint alleged that Payroll America had operated a fraudulent scheme similar to a Ponzi scheme that robbed “Peter to pay Paul,” and had used DPS’s money transfers made through GCB’s bank to hide Payroll America’s insolvency and defraud its creditors.

The trustee’s second amended complaint alleged that when Payroll America had “insufficient funds” for some of these ACH money transfers, GCB “paid out” those funds on Payroll America’s behalf, obligating Payroll America to repay GCB for the “advance.” DPS, on GCB’s behalf, then demanded “repayment” from Payroll America to satisfy the “obligation,” which Payroll America did with commingled funds. The second amended complaint alleged that when these insufficient-funds transfers occurred, GCB knew or should have known that Payroll America “was incurring debt to” GCB. The second amended complaint sought, among other things, to recover the full amount of the money transfers from GCB and DPS.

Defendant Federal Insurance’s Refusal to Defend

Federal Insurance denied coverage and refused to defend GCB to the action filed by the bankruptcy trustee. Federal Insurance denied coverage and refused to defend on the basis that the trustee and Payroll America were not GCB’s customers and because the factual allegations in the bankruptcy trustee’s second amended complaint did not involve professional services, i.e., loan servicing or lending services, as defined in the policy.

GCB defended itself in the bankruptcy-adversary proceedings, ultimately winning summary judgment.

Breach of Contract Action

Plaintiff GCB sued Federal Insurance, alleging a breach of its insurance contract under Georgia law. The district court granted Federal Insurance’s motion to dismiss GCB’s amended complaint because the underlying fraud claims in the bankruptcy-adversary proceeding did not fall, or even arguably fall, within the policy’s coverage. The district court concluded that the bankruptcy trustee’s second amended complaint contained no allegations of loan servicing or lending services as defined in the policy, and GCB did not claim that it “in fact gave loans to” Payroll America.

DISCUSSION

Georgia is a four-corners state that determines an insurer’s duty to defend by comparing the language of the policy with the allegations in the underlying complaint against the insured. The ordinary rules of contract construction apply to insurance contracts, and policy terms are given their ordinary and common meaning unless otherwise defined in the contract. If the facts as alleged in the complaint even arguably bring the occurrence within the policy’s coverage, the insurer has a duty to defend the action.

Where the policy requires the insurer to defend groundless, false, or fraudulent claims, the insurer has a duty to defend even where the complaint against the insured sets forth false factual allegations which would bring the claim within the coverage of the policy. For this reason, the insurer has a duty to defend even where the complaint against the insured falsely indicates non-coverage” but the insurer knows of or can ascertain “true facts showing coverage.

When read in context, the debt allegations in the second amended complaint do not refer to the kind of activities that constitute “Lending Services,” as defined in the policy.  The terms “loan” and “extension of credit” do not appear in the second amended complaint. As the district court explained, there are no allegations of a loan agreement, an interest rate, or a term, or any other indications of a conventional bank “loan” or “extension of credit.” As the district court further noted, the “debt” as alleged appears at most to be some form of overdraft protection, rather than a loan.  In any event, GCB’s alleged role as the “Sending Bank” in Payroll America’s ACH money transfers was not a “loan” or the “extension of credit” as those terms are commonly understood.

Moreover, GCB agrees that in fact Payroll America was never GCB’s customer and that GCB did not give a loan or extend credit to Payroll America. In fact, GCB has repeatedly prevailed on this point in the underlying bankruptcy litigation. Georgia law does not require the insurer to defend against the claim.

For these reasons,the Eleventh Circuit affirmed the district court’s order granting summary judgment to Federal Insurance.

ZALMA OPINION

Whether the court applied the four corners rule or allowed extrinsic evidence to determine the existence or non-existence of coverage, the definitions contained in the policy made clear that the policy did not provide coverage for the events that are the subject of the suit. There were no professional or lending services involved.

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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

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

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on How an Easy to Read Policy Made Clear by Definitions

How an Insurer Can Sue to Recover Excessive Fees From Cumis Counsel

Bill Padding by Cumis Counsel Can Be Recovered From Cumis Counsel

The advent of requirements that an insurer must pay independent counsel when it reserves its rights and creates a conflict between the insurer and its insured was rife with abuse. Consider United States v. Stites, 56 F.3d 1020 (9th Cir. 05/26/1995), National Union Fire Insurance Co. v. Stites Professional Law Corp., 235 Cal. App. 3d 1718, 1 Cal. Rptr. 2d 570 (Cal.App.Dist.2 10/25/1991) and  Fireman’s Fund Insurance Co. v. Stites, 258 F.3d 1016 (9th Cir. 08/03/2001) where the creator of the Alliance that was a scheme to defraud insurers by creating litigation to require appointment as independent counsel and profit from it. Stites was convicted and served fourteen years.

The Ninth Circuit, in United States v. Stites, concluded: “Stites had been the mastermind of a massive set of breaches of professional responsibility and of the criminal law, the more heinous because Stites was a lawyer and at least twelve other lawyers were his principal confederates in carrying out the fraud. The mentality that sees law as a business was here taken to a reductio ad absurdum — litigation was unconscionably churned to make money for the lawyers. The essence of Stites’s scheme, repeated over and over again, was for Stites to control both sides of suits in which insurance companies were paying for counsel, and to assure that the plaintiffs’ lawyers would not settle until the insurance companies would no longer pay the costs of defendants’ counsel. Stites’s network of lawyers was known as “the Alliance.” According to the jury verdict in this case, Stites’s scams extracted at least $50 million from the insurers in the period 1984 to 1987.” Since Stites, the California Legislature enacted Civil Code Section 2860 to control independent counsel and their relationship to insurers. The abuse was limited by the statute but over-billing and padding of legal bills continued and insurers have sought to remedy the over-billing and padding by arbitration required by Section 2860.

In Hartford Casualty Ins. Co. v. J.R. Marketing, LLC (2015) , Cal.4th, [No. S211645. Aug. 10, 2015.] Justice Cuéllar of the California Supreme Court dealt with a new question not before dealt with when dealing with independent counsel, who must repay the insurer for legal fees paid for work not covered or for padded and over-billed fees when incurred by an insurer when no criminal conduct is involved.

THE HISTORY OF INDEPENDENT COUNSEL

The California Supreme Court has long maintained that if any claims in a third party complaint against a person or entity protected by a commercial general liability (CGL) insurance policy are even potentially covered by the policy, the insurer must provide its insured with a defense to all the claims. (E.g., Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th 1076, 1081.) The insurer’s provision of an immediate, complete defense in such a “mixed” action, the Supreme Court has explained, is “prophylactically” necessary, even if outside of the policy’s strict terms, to protect the insured’s litigation rights with respect to the potentially covered claims. (Buss v. Superior Court (1997) 16 Cal.4th 35, 49 (Buss).) Nevertheless, the Supreme Court concluded in Buss that the insured would be unjustly enriched at the insurer’s expense if not ultimately required to bear the cost of litigating those claims for which the insured had never purchased defense or indemnity protection. Accordingly, we held in Buss that the insurer may seek reimbursement from the insured of defense fees and expenses solely attributable to the claims that were clearly outside policy coverage.

The Supreme Court did not consider in Buss the question from whom may a CGL insurer seek reimbursement when:

(1)     the insurer initially refused to defend its insured against a third-party lawsuit;

(2)     compelled by a court order, the insurer subsequently provided independent counsel under a reservation of rights – so-called Cumis counsel (see San Diego Federal Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358 (Cumis); fn. 1 see also Civ. Code, § 2860 fn. 2 ) – to defend its insured in the third party suit;

(3)     the court order required the insurer to pay all “reasonable and necessary defense costs,” but expressly preserved the insurer’s right to later challenge and recover payments for “unreasonable and unnecessary” charges by counsel; and

(4)     the insurer now alleges that independent counsel “padded” their bills by charging fees that were, in part, excessive, unreasonable, and unnecessary?

The insurer urges that it may recoup the over-billed amounts directly from Cumis counsel themselves. Cumis counsel respond that, if the insurer has any right at all under the facts of this case to recover over-billed amounts, the insurer’s right runs solely against its insureds. Cumis counsel’s erstwhile clients might then have a right of indemnity from these counsel.

BACKGROUND

In the summer of 2005, appellant Hartford Casualty Insurance Company (Hartford) issued one CGL insurance policy to Noble Locks Enterprises, Inc. (Noble Locks), effective from July 28, 2005, to July 28, 2006, and a second CGL policy to J.R. Marketing, L.L.C. (J.R. Marketing), effective August 18, 2005, to August 18, 2006. In these policies, Hartford promised to defend and indemnify the named insureds, and their members and employees, against certain claims for business-related defamation and disparagement.

In September 2005, an action was filed in Marin County Superior Court against J.R. Marketing, Noble Locks, and several of their employees (the Marin County action). In the Marin County action, certain defendants, apparently represented by the law firm of Squire Sanders (US) LLP (Squire Sanders), filed cross-complaints.

Defense of the Marin County action was tendered to Hartford under the J.R. Marketing and Noble Locks policies. Hartford disclaimed a duty to defend or indemnify the defendants in the Marin County action on the grounds that the acts complained of appeared to have occurred before the policies’ inception dates, and that certain of the defendants appeared not to be covered insureds. Hartford subsequently agreed to defend J.R. Marketing, Noble Locks, and several of the individual defendants in the Marin County action, subject to a reservation of rights.

The trial court in the coverage action entered a summary adjudication order, finding that Hartford had a duty to defend the Marin County action effective on the date the defense was originally tendered. The order also provided that, because of Hartford’s reservation of rights, Hartford must fund Cumis counsel to represent its insureds in the Marin County action. The insureds retained Squire Sanders as Cumis counsel.

The trial court in the coverage action issued an enforcement order directing Hartford to promptly pay all defense invoices submitted to it and to pay all future defense costs in the Marin County action within 30 days of receipt. The order, which was drafted by Squire Sanders and adopted by the court, further stated that Hartford had breached its defense obligations by refusing to provide Cumis counsel until ordered to do so and by thereafter failing to pay counsel’s submitted bills in a timely fashion. The Court of Appeal subsequently affirmed both the summary adjudication and enforcement orders.

Eventually the Marin County action was resolved. The coverage action, stayed during the pendency of the Marin County action, resumed. Hartford thereafter filed a cross-complaint, and then a first amended cross-complaint, against (1) various persons for whom it had allegedly paid defense fees and expenses in the Marin County, Nevada, and Virginia actions, and (2) Squire Sanders. The cross-complaint asserted that Hartford was entitled to recoup from the cross-defendants a significant portion of some $15 million in defense fees and expenses, including some $13.5 million Hartford paid to Squire Sanders pursuant to the enforcement order.

The trial court sustained a demurrer and the Court of Appeal agreed as to Squire Sanders, the court concluded that Hartford’s right to reimbursement, if any, was from its insureds, not directly from Cumis counsel.

The Supreme Court granted Hartford’s petition for review, which raised a narrow question: May an insurer seek reimbursement directly from counsel when, in satisfaction of its duty to fund its insureds’ defense in a third party action against them, the insurer paid bills submitted by the insureds’ independent counsel for the fees and costs of mounting this defense, and has done so in compliance with a court order expressly preserving the insurer’s post-litigation right to recover “unreasonable and unnecessary” amounts billed by counsel?

DISCUSSION

Restitution and the Duty to Defend

When an insured under a standard CGL policy is sued by a third party, the insurer’s contractual duty to defend the insured extends to all claims that are even potentially subject to the policy’s indemnity coverage. Moreover, when the third party suit includes some claims that are potentially covered, and some that are clearly outside the policy’s coverage, the law nonetheless implies the insurer’s duty to defend the entire action.  And unless the insured agrees otherwise, in a case where – because of the insurer’s reservation of rights based on possible non-coverage under the policy – the interests of the insurer and the insured diverge, the insurer must pay reasonable costs for retaining independent counsel by the insured.

Hartford reserved its right to dispute coverage for some or all of the defendants or claims in the Marin County, Nevada, and Virginia actions. Accordingly, Squire Sanders acted as the insureds’ independent counsel in those suits. It did so pursuant to a court order specifying that Hartford must promptly pay Squire Sanders’s bills as and when submitted, but that the firm’s charges must be “reasonable and necessary,” and that, after conclusion of the underlying litigation, Hartford could seek reimbursement of amounts it deemed excessive by this standard. The order did not specify from whom Hartford might obtain any such reimbursement.

Hartford now seeks reimbursement from Squire Sanders based on equitable principles of restitution and unjust enrichment. By charging Hartford for fees and expenses that were unreasonable and unnecessary for the insureds’ defense, Hartford asserts, Squire Sanders unjustly enriched itself at Hartford’s expense and thus owes Hartford restitution for the over-billed amounts.

An individual who has been unjustly enriched at the expense of another may be required to make restitution. (See Ghirardo v. Antonioli (1996) 14 Cal.4th 39, 51; see Rest.3d Restitution and Unjust Enrichment, § 1; 1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 1013, p. 1102.) Restitution is not mandated merely because one person has realized a gain at another’s expense. Rather, the obligation arises when the enrichment obtained lacks any adequate legal basis and thus cannot conscientiously be retained.

As the Supreme Court concluded in Buss, if an insurer were required to absorb the costs of defending claims it clearly never agreed to defend, it is the insured who would gain a direct and unjust enrichment at the insurer’s expense. Hartford alleges that it is counsel who are the unjust beneficiaries of the insurer’s over-payments. As applied here, accepting for the sake of argument (because the case came to the Supreme Court on a demurrer that assumes all facts alleged in the suit are true) that Squire Sanders’s bills were objectively unreasonable and unnecessary to the insured’s defense in the underlying litigation and that they were not incurred for the benefit of the insured, principles of restitution and unjust enrichment dictate that Squire Sanders should be directly responsible for reimbursing Hartford for counsel’s excessive legal bills.

Hartford’s obligation to pay for independent Cumis counsel was not unlimited. Hartford did not voluntarily pay the alleged “unreasonable and unnecessary” overcharges submitted by Squire Sanders out of some self-interest extraneous to the benefit conferred on those counsel. Moreover, any such overpayments were not merely an “incidental” benefit to Squire Sanders, fortuitously received by the firm and beyond its power to refuse. On the contrary, Squire Sanders, under the terms of a court order it obtained (and indeed, drafted), submitted bills to Hartford and obtained payment subject to the express provision that counsel’s bills must be reasonable, and that Hartford could later obtain reimbursement of excessive charges.

By its terms, the statute limits neither the potential “parties to the dispute” (§ 2860, subd. (c)) nor the billing issues that may be raised.

Squire Sanders’s own conduct in the course of this litigation further supports the conclusion that it is not unjust to allow Hartford to pursue its reimbursement action directly against Squire Sanders.  The holding that Hartford may pursue its claim for reimbursement against Squire Sanders stems directly from – and is wholly consistent with – that order. Squire Sanders now attempts to avoid the effects of this order by encouraging the Supreme Court to foist all responsibility for reimbursement onto its erstwhile clients. The Supreme Court refused to accept that invitation. Under the circumstances, allowing Hartford to pursue a narrow claim for reimbursement against Squire Sanders under the terms of the 2006 enforcement order neither rewards an undeserving insurer nor penalizes unsuspecting Cumis counsel.

Under the circumstances of this case, the insurer may seek reimbursement directly from Cumis counsel. If Cumis counsel, operating under a court order that expressly provided that the insurer would be able to recover payments of excessive fees, sought and received from the insurer payment for time and costs that were fraudulent, or were otherwise manifestly and objectively useless and wasteful when incurred, Cumis counsel have been unjustly enriched at the insurer’s expense.

ZALMA OPINION

Justice Cuéllar, faced with the work of almost every elite member of the California appellate bar, wrote reasonably to allow the Hartford the opportunity to prove to a trial court that Squire Sanders padded its bills or over-billed Hartford for work not necessarily necessary to defense of Hartford’s insured. If they can prove that Squire Sanders was unjustly enriched they will recover those unjust fees from the lawyers not the innocent insured who had no way to review or control the billing of their Cumis counsel. This is not the criminal conduct of Mr. Stites but the Supreme Court refused to allow padding or over-billing to be foisted upon the innocent insured.

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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

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

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

Legal Disclaimer:

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

 

Posted in Zalma on Insurance | Comments Off on How an Insurer Can Sue to Recover Excessive Fees From Cumis Counsel

Can an Insurer Obtain Insured’s Tax Returns?

Tax Returns Can Establish Issue If Allowed in Evidence

Whenever an issue about insurance coverage can be resolved by presentation of the insured’s tax returns, the insured would claim that tax returns are privileged and not subject to discovery by the insurer. That tax returns are private is axiomatic. However, when an insured sues an insurer seeking insurance coverage that can be resolved by information contained in a tax return, the privilege was either waived by the filing of suit or are so essential that they must be produced to prove or disprove the issue.

Defendant Farm Bureau Property and Casualty Insurance Company’s (“Defendant”) moved the District Court to compel production of certain tax records in Awadh v. Farm Bureau Mut. Ins. Co., Not Reported in F.Supp.3d, 2015 WL 4771733 (D.Utah, 8/12/2015).

BACKGROUND

The underlying action arises from an insurance claim for a stolen skid loader. Plaintiffs Naser Awadh and Stacy Awadh (“Plaintiffs”) submitted a claim to Defendant for the value of the skid loader. Defendant determined that the skid loader was property of the Plaintiffs’ business, and thus subject to a $2,500 business property coverage limitation.

Plaintiffs, on the other hand, claimed that the skid loader was personal property purchased in 2004, and that they are entitled to insurance coverage for the full value of the skid loader.

Defendant served requests for production of documents on Plaintiffs, including requests for business tax returns and schedules for the years 2004 through 2011, the period from acquisition of the skid loader until Plantiffs submitted their insurance claim. Defendant believes that these records are relevant because they show whether Plaintiffs treated the skid loader as a personal or business asset in the tax records; whether Plaintiffs claimed the stolen skid loader as a business loss; and Plaintiffs’ stated value of the asset.
Plaintiffs objected to the request, but eventually produced just eight pages of tax documents relating to a few of the years in question. Plaintiffs did not produce any schedules for 2007, 2009, and 2010 and did not produce any records at all for years 2004, 2005, 2006, 2008, or 2011. Plaintiffs claim that they do not have any additional tax records for the years in question. Defendant contends that if Plaintiffs do not have the records, the records can be obtained from the Internal Revenue Service (the “IRS”), provided Plaintiffs give the appropriate authorization. The tax records were obviously important since, if they were depreciated as an asset in a business tax return the $2,500 limit would apply and if not, it might be evident that the skid loader was personal property without a small limit.

Defendant made a good faith attempt to obtain production of the tax records from Plaintiffs without the court’s involvement, but was forced to file the current motion to compel production after the parties were unable to reach agreement.

ANALYSIS

The court finds Defendant’s request for production of the tax documents relevant and proper. Plaintiffs’ tax records appear highly relevant to claims and defenses in the case, and the requested documents appear likely to be admissible at trial or “reasonably calculated to lead to the discovery of admissible evidence.” Fed.R.Civ.P. 26(b)(1). The crux of the underlying action appears to be (1) whether the skid loader was personal or business property, and thus subject to their respective coverage limits. Further, Defendant controls the documents in that Defendant either has possession of the documents or has the ability to authorize release of the documents by the IRS.

Within ten (10) days of the date of this order, Plaintiffs are ordered to produce all personal and/or business tax returns and schedules for the years 2004 through 2011 in their possession, custody, or control, including copies of tax returns and schedules held by Plaintiffs’ accountants, attorneys, or other professionals. Plaintiffs’ production shall include an affidavit verifying whether the documents produced include full copies of all returns and schedules for the requested years. If Plaintiff’s affidavit states that they cannot produce full copies of all returns and schedules for the years in question, Defendant may prepare for Plaintiffs’ signatures any paperwork required by the IRS for release of the tax records. Plaintiffs shall sign and return the authorization paperwork within five days of receipt of the authorization paperwork from Defendant. If necessary, Plaintiffs shall cooperate with Defendant and perform any other actions reasonably necessary for Defendant to be able to obtain the tax records from the IRS.

All tax documents produced by Plaintiffs and/or the IRS shall be subject to the provisions of the Standard Protective Order provided for under civil rule 26–2(a) of the Rules of Practice for the United States District Court for the District of Utah. DUCivR 26–2(a)(1), App’x. XV.

The court ordered: “The tax records shall be designated “CONFIDENTIAL INFORMATION–ATTORNEYS’ EYES ONLY” pursuant to the Standard Protective Order. The produced tax records shall not be disclosed to anyone other than attorneys or attorneys’ professional consultants, and may only be used for purposes of this litigation. Parties shall comply with all requirements regarding the treatment of confidential information under the Standard Protective Order.”

ZALMA OPINION

Tax returns are presumably reliable documents since they are submitted to the IRS under oath and false statements on tax returns are subject to both civil and criminal penalties. When, as here, a tax return can resolve the key issue in the case, the only reason the plaintiffs seem to be attempting to conceal the tax returns is because they prove the skid loader was business property. When the documents are produced the issue will be resolved and the case will be subject to summary judgment by the plaintiff or the defendant.

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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

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

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Can an Insurer Obtain Insured’s Tax Returns?

Can Insurer Litigate Coverage While Tort Case Pending?

Declaratory Relief Must Go Forward

Insurers faced with a lawsuit claiming its insured caused damages (other than bodily injury of property damage) to a plaintiff intentionally will often result in a declaratory relief action to support a decision to refuse to defend or indemnity the insured. When the issues between the insurer vs. the insured are different from the issues raised in the tort action, the insurer tries to go forward and get a ruling while the insured tries to stop the declaratory relief action so it can force the insurer to participate in settlement talks and pay for the insured’s defense.

The covenant of good faith and fair dealing, used by many plaintiffs to compel an insurer to provide coverage that it did not agree to, remains a mutual duty. An insured who fails to act in good faith to its insurer breaches the material implied covenant of good faith.

Homeowners Property & Casualty Insurance Company, Inc. (the insurer), asked the Florida Court of Appeal to reverse a circuit court order that stayed its declaratory judgment action on insurance coverage pending resolution of an underlying tort action filed against the insured, because it deprived the insurer of the benefits of the contract. In Homeowners Property & Cas. Ins. Co., Inc. v. Hurchalla, — So.3d —-, 2015 WL 4747551 (Fla.App. 4 Dist., 8/12/15) the Florida Court of Appeal resolved the dispute.

FACTS

Respondents Lake Point Phase I, LLC and Lake Point Phase II, LLC (collectively, Lake Point) sued Margaret Hurchalla (Margaret), the South Florida Water Management District (SFWMD) and Martin County, seeking injunctive relief and damages. Lake Point claimed that Margaret intentionally made false statements that caused the other defendants to void contracts they had with Lake Point. Lake Point sought injunctive relief and economic damages against Margaret.

The insurer provided a defense under a reservation of rights but later withdrew its defense. It then filed a complaint for declaratory judgment, alleging that, based on the homeowner’s insurance policy, it is not required to defend or indemnify Margaret in the tort action. The insurer argued that the intentional acts alleged in the tort action are excluded from coverage and that Lake Point has not claimed bodily injury or property damage caused by an “occurrence” that triggers coverage under the homeowner’s policy.

After the denial of its motion for summary judgment, the insurer noticed Margaret for deposition. In response, she moved for protective order and to abate the declaratory judgment action pending resolution of the underlying tort action. She argued that litigation of the disputed issues on insurance coverage may prejudice her defense of the tort action. Lake Point is a party in both cases, and she claimed that discovery may force her to disclose defense strategy.

The insurer opposed abatement or stay of the coverage action, arguing that the two actions were mutually exclusive and that expeditious resolution of the coverage action would promote settlement of the tort case. After hearing argument, the trial court granted the motion to abate the coverage action and stayed discovery.

A STAY IS DIFFERENT THAN AN ABATEMENT

Courts often have used the terms “stay” and “abate” interchangeably, but they are not the same. The granting of a stay of one action in favor of another is reviewed for an abuse of discretion, but the propriety of abatement can be determined as a matter of law. While abatement requires complete identity of parties and causes of action a stay should require substantial similarity of parties and actions.

The circuit court’s order in this case is properly characterized as having entered a stay, rather than abatement, as the two actions do not have the same parties and causes of action.

In the declaratory judgment action, the insurer is the plaintiff, and is not a party in the tort action. James Hurchalla is a party defendant in the declaratory judgment action but not a party in the tort action. The trial court effectively postponed the declaratory relief action.

ANALYSIS

In Higgins v. State Farm Fire and Cas. Co., 894 So.2d 5 (Fla .2004), the Florida Supreme Court identified factors a court should consider in determining whether to stay a coverage action pending resolution of an underlying tort action.

(1) whether the two actions are mutually exclusive;

(2) whether proceeding to a decision on the indemnity issue will promote settlement and avoid the problem of collusive actions between the claimant and the insured in order to create coverage where there is none; and

(3) whether the insured has resources independent of insurance, so that it would be immaterial to the claimant whether the insured’s conduct was covered or not covered by the indemnity insurance.

The tort action and the declaratory relief action are mutually exclusive. All of Lake Point’s claims against Margaret are outside of the scope of the policy. The disputed facts in the coverage action, relating to coverage by estoppel, are separate and distinct from the issues in the tort case. As for the second factor, a determination of whether the insurer has a duty to defend Margaret and indemnify her from Lake Point’s claims likely will promote settlement of the tort claim.

In addition, a decision on coverage also will avoid the potential for collusion between Margaret and Lake Point to create coverage where none exists.  The insurer explains that Lake Point could attempt to re-plead its tortious interference claim to omit the allegations of intentional, knowing acts by Margaret causing harm, damage or injury, so as to give rise to potential insurance coverage.

The Court of Appeal agreed with the insurer that Margaret has not shown how discovery in the coverage action could prejudice her defense in the tort action. The insurer has agreed that it will not seek attorney-client privileged communications. Any other prejudice can be avoided by allowing Margaret to raise objections to any specific discovery that would reveal her defense strategy.

The Court of Appeal concluded that the circuit court departed from the essential requirements of law in staying the coverage action pending resolution of the underlying tort action and, therefore, granted the petition and quashed the order.

ZALMA OPINION

Few members of the public like insurance companies. Some judges feel the same. Insurance companies are simply not a favored party in litigation. By staying the declaratory relief action and the right to depose the insured who was seeking coverage, the trial court abused its discretion by postponing the right of the insurer to seek declaratory relief. The stay allowed the insured and the plaintiff in the underlying action to set up the insurer for a major judgment and deprived it of the right to defend itself and protect its rights and that is why the stay was voided.

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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

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

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

Legal Disclaimer:

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

 

Posted in Zalma on Insurance | Comments Off on Can Insurer Litigate Coverage While Tort Case Pending?

Zalma’s Insurance Fraud Letter – August 15, 2015

How There Can Be No Coverage for Fraud

In this, the Sixteenth issue of the 19th year of publication of Zalma’s Insurance Fraud Letter (ZIFL) Barry Zalma, on August 15, 2015 continues the effort to reduce the effect of insurance fraud around the world. The issue indicates that, regardless of some success, the efforts must be increased.

The current issue of ZIFL reports on:

1.    No Coverage for Defense of Suit Alleging Only Fraud
2.    Insurance Company Can Is a Victim of Insurance Fraud
3.    New From Barry Zalma
a.    Insurance Law
b.    The Insurance Fraud Deskbook
c.    Diminution of Value Damages
4.    Can an Insurance Company be a Victim of Fraud?
5.    E-Books from Barry Zalma
6.    California Funds Workers’ Compensation Fraud Fight

The issue closes, as always, with reports on convictions for insurance fraud across the country making clear the disparity of sentences imposed on those caught defrauding insurers and the public with sentences from probation to several years in jail.

PROFORMATIVE ACADEMY

“INSURANCE FRAUD – AN OVERVIEW”

A Continuing Education Presentation

I have created for Proformative Academy a webinar called “Insurance Fraud – An Overview” that is available at  http://www.proformative.com/courses/insurance-fraud-prevention with a 10% Discount for my friends and clients who sign up and enter the discount code: Zalma10.

Insurance Fraud is estimated to take between $80 and $300 billion a year from the property and casualty insurance industry, raising the prices each person pays for insurance by more than $300 a year. It explains to those attending what insurance fraud is, various methods by which insurance fraud is perpetrated, and the various weapons provided by statutory law, legal precedent and professional claims handling to work to reduce the amount stolen by fraud perpetrators. It explains the use of red flags or indicators of insurance fraud and the use of an insurance company Special Investigation Unit (SIU) to gather the evidence necessary to assist in the defeat of insurance fraud.

Continuing Education Credit is available for many, including Certified Fraud Examiners, with 1.5 CPE Credits, in Fraud Prevention and Deterrence.

How to Read & Understand Business Insurance Policies

No business can operate profitably without insurance to protect it against contingent or unknown catastrophic losses. By spreading the risk among many businesses, insurers can charge reasonable sums to protect against losses to the business or its real and personal property. In this course you will listen to an internationally recognized insurance coverage lawyer, author, consultant and expert witness explain why and how an insurance policy provides protection for the business. A business person with the ability to read and understand the insurance policies they acquire has an advantage over every other business person who cannot read and understand a such policies.

Continuing Education Credit available for many, including Certified Fraud Examiners with 1.5 CPE Credits, in Fraud Prevention and Deterrence. I hope you find it interesting and informative.

http://www.proformative.com/courses/how-to-read-understand-business-insurance-policies

I hope you find it interesting and informative.

ZALMA’S INSURANCE FRAUD LETTER

ZIFL is published 24 times a year by ClaimSchool. It is provided free to clients and friends of the Law Offices of Barry Zalma, Inc., clients of Zalma Insurance Consultants and anyone who subscribes at http://zalma.com/phplist/.  The Adobe and text version is available FREE on line at http://www.zalma.com/ZIFL-CURRENT.htm.

THE “ZALMA ON INSURANCE” BLOG

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

•    What is a Claim? – August 14, 2015
•    Why Suit Was Worded to Avoid Coverage for the Defendant – August 13, 2015
•    Courses Available at Discount – August 12, 2015
•    Why is a National Flood Insurance Program Policy Not Insurance? – August 12, 2015
•    When is a Policy of Insurance Made? – August 12, 2015
•    How a Court Changed Parties Positions to Do Justice August 10, 2015
•    Why A Claimant Can Not be a Third Party Beneficiary of an Insurance Policy – August 7, 2015
•    How to Lose Coverage as an Additional Insured – August 6, 2015
•    Why it’s Important to Select A Forum – August 5, 2015
•    Why There is an Examination Under Oath – August 4, 2015
•    Why Failure To Read Policy Hurts Both Insured and Insurer – August 3, 2015
•    Insurance Fraud – An Overview – July 31, 2015
•    How to Lose A Judgment by Taking an Assignment – July 31, 2015
•    A Horse is a Horse, of Course – July 30, 2015
•    No Nonsense Application of Plain Meaning of Exclusion – July 29, 2015
•    How to Defeat an Arson for Profit Attempt – July 28, 2015
•    Crime Doesn’t Pay – July 27, 2015
•    Insurance & The Absolute Litigation Privilege – July 24, 2015

NEW FROM NATIONAL UNDERWRITER

Available from the Zalma Insurance Claims Library.

URL: http://www.nationalunderwriter.com/reference-bookstore/property-and-casualty/zalma-insurance-claims-library.html

Insurance Claims: A Comprehensive Guide

URL:  www.nationalunderwriter.com/InsuranceClaims

Insurance Law

URL:  http://www.nationalunderwriter.com/insurance-law.html

Mold Claims Coverage Guide

URL:  www.nationalunderwriter.com/Mold

Construction Defects Coverage Guide

URL:  www.nationalunderwriter.com/ConstructionDefects

New From The American Bar Association

Diminution in Value Damages

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

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

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

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

ISBN: 978-1-63425-295-8, Product Code: 5190524, 2015, 235 pages, 7 x 10, Paperback
Available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

The Insurance Fraud Deskbook

http://shop.americanbar.org/eBus/Default.aspx?TabID=251&productId=214624; or orders@americanbar.org, or 800-285-2221.

Barry Zalma

Mr. Zalma is an internationally recognized insurance coverage and insurance claims handling expert witness or consultant.  He is available to provide advice, counsel, consultation, expert testimony, mediation, and arbitration concerning issues of insurance coverage, insurance fraud, first and third party insurance coverage issues, insurance claims handling and bad faith.

Mr. Zalma publishes books on insurance topics and insurance law at http://www.zalma.com/zalmabooks.htm where you can purchase  e-books written and published by Mr. Zalma and ClaimSchool, Inc.  Mr. Zalma also blogs “Zalma on Insurance” at http://zalma.com/blog.

You can follow Mr. Zalma on Twitter at https://twitter.com/bzalma

Posted in Zalma on Insurance | Comments Off on Zalma’s Insurance Fraud Letter – August 15, 2015

What is a Claim?

Demand for Money Is A Claim

Claims made liability insurance policies are different from other liability insurance policies. A claims made policy only provides coverage for a claim made during the policy period. Because insurers believe that the word “claim” is clear, unambiguous and understood throughout the country, it is often a term not defined by the policy. As a result litigation often arises over the meaning of the word “claim” and how it applies to the interpretation, duties and obligations of the insured and the insurer.

In Ritrama, Inc. v. HDI-Gerling America Ins. Co., — F.3d —-, 2015 WL 4730916 (C.A.8 (Minn.) 8/11/2015) the Eighth Circuit Court of Appeal was faced with an argument over the meaning of the word “claim” in a claims made policy.

FACTS

Ritrama, Inc. (“Ritrama”) appealed the trial court’s decision that Ritrama’s general liability insurer, HDI–Gerling America Insurance Co. (“Gerling”), does not have a duty to defend Ritrama in a defective-product action filed against it by Burlington Graphics Systems (“Burlington”).

Ritrama manufactures pressure-sensitive flexible films and cast vinyl films for various applications, including for vehicle graphics products. Over a number of years, Burlington—Ritrama’s former customer—purchased more than $8 million worth of cast vinyl film products from Ritrama to manufacture graphic decals for customers in the recreational vehicle (“RV”) industry.

No later than early 2008, Burlington reported to Ritrama that RV owners were experiencing issues with the graphics. In one of its early emails, Burlington informed Ritrama that it was “not going to let [quality issues] just pass by” and that if Ritrama failed to take corrective action, it would seek an alternate supplier.  On July 8, 2008, Patrick McCormack, a manager for Ritrama, met with Burlington’s President, Mark Edwards, to discuss the product failures.

On September 9, 2008, Burlington sent Ritrama a spreadsheet detailing three claims for monetary damages based on the product failures, which totaled $53,219.37. McCormack responded to the spreadsheet by explaining that his “group went over the claim summary and [he] left Mark [Edwards] a voicemail with some questions,” which included: “What is [Burlington’s] expectation of Ritrama on this claim? Is there a certain percentage split you have in mind? When we settle on what the split will be, will this be it? Our intention is to close this out with [Burlington] and have nothing else waiting in the balance (so-to-say).” (Emphasis added)

In early 2009, Ritrama purchased a commercial general liability insurance policy from Gerling (the “Policy”). The Policy provided coverage only for claims made between March 31, 2009, and March 31, 2010. As relevant to this appeal, the policy included the following terms: “A claim by a person or organization seeking damages will be deemed to have been made at the earlier of the following times: ¶ (1) When notice of such claim is received and recorded by any insured or by us, whichever comes first; … All claims for damages because of ‘property damage’ causing loss to the same person or organization will be deemed to have been made at the time the first of those claims is made against any insured.”

On July 17, 2009, Ritrama advised its insurance agent of its issues with Burlington. The same day, the insurance agent sent a “notice of occurrence” to Gerling. Ritrama argues that the notice was not an acknowledgment of a claim, but merely a notification of a “customer having problems.” On January 6, 2011, Burlington sent a letter through its litigation counsel to Ritrama more formally demanding payment and threatening litigation. After Ritrama failed to meet Burlington’s demands Burlington brought suit against Ritrama in federal court. On June 14, 2011, Gerling denied coverage and refused to defend Ritrama in its liability suit.

ISSUES

Ritrama raises three issues on appeal: the district court erred in (1) adopting too broad a definition of “claim” for the Policy; (2) finding the term unambiguous; and (3) granting summary judgment in favor of Gerling because whether Burlington made a claim under the Policy was a disputed factual issue.

ANALYSIS

The insurance policy does not define the term “claim,” so the court employs ordinary contract interpretation principles to determine the meaning the parties ascribed to the term. The trial court found the term unambiguous with the following definition: “an assertion by a third party that the insured may be liable to it for damages within the risks covered by the Policy.”

First, the definition adopted by the district court is entirely consistent with dictionary definitions, including Black’s Law Dictionary. Two listed definitions—“[t]he assertion of an existing right” and “[a] demand for money or property to which one asserts a right”—are much more on point and consistent with the district court’s definition.

Second, the district court’s definition is also consistent with the Policy as a whole. Ritrama believes the term “claim” should carry a similar meaning to “suit” because the terms are used “side-by-side,” but the Policy specifically defines the term “suit” and does not define the term “claim”—suggesting they carry different meanings within the Policy.

Third, the district court’s definition is not contrary to the primary purpose of claims-made insurance policies to only cover claims submitted during the policy period. Under such a policy, “coverage is provided if the error or omission is discovered and brought to the insurer’s attention during the term of the policy.”  A chief purpose of claims-made policies is to allow the insurer to accurately fix its potential liabilities. Adopting the district court’s definition in no way undermines this purpose. To the contrary, it reaffirms the purpose of such policies by recognizing that, absent policy language to the contrary, a claim is submitted when a demand has been made or when the claim is “brought to the insurer’s attention”— not when an unnecessarily formalistic procedure for making a claim has been followed. As such, an insured cannot take advantage of such a policy when it receives a clear demand for relief and then purchases a claims-made insurance policy before a third-party can put the stamp on its written demand letter from its attorney.

Fourth, the Eighth Circuit refused to believe the district court’s definition is inconsistent with Eighth Circuit and Minnesota law. The Eighth Circuit and Minnesota courts have likewise made clear that the focus of whether a claim has been made is whether a demand for relief has been made. Although a mere request for information is generally insufficient to constitute a claim, a demand for relief generally constitutes a claim.

Generally speaking, a “claim” in a liability policy is considered to be an assertion by a third-party to the effect that the insured has caused the claimant damages through some acts or omissions and that the claimant intends to hold the insured responsible for all or a portion of the damages so caused.

Ritrama argued there was no communication from Burlington which could be considered a claim within the definition above. The Eighth Circuit agreed with the district court that explicitly held that the spreadsheet sent from Burlington to Ritrama in September 2008 constituted a list of demands for damages in spreadsheet form.  At the July 2008 meeting in which Burlington and Ritrama met to discuss the product failures and damages that were accruing, Burlington informed Ritrama it would be compiling and submitting a summary of the re-work expenses it had incurred based on the product failures. True to its word, on September 9, 2008, Burlington sent Ritrama a spreadsheet with the specific total of how much monetary damages it had sustained thus far.

There is no reasonable way to interpret the spreadsheet as anything other than a demand for relief. Indeed, this is precisely how Ritrama itself understood the communication. In response to the spreadsheet, Ritrama acknowledged “the original $53k claim that was submitted to [it],” and asked Burlington about its “expectation as to how much Ritrama should share in this claim ” (emphasis added by the court).

A month later, Ritrama reached out to Burlington again with a settlement proposal of 50% for the “claim value [of] $53,219.37” communicated thus far and stated that it would “consider this claim closed” (emphasis added).

ZALMA OPINION

As the plaintiffs’ bar loves to explain insurance is a business of utmost good faith. That duty is defeated when a person, knowing a claim has been presented and demands made upon it, buys an insurance policy to cover that risk without telling the insurer about when applying for the insurance. Ritrama tried to gain coverage wrongfully and in bad faith. It knew there was a claim pending when it bought a claims made policy. The claim happened before the inception date of the policy. Doing so is like buying a fire insurance policy at 3:00 p.m. to be effective that day at 12:01 because the house burned down at 10:00 a.m. Ritrama intentionally misrepresented or concealed a material fact.

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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

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

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

Legal Disclaimer:

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

 

Posted in Zalma on Insurance | Comments Off on What is a Claim?

Why Suit Was Worded to Avoid Coverage for the Defendant

The Danger of the Eight Corners Rule

The Eight Corners rule applied in states like Louisiana, limits analysis of the coverage issue to the four corners of the law suit and the four corners of the policy. It prevents the court from considering extrinsic evidence that might allow coverage or allow insurers to refuse coverage when if the true facts were known would have a different result.

In Haygood v. Dies, — So.3d —-, 2015 WL 4748136 (La.App. 2 Cir.), 49,972 (La.App. 2 Cir. 8/12/15) a dentist and a member of the state regulatory board for dentistry was sued with others for actions taken by the board concerning the plaintiff and his dental practice. The allegations of the claim were that the Dr. Herman O. Blackwood, III (“Dr.Blackwood”) acted in concert with others in a conspiracy to slander or defame the character of the plaintiff. Following the dentist’s claim for insurance coverage from his homeowner’s insurance, the insurer intervened in the action seeking a declaratory judgment that no coverage or duty to defend was owed under the policy. The trial court rendered judgment on a motion for summary judgment in favor of the insurer which is now appealed.

FACTS

This lawsuit is based on the investigation and disciplinary proceeding against Dr. Ryan Haygood, where Dr. Haygood’s dental license was initially revoked by the Louisiana State Board of Dentistry (“Dental Board”). The Dental Board began investigating Dr. Haygood and ultimately filed charges against him after receiving formal complaints from patients and other dentists that Dr. Haygood was recommending treatment plans after over-diagnosing or unnecessarily diagnosing patients with periodontal disease.  The Dental Board found that Dr. Haygood had violated the Dental Practice Act and revoked his dental license and levied fines against him.

Dr. Haygood appealed the Dental Board’s decision and the appellate court found that the Dental Board’s independent counsel participated in the administrative hearing in dual roles as prosecutor and adjudicator in violation of Dr. Haygood’s due process rights.

After the appeal court’s ruling, Dr. Haygood and his limited liability company filed this suit for damages in 2011, naming the Dental Board and others as defendants.  Dr. Haygood supplemented his petition to add Dr.Blackwood, as a defendant. Dr. Haygood claims that Dr. Blackwood, with others, caused him damage through actions that were initiated by the Dental Board, resulting in the disciplinary hearing.

Dr. Blackwood gave notice of the lawsuit to Encompass Insurance Company of America (“Encompass”), his homeowner’s insurance provider, seeking defense and indemnity. Encompass refused to defend and sought declaratory relief. The trial court issued a judgment granting Encompass’ motion and denying Dr. Blackwood’s motion, finding that the homeowner’s policy did not provide coverage for the claims asserted against Dr. Blackwood and that Encompass had no duty to defend and indemnify Dr. Blackwood.

LAW

An insurance policy should be interpreted by using ordinary contract principles. Interpretation of a contract is the determination of the common intent of the parties. When the words of a contract are clear and explicit and lead to no absurd consequences, no further interpretation may be made in search of the parties’ intent. To determine if the an insurer owes the insured a duty to defend, the court is confined to the “eight corners” of the allegation and the insurance policy.

THE “EIGHT CORNERS” REVIEW

Following the so-called “eight corners” analysis, the parties’ opposing motions for summary judgment rest on the petition’s factual allegations against Dr. Blackwood and the contractual provisions for coverage under the Encompass policy. In Dr. Haygood’s initial petition, the following charge is made against the executive director of the Dental Board and other dentists/defendants:

Dr. Haygood claimed that the defendants knowingly and intentionally deprived Dr. Haygood of his right to a fair and impartial hearing; presented knowingly false or exaggerated claims, provided evidence obtained through unlawful means; and took other actions which deprived Dr. Haygood of the right and privilege to conduct his livelihood as a licensed dentist in the State of Louisiana.

The suit alleged, among other things that Dr. Blackwood has actively sought to conceal both the existence of the conspiracy and his role in it by providing false testimony in this action as recently as January 2013 regarding his actions that materially supported the illegal action taken against Dr. Haygood.

THE POLICY

The provisions of the Encompass policy that detail coverage are listed as follows:

“Liability Coverage—Losses We Do Not Cover …

“4. Personal injury does not apply to:

“(a)     Injury caused by a violation of a law or by, or with the knowledge or the expressed or implied consent of the covered person; …

“(c)     Civic or public activities performed for pay by any covered person;

“(d)     Injury arising out of:

“(1)     oral or written publication of material, if done by or at the direction of any covered person with knowledge of its falsity.”

DISCUSSION

Dr. Blackwood appealed and asserted that the coconspirator claims against him in conjunction with the actions of certain defendants who were not members of the Dental Board are not unambiguously excluded from coverage under the policy.

Dr. Haygood’s suit is brought against the executive director of the Dental Board, members of the Board, and other dentists with practices in the Shreveport and Bossier City area. The petition asserts that the Dental Board investigated and charged Dr. Haygood with defrauding his patients by improper diagnoses of periodontal disease. The allegations are that those charges were totally unfounded and presented by knowingly false or exaggerated claims. Thus, the investigations were “sham” actions conducted against Dr. Haygood by his competition and the members of the Board, including Dr. Blackwood. All of the charges directed at Dr. Blackwood are framed in terms of a conspiracy between Dr. Blackwood, other members of the Dental Board, and possibly some of the other dentists named as defendants, yet not members of the Board.

Dr. Haygood’s allegations against Dr. Blackwood amount to a claim for libel, slander, or defamation of character, which is defined to be “personal injury” in the Encompass policy. Nevertheless, we do not find that any publication of the alleged defamatory statements against Dr. Haygood is stated to have occurred by Dr. Blackwood’s mere negligence. Dr. Blackwood’s alleged actions as a member of the Dental Board are not stated to rest upon false information upon which Dr. Blackwood negligently relied without knowledge of the falsity. Instead, the allegations are that Dr. Blackwood and the Dental Board members intentionally presented false and exaggerated claims.

The distinction between a negligent defamation of one’s character and an intentional one is clearly recognized when the tortfeasor is charged to have acted in a conspiracy with others to commit the willful act. Torts committed by conspiratorial actors are intentional. Dr. Blackwood is not sued in this action as an independent actor who slandered or defamed Dr. Haygood. He is sued as one of the conspirators who agreed to commit an intentional or willful act.

Under Louisiana law, while a contract of insurance may extend to cover the insured’s negligent slander, libel or defamation of character, public policy forbids a person from insuring against his own intentional acts. The “personal injury” coverage in the Encompass policy recognizes this public policy and provides in exclusions that the publication of defamatory material with the insured’s knowledge of its falsity is an excluded intentional tort.

Accordingly,  intentional slander and defamation through a deliberate conspiracy among the defendants are charged and, therefore Encompass was correct when it refused to defend or indemnify Dr. Blackwood.

ZALMA OPINION

If the plaintiff wanted money from Dr. Blackwood’s insurer he could have alleged that Dr. Blackwood acted negligently. If he wanted to punish Dr. Blackwood and make him pay from his own pocket to defend the suit. Artful pleading in an eight corners state like Louisiana allows the suit – whether successful or not – to punish the defendant. If it was filed in an extrinsic evidence state evidence could show Dr. Blackwood’s negligence and he would receive a defense paid for by his insurer. Also, coverage may exist in Dr. Blackwood’s errors and omissions policy or from the dental board.

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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

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

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Why Suit Was Worded to Avoid Coverage for the Defendant

Courses Available at Discount

I have course(s) live on Proformative, which just launched, and you can save 10% on a quarterly or annual subscription if you follow my link to the platform. If it’s your first course on Proformative, you can take advantage of the same discount everyone else has right now, which is to try the platform by taking their first course for free on the site. But the 10% discount  will be good for you to enroll with at any time, now or in the future.
10% Discount code is: Zalma10
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Why is a National Flood Insurance Program Policy Not Insurance?

Fulfill the Condition Strictly or Get Nothing

Contrary to what it is called the National Flood Insurance Program is not insurance. It is, rather, a government funded entitlement that can only pay claims by dipping into the treasury of the United States. As a result, unlike insurance policies, federal courts strictly construe the language of the National Flood Insurance policy. In the majority of state jurisdictions substantial compliance with the proof of loss requirement is all that is necessary while Flood policies are strictly construed.

The proper inquiry in determining substantial compliance with a proof-of-loss condition in an insurance policy is whether the proof of loss fulfilled its three intended purposes: (1) allowing insurer an opportunity to investigate the loss; (2) allowing insurer to estimate its rights and liabilities; and (3) preventing fraud. [Bowlers’ Alley, Inc. V. Cincinnati Ins. Co., — F.Supp.3d —-, 2015 WL 3540039 (E.D.Mich.). “A substantial compliance with the provision requiring a sworn proof of loss, resulting in the insurer being able to adequately investigate the claim and estimate its liabilities, is all that is required.” [Greenbrier Hotel Corp. v. Lexington Ins. Co., Slip Copy, 2015 WL 691450 (S.D.W.Va., 2/18/15)

However, in Ferraro v. Liberty Mut. Fire Ins. Co., — F.3d —-, 2015 WL 4666106 (C.A.5 (La.) 8/6/2015) Ron and Patricia Ferraro sued Liberty Mutual to recover flood-insurance proceeds after their house was damaged by Hurricane Isaac. The Ferraros submitted an original signed, sworn proof of loss with the handwritten note “Will send supplement later.” They later sought payment from Liberty Mutual for the supplemental amount without providing a second proof of loss.

The district court granted summary judgment for Liberty Mutual, holding that a second sworn proof of loss is necessary to support a claim under the National Flood Insurance Program.

BACKGROUND

The Ferraros own a house in LaPlace, Louisiana. They purchased a Standard Flood Insurance Policy (SFIP) from Liberty Mutual via the National Flood Insurance Program’s (NFIP) Write–Your–Own (WYO) program. The policy was in place on August 29, 2012, after Hurricane Isaac made landfall on Louisiana.

The Ferraros’ home suffered damage, and they filed a claim for benefits with Liberty Mutual. Liberty Mutual dispatched an independent adjuster, who recommended payment of $103,826.83 and prepared a proof-of-loss form in that amount. The Ferraros signed the proof of loss and handwrote on the form: “Will send supplement later.” Liberty Mutual paid the Ferraros the full amount claimed by the proof-of-loss form.

The Ferraros then hired Dan Onofrey, a public adjuster, to evaluate the damage on their home. Onofrey issued a report valuing the Ferraros’ loss at $320,436.55. Surprisingly, since a licensed public adjuster is expected to know the requirements of the NFIP, the Ferraros only submitted Onofrey’s report to Liberty Mutual. They did not submit a second signed, sworn proof-of-loss form. Liberty Mutual made no further payments to the Ferraros.

For claims relating to Hurricane Isaac, policyholders were required to provide a complete, signed, sworn-to proof of loss within 240 days of the loss (extended by FEMA from the standard 60 days).

The district court granted summary judgment, noting that the NFIP requires strict compliance and holding that the Ferraros’ failure to provide a second proof of loss to accompany Onofrey’s loss valuation barred their suit.

DISCUSSION

Congress created the NFIP to provide flood-insurance coverage at affordable rates. The program, which is operated by the Federal Emergency Management Agency (FEMA), draws funds from the federal treasury. Homeowners can purchase an SFIP policy directly from FEMA or through private insurers, which serve as WYO providers and are fiscal agents of the United States.

Because the NFIP puts at stake the government’s money its regulations are subject to sovereign immunity. Although WYO insurers administer SFIP policies, payments made pursuant to such policies are “a direct charge on the public treasury.”   Gowland v. Aetna, 143 F.3d 951, 955 (5th Cir.1998) The provisions of an insurance policy issued pursuant to a federal program must be strictly construed and enforced.

The central issue in this case is the interpretation of the proof-of-loss requirement in Article VII of the SFIP.

The regulations make strict compliance with the proof-of-loss requirement a condition precedent to suit. “You may not sue us to recover money under this policy unless you have complied with all the requirements of the policy. … This requirement applies to any claim that you may have under this policy and to any dispute that you may have arising out of the handling of any claim under the policy.” 44 C.F.R. pt. 61, app. A(1) art. VII(R) (emphasis added). An insured’s failure to provide a complete, sworn proof of loss statement, as required by the flood insurance policy, relieves the federal insurer’s obligation to pay what otherwise might be a valid claim.

The Ferraros argue that they discharged their proof-of-loss obligation when they filed a signed, sworn statement claiming $103,826.83 in damages and advised Liberty Mutual that a supplement would follow. They contend that they seek only additional benefits (for a total of $320,436.55) and not a wholly separate, “materially different” claim. “The policy at issue,” they assert, “does not require the Ferraros to submit supplementary proof of loss forms to sue for additional payments for previously perfected claims.”

Whether an insured must submit an additional proof of loss to recover an additional amount on a preexisting claim is a question of first impression in the Fifth Circuit. However,  Gunter v. Farmers Ins. Co., 736 F.3d 768 (8th Cir.2013), provides strong persuasive authority for the conclusion that a second proof of loss is indeed required.

It does not matter that the estimate from [the insured’s] adjuster was submitted at the same time and along with compliant proof-of-loss forms claiming undisputed sums because, under the plain terms of the SFIP, [the insured] still had to sign and swear to the amount in that estimate, which he did not do.

SFIP is clear that statements by an adjuster are provided only as a courtesy, and the proof of loss is the signed and sworn final statement of the insured as to how much damage is claimed.  Failure to provide a proof of loss for any supplemental amount is a bar to recovery.

The Fifth Circuit found persuasive the reasoning of other Circuits and applied the same principles to the suit filed by the Ferraros that an insured’s failure to strictly comply with the SFIP’s provisions—including the proof-of-loss requirement—relieves the federal insurer’s obligation to pay the non-compliant claim.

Because the Ferraros’ additional claim for $320,436.55 was neither signed nor sworn-to, it cannot serve as a proof of loss under the plain terms of the SFIP.

The Fifth Circuit held that a second proof of loss was necessary for the Ferraros to perfect their claim. Therefore, the district court properly granted summary judgment for Liberty Mutual.

ZALMA OPINION

Insurance policies issued by insurers not part of the NFIP also contain similar proof of loss conditions. However, they are not strictly construed because substantial compliance is enough when the money expended belongs to a profit making insurer while a NFIP policy  impacts money from the Treasury.

It seems to me that contract terms agreed to at the time the contract is made should be enforced if they are clear and unambiguous. Courts that extend the sixty day proof of loss requirement if there is evidence of “substantial compliance” are saying that the contract term is unimportant and need not be enforced except where money from the Treasury is involved. The language is the same and the contracts should be enforced the same.

A Government funded “insurance” program should never be more equal than a private insurance program.

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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

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

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Why is a National Flood Insurance Program Policy Not Insurance?

When is a Policy of Insurance Made?

Acceptance of Offer Effects Insurance

Insurance, like every other contract, is formed when there is an offer made, that offer is accepted, and consideration (payment or a promise to pay premium) is given.

In a diversity action, a federal court must apply the choice-of-law rules of the forum state. The parties agree that Florida’s rule of lex loci contractus governs the Court’s choice-of-law determination in this contract dispute. This rule provides that the law of the jurisdiction where the contract was executed governs the rights and liabilities of the parties in determining an issue of insurance coverage. In Sun Capital Partners, Inc. v. Twin City Fire Insurance Company, Inc., Slip Copy, 2015 WL 4648617 (S.D.Fla., 8/5/15) the District Court for the Southern District of Florida was asked to apply Florida law while the insurers concluded the contracts were effected in New York and its law should apply.

THE ISSUE

The determination of where a contract was effected is fact-intensive, and requires a determination of where the last act necessary to complete the contract was done. The parties take differing views on where the “last act” necessary to complete Plaintiff’s insurance contracts occurred. Stressing the Eleventh Circuit’s reliance on “communication of the acceptance,” Defendant argued that the last act necessary to create a contract was the insurers’ agents’ communication of acceptance of Plaintiff’s agent’s order to bind coverage. Because acceptance was communicated from New York (to one of Plaintiff’s agents who was also in New York), Defendant argues that New York law applies. On the other hand, Plaintiff argues that the last act was the delivery of the subject policies to Plaintiff at its place of business in Florida.

FACTS: COMMUNICATION OF ACCEPTANCE

Plaintiff Sun Capital assigned the duty of purchasing its insurance policies to its national insurance broker, Marsh Inc. Underwriting for the excess policy (Twin City) was handled by the Hartford. Underwriting for the primary policy (Houston Casualty Company) was handed by Professional Indemnity Agency, Inc.

The circumstances surrounding the excess policy (Twin City) appear in the record first. On December 28, 2007, Raymond Ash, a Marsh agent located in New York, emailed Ho–Tay Ma, a Hartford agent located in New York, as follows: “Thanks for all your help with this account. Please consider this e-mail as the formal order to bind coverage for Sun Capital’s renewal GPL coverage as follows: [discussing applicable limits, period, and terms]…. Please forward the formal binders or confirmation of binding as soon as possible.” From his New York office, Mr. Ma responded to Mr. Ash’s email as follows: “Based upon the information provided regarding the above captioned account, we are pleased to provide you with the following Binder for Insurance on behalf of Twin City Fire Insurance Company.” Apparently, Mr. Ma emailed a copy of the binder to Mr. Ash in New York, as well as to two Marsh agents located in Florida.

The binding of the primary policy (Houston Casualty Company) was handled the same manner. On December 28, 2007, Jennifer Hickox, a Professional Indemnity agent, emailed Mr. Ash as follows: “In accordance with your instructions, we are binding Private Equity Professional Insurance as follows [listing applicable limits, period, and terms].”

Ms. Hickox was a Vice President for Professional Indemnity, and her business address was listed in her email as in Mount Kisco, New York. Ms. Hickox’s email does not indicate that it was sent to anyone other than Mr. Ash in New York.

These documents show that both Plaintiff’s primary and excess insurance policies were executed in materially similar ways.

Plaintiff’s agent, March Inc., emailed the insurer’s agent an offer to purchase insurance by submitting a “formal order to bind coverage.” Next, the insurer’s agent accepted that offer and issued a binder for coverage from an office in New York. This acceptance was effective at the time—and at the place—where it was dispatched, i.e., New York.

The insurer’s agent’s acceptance of Plaintiff’s agent’s offer to purchase insurance was the last act necessary to complete the insurance contract. The fact that only binders were initially exchanged, and not the actual policies, does not alter the conclusion that Plaintiff’s agent offered to purchase insurance coverage, specifying the terms of the policy, and the insurer’s agent issued an acceptance based on those terms.

CONCLUSION

Based on the foregoing, the Court concluded that the last act necessary to create an insurance contract occurred in New York when the insurers’ agents accepted Plaintiff’s agent formal offer to bind coverage.

Whatever merit might exist for the adoption of a rule in Florida that the locus contractus of an insurance policy always be the place where it is delivered, as it stands now, the determination of where a contract was executed is fact-intensive, and requires a determination of where the last act necessary to complete the contract was done.

Where the facts indicate that a fully consummated contract existed prior to delivery of the policy, the last act for contract formation may be found prior to delivery and the court concluded that the contract was formed when the offer was accepted and a binder ordered.

ZALMA OPINION

A binder is evidence of an insurance policy to be delivered at a later date. The issuance of a binder means there is a contract and that is why the court chose New York law for the case. In Trade Center Properties, L.L.C. v. Hartford Fire Insurance Company, 345 F.3d 154 (2d Cir. 09/26/2003) the Second Circuit concluded that a binder is a common and necessary practice in the world of insurance, where speed often is of the essence, for the agent to use this quick and informal device to record the giving of protection pending the execution and delivery of a more conventionally detailed policy of insurance.

Thus, a binder is a short method of issuing a temporary policy for the convenience of all parties, to continue until the execution of the formal one. A binder provides interim insurance, usually effective as of the date of application, which terminates when a policy is either issued or refused. While not all of the terms of the insurance contract will be set forth in the binder, a binder is nevertheless a fully enforceable present contract of insurance.

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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

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

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on When is a Policy of Insurance Made?

We’re Back

My ISP’s server went down and I could post nothing for two days.

I will post articles tomorrow.

Sorry I had nothing for you today.

 

Posted in Zalma on Insurance | 4 Comments

How a Court Changed Parties Positions to Do Justice

MCS-90 Requires Coverage for Any Vehicle Used by the Insured

Courts dealing with insurance issues often find that a logical and simple technical defense can avoid the entire lawsuit. Others believe, as did the District Court of the Northern District of Alabama, in Fowler v. Canal Ins. Co., Slip Copy, 2015 WL 4656474 (N.D.Ala., 8/6/2015), that it is the duty of the court to resolve disputes and dispense justice.

FACTUAL BACKGROUND

The Fowler declaratory judgment action concerns insurance coverage issues relating to a traffic accident. Plaintiffs Larry and Julie Fowler and their two children were traveling in a pickup truck when their truck collided with a 1999 Kenworth tractor-trailer truck. Defendant Gannon Derek Sanders was driving the tractor-trailer truck. Mr. and Mrs. Fowler and their two children sustained injuries in the accident. The Fowlers allege that defendant Todd Hauling, Inc. owned the tractor-trailer that Mr. Sanders was operating and that defendant Gerald Todd owns Todd Hauling.

Defendant Canal Insurance Company issued a commercial automobile insurance policy to Todd Hauling. The Fowlers allege that the Canal policy provides coverage for specifically described vehicles, and the 1999 Kenworth involved in the accident is not among the vehicles listed in the policy. The Fowlers also contend that the Canal policy provides coverage for specifically described drivers, and Mr. Sanders is not among the drivers identified in the policy.

Despite these allegations, the Fowlers assert that Canal must provide coverage to Todd Hauling, Mr. Todd, and Mr. Sanders for any claims that the Fowlers assert against the three parties concerning the traffic accident because Canal’s policy includes an MCS–90 Endorsement.

The Endorsement, required under the Motor Carrier Act of 1980, makes the insurer liable to third parties for any liability resulting from the negligent use of any motor vehicle by the insured, even if the vehicle is not covered under the insurance policy.

The Fowlers originally filed this declaratory judgment action seeking a declaration of the rights and obligations under a Commercial Automobile Policy issued by Canal to Todd Hauling. Todd Hauling, Mr. Sanders, and Mr. Todd filed a cross-claim against Canal. The cross-claim plaintiffs seek a declaration that Canal has a duty under the policy that it issued to Todd Hauling to provide a defense in the Fowlers’ underlying state court action.
Canal filed a motion to dismiss.

DISCUSSION

Canal’s Motion to Dismiss

Canal argues that the Court should dismiss the Fowlers’ claims against the company because the Fowlers are not insureds under Todd Hauling’s policy, and under Alabama law, an injured party may not file a direct action against an insurer until the injured party secures a judgment against the insured. Under Alabama’s Direct Action statute, an “injured party … can bring an action against the insurer only after he has recovered a judgment against the insured and only if the insured was covered against the loss or damage at the time the injured party’s right of action arose against the insured tortfeasor.” Maness v. Ala. Farm Bureau Mut. Cas. Ins. Co., 416 So.2d 979, 981–82 (Ala.1982) (citing Ala.Code § 27–23–1, et seq. (1975)).

If the Fowlers’ claim against Canal was the only claim in this action and if the Court were to find that the Fowlers’ claim was an impermissible direct action, the Court would grant Canal’s motion to dismiss. Here, though, in their cross-claim, defendants/cross-claim plaintiffs Todd Hauling, Mr. Todd, and Mr. Sanders have demanded coverage under the Canal policy for the Fowlers’ underlying state court action. Consequently, the Court realigned the parties in this action to reflect their interests in the litigation.

The Court concluded, therefore, that regardless of the the allegations in the complaint and cross-claims, that Todd Hauling, Mr. Todd, and Mr. Sanders are plaintiffs in this declaratory judgment action, and the Court regards Canal and the Fowlers as defendants in this declaratory judgment action.

Federal courts are required to realign the parties in an action to reflect their interests in the litigation. That was done.

ZALMA OPINION

It took the Fowlers lawsuit to wake up Todd Hauling, Mr. Todd and Mr. Sanders that their insurance company was not treating them fairly. As a result of the suit brought by the Fowlers, who clearly were not insured by Canal and who had no right to sue it directly, convinced Todd Hauling, Mr. Todd and Mr. Sanders to join the suit against Canal. As a result, although standing alone the Fowlers suit should have been dismissed, the court realigned the parties to put them in a position where justice could be done.

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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

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

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on How a Court Changed Parties Positions to Do Justice

Why A Claimant Can Not be a Third Party Beneficiary of an Insurance Policy

An Insurer Can Only Act in Bad Faith to Its Insured

A third party claimant whose damage was remediated by the insurers for the tortfeasor causing injury to their property sued the insurers for bad faith because, in the plaintiff’s opinion, they did not act fast enough or generous enough. Proving that no good deed goes unpunished, the plaintiffs, claiming to be third party beneficiaries of the third parties’ insurers, sued the insurers for bad faith and sought tort damages against the insurer. In Ross v. Lowitz, — A.3d —-, 2015 WL 4643775 (N.J., 8/6/2015) the New Jersey Supreme Court was called upon to resolve the dispute and determine if the plaintiffs had standing to sue the insurers.

FACTS

John and Pamela Ross, who allege that their residence was damaged by the migration of home heating oil from a leaking underground oil storage tank sued the owners of the property where the underground storage tank. Plaintiffs also sued the insurers who provided homeowners’ coverage to the former owners of the neighboring property, asserting a claim for breach of the implied covenant of good faith and fair dealing, in addition to claims for nuisance and trespass.

After plaintiffs instituted their action and following their filing of an order to show cause, two of the defendant insurers conducted a remediation of the contamination on plaintiffs’ property. The trial court granted summary judgment dismissing plaintiffs’ claims against the defendant property owners and their insurers. The Appellate Division affirmed that determination.

Plaintiffs claimed that they were third-party beneficiaries of the insurance contracts between the insurers and their insureds, and alleged that the insurers violated the covenant of good faith and fair dealing. Plaintiffs sought remediation, damages for the alleged loss of the use of their home, and damages for the alleged diminution in the value of their property.

The trial court granted all defendants’ summary judgment motions. With respect to State Farm and NJM, the trial court held that because plaintiffs were not parties to the insurance contracts at issue, they had no standing to recover the policy proceeds, and that public policy did not mandate that a third party be deemed the intended beneficiary of the insurance company’s contractual duty to its insured to act in good faith with respect to a settlement.

State Farm and NJM argued successfully that in the absence of an assignment of rights under their contracts with their insured, or an intent on the part of the parties to the contract to designate plaintiffs as third-party beneficiaries of the contract, plaintiffs may not pursue a bad faith claim against the insurers. They contend that plaintiffs had no “special relationship” with the insurers that would justify the imposition of liability for a breach of the covenant of good faith and fair dealing. State Farm also counters plaintiffs’ contention that in the absence of a direct claim, no party will be responsible for the damage to their home.

ANALYSIS

As a general rule, an individual or entity that is “a stranger to an insurance policy has no right to recover the policy proceeds.” Gen. Accident Ins. Co. v. N.Y. Marine & Gen. Ins. Co., 320 N.J.Super. 546, 553–54 (App.Div.1999) (citing Biasi v. Allstate Ins. Co., 104 N.J.Super. 155, 159–60 (App.Div.), certif. denied, 53 N.J. 511 (1969)). In the absence of an assignment, plaintiffs assert that they are third-party beneficiaries to the insurance contracts executed by Lowitz and her insurers, State Farm and NJM, and that the insurers breached that duty by delaying the remediation of plaintiffs’ residence.

When a court determines the existence of “third-party beneficiary” status, the determining factor as to the rights of a third party beneficiary is the intention of the parties who actually made the contract. Thus, the real test is whether the contracting parties intended that a third party should receive a benefit which might be enforced in the courts; and the fact that such a benefit exists, or that the third party is named, is merely evidence of this intention. If there is no intent to recognize the third party’s right to contract performance, then the third person is only an incidental beneficiary and has no contractual standing.

An insurer’s duty of good faith and fair dealing, however, has never been applied in New Jersey to recognize a bad-faith claim by an individual or entity that is not the insured or an assignee of the insured’s contract rights. The right of the assured to recover against the insurer for its failure to exercise good faith in settling a claim within the limits of a liability policy is predicated upon the potential damage to the assured in being subjected to a judgment in excess of her policy limits and the consequent subjection of her assets to the satisfaction of such judgment. The damage is peculiarly to the assured by reason of a breach of an implied condition of the policy contract. The injured third party is a stranger in that sense.

It is a fundamental premise of contract law that a third party is deemed to be a beneficiary of a contract only if the contracting parties so intended when they entered into their agreement. Here, there is no suggestion in the record that the parties to the insurance contracts at issue had any intention to make plaintiffs, then the neighbors of the insured, a third-party beneficiary of their agreements. Nor does the migration of oil from Lowitz’s property to plaintiffs’ residence retroactively confer third-party beneficiary status on plaintiffs. The insurers’ duty of good faith and fair dealing in this case extended to their insured, not to plaintiffs.

There is, in short, no basis for plaintiffs’ bad-faith claims against State Farm and NJM, as insurers of Lowitz in this case.

ZALMA OPINION

Everyone who is damaged looks to the deep pocket of insurance companies to make them whole or to profit, by means of punitive damages, from the tort action. In this case the plaintiffs tried to get damages from the insurers of the people who damaged the plaintiffs’ property. In bringing this action the plaintiffs failed to accept the fact that insurance is a contract of personal indemnity. Since there was no evidence that the insurance was taken out to benefit anyone other than those named in the policy. The tort of bad faith was created to protect persons insured against bad acts by their insurers not failing to give third party claimants what they want.

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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

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

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Why A Claimant Can Not be a Third Party Beneficiary of an Insurance Policy

How to Lose Coverage as an Additional Insured

Failure to Prove Contract Can Be Fatal

Insurance is always a contract. To obtain the benefits of the contract of insurance it is necessary to comply with the conditions set forth in the policy. Vendors of products usually seek to be named as an additional insured in the liability insurance protecting the manufacturer. Broad form additional insured endorsements automatically make a vendor an additional insured if the vendor and manufacturer meet certain simple conditions.

In Geraczynski v. National R.R. Passenger Corp., Slip Copy, 2015 WL 4623466 (D.N.J.,7/31/2015) the District Court for the District of New Jersey was faced with among many other things, a motion by an insurer to dismiss a declaratory relief action from an entity claiming to be an additional insured because of the failure of the putative additional insured to prove the existence of a contract between it and the manufacturer.

BACKGROUND

The core of this product liability action concerned allegations of a defectively manufactured chair, which failed and collapsed, resulting in injuries to Plaintiff William Geraczynski.

Plaintiff settled his claims against all Defendants, with the product manufacturer, Oasyschair, bearing full responsibility for the settlement. Left unresolved were Defendants’ cross-claims against each other for indemnification. Of interest to me was the Third–Party Defendant Columbia Casualty Co.’s (“Columbia”) motion to dismiss the vendor, SAFCO’s, third-party claim for a declaration of insurance coverage; and SAFCO’s motion for summary judgment on its declaratory judgment claim for coverage.

DISCUSSION

Defendant SAFCO filed a Third–Party Complaint against Columbia, asserting a single claim for insurance coverage. SAFCO claims it is entitled to coverage as an additional insured under a commercial general liability policy issued by Columbia to Oasyschair.

Columbia has moved to dismiss that claim pursuant to Rule 12(b)(6), arguing that no relief can be granted because the Third–Party Complaint has failed to set forth that SAFCO meets a condition precedent to coverage under the policy’s additional insured endorsement. SAFCO opposed the motion, and filed its own motion seeking summary judgment on the claim, asserting that there are no genuine issues of fact that it is entitled to coverage.

The policy contains an endorsement that provides coverage to vendors for losses relating to “all products insured under this policy.” The endorsement does not name any particular vendor but rather identifies an additional insured according to the following terms: “as required by written contract or agreement executed prior to the occurrence.”

Columbia argued that SAFCO cannot meet the requirements for coverage because it has failed to produce a contract between SAFCO and Oasyschair which required Oasyschair to provide insurance coverage and/or name it as an additional insured in any applicable commercial general liability policy.

The declaratory judgment claim asserted by SAFCO, asserting its entitlement to insurance coverage, alleges a loss falling within the Oasyschair policy and further alleges that SAFCO and its parent company Liberty are additional insureds under the policy per the vendor’s endorsement. It also avers that “prior to the date of the incident that is the subject matter of this litigation, SAFCO/LIBERTY entered into an agreement with Oasyschair as a downstream distributor of the chair manufactured by Oasyschair.” The Third Party Complaint contains a factual allegation, which, taken as true, establishes that SAFCO and Liberty meet the endorsement’s terms for coverage as additional insureds. These allegations suffice to state a plausible claim for relief, that is, a declaration that SAFCO is entitled to coverage. Columbia’s argument regarding the absence of a contract or agreement in the record goes to SAFCO’s ability, or lack thereof, to prove the allegation.

The vendor’s endorsement at issue here states that, for the endorsement to apply, there must be a “written contract or agreement executed” which requires policyholder Oasyschair to name the vendor in question as an additional insured. SAFCO contends that the endorsement accepts either a “written contract” or “agreement” as sufficient to trigger coverage, and thus the Court should consider the parties’ course of dealing to determine whether such an agreement was in place. At the very least, according to SAFCO, the endorsement contains an ambiguity as to whether an agreement must be in writing, and the court should resolve that ambiguity in favor of the insured.

SAFCO’s argument implies that the word “written” qualifies only the word “contract” but not “agreement,” as a different interpretation would render use of the generally interchangeable terms redundant.

The flaw in SAFCO’s argument, however, is that the vendor’s endorsement also uses the term “executed” to describe the kind of “written contract or agreement” required to secure additional insured status under the Oasyschair policy with Columbia.  The meaning of “execute,” signifying the act of formalizing the agreement by signing, is the only one that makes sense in the context of the insurance contract and vendor’s endorsement.

SAFCO bears the burden of proof on its claim against Columbia for insurance coverage, but it has not come forward with a written contract or signed agreement to establish that it is an additional insured. SAFCO has failed to demonstrate that it is entitled to a declaration of insurance coverage as a matter of law.

The Court concluded that even if it were to find the language of the vendor’s endorsement ambiguous, and construe it in SAFCO’s favor to mean that an unwritten agreement for additional insured coverage would suffice, SAFCO would not have established that summary judgment on the insurance coverage claim is warranted. SAFCO argues that the course of dealing between Oasyschair and SAFCO establishes that an agreement exists but fails to provide evidence to establish such an implied contract-in-fact. The certificate states that “SAFCO Products Company is named as an additional insured per broad form vendors endorsement where required by writ [sic] contract or agreement.” This may constitute relevant evidence on the insurance coverage claim but does not establish SAFCO’s entitlement to judgment on the claim as a matter of law.

Because SAFCO failed to satisfy the burden for summary judgment on its claim against Columbia, its motion has placed before the Court those parts of the record pertinent to the claim. Upon searching the record, the Court concludes that no reasonable juror could find in SAFCO’s favor on the insurance coverage claim, making summary judgment appropriate in favor of Columbia pursuant to Rule 56(f)(1).

Accordingly, SAFCO’s motion for summary judgment on the third-party claim against Columbia must be denied, and the Court will grant Columbia summary judgment SAFCO’s insurance coverage claim pursuant to Rule 56(f)(1).

CONCLUSION

For the reasons discussed, SAFCO’s motion for summary judgment on its Third–Party Complaint against Columbia was denied, and summary judgment in favor of Columbia on the insurance coverage claim brought by SAFCO was granted.

ZALMA OPINION

I have written to exhaustion that it is necessary to read the entire contract of insurance before making a decision with regard to the availability of insurance. SAFCO could easily have proven its right to coverage by submitting a contract between it and the manufacturer requiring the manufacturer to name SAFCO as an insured. Since no such contract existed SAFCO tried to rewrite the words of the policy and failed. The lesson: do it right the first time and avoid litigation.

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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

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

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on How to Lose Coverage as an Additional Insured

Why it’s Important to Select A Forum

Court Applies Choice of Law Agreement of Insured & Insurer

Insurance law is not constant across the United States. Some jurisdictions are more favorable to insurers, under certain circumstances, than others. It is prudent, therefore, when an insurer accepts a major exposure to loss, to select the jurisdiction where any disputes will be resolved.

Courts will, as a general practice, support the decision of the parties and their choices, especially when the parties are both sophisticated and have equal power. In H.J. Heinz Co. v. Starr Surplus Lines Ins. Co., Slip Copy, 2015 WL 4608118 (W.D.Pa., 7/31/2015) the District Court for the Western District of Pennsylvania was asked to determine which state’s law should apply to the dispute between the insurer and the insured.

FACTS

This case centers on an insurance coverage dispute between Plaintiff, H.J. Heinz Company (“Heinz”), a Pennsylvania corporation, with its principal place of business in Pittsburgh, Pennsylvania, and its insurance provider, Starr Surplus Lines Insurance Company (“Starr”), an insurer incorporated in the State of Texas, with its principal place of business in New York, New York.

Both Parties seek a declaration from this Court as to Starr’s obligations under the Parties’ Product Contamination Insurance Policy, and Starr moves this Court to find that the Policy should be rescinded. Presently at issue is whether the substantive laws of the Commonwealth of Pennsylvania or the State of New York apply to this litigation. The Court has provided the Parties with an opportunity to address this issue and the matter is ripe and ready for disposition. After review of these documents and the Parties’ Product Contamination Insurance Policy.

Choice of Law Provisions in the Parties’ Product Contamination Insurance Policy

The Product Contamination Insurance Policy addresses the Parties’ intention as to the choice of law in Section 5.10, which reads as follows: “5.10 Choice of Law and Forum ¶ The construction, validity, and performance of this Policy will be governed by the laws of the State of New York. The Insurer and the Insured hereby expressly agree that all claims and disputes will be litigated in the Supreme Court of the State of New York in and for the County of New York or in the U.S. District Court for the Southern District of New York.”

This provision is contained within a 19–page document entitled Product Contamination Insurance, for the period of insurance from July 1, 2014, through July 1, 2015. The choice of law provision appears on the Declaration Page of the policy under the “Law” heading as well as the body of the policy. Both declare the law applied to the Policy will be that of “The Supreme Court of The State of New York.”

The only other potentially applicable provision between the Parties as to the choice of law is contained within a Service of Suit Endorsement, also effective July 1, 2014, which provides, that Starr will acknowledge the jurisdiction of any court where a suit is brought by the insured but does not state it is a modification of the choice of law provision.

The Policy, including the Section 5.10 and the Service of Suit Endorsement, is unambiguous, but the Parties disagree as to the interpretation of Policy and dispute the effect, if any, of the Service of Suit Endorsement upon the Parties’ Choice of Law clause.

DISCUSSION

At the threshold, the Court must determine whether the Service of Suit Endorsement supersedes or significantly modifies Section 5.10 Choice of Law and Forum. Before undertaking such review, the Court determined that the Service of Suit Endorsement does not supersede or modify the Choice of Law provision.

The plain language of the Parties’ Service of Suit Endorsement sets forth that Starr will consent to the jurisdiction of any Court chosen by Heinz and, additionally, that any dispute in the chosen forum would be conducted “in accordance with the law and practice of such Court.”  The Court found that the phrase “in accordance with the law and practice of such Court” does not imply that the substantive laws of the chosen forum also control. Instead, this language merely details the permissive suit provision, and does not modify the unambiguously expressed intent of the sophisticated business Parties that “[t]he construction, validity and performance of this Policy will be governed by laws of the State of New York.”

Clearly the Parties intended to have the substantive laws of the State of New York apply to any legal dispute. New York, the Parties’ chosen State for the Choice of Law provision, has a substantial relationship to both the Parties and the transactions at issue and there is a reasonable basis for the Parties to have elected that New York substantive laws control.

The standard for rescission in Pennsylvania is more stringent than that of New York because Pennsylvania’s standard imposes a burden on a party to demonstrate that the insured knew the representation at issue was false when it was made or the insured made the representation in bad faith. New York State does not have a similar scienter requirement for rescission. Rescission serves to protect an insurer from contractual obligations due under a policy that should not have issued. In this sense, New York has the strongest interest in this matter as Starr, who may be found liable under the insurance contract and has alleged that the Policy is not valid, is headquartered in New York, where the majority of the negotiations prior to issuance of the Policy occurred.

New York’s strong interest in the determination of whether the Insurance Policy should be rescinded implicates that Pennsylvania does not have a “materially greater interest” in this determination than New York and the Parties’ choice of law provision should be applied.
There is also a true conflict between New York and Pennsylvania law as to bad faith, in that Pennsylvania permits a party to recover punitive damages, attorneys’ fees, and interest from an insurer if a claim is denied in bad faith, while New York does not recognize a cause of action for bad faith denial of insurance claims.

In sum, the Parties contracted that legal disputes under the Product Contamination Policy would be governed by the substantive laws of the insurer’s state, New York. The Service of Suit Endorsement established that Heinz could file suit in any forum in the United States, but did not affect the application of New York’s substantive laws. There are no grounds to disturb the Parties’ valid contractual Choice of Law provision. Therefore, the substantive laws of the State of New York will apply to this litigation.

ZALMA OPINION

Because of the extreme exposure faced by the policy protecting Heinz against the expenses of product contamination, Starr insisted upon, and Heinz agreed, that all disputes about the policy would be decided by the substantive law of the state of New York because doing so would avoid the risk of a bad faith law suit and allow, if appropriate, recession for an innocent misrepresentation of material fact. If Starr can prove that the policy was acquired based upon a misrepresentation of material fact or concealment of material fact, Starr will be able to rescind the policy and avoid all exposure applying the law of New York where it might not succeed in Pennsylvania. Other insurers should consider including a choice of law provision in their policies when faced with a huge exposure and emulate the Starr plan.

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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

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

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Why it’s Important to Select A Forum

Why There is an Examination Under Oath

The EUO Is a Serious and Important Part of the Insurer’s Investigation

The attorney, insurance claims professional or investigator who conducts the EUO can take a role similar to the role of a prosecutor without the usual constitutional restraints controlling testimony at a deposition or trial. [Hickman v. London Assurance Corporation, 184 Cal. 524, 195 P. 45 (1920)] A false statement as to any material fact during the EUO can cause the policy to be declared void, even if the fact has no relationship to the loss.

In Claflin v. Commonwealth Insurance Co., 110 U.S. 81, 94-95 (1884) the false testimony concerned a witness that would not affect the amount payable under the policy but to protect his reputation for veracity. The Supreme Court found that the witness of the injury was material to the investigation and declared the policy void for fraud because he made false statements under oath.

Contrary to the Belief of Lawyers for the Insured, the EUO Is Not an Adversary Proceeding like a Deposition in a Lawsuit.

The EUO is an investigative tool made available to the insurer. It allows the insurer to delve deeply and under oath into all aspects of the policy and the loss. The testimony to be elicited is not constrained by rules of discovery or the Codes of Civil Procedure.

The only restraint on the EUO is reasonableness. Unlimited questions are allowed. Only totally irrelevant and unreasonable questions dealing with facts completely outside the policy, its acquisition or the loss are not favored.

Irrelevant questions are tolerated if there is any possibility the question may lead to an inquiry about facts relevant to the policy or claim. In fact, there are no questions that are irrelevant in an EUO since each question may lead to more important information that could never have been learned about had not a foundation been laid by questions that appear, on their face, to be irrelevant. Since there are no rules for the taking of the EUO any question asked is important and must be answered.

In Ram v. Infinity Select Ins., 807 F.Supp.2d 843 (2011), during the investigation of the insured’s claim, the plaintiff produced limited records. Where an insurer has reason to suspect fraud in relation to a theft claim, inquiries into the insured’s financial status are relevant and material, and a refusal to answer questions on that subject constitutes a material breach of the insurance contract. Plaintiff refused to discuss his 2008 income at his EUO, and much of the income and employment information that he was willing to provide throughout the investigation of his claim is admittedly false. The Court found that Plaintiff’s failure to answer income questions constitutes a breach of the duty to cooperate, and no reasonable juror could find otherwise.

In Deguchi v. Allstate Ins. Co., Not Reported in F.Supp.2d, 2008 WL 1780271 (D.Hawai’I, 2008) a case where Plaintiffs’ testimony raised even more questions of possible motive, Plaintiffs prevented Allstate from further investigating and determining coverage under the Policy. Specifically, Deguchi refused to submit to a further EUO, and Plaintiffs’ attorney limited Scalas’ EUO to questions on the Princess Natasha, her loss, the two crew aboard her at the time of the loss, and her value. Under the specific circumstances of this case, the court found that Allstate’s requests for EUOs were reasonable as a matter of law. Deguchi, by refusing to allow a second EUO, and Scalas, by refusing to answer even basic questions, breached Plaintiffs’ duty under the Policy to “submit to examinations under oath” as reasonably required by Allstate. Because Plaintiffs’ refusal prevented Allstate from determining coverage under the Policy, Allstate had no duty to pay Plaintiffs under the Policy.

Similarly, in Powell v. United States Fid. & Guar. Co., 88 F.3d 271 (4th Cir.1996), the insureds’ home was destroyed by fire. Under their homeowners’ insurance policy, the insureds were required to “submit to questions under oath and sign and swear to them.” Powell, 88 F.3d at 272. During the EUO, the insureds refused to answer several questions and “to turn over financial and other documents,” claiming that an EUO did not permit the insurer to “delve into financial or other information relating to the [insureds’] possible motives to intentionally set the fire … but … [was] instead limited … to an examination relating to the existence and extent of loss under the policy.” The United States Court of Appeals for the Fourth Circuit disagreed, stating that an EUO “encompasses investigation into possible motives for suspected fraud.” Concluding that the EUO “is not restricted to amount of loss, but the insurer has the right to examine the insured and his witnesses as to any matter material to the insurer’s liability and the extent thereof.” Therefore, in Phillips v. Allstate Indemn. Co., 156 Md.App. 729, 848 A.2d 681 (2004) and Lindsey v. State Farm Fire and Cas. Co., Not Reported in F.Supp.2d, 2000 WL 1597763 (D.Md., 2000) under the facts and circumstances of the case, the refusal to answer questions about his financial circumstances during the EUO violated the terms of the policy and constituted a failure to cooperate.

In Michigan, in the context of a homeowner’s insurance policy, that the remedy for failing to comply with a requirement to submit to an EUO is dismissal of the insured’s action. Thomson v. State Farm Ins. Co., 232 Mich.App. 38, 45, 592 N.W.2d 82 (1998); Yeo v. State Farm Ins. Co., 219 Mich.App. 254, 257, 555 N.W.2d 893 (1996). The court saw no reason to distinguish between a valid EUO in a homeowner’s insurance policy and a valid EUO in a policy providing uninsured motorist benefits. An insurance policy is much the same as any other contract; it is an agreement between the parties. Because the no-fault statute does not require uninsured motorist benefits, there is no public policy against enforcing the EUO provision in this context, and we must honor the intent of the parties’ contract. [Cruz v. State Farm Mut. Auto. Ins. Co., 241 Mich.App. 159, 614 N.W.2d 689 (2000)].

The EUO Should Be Required by an Insurer:

■          When the insured has insufficient documentary evidence to prove his loss.

■          When the insured refuses to cooperate in the investigation of the insurer.

■          When the insured is unable to present documentary evidence in support of his or her claim.

■          When the Insured needs help proving his or her loss.

■          When the insurer has no other means of “cross examining” the proof of loss submitted by the insured.

■          When the insurer witnesses a fraudulent claim is being attempted.

The list of reasons for requiring an EUO are not the only reasons but a small list of potential reasons for an EUO.

When an insurance professional, whether an adjuster or a lawyer, finds a claim poses questions that cannot be answered by the usual and common methods of investigating a claim, it is important to consider the use of the EUO to get the answers not available anywhere else.

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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

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

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

Legal Disclaimer:

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

Posted in Zalma on Insurance | 2 Comments

Why Failure To Read Policy Hurts Both Insured and Insurer

Per Claim Deductible Defeats Cover for Bad Faith Suit

It sees to me that no one reads an insurance policy until a claim is made. Even insurers fail to read or apply the terms and conditions of the policy to the facts of a loss. In Western Heritage Ins. Co. v. Asphalt Wizards, — F.3d —-, 2015 WL 4569127 (C.A.8 (Mo.) 7/30/2015) both the insured and insurer seemed to avoid reading the terms and conditions of the policy before the insurer asserted its rights.

FACTS

Western Heritage Insurance Company (Heritage) was a Commercial general liability (CGL) for Asphalt Wizards (Asphalt) who, after defending Asphalt for four years, sued its insured and the company that had filed a class action lawsuit against Asphalt for allegedly sending unsolicited faxes in violation of the federal and state law. Heritage sought a declaration that it had no duty under the policies to defend or indemnify Asphalt in the underlying lawsuit. The company suing Asphalt brought counterclaims against insurer for supplementary payments, vexatious refusal to pay, and attorney fees. The trial court dismissed the counterclaims and found Heritage had no duty to indemnify Asphalt.

Asphalt , a parking-lot repair business, hired a company to fax advertisements to potential customers. From 2005 until 2008, more than 44,000 faxes were sent on Asphalt’s behalf. Fun Services of Kansas City (“Fun Services”), which received some of these faxes, filed a class-action petition in Missouri state court alleging that (1) Asphalt Wizards violated the Telephone Consumer Protection Act (“TCPA”), 47 U.S.C. § 227, by sending these faxes, and (2) that Asphalt Wizards committed conversion by commandeering the recipients’ fax machines. For the alleged TCPA violations, Fun Services and the class are seeking statutory damages of $500 for each fax.

Shortly after the lawsuit was filed, Asphalt notified its insurer, Heritage  about it.  Heritage had insured Asphalt through three sequential, year-long policies from May 18, 2004 until May 18, 2007, the time frame when roughly 33,000 of the faxes were sent. The policies covered property damage and personal and advertising injury. Each of the policies also contained a deductible endorsement that provided for a $1,000 “per claim” deductible amount for property damage and for personal and advertising injury. This deductible amount applied to “all damages sustained by one person or organization as the result of any one claim” as well as to “legal expenses incurred in the handling and investigation of each claim.”

Heritage responded to Asphalt’s request for coverage. Heritage reminded Asphalt of its policy limits, including the $1,000 deductible amount, and stated that Heritage had hired a law firm to represent Asphalt.  Heritage sent a second letter, four years later, to Asphalt  styled a “supplement” to the prior one, stated that Heritage now intended to defend Asphalt subject to a reservation of rights.

Heritage filed this action against Asphalt  and Fun Services seeking a declaration that it owed no duty to defend and no duty to indemnify in connection with the class-action lawsuit. With respect to the duty-to-indemnify issue, the court found that Heritage had waived its defenses to coverage by waiting four years to issue a reservation-of-rights letter. However, the court concluded that Heritage did not waive the deductible endorsements.

DISCUSSION

Heritage’s Duty to Indemnify

The key issue presented to the Eighth Circuit was Heritage’s duty to indemnify Asphalt. In granting summary judgment to Heritage, the district court determined that Heritage had waived its defenses to coverage by failing to issue a timely reservation of rights, that the deductible endorsements were not a defense to coverage, and that because no “claim” could exceed the $1,000 deductible amount, Heritage did not have a duty to indemnify.

Summary judgment is proper only if there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. Fun Services first argues that the deductible endorsements amount to a defense to coverage and that because the district court found that Heritage waived its defenses to coverage, it necessarily waived the application of the deductible endorsements as well.

Under Missouri law, an insurer’s failure to mention a policy limit—i.e., the maximum amount of coverage—in a letter denying coverage does not preclude the insurer from later asserting that policy limit. A contrary rule would create coverage where none existed under the policy in the first place. Fun Services asks us to characterize the deductible endorsements as a defense to coverage, meaning that they can be waived. The deductible endorsements function as an apportionment of loss between the insurer and the insured.

Allowing the  deductible endorsements to be waived would, like barring an insurer from asserting policy limits, create coverage where none existed under the policy in the first place. As a result the Eighth Circuit agreed with the district court that Heritage did not waive its ability to enforce the deductible endorsements.

The district court determined that the term “claim” as used in the policy unambiguously connotes that the $1,000 deductible amount applies separately to each fax. The district court reasoned that damages and legal expenses from one fax could not exceed $1,000.
Although Fun Services’ briefs assert that a reasonable person could adopt this broader interpretation of “claim,” Fun Services fails to take the additional and necessary step of demonstrating a genuine dispute for trial about whether a class member actually received more than one fax in a policy year.

Fun Services has failed to come forward with specific facts showing that there is a genuine issue for trial. Even if an ordinary person could define “claim” to include multiple faxes sent to one class member during a policy year, Fun Services has not raised a genuine dispute of material fact about whether any class member received more than one fax in a policy year.

As a result, the grant of summary judgment to Western Heritage on the duty-to-indemnify issue was appropriate.

ZALMA OPINION

Heritage took four years to realize that the most that could be asserted against its insured, Asphalt, per claim was $500 a sum half the amount of the deductible. If it had conducted a thorough investigation and review of the policy before accepting the defense it would have saved four years of attorneys fees. If Asphalt had read the policy it would not have agreed to a per claim deductible but would have insisted on a per annum deductible.  Had Heritage properly reserved its rights it could have recovered the money it paid to defend the insured. The lesson: “read the policy before you buy it” and “read the policy before you provide a defense.”

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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

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

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Why Failure To Read Policy Hurts Both Insured and Insurer

Insurance Fraud Undeterred

Zalma’s Insurance Fraud Letter

August 1, 2015

In this, the fifteenth issue of the 19th year of publication of Zalma’s Insurance Fraud Letter (ZIFL) Barry Zalma, on August 1, 2015 continues the effort to reduce the effect of insurance fraud around the world. The issue indicates that, regardless of some success, the efforts must be increased.

The current issue of ZIFL reports on:

1.    10% OF Insurance Claims In the Mideast are Fraudulent
2.    Insurance Fraud – An Overview
3.    Running Over Victim in the Course of a Robbery Is Not an Accident
4.    Jury Trial Required for Violation of IFPA in New Jersey
5.    E-Books from Barry Zalma
6.    Suspected Arsonist’s Bad Faith Suit Fails
7.    A Report from the Insurance Fraud Bureau of Massachusetts

The issue closes, as always, with reports on convictions for insurance fraud across the country making clear the disparity of sentences imposed on those caught defrauding insurers and the public with sentences from probation to several years in jail.

“INSURANCE FRAUD – AN OVERVIEW”

A Continuing Education Presentation

I have created for Proformative Academy a webinar called “Insurance Fraud – An Overview” that is available at  http://www.proformative.com/courses/insurance-fraud-prevention with a 10% discount for my friends and clients who sign up and enter the discount code: Zalma10.

Insurance Fraud is estimated to take between $80 and $300 billion a year from the property and casualty insurance industry, raising the prices each person pays for insurance by more than $300 a year. It explains to those attending what insurance fraud is, various methods by which insurance fraud is perpetrated, and the various weapons provided by statutory law, legal precedent and professional claims handling to work to reduce the amount stolen by fraud perpetrators. It explains the use of red flags or indicators of insurance fraud and the use of an insurance company Special Investigation Unit (SIU) to gather the evidence necessary to assist in the defeat of insurance fraud.

Continuing Education Credit is available for many, including Certified Fraud Examiners, with 1.5 CPE Credits, in Fraud Prevention and Deterrence.

I hope you find it interesting and informative.

ZALMA’S INSURANCE FRAUD LETTER

ZIFL is published 24 times a year by ClaimSchool. It is provided free to clients and friends of the Law Offices of Barry Zalma, Inc., clients of Zalma Insurance Consultants and anyone who subscribes at http://zalma.com/phplist/.  The Adobe and text version is available FREE on line at http://www.zalma.com/ZIFL-CURRENT.htm.

THE “ZALMA ON INSURANCE” BLOG

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

•    How to Lose A Judgment by Taking an Assignment – July 31, 2015
•    A Horse is a Horse, of Course – July 30, 2015
•    No Nonsense Application of Plain Meaning of Exclusion – July 29, 2015
•    How to Defeat an Arson for Profit Attempt – July 28, 2015
•    Crime Doesn’t Pay – July 27, 2015
•    Insurance & The Absolute Litigation Privilege – July 24, 2015
•    Why Insurance is Expensive – July 23, 2015
•    Can Murder Ever Be Accidental? – July 22, 2015
•    How to Lose Auto Coverage Without Trying – July 21, 2015
•    How to Obtain Coverage for Malicious Prosecution – July 20, 2015
•    How to Lose an Insurance Coverage Case – July 17, 2015
•    How to Plead a Consumer Fraud Case for Denial of a Claim – July 16, 2015
•    Is Breach of Contract Required for Bad Faith? – July 14, 2015
•    Why a Risk Manager in Louisiana Should be Licensed as an Agent – July 13, 2015
•    Should a Signed Rejection Of UM/UIM Cover Be Ignored? – July 12, 2015
•    Can Murder Be Accidental? – July 8, 2015
•    How Do You Set Aside an Appraisal Award? – July 7, 2015

NEW FROM NATIONAL UNDERWRITER

Available from the Zalma Insurance Claims Library.

URL: http://www.nationalunderwriter.com/reference-bookstore/property-and-casualty/zalma-insurance-claims-library.html

Insurance Law

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

URL:  http://www.nationalunderwriter.com/insurance-law.html

Mold Claims Coverage Guide

URL:  www.nationalunderwriter.com/Mold

Construction Defects Coverage Guide

URL:  www.nationalunderwriter.com/ConstructionDefects

Insurance Claims: A Comprehensive Guide

URL:  www.nationalunderwriter.com/InsuranceClaims

NEW FROM THE AMERICAN BAR ASSOCIATION

Diminution in Value Damages

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

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

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

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

ISBN: 978-1-63425-295-8, Product Code: 5190524, 2015, 235 pages, 7 x 10, Paperback
Available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

BARRY ZALMA

Mr. Zalma is an internationally recognized insurance coverage and insurance claims handling expert witness or consultant.  He is available to provide advice, counsel, consultation, expert testimony, mediation, and arbitration concerning issues of insurance coverage, insurance fraud, first and third party insurance coverage issues, insurance claims handling and bad faith.

Mr. Zalma publishes books on insurance topics and insurance law at http://www.zalma.com/zalmabooks.htm where you can purchase  e-books written and published by Mr. Zalma and ClaimSchool, Inc.  Mr. Zalma also blogs “Zalma on Insurance” at http://zalma.com/blog.

You can follow Mr. Zalma on Twitter at https://twitter.com/bzalma

Posted in Zalma on Insurance | Comments Off on Insurance Fraud Undeterred

Insurance Fraud – An Overview

A Continuing Education Presentation for Insurance Professionals

I have created for Proformative Academy a webinar called “Insurance Fraud – An Overview” that is available at  http://www.proformative.com/courses/insurance-fraud-prevention with a 10% Discount for my friends and clients who sign up and enter the discount code: Zalma10.

Insurance Fraud is estimated to take between $80 and $300 billion a year from the property and casualty insurance industry, raising the prices each person pays for insurance by more than $300 a year. It explains to those attending what insurance fraud is, various methods by which insurance fraud is perpetrated, and the various weapons provided by statutory law, legal precedent and professional claims handling to work to reduce the amount stolen by fraud perpetrators. It explains the use of red flags or indicators of insurance fraud and the use of an insurance company Special Investigation Unit (SIU) to gather the evidence necessary to assist in the defeat of insurance fraud.

Continuing Education Credit is available for many, including Certified Fraud Examiners ,with 1.5 CPE Credits, in Fraud Prevention and Deterrence.

I hope you find it interesting and informative.

Posted in Zalma on Insurance | Comments Off on Insurance Fraud – An Overview

How to Lose A Judgment by Taking an Assignment

Don’t Take Defendant’s Case Against His Insurer in Lieu of a Collectable Judgment

Greed often overrules common sense. When an insurer refuses to defend or indemnify its insured the plaintiff will take an agreed judgment against the defendant, then agree not to execute on the judgment in exchange for an assignment from the defendant of its right to sue the insurer. In so doing it takes a sure thing and exchanges it for a chance to collect from an insurer the bonus of punitive damages. If the defendant is financially able to pay a judgment the potential for punitive damages overcomes the desire to be indemnified.

In P&S LLC, v. National Union Fire Insurance Company of Pittsburgh, PA, Slip Copy, 2015 WL 4550322 (D.Colo., 2015) the District Court for the District of Colorado was faced with just such a situation where the insurer asked for declaratory judgment that an exclusion barred coverage.

FACTS

During the summer of 2007, the manager at P&S contacted Private Escapes Platinum LLC (“Private Escapes”) seeking membership in its luxury destination travel club. Mr. Richard Keith was the CEO of Private Escapes. On September 13, 2007, Private Escapes announced it would be merging with Ultimate Resorts LLC, to create a new entity called Ultimate Escapes Holdings, LLC (“Ultimate Escapes”).

Before the merger, P&S entered into a Membership Agreement with Private Escapes and  asserts that Mr. Keith induced it to enter into the agreement because he represented that P&S’s benefits under the Membership Agreement would be protected or grandfathered after the planned merger. Mr. Keith became Co-CEO of Ultimate Escapes.

After the merger, P&S was informed that it was now a member of Ultimate Escapes and that the terms of its Membership Agreement with Private Escapes would not be honored. Instead, P&S would be required to sign a new agreement with Ultimate Escapes in order to continue its travel club membership. Thereafter, P&S sought a refund of its membership deposit from Private Escapes.

Ultimately, on July 23, 2010, P&S entered into an agreement with Private Escapes and Ultimate Escapes in which Private Escapes and Ultimate Escapes agreed to pay P&S $135,000, in 18 installments, as “a partial refund of the Membership Fee” (the “2010 Settlement Agreement”). After Private Escapes and Ultimate Escapes failed to make the first settlement payment on August 1, 2010, P&S sent them notices of default. Then, on September 15, 2010, P&S filed a lawsuit against Private Escapes and Ultimate Escapes for breach of the 2010 Settlement Agreement. Directly thereafter, on September 20, 2010, Ultimate Escapes filed for Chapter 11 bankruptcy protection. As such, the lawsuit was stayed and eventually administratively closed.

Then, on May 20, 2011, P&S filed a complaint against Private Escapes and Richard Keith, as its CEO, in Denver County District Court (Case No. 11CV3742). In this underlying lawsuit, P&S alleged that Mr. Keith induced P&S to sign the Membership Agreement with Private Escapes by making misrepresentations about having grandfathered rights after the pending merger. In addition, P&S alleged that they failed to disclose Ultimate Escapes’ financial situation when negotiating and signing the 2010 Settlement Agreement.

Mr. Keith sought defense coverage from National Union under the Executive & Organization Liability Insurance Policy (the “Policy”) issued to Ultimate Escapes. National Union declined to provide Mr. Keith with a defense and denied coverage based on the Policy’s Specific Entity Exclusion – which provided that National Union “…shall not be liable for any Loss in connection with any Claim made against…[Private Escapes]…and/or any Executive or Employee thereof…” – via denial letter dated February 9, 2012.

On February 13, 2013, P&S settled the underlying lawsuit with Private Escapes, Mr. Keith, and Continental Casualty. Continental Casualty agreed to pay P&S $25,000. In addition, Mr. Keith also agreed to a stipulated judgment in P&S’s favor (in the amount of $450,000) and assigned his rights against National Union under the Policy to P&S.

P&S then filed this lawsuit (as Mr. Keith’s assignee) against National Union. In its Amended Complaint, P&S sought declaratory judgment, damages, and statutory damages with respect to benefits due, but unreasonably withheld by National Union under the Policy issued to Ultimate Escapes.

It allegedthat National Union owed coverage to Mr. Keith under the Policy for Executive & Organization liability coverage, but has refused to provide coverage.

COVERAGE EXCLUSION

National Union argued that the Policy does not provide coverage for P&S’s underlying claims pursuant to the “Specific Entity Exclusion” which excludes coverage for any loss in connection with any claim made against Private Escapes or its executives. National Union asserts that the Specific Entity Exclusion applies, as a matter of law, to bar coverage of the claims in P&S’s underlying lawsuit brought against Private Escapes and Richard Keith.

The court recognized that an insurance policy is a nothing more than a contract that should be interpreted consistently with the well-settled principles of contractual interpretation. As such, the words of the contract should be given their plain meaning according to common usage, and strained constructions should be avoided. Insurance contracts are not to be technically construed, but are to be construed as they would be understood by a person of ordinary intelligence.

To enforce an exclusion in a particular contract of insurance the insurer must establish that the exemption claimed applies in the particular case, and that the exclusions are not subject to any other reasonable interpretation. The insured has the burden to show that a claim is covered by the policy. Once met, the burden shifts to the insurer to show that a covered claim falls solely and entirely within a policy exclusion.

Endorsement #34 of the Policy contains the Specific Entity Exclusion, which provides that: “In consideration of the premium charged, it is hereby understood and agreed that the Insurer shall not be liable for any Loss in connection with any Claim made against or brought by or on behalf of any entity(ies) listed below and/or any Executive or Employee thereof; or by any security holder of the Organization whether directly or derivatively, unless such Claim is instigated and continued totally independent of, or without the intervention of such entity(ies) and/or any Executive or Employee thereof…: Private Escapes Holdings, LLC (including any subsidiary or affiliate thereof).”

The court concluded that the Specific Entity Exclusion is not ambiguous. By its plain language the exclusion applies to any loss “in connection with” any claim against Private Escapes or its executives. Here, the underlying lawsuit is brought against Private Escapes and Mr. Keith in his capacity as a Private Escapes’ executive.

To the extent that the factual assertions within the complaint include an allegation that Mr. Keith wrongfully acted in the underlying situation as an Ultimate Escapes’ executive, it does not change the fact that the loss alleged was in connection with a claim against Private Escapes. As such, it is unambiguously applicable to bar coverage for the loss.

The court rejected P&S’s argument that an “exception to the exclusion” reinstates coverage in this case. P&S maintains that the Specific Entity Exclusion provides coverage for a claim connected with Private Escapes when it is “instigated and continued totally independent of” Private Escapes and its executives.

Accordingly, the court agreed with National Union that the loss sought from Mr. Keith’s actions were clearly a loss in connection with a lawsuit against Private Escapes. The exclusion is unambiguous and applies to the case.  The court found, therefore, that National Union has met its burden to prove that the Specific Entity Exclusion applied with regard to the the claim and National Union is entitled to summary judgment.

BAD FAITH CLAIMS

In addition, because the exclusion applies P&S’s claims seeking relief under common law and statutory bad faith are likewise foreclosed as a matter of law.

ZALMA OPINION

Insurance is, as the court cogently stated, is nothing more than a contract. When the terms of the contract are clear and unambiguous, it must be applied. In this case National Union knew, before it issued its policy, that there was a problem between the named insured and the entity known as Private Escapes so it specifically excluded any events related to that entity. With such a clear exclusion it is surprising that the plaintiffs were willing to take an assignment rather than try to collect from the defendant. The result proves that the decision to take the assignment was not wise.

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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

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

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

Legal Disclaimer:

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

 

Posted in Zalma on Insurance | Comments Off on How to Lose A Judgment by Taking an Assignment

A Horse is a Horse, of Course

A Horse is Not “Mobile Equipment”

As Mr. Ed once said, cogently, “a horse is a horse, of course,” and it is nothing more. Although insurance terms and conditions can be interpreted to cover a multiple of sins, it cannot change the obvious.

FACTS

In the fall of 2006, a taxi insured by the petitioner was involved in a collision with a horse. The rider of the horse was seriously injured, and the petitioner paid him nearly $60,000 in no-fault benefits. The petitioner then sought reimbursement of the no-fault benefits that it had paid to the rider by filing a demand for mandatory arbitration against the respondent, American Bankers Insurance Company of Florida (hereinafter American Bankers), the carrier that provided commercial liability coverage to the stables where the horse was boarded. The arbitrator denied the petitioner’s claim, finding, in essence, that the petitioner could not recoup payment from American Bankers because American Bankers was not a motor vehicle insurer subject to the mandatory arbitration provisions of Insurance Law § 5105 and its implementing regulations.

The Supreme Court, Appellate Division, Second Department, New York, in  Fiduciary Ins. Co. v. American Bankers Ins. Co. of Florida, — N.Y.S.3d —-, 2015 WL 4546629 (N.Y.A.D. 2 Dept., 7/29/15), 2015 N.Y. Slip Op. 06343 was called upon to resolve the dispute.

On October 8, 2006, Jared Johnson was riding a horse named Romeo on a path alongside of North Conduit Avenue in Queens when Romeo suddenly bolted into the roadway, and collided with a taxi owned and operated by Parjit Singh. Johnson was thrown from the horse, and suffered serious injuries, including skull fractures and a broken leg. On the date of the accident, Singh’s taxi was insured by the petitioner, Fiduciary Insurance Company. Johnson filed a claim with the petitioner seeking to recover first-party benefits, more commonly known as “no-fault” benefits, under Insurance Law § 5103. The petitioner ultimately paid Johnson a total of $59,906.97 in no-fault benefits.

Romeo was owned by Julius Stanton, who had no insurance coverage in effect for the horse on the date of the accident. Stanton boarded Romeo at Cedar Lane Stables (Cedar Lane), a facility owned by the City of New York, and licensed to the Federation of Black Cowboys, Inc. (hereinafter the Cowboys). Cedar Lane and the Cowboys (the insureds) were insured by American Bankers under a commercial liability policy that provided no-fault coverage only for accidents arising from the use of “mobile equipment,” a category that includes various types of machinery not generally used for travel on public roads.

Following the accident, Johnson commenced an action to recover damages for personal injuries against several parties including the City, the Cowboys, and Singh. In an order dated November 30, 2009, the Supreme Court awarded summary judgment to the City, the Cowboys, and Singh dismissing the complaint insofar as asserted against them, based upon the doctrine of primary assumption of risk.

On October 19, 2012, nearly two years after Johnson’s action was dismissed against the insureds, the petitioner sought reimbursement of the no-fault benefits that it had paid him by filing a demand for mandatory arbitration against American Bankers pursuant to Insurance Law § 5105. That statute allows an insurer that has paid no-fault benefits to obtain mandatory arbitration to recoup its loss from the insurer of the party actually at fault for the accident.  In its arbitration demand, the petitioner asserted that its insured, Singh, was not at fault for the accident because he had done nothing to cause the horse to “attack” his taxi, and that the insureds had negligently created “an extremely hazardous situation.”

In an award dated December 12, 2012, the arbitrator ruled that the petitioner could not obtain reimbursement from American Bankers because it had “failed to provide substantiation that [American Bankers] is a motor vehicle insurer that could be held liable under Section 5105 of Insurance Law.” The arbitrator added that, therefore, “[t]he proper forum would have been litigation.”

In the order appealed from, the Supreme Court (trial court) denied the petition to vacate the arbitration award, granted the cross petition, and confirmed the award. The trial court rejected the petitioner’s argument that the arbitrator had improperly raised and disposed of an affirmative defense by determining that American Bankers was not a motor vehicle insurer liable for the payment of no-fault benefits.

The court concluded that the arbitrator had the authority to rule on the issue of whether the controversy was subject to mandatory arbitration under Insurance Law § 5102 and its implementing regulations.

ANALYSIS

Since the petitioner sought arbitration pursuant to the mandatory arbitration provision of Insurance Law § 5105, the award may be considered to be one arising from a statutory obligation to arbitrate, notwithstanding the arbitrator’s ultimate determination that American Bankers was not subject to arbitration. Thus, we treat the award as one rendered after compulsory arbitration.  Keeping the limited scope of judicial review in mind, and upon an application of the relevant law, we conclude that the Supreme Court properly determined that the arbitrator’s award was supported by a “reasonable hypothesis” and was not arbitrary and capricious.

At issue are certain provisions of the Comprehensive Automobile Insurance Reparations commonly known as the No–Fault Law. Pursuant to the No–Fault Law, every automobile owner must carry automobile insurance covering “basic economic loss” resulting from the use or operation of the vehicle. The No–Fault Law is “aimed at ensuring ‘prompt compensation for losses incurred by accident victims without regard to fault or negligence.’”.

As relevant to this appeal, in certain limited circumstances an insurance carrier that has paid first-party no-fault benefits to an accident victim is afforded the remedy of mandatory inter-company arbitration to recoup those benefits, through a “loss transfer,” from the insurer of the party at fault for the accident.

Insurance Law § 5015 serves to mitigate the effect of placing the entire burden “of loss on the first-party insurer, even where its insured was not at fault” and allows insurers to recover from each other the first-party no-fault benefits paid to their insureds, allocated on the basis of their relative fault. Since, generally, where a vehicle for hire is involved in an underlying accident, mandatory arbitration is the sole remedy.

Not all insurance carriers that insure those actually involved in an accident are subject to the mandatory arbitration provisions.

Here, the American Bankers’ policy did not provide no-fault insurance coverage for the type of accident underlying this dispute. Moreover, American Bankers did not insure a person, vehicle, or animal involved in the underlying accident, but only the stables at which the animal was boarded. Accordingly, American Bankers cannot be deemed to be an “insurer” as that term is defined by Insurance Law article 51 and the pertinent regulations because the accident did not involve mobile equipment owned by the insureds, but, rather, a horse that the insureds merely boarded at their stables.

New York’s No–Fault Law would not preclude American Bankers’ insureds from being held liable to pay damages in an action at law. Since American Bankers did not meet the definition of insurer or self-insurer under the No–Fault Law and the regulations promulgated thereunder the determination of the arbitrator that the claims against it were not subject to compulsory arbitration was supported by a reasonable hypothesis.

Accordingly, the Supreme Court properly denied the petition to vacate the arbitrator’s award, and properly granted the cross petition to confirm the award.

ZALMA OPINION

No-fault insurance is a strange construct that makes sure that the injured person gets paid for his or her injuries. It also allows the insurer of a not at fault person to recover what it pays from the insurer of the at fault person. In this case the at fault entity was a horse that attacked a taxi. Neither the horse nor its owner were insured. The place where it slept was sued and it did not insure the horse and although the Petitioner tried, classifying a horse as “mobile equipment” was a stretch the court was properly not willing to take.

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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

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

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on A Horse is a Horse, of Course

No Nonsense Application of Plain Meaning of Exclusion

Reasonable Expectations Can’t Be Used to Change an Unambiguous Policy Exclusion

Everyone wants to live peacefully and happily in their homes. When a neighboring business causes fumes to travel to your property and make you live with noxious odors the chance to live peacefully and happily is lost. Litigation becomes certain and insurance coverage disputes arise.

In Brouse v. Nationwide Agribusiness Ins. Co., Not Reported in N.W.2d, 2015 WL 4507996 (Minn.App., 7/27/15) an insurer refused to defend or indemnify its insured because of the existence of an absolute pollution exclusion. The trial court agreed and the case was appealed to the Minnesota Court of Appeal

FACTS

In 2005, a group of investors operating as The Dairy Dozen–Thief River Falls, LLP purchased Excel Dairy, a dairy operation. The Minnesota Pollution Control Agency (MPCA) then received an expansion request from Excel and authorized the construction of an additional barn and two additional manure basins in March 2007. Unfortunately, as the district court found, “[t]he expansion did not go well,” and Excel’s neighbors complained of illnesses related to Excel’s hydrogen-sulfide emissions. Eventually, Excel faced civil and administrative action by the MPCA and criminal charges by Marshall County, as well as other actions by the Minnesota Department of Health and the United States Environmental Protection Agency. In 2010, the Minnesota Court of Appeal affirmed the MPCA’s revocation of Excel’s permit.

Appellants, who are Excel’s neighbors, started this lawsuit in June 2008 against Dairy Dozen, alleging that “invasive, offensive, and noxious odors” were interfering with the enjoyment of their properties. Dairy Dozen filed for bankruptcy in April 2010. As part of the bankruptcy proceeding, the bankruptcy court identified respondents Nationwide Agribusiness Insurance Company and Farmland Mutual Insurance Company as Dairy Dozen’s insurers. Dairy Dozen then agreed to assign its rights in its insurance policies to appellants, permitting appellants to sue respondents on its behalf. In return, appellants agreed not to “levy execution or garnishment or collection” against Dairy Dozen.

Appellants sought a declaratory judgment that respondents had a duty under Dairy Dozen’s insurance policies to pay appellants’ damages. The insurers moved for summary judgment, arguing that the absolute-pollution exclusions in Dairy Dozen’s insurance policies precluded insurance coverage for appellants’ claims.

THE POLICIES

Dairy Dozen’s 2005–2006 insurance policy excludes coverage for “[b]odily injury or property damage which would not have occurred in whole or in part but for the actual, alleged or threatened discharge, dispersal, release or escape of pollutants at any time.” Under this policy, “[p]ollutants means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.”

Similarly, Dairy Dozen’s 2006–2007 insurance policy excludes pollution.

ANALYSIS

A motion for summary judgment shall be granted if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that either party is entitled to a judgment as a matter of law. The court must view the evidence in the light most favorable to the party against whom summary judgment was granted.

Interpretation of an insurance policy, and whether a policy provides coverage in a particular situation, are questions of law. A court must construe an insurance policy as a whole and must give unambiguous language its plain and ordinary meaning. But when language in an insurance contract is ambiguous, such that it is reasonably subject to more than one interpretation, the court will construe it in favor of the insured.  Although the insured bears the burden of proof to establish coverage, the insurer bears the burden to show that an exclusion applies. If the insurer meets its burden, the burden of proof shifts back to the insured because the exception to the exclusion ‘restores’ coverage for which the insured bears the burden of proof.

The appellate court concluded that the exclusion provisions are absolute-pollution exclusions. Absolute-pollution exclusions “eliminated” an exception for “sudden and accidental” pollution discharge found in earlier qualified pollution exclusions. Although the majority of jurisdictions limit these exclusions “to situations involving traditional environmental pollution,” Minnesota follows the minority of jurisdictions in applying the exclusions literally and finding the terms clear, unambiguous, and not limited to traditional environmental pollution. Minnesota applies a non-technical, plain-meaning approach to interpreting pollution exclusions.

Applying Minnesota’s “non-technical, plain-meaning approach,” the absolute pollution exclusions here are not ambiguous. Appellants fail to identify any caselaw (and we can find none) in which a Minnesota court has found an absolute-pollution exclusion ambiguous. Instead, appellants attempt to rely upon extrinsic evidence regarding the provisions’ meanings.

Appellants next argue that the district court erred by failing to apply the reasonable-expectations doctrine. The reasonable-expectations doctrine  protects the objectively reasonable expectations of the insured even if close study of the insurance policy would negate those expectations. Because the pollution exclusion was plainly designated as an exclusion and located in the exclusions section of the policy the reasonable-expectations doctrine did not apply.

The pollution exclusions at issue here are located in the exclusions section of the policies and are “plainly designated” as exclusions. Any insured, therefore, would reasonably expect the clause to limit coverage.  The reasonable expectation test is not a license to ignore the pollution exclusion in this case nor to rewrite the exclusion solely to conform to a result that the insured might prefer.

Appellants argue in the alternative that, even if the absolute-pollution exclusions are unambiguous, there are genuine issues of material fact as to whether the odors at issue here fall within that exclusion. Dairy Dozen’s insurance policies excluded coverage for pollutant “fumes. Based on this plain-meaning definition of “fume,” we determined that the allegation regarding “noxious and offensive odors” was “plainly covered by the insurance policy’s pollution exclusion.”

Because appellants’ allegations fall within the plain meaning of the unambiguous absolute-pollution exclusions and no genuine issues of material fact remain, the district court did not err by granting summary judgment to respondents.

ZALMA OPINION

Although the Minnesota court admits it is in the minority it should, in my opinion, be in the majority. Insurance contracts, like the policies in this case, should be read to mean what they say in their plain meaning as understood by the lay person. The exclusions are unambiguous and the allegations of the underlying suit fell within the plain meaning of the absolute pollution exclusion. To provide coverage the court would have to exceed its authority and rewrite the policy. In Minnesota the court refused to make coverage where none existed.

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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

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

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on No Nonsense Application of Plain Meaning of Exclusion

How to Defeat an Arson for Profit Attempt

Suspected Arsonist’s Bad Faith Suit Fails

Arson-for-profit is the most dangerous of all methods of attempting insurance fraud. When an insurer has sufficient evidence to suspect an arson for profit attempt and denies the claim it will expect that the insured will sue the insurer for fraud and bad faith. The best way to defeat such an action is one piece at a time by bringing motions for partial summary judgment removing the expensive part of the suit leaving the insured with a breach of contract action.

Allstate tried that method in Tran v. Allstate Ins. Co., Slip Copy, 2015 WL 4488062 (S.D.Ala., 7/23/2015) after collecting sufficient evidence that led it to believe the insured attempted a fraudulent claim and arson-for profit.

Factual Background

On August 18, 2012, the VIP Nail Salon (“the salon”), located in Daphne, Alabama was intentionally set ablaze and sustained damages. Plaintiff Hau the Tran (“Tran”) owned the salon. At the time of the fire, Tran’s Toyota Avalon (“the vehicle”) was parked behind the salon. The vehicle was also set on fire, resulting in damages.

Tran had insurance coverage on both the salon and the vehicle through Defendant Allstate Insurance Company (“Allstate”). After the fires, Tran made insurance claims on the salon and vehicle. The parties do not dispute that Tran was covered under Allstate policies at the time of the losses, the amount of the policies, the terms of the policies, or that Tran made a timely claim under the policies.

The state fire marshal investigated the fires and concluded that they had been intentionally set. During the course of the investigation, Allstate determined that Tran had been having trouble with the business and had recently significantly changed her insurance coverage. Additionally, Tran had rooms reserved at the Grand Casino in Biloxi, Mississippi in the days prior to the fires. Matches from the Grand Casino were recovered at the scene of the fires. Fire investigator Gary Jones determined that gasoline had been used as an accelerant and there were no signs of forced entry at the salon, indicating that the person who set the fires would require access to the salon via keys.

Tran’s salon insurance policy stated that Allstate would not cover intentional or criminal acts of or at the direction of any persons insured and that the policy is void if the insured intentionally conceal or misrepresent any material facts or circumstances, before or after loss.

As a result of its investigation, Allstate concluded that Tran had been involved in setting or causing the fires to be set. Allstate also determined that Tran had made material misrepresentations during the investigation regarding her whereabouts around the time of the fires, her financial status, and the value and contents lost in the fire. As a result, Allstate denied Tran’s insurance claims on both the salon and the vehicle.

Tran sued Allstate alleging breach of contract, fraudulent suppression, fraud, and bad faith. Allstate removed this action to the U.S. District Court for the Southern District of Alabama on September 10, 2014.

ANALYSIS

Summary Judgment

Allstate has moved for partial summary judgment on Counts Two and Four of the complaint. Count Two alleges fraud and suppression and Count Four alleges bad faith.

Count Two (fraud and suppression)

In Alabama, “[m]isrepresentations of a material fact made willfully to deceive, or recklessly without knowledge, and acted on by the opposite party, or if made by mistake and innocently and acted on by the opposite party, constitute legal fraud.” A claim of fraudulent misrepresentation comprises the following elements: “(1) a false representation (2) concerning a material fact (3) relied upon by the plaintiff (4) who was damaged as a proximate result.” Fisher v. Comer Plantation, 772 So.2d 455, 463 (Ala.2000) (quoting Baker v. Bennett, 603 So.2d 928, 935 (Ala.1992)).

Viewing the facts in the light most favorable to Tran, Allstate represented to Tran that she would be paid on her vehicle policy for the damages to the vehicle sustained as a result of the fire. At depositiion, Ms. Tran testified that even though the adjuster told her they were going to pay her $19,000 she did nothing based on that statement.

Tran’s own testimony specifically negates the reliance element of both a fraudulent suppression and a fraudulent misrepresentation claim, as she denies that she was induced to take any action as a result of Allstate’s representations concerning payment for the vehicle. Moreover, Tran failed to present any evidence of damage. Accordingly, these claims must fail and Allstate’s motion for summary judgment as to Tran’s fraudulent suppression/misrepresentation claim was granted.

Fraud

When evaluating a fraud claim regarding the non-payment of an insurance claim, the Alabama Supreme Court has held: “To recover on a fraud claim, the plaintiff must show that the defendant (1) made a misrepresentation (2) concerning a material fact (3) that the plaintiff relied upon, and that (4) the plaintiff suffered damage that proximately resulted from that misrepresentation … Additionally, when the alleged misrepresentation concerns a future act, as this one does, the plaintiff has two additional things to prove: (1) that at the time the misrepresentation was made the offending party intended not to perform the promised act and (2) an intent to deceive.” Pugh v. S. Life & Health Ins. Co., 544 So.2d 143, 144 (Ala.1988), holding that a plaintiff alleging fraud in connection with refusal to pay an insurance claim constitutes fraud concerning the performance of a future act.
Plaintiff fails to produce sufficient evidence of reliance or damages. Accordingly, Allstate’s motion for summary judgment as to Tran’s fraud claim WAs granted.

Count Four (bad faith)

Count Four alleges that Allstate acted in bad faith when it refused to pay Tran’s claim. Under Alabama law, there is one tort of bad faith refusal to pay a claim, but there are two methods of proof: failure to pay and failure to investigate.  To defeat a bad faith claim, the defendant does not have to show that its reason for denial was correct, only that it was arguable. Ordinarily, if the evidence produced by either side creates a fact issue with regard to the validity of the insurance claim and, thus, the legitimacy of the denial thereof, the bad faith tort claim must fail and should not be submitted to the jury.

What was known to Allstate at the time of its denial of the claim was: 1.) The fire was intentionally set and gasoline was employed as an accelerant;  2.) That Ms. Tran had not been present for a period of time prior to the fire; 3.) That neighboring tenants stated that Tran’s business appeared to be closed for several weeks before the fire;  4.) One tenant said that “Ms. Tran had told her that the business was not doing very well and she wanted to relocate to somewhere else;” 5.) Tran had rooms reserved at the Grand Casino during the week leading up to the fire and matches from the Grand Casino were found at the scene of the fire; 6.) There was no forced entry at the salon; 7.) Prior to the fire, Tran increased her insurance coverage from $15,000.000 to $100,000.00, and then decreased it to $75,000.000; and 8.) Tran was a guest at the IP Casino Resort and Spa in Biloxi from August 17–19, 2012.

The issue is whether the conclusion reached from the known facts is debatable. No reasonable person could say that the conclusion reached by Allstate, that plaintiff directed or participated in the arson, is not a debatable issue of fact. “Alabama law is clear: … regardless of the imperfections of [the insurer’s] investigation, the existence of a debatable reason for denying the claim at the time the claim was denied defeats a bad faith failure to pay the claim.” State Farm Fire & Cas. Co. v. Brechbill, 144 So.3d 248, 259 (Ala.2013),

Accordingly, Allstate’s motion for summary judgment as to Count Four (bad faith) was granted.

ZALMA OPINION

Ms. Tran showed a great deal of “chutzpah” by bringing suit against Allstate for fraud and bad faith after Allstate established eight major red flags of fraud and evidence that would establish that she caused an intentional fire to occur at her salon and car. Although red flags are merely indicators of fraud, the eight established to the trial court are damning. All that remains of her suit is breach of contract which she will lose, either by another motion for summary judgment or at trial, and any criminal proceedings the state of Alabama decides to bring.

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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

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

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on How to Defeat an Arson for Profit Attempt

Crime Doesn’t Pay

Running Over Victim In the Course of a Robbery Is not an Accident

Insurance, as I have said often, only insures against fortuitous events. If the event is either contingent or unknown it can be insured against.

In Smith v. Patton, Slip Copy, 2015 WL 4469466 (Wis.App., July 2015) Badger Mutual Insurance Company appealed from a nonfinal order denying its motion for summary judgment. The dispositive issue presented to the appellate court was whether its automobile liability policy provides coverage for an individual who injured someone with a car during a premeditated robbery.

FACTS

In February 2011, Deandre T. Patton, then age sixteen, arranged via Craigslist to purchase a Samsung tablet from Carmen Smith. In fact, however, Patton intended to-and did-steal the tablet by having Smith meet him and an accomplice at Patton’s car in a store parking lot and then driving away without paying for the item.

Unfortunately for all involved, Smith leaned into the car while Patton’s accomplice examined the tablet and lunged further into it as Patton began to accelerate away. Patton’s accomplice pushed or punched Smith to force him out of the car. The car then “fishtailed” on the icy surface of the parking lot, running over and seriously injuring Smith.

Patton and his accomplice were convicted on criminal charges related to the incident. Smith subsequently sued Patton and his automobile insurer, Badger Mutual, for his injuries. Badger Mutual disputed coverage and moved for summary judgment on the issue. The circuit court denied the motion. Badger Mutual appealed.

ANALYSIS

Summary judgment is proper when there are no genuine issues of material fact and one party is entitled to judgment as a matter of law. Additionally, the interpretation of an insurance policy is a question of law.

On appeal, Badger Mutual contends that the circuit court erred in denying its motion for summary judgment. Specifically, it argues that its policy provides no coverage because the injury causing event was not an “auto accident.”

Badger Mutual’s policy provides that it “will pay damages for ‘bodily injury’ or ‘property damage’ for which any ‘insured’ becomes legally responsible because of an auto accident.” As “auto accident” is not defined in the policy, Badger Mutual urges us to look to case law for guidance.

One case Badger Mutual cites in support of its argument is Schinner v. Gundrum, 2013 WI 71, 349 Wis.2d 529, 833 N.W.2d 685. In Schinner, West Bend Mutual Insurance Company’s insured, Michael Gundrum, hosted an underage drinking party.  One of Gundrum’s guests, Matthew Cecil, assaulted and seriously injured another guest.  Gundrum knew that Cecil had a tendency to become belligerent when he was intoxicated, but he permitted Cecil to drink anyway. The injured guest sued Gundrum and West Bend to recover damages for his injuries. West Bend disputed coverage on the ground that Gundrum’s actions as a party host were intentional, and thus, there was no “occurrence” or “accident” under its homeowner’s policy.

The Wisconsin Supreme Court accepted review of the case and agreed with West Bend. The court determined that there was no “occurrence” or “accident” under the homeowner’s policy because Gundrum intended to host an illegal underage drinking party and intended to provide alcohol to a guest known to become belligerent when intoxicated, creating a direct risk of harm resulting in bodily injury even though injury was not intended. Finding an occurrence and coverage would allow recovery for intentional and illegal actions. We would be sending the wrong message about underage drinking parties, implying that whatever tragic consequences might occur, insurance companies will be there to foot the bill.

Insurance contracts are construed from the standpoint of what a reasonable person in the position of the insured would believe the contract to mean.  Although Schinner involved a homeowner’s policy, we find its reasoning applicable here. By planning and carrying out a robbery facilitated by the use of a car on icy pavement, Patton created a direct risk of harm even though injury was not intended. Indeed, Patton admitted as much during a deposition.   \

The public policy considerations in Schinner are also applicable to this case. Finding insurance coverage for Patton’s actions would relieve him of the financial consequences of purposefully using his car to facilitate a robbery. No reasonable insured would expect automobile liability coverage for bodily injury resulting from the purposeful use of a car to rob someone.

ZALMA OPINION

The appellate court found, without difficulty, the obvious. Criminal conduct, and any injuries resulting from it, cannot be accidental. A criminal act, like a robbery using an automobile, that results in injury to the victim of the robbery, is sufficient to bar coverage. If not the criminal will profit from his crime a result that no state’s public policy should allow.

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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

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

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Crime Doesn’t Pay

Insurance & The Absolute Litigation Privilege

Lawyers Are Obligated To Vigorously Defend Their Clients

No one likes to lose a lawsuit. Unable to accept that the case they brought was not viable or their own lawyers were incompetent, the losers strike out at whoever they can strike at, usually, the lawyers for their opponents. Lawyers are required, by their oath, to vigorously act for their client and are protected, usually, by the litigation privilege from claims brought against them by the losers.

BACKGROUND

In O’Callaghan v. Satherlie, — N.E.3d —-, 2015 IL App (1st) 142152, 2015 WL 4123629 (Ill.App. 1 Dist., 07/08/2015) the O’Callaghan’s sued the lawyers who successfully represented their opponents only to lose again in the trial court. They appealed to the Illinois Court of Appeal.

The O’Callaghan’s, Condominium owners, who previously brought action against condominium association for allegedly causing black mold to infiltrate their condominium,sued the attorney and law firm who represented the condominium association for intentional infliction of emotional distress and strict liability for ultrahazardous activity. The Circuit Court, Cook County, granted attorney and firm’s motion to dismiss based on absolute attorney litigation privilege.

OPINION

The trial court dismissed the suit filed by plaintiffs Joseph Michael O’Callaghan and Suzanne T. O’Callaghan (the O’Callaghans) against defendants Jacqueline M. Satherlie and her law firm, Kopka, Pinkus & Dolin, P.C. (Kopka). The O’Callaghans essentially alleged that Satherlie and Kopka, who had represented the O’Callaghans’ adversaries in underlying litigation regarding toxic black mold that had infiltrated the O’Callaghans’ property, had committed intentional infliction of severe emotional distress and were otherwise strictly liable for ultrahazardous activity, specifically, the remediation of toxic black mold.

The Present Action

The O’Callaghans sued Satherlie and Kopka, alleging intentional infliction of severe emotional distress and strict liability for ultrahazardous activity, and seeking punitive damage. The complaint alleged that in the underlying action, Satherlie failed to disclose an expert’s recommendations for remediating the mold in 2007, a report not discovered by the O’Callaghans until some unspecified time later. The complaint also alleged that in light of the report, Satherlie and Kopka knew that the defendants in the underlying action had no meritorious defense but nonetheless contrived a defense that the O’Callaghans had caused the toxic mold to form due to the unapproved modification of their condominium.

In addition,  Satherlie and Kopka, in bad faith, unnecessarily prolonged the underlying action based on a nonmeritorious defense, filed baseless motions and discovery, refused to produce discovery until ordered to do so, contested the O’Callaghans’ meritorious motions and concealed documents.  The O’Callaghans alleged a parade of horribles that they painted on the lawyers.

Satherlie and Kopka  moved to dismiss the complaint. The motion argued that the O’Callaghans’ claims were barred by an attorney’s absolute litigation privilege, res judicata, and a policy against claim-splitting.

The trial, deciding in favor of the lawyers, stated: “The reason I’m granting the [motion] and dismissing it with prejudice and not giving you a chance to amend it or replead it is I don’t see any way in this world that you can plead valid causes of action against your opponents in an underlying suit for things like intentional infliction of emotional distress. There’s no duty here. There is also a public policy against this kind of suit. Litigation about litigation, you know? You had your litigation. You either won or lost, and I’m assuming you lost, because this is [sic ] your response to losing is bring this. So I could be wrong, that’s what the appellate court is for…. But this is one of the strangest—and I think that’s kind to put it that way, strangest lawsuits I’ve ever seen, okay?” (Emphasis added)

ANALYSIS

The motion to dismiss was appropriately filed where the defendant did not challenge the complaint’s failure to plead an element of the claims but raised a public policy argument based on the face of the pleadings, the motion fell within the confluence various statutes. The court can take judicial notice of the underlying action filed by the O’Callaghans. This is particularly appropriate given that the complaint relies on that proceeding. As a result, Satherlie’s and Kopka’s contention that the complaint’s allegations are improperly based on those attorneys’ roles in the prior proceeding do not require consideration of any matter outside the scope of the statute and judicial notice was not at issue. Because the absolute attorney litigation privilege appears on the face of the complaint, the motion was appropriately filed.

Absolute Attorney Litigation Privilege

Illinois’ absolute attorney litigation privilege is generally based on section 586 of the Restatement (Second) of Torts, which provides: “An attorney at law is absolutely privileged to publish defamatory matter concerning another in communications preliminary to a proposed judicial proceeding, or in the institution of, or during the course and as part of, a judicial proceeding in which he participates as counsel, if it has some relation to the proceeding.” Restatement (Second) of Torts § 586 (1977).

This privilege is intended to provide attorneys with “the utmost freedom in their efforts to secure justice for their clients.” Kurczaba v. Pollock, 318 Ill.App.3d 686, 701–02, 252 Ill.Dec. 175, 742 N.E.2d 425 (2000). This privilege also furthers an attorney’s need to fully and fearlessly communicate with his client.

In determining whether the privilege should apply,the Court of Appeal also considered whether a limitation on the privilege’s application would frustrate an attorney’s ability to settle or resolve cases without resorting to expensive litigation, as many disputes are best resolved out of court.  In light of these policies, an attorney’s motives are irrelevant. The privilege is intended to promote zealous advocacy and does not apply where there are no safeguards against abuse of the privilege.

Based on the restatement’s specific reference to defamation and communications, the absolute attorney privilege has historically been applied to attorneys’ communications. The privilege applies to communications made before, during  and after litigation. In addition, the privilege applies to out-of-court communications between an attorney and his client regarding pending litigation as well as out-of-court communications between the litigants’ attorneys.

Limiting the privilege to communications, as opposed to conduct, would undermine the policies behind the privilege. Conversely, the pertinency requirement prevents an attorney from shielding unrelated misconduct from liability. Instead, parties should attempt to redress injuries from misconduct in judicial proceedings in the same litigation. Were it otherwise, litigation would never end. Moreover, it is improper for a trial court to review prior litigation that occurred before a different judge.

In the underlying proceeding, Satherlie and Kopka defended their clients against the O’Callaghans.  Motives and diligence before taking the challenged actions are irrelevant for purposes of the litigation privilege.

Even assuming that Satherlie and Kopka were motivated by economic benefit, that motivation is not mutually exclusive with serving their clients. Each of the alleged acts challenged can fairly be said to be in furtherance of the Association’s interest, i.e., limiting damages, regardless of whether those acts were entirely proper. Where misconduct has occurred in a given proceeding, an injured party may generally seek recourse in that particular proceeding, unlike the method the O’Callaghans have pursued here.

CONCLUSION

Here, the trial court properly dismissed the O’Callaghans’ complaint as the absolute attorney litigation privilege barred their claims.

ZALMA OPINION

Another case where, without even mentioning the word insurance, insurers were compelled to expend enormous amounts of money defending, first, the homeowners’ association and then defending the lawyers who insurers paid to defend the association. The O’Callaghans, and their lawyers, simply refused to accept the fact that they lost their suit against the condominium association and tried to sue the lawyers that beat them. They, rightfully, lost twice. The insurers who had to pay to defeat them also lost and should consider, along with the lawyers they represented, a suit for malicious prosecution.

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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

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

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

Legal Disclaimer:

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

 

Posted in Zalma on Insurance | Comments Off on Insurance & The Absolute Litigation Privilege

Why Insurance is Expensive

Statutes to Protect Consumers Not Intended to Allow Insureds to Profit

States, like Pennsylvania, have enacted statutes to protect consumers from insurers who cancel insurance without proper reason and after a policy has been in effect for more than 60 days. These statutes are intended to protect the consumer not give an insurance consumer the right to bludgeon an insurer into providing coverage for a risk of loss it is unwilling to take and pay damages to the insured. In Tighe v. Consedine, — A.3d —-, 2015 WL 4425815 (Pa.Cmwlth., 7/21/2015) a Pennsylvania court was asked to reverse the decision of the Insurance Commissioner that the insurer’s cancellation was proper.

FACTS

Matthew A. Tighe and Laura M. Tighe (the Tighes) sought review of an order of Michael F. Consedine, Insurance Commissioner of the Commonwealth of Pennsylvania (Commissioner) affirming the appropriateness of the cancellation of the Tighes’ homeowners insurance.

The facts, as found by the Commissioner indicate that the Tighes were dissatisfied with their prior homeowners insurance company. The Tighes asked Nathan Stein, an agent of Burns and Burns Agency, an independent insurance agency, to provide quotes for homeowners insurance from other insurance companies. Mr. Stein went to the Tighes’ home and took photographs of the home. The home has a deck that is approximately fourteen feet above ground level at some points. After observing this, Mr. Stein contacted Mr. Tighe and informed him that the deck “was going to be an issue” and that the Tighes were “going to have to put up a railing.” Mr. Stein also informed Mr. Tighe that an insurance company inspector would visit the property for the purpose of evaluating insurance coverage. Mr. Tighe responded to Mr. Stein’s statements by relating an incident involving the deck when Mr. Tighe picked up a running toddler, because he was afraid that she might fall off the deck. Mr. Tighe also stated that he planned to install a railing.

Mr. Stein proceeded to cause a policy to be ordered from Donegal, which the Tighes accepted. Burns and Burns then submitted the insurance application to Donegal, which included a notation that Burns and Burns was sending or emailing photographs of the property to the underwriter. When Donegal received the application, it was unaware of the condition of the deck and issued a policy. The policy became effective on June 19, 2013.

In July 2013, Donegal’s inspector, Patricia Dombroski, performed an inspection of the home and reported, with a photograph of the deck and her observation regarding the height of the deck. Donegal’s underwriter then determined that the condition of the deck without a railing constituted a hazard. On August 13, 2013—approximately fifty-five days after the policy was issued—Donegal sent an email to Burns and Burns, indicating that the agency recommend to the Tighes that they install a railing by September 13, 2013, in order to avoid cancellation of the policy. The Tighes requested an extension of time to install the railing, and Donegal extended the deadline to October 13, 2013. On October 14, 2013, Donegal issued the cancellation notice, noting the Tighes’ failure to comply with Donegal’s demand for the Tighes to install the railing. Donegal determined that “[t]here is a substantial increase in hazards insured against by reason of willful or negligent acts or omissions by the insured.”

The Departments consumer services investigator issued a letter to the Tighes, concluding that Donegal satisfied the requirements of what is referred to as “Act 205,” the Unfair Insurance Practices Act (Act), when it terminated the Tighes’ insurance policy. Subsequently the Commissioner appointed a hearing officer, who conducted a hearing.

The Commissioner issued his adjudication. First, the Commissioner noted that the heart of this appeal concerns the Tighes’ claim that Donegal’s cancellation of their policy violated the Act, which prohibits unfair methods of competition and unfair or deceptive acts or practices. The Act defines such acts to include the cancellation of a homeowner insurance policy that has been in force for sixty days or more, unless the insurer determines that there has been “a substantial increase in hazards insured against by reason of willful or negligent acts or omissions by the insured.”

The Commissioner concluded that Donegal had not violated the Act. The Commissioner noted that the Tighes had not even submitted any design for a railing by the time the hearing officer conducted the hearing. Additionally, the Commissioner found significant the fact that Donegal offered to reinstate the policy if the Tighes installed a railing within four months.  Mr. Tighe refused the offer because he believed that Donegal’s request to extend the railing to cover the entire area of the deck and access steps to be “ludicrous.”

ANALYSIS

The crux of their claim is the fact that the condition of their deck—i.e., the lack of a railing on the deck, is a condition that pre-dated their request for insurance and continued beyond the sixty-day limitation period following the issuance of a policy (during which an insurer may cancel a policy by right).

In this case, Mr. Tighe acknowledged that the deck needed a railing before Donegal issued its policy. The state of the matter at the time the policy was issued was that Mr. Tighe knew he needed to install a railing in order to be eligible for the policy with Donegal. In addition, before the lapse of the sixty-day period, Donegal advised the agent that if the Tighes did not install a railing by the deadline, the policy would be cancelled. Thereafter, the Tighes acted as if they planned to comply with Donegal’s requirement, but they nonetheless failed to do so, even after Donegal provided a second month-long extension of time.

The Tighes knowingly elected not to comply with Donegal’s admonition that, if the Tighes did not install a railing by the deadline, the policy would be cancelled. The court refused to consider Donegal’s forbearance, at the Tighes’ request, in cancelling the policy within the sixty-day period as divesting it of the right to cancel the policy. Rather, the record demonstrates that the Tighes, by failing to comply with the directive to install within the specified time period, willfully created a change in circumstances that caused the substantial increase in hazards against which they sought to be insured.

The Commissioner did not err as a matter of law in reasoning that Donegal did not violate the Act. The Tighes’ continued failure to comply with the condition Donegal imposed upon the Tighes as a requirement for insurance before and after the lapse of the sixty-day cancellation period appears to amount to intentional deception, and, thus, constituted willful conduct that increased Donegal’s risk to insure the Tighes’ property.

Based on the evidence of record, the Commissioner reasonably inferred that the Tighes misled both the agent and Donegal into believing that the Tighes intended to remedy the hazardous condition in the property by erecting a railing, inducing Donegal into extending the deadline to remedy the condition past the 60–day by-right cancellation window. The change in circumstance that substantially increased the hazards insured against was the willful acts or omissions of the Tighes in first misleading the agent and Donegal and second in refusing to remedy a hazardous condition on the property of which they were aware at the time the policy was issued, which they agreed to remedy as a condition of the issuance and continuation of the policy, but which they willfully chose not to remedy.

The Tighes’ claim that Donegal should be held accountable based upon their unsupported claim that the agents deliberately withheld the photos in order to gain a commission for the sale of the policy is meritless.

ZALMA OPINION

The Tighes deck, without a railing, 14 feet above the ground was dangerous. Mr. Tighe even admitted to catching a child who almost ran off the deck to its injury or death. Yet, even after he was told a railing was needed to obtain insurance the Tighes refused to build the railing and instead sued to gain an advantage over their insurer and compel it to insure someone it would not insure if they did not lie about the condition of the property and the intent to build a railing that was never built. Proving that no good deed goes unpunished, the good deed of the insurer giving extra time to build the railing was met with claims to the Commissioner and the expense of hearings and appellate proceedings.

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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

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

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Why Insurance is Expensive

Can Murder Ever Be Accidental?

Tenant is Not an Insured

By definition liability insurance never applies to an intentional act. When a person rents a room in her house to a convicted felon with a history of violence and then gives the tenant a gun to use as he desires, cannot claim that when the felon kills her son-in-law, that the shooting was an accident and covered by her insurance policy for negligently letting him have the gun. Murder, established by a conviction beyond a reasonable doubt, should never be considered an accident or an act for which an insurer must respond with defense or indemnity

In Szerbowski v. Trinka, Slip Copy, 2015 WL 4429230 (Wis.App., 7/21/2015) the Wisconsin Court of Appeal was asked to determine the issue of coverage after a fatal shooting  that resulted in a conviction of first-degree reckless homicide.

FACTS

Amy Szerbowski appeals a judgment concerning an insurance coverage dispute arising out of the shooting death of her husband.

The shooting in this case happened at the home of Szerbowski’s mother, Connie Puerling. George Trinka resided at Puerling’s residence. Puerling was aware that Trinka was a felon with a history of problems with drinking, anger and violence, but she entrusted to Trinka a handgun previously owned by her deceased husband. Trinka produced the weapon during a family dispute some time later and fatally shot Szerbowksi’s husband, Steven. Trinka was convicted of first-degree reckless homicide and felon in possession of a handgun.  At the time of the shooting, Puerling’s homeowner’s insurance policy issued by State Auto Insurance Company indemnified Puerling for bodily injury arising out of an “occurrence,” defined in the policy as an “accident.”

Szerbowski commenced a lawsuit against Trinka and State Auto, alleging negligence on the part of Trinka, and negligent entrustment of the weapon on the part of Puerling although she did not name her mother in the suit. State Auto disputed coverage.

The circuit court concluded Trinka was not an insured under Puerling’s policy because he was not named as an insured nor was he a resident relative of Puerling.

The court further determined that Puerling’s act did not qualify as an accidental “occurrence” under State Auto’s policy because Puerling gave the gun to Trinka deliberately, not by accident. The court therefore granted State Auto’s motion for summary and declaratory judgment. The plaintiff appealed.

ANALYSIS

The construction or interpretation of an insurance policy and the grant of summary judgment present questions of law that an appellate court reviews as if it was a new case brought directly to the appellate court. In doing so the appellate court must consider the words in an insurance policy given the common and ordinary meaning. When the language of the policy is plain and unambiguous, it is enforced as written, without resort to rules of construction. Summary judgment is properly granted on an insurance coverage question if no genuine issue exists as to any material fact and the moving party is entitled to judgment as a matter of law.

Szerbowski concedes there was no coverage for Trinka because he was not an “insured” under State Auto’s policy. Szerbowski nevertheless insists the death of Steven was the result of an “occurrence” within the meaning of State Auto’s policy because Puerling negligently entrusted the gun to Trinka. We disagree.

The Wisconsin Supreme Court recently reviewed the law concerning coverage for an “occurrence,” defined in the standard policy as an “accident.” When analyzing whether there was an “accident” for the purposes of a liability policy, Wisconsin courts take an approach that considers whether the insured acted with lack of intent in a particular incident.

To assess the existence of an accident, courts must focus on the “means or cause” of harm to determine whether it was accidental, even if the result was unexpected.

Here, Puerling’s act of entrusting a handgun to a volatile felon with a known history of drinking problems and a tendency to become belligerent when intoxicated created the means or cause of harm. Szerbowski testified at her deposition that Trinka “pretty much” “drank every day.” Trinka testified that on the day of the shooting, “my blood alcohol was, I think, .143, Steve’s was .200, Connie’s was .095….” Trinka’s anger management issues were also uncontroverted, and the record reveals a strained, aggravated relationship between Trinka and Steven. Trinka testified the two were “no stranger[s] to arguments prior to this incident,” and that they were like “oil and water” from “day one when I first met him.”

Under these circumstances, giving a handgun to Trinka put in place the conditions for a murder and bodily injury to Steven was hardly unforeseeable.

The Court of Appeal concluded, therefore, that the trial court correctly determined that Puerling’s act of entrusting the gun to Trinka did not qualify as an accidental occurrence under State Auto’s policy.

ZALMA OPINION

What amazes me about this case is not the result but that the plaintiff had the unmitigated gall to sue the felon who killed her husband to collect on an insurance policy issued to her mother and not the killer. To add to the insanity the plaintiff then appealed the trial court’s decision to the court of appeal even after admitting that the killer was not an insured. The plaintiff wasted the court’s time with a specious claim.

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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

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

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Can Murder Ever Be Accidental?

How to Lose Auto Coverage Without Trying

Insurable Interest Required for Coverage to Apply

Insurance is a contract of personal indemnity. It does not insure cars or property of any kind but insures people against the risk of loss of their property. People who know nothing about insurance do not understand this essential insurance concept and think that the insurance policy insures the vehicle or house and that misconception can be expensive. That became clear when in Hoskins v. Miller, Not Reported in N.W.2d, 2015 WL 4374121 (Mich.App., 7/16/2015) the Michigan Court of Appeal was asked to resolve a dispute over coverage for an automobile accident.

FACTUAL BACKGROUND

Plaintiff, the adult daughter of Richard and Kathleen Hoskins, was in an accident in a 2003 Ford Focus. While she was residing with her parents, they jointly purchased the 2003 Ford Focus. To help pay for the vehicle, Richard and Kathleen obtained a partial loan. At that time, Richard was the titled owner of the Focus. Richard and Kathleen obtained insurance for the Focus through defendant insurer, and they were each listed as a named insured. Plaintiff was not named as an insured, but was identified as the principal operator.

Before the accident plaintiff moved out of her parents’ home. She also reimbursed her father for the loan, and Richard transferred title of the car to plaintiff on April 18, 2011. The automobile insurance policy was renewed, and Richard and Kathleen remained the named insureds. Plaintiff did not obtain an insurance policy of her own to cover the risks of loss attendant upon use of the vehicle.

In January 2012, plaintiff was driving the Focus when she was involved in an automobile accident. The other driver failed to yield at a stop sign and turned directly in front of plaintiff’s vehicle, causing a collision. Thus, plaintiff initiated this instant action alleging that defendant insurer unreasonably failed to pay personal injury protection (PIP) benefits.

Defendant sought summary disposition contending that neither Richard nor Kathleen had an insurable interest in the vehicle at the time the policy was renewed. It also posited that plaintiff was not a named insured on the policy, and, thus, it was not a priority insurer.The trial court ultimately concluded there were several genuine issues of material fact. Accordingly, it denied defendant’s motion for summary disposition.

INSURANCE COVERAGE

The issues raised on appeal are legal disputes. Whether one has an “insurable interest” is a question of law, as is the interpretation and construction of insurance contracts. The parties first dispute whether plaintiff’s parents, Richard and Kathleen, had an “insurable interest” in the vehicle at the time of the accident. An insurable interest need not be in the nature of ownership, but rather can be any kind of benefit from the thing so insured or any kind of loss that would be suffered by its damage or destruction.

ANALYSIS

Insurance policies are contracts and, in the absence of an applicable statute, are subject to the same contract construction principles that apply to any other species of contract.  It is the obligation of a court to enforces contracts according to their terms. People have the liberty of contracting terms they desire. A contract’s terms are given their plain and ordinary meanings. However, no-fault insurance policies must be construed in a manner that complies with the no-fault act.

“Under the no-fault automobile insurance act, MCL 500.3101 et seq., insurance companies are required to provide first-party insurance benefits, referred to as personal protection insurance (PIP) benefits, for certain expenses and losses. MCL 500.3107; MCL 500.3108.” Johnson v. Recca, 492 Mich. 169, 173; 821 NW2d 520 (2012).

Pursuant to the statute: “Except as provided in subsections (2), (3), and (5), … a personal protection insurance policy described. (1) applies to accidental bodily injury to the person named in the policy, the person’s spouse, and a relative of either domiciled in the same household, if the injury arises from a motor vehicle accident.”

The person named in the policy under the statute is synonymous with the “named insured,” and persons designated merely as drivers under a policy … are neither named insureds nor persons named in the policy. Plaintiff is not listed on the policy as a named insured. She is named only as a principal operator. Nor is plaintiff a “relative … domiciled in the same household.” It is undisputed that plaintiff was no longer residing with her parents at the time of the accident. Therefore, plaintiff is not entitled to PIP benefits from defendant insurer pursuant to the statute.

At the time of the accident, plaintiff was the owner, registrant, and operator of the vehicle. Yet, she did not have an insurance policy under which she was a named insured. The language in the policy indicates that individuals covered are the “named insured shown in the Declarations” and “relatives” of a named insured. A “relative” is defined in the policy as “a person who resides with you and who is related to you by blood, marriage, or adoption.”

Because plaintiff did not reside with Richard and Kathleen, she is not a “relative” as defined in the policy. Accordingly, plaintiff cannot recover PIP benefits from defendant insurer through the no-fault statute or by virtue of the policy. The trial court erred in denying defendant’s motion for summary disposition.

Nevertheless, plaintiff contends that the appropriate remedy is to reform the policy to substitute plaintiff as a named insured. A court in equity generally has the power to reform a contract to conform it to the agreement made. To obtain reformation, a plaintiff must prove a mutual mistake of fact, or mistake on one side and fraud on the other, by clear and convincing evidence. A unilateral mistake is not sufficient to warrant reformation.
No evidence was introduced that defendant made representations to plaintiff intentionally or with culpable negligence that induced her to believe she was covered by the policy.

Though defendant continued to accept premiums from Richard and Kathleen after plaintiff moved out, the policy terms provide that a relative was covered by the policy only if the relative resided in the same household. There is no evidence that defendant knew plaintiff moved out, nor of any intent to mislead Kathleen or Richard. Accordingly, defendant is not estopped from denying plaintiff coverage.

Similarly, with respect to waiver, defendant insurer never made an intentional relinquishment of a known right with respect to covering plaintiff under the policy. There is no evidence that defendant knew plaintiff moved out, nor that no other relative resided with Kathleen or Richard. Plaintiff’s arguments are meritless.

ZALMA OPINION

The injured daughter, the sole owner of the vehicle, made the serious error in failing to purchase insurance when she became the sole owner of the vehicle. That her parents, the prior owner of the vehicle, had purchased insurance when they had no insurable interest in the vehicle could not provide coverage for a person who was not named as an insured nor was she a resident relative. Lack of insurance knowledge left the plaintiff with no coverage at all.

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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

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

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

Legal Disclaimer:

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

 

Posted in Zalma on Insurance | Comments Off on How to Lose Auto Coverage Without Trying

How to Obtain Coverage for Malicious Prosecution

Court Determines When Malicious Prosecution Arises

When two insurers insure a loss over a period of time it becomes necessary to determine in which insurer’s policy period the event occurred. Rather than work together some insurers will take a hard position and refuse to defend or indemnify the insured leaving a single insurer to protect the interest of the insured.

With regard to a suit for malicious prosecution,  the United States District Court for the Northern District of Ohio in Selective Ins. Co. of the Southeast v. RLI Ins. Co., Slip Copy, 2015 WL 4250364 (N.D.Ohio, 7/13/2015), was faced with a motion for partial summary judgment filed by plaintiff Selective Insurance Company of the Southeast (“Selective”) and a motion for summary judgment filed by defendant RLI Insurance Company (“RLI”) both of whom claimed the other was responsible for protecting the insured..

This coverage dispute arises from the wrongful conviction of Clarence Elkins, who, after spending several years in prison, was exonerated of rape and murder based on DNA evidence. Mr. Elkins sued the City of Barberton and its police officers, who had pursued the criminal case against him, alleging violations of state law and his federal constitutional rights. The civil case was settled for $5.25 million.

THE COVERAGE DISPUTE

During the time period relevant to the instant matter, the City of Barberton had excess insurance policies through Selective and RLI, respectively. The RLI policy had a policy period from June 29, 1997 to June 29, 1998. The Selective policy had a policy period from June 29, 1998 to June 29, 1999. Selective contributed to the settlement, while RLI did not. RLI denied coverage on the ground that the malicious prosecution of Mr. Elkins did not “occur” during RLI’s policy period.

INVESTIGATION AND CRIMINAL PROCEEDINGS

On June 6, 1998, Judith Johnson was raped and murdered, and her six-year-old granddaughter, Brooke Sutton, was raped and assaulted.  On June 7, 1998, Brooke Sutton identified her uncle Mr. Elkins as the perpetrator, and Barberton police officers arrested him. The parties do not dispute that Sutton’s identification provided probable cause for Mr. Elkins’ arrest. Mr. Elkins was indicted by a Summit County grand jury on June 10, 1998.

On January 5, 1999, before the criminal trial, Barberton Police arrested Earl Mann for robbery. During his arrest, Mr. Mann, who was drunk at the time, asked the arresting officer, “Why don’t you charge me with the Judy Johnson murder?”  Mr. Elkins later acquired additional evidence of his innocence. Based on an analysis of male DNA evidence collected at the crime scene, Mr. Elkins’ DNA was excluded from the DNA found there. In 2005, Mr. Elkins obtained a cigarette butt belonging to Earl Mann, who by coincidence was incarcerated in the same facility that he was, and, as a result the case against Mr. Elkins was dismissed and he was released. The State of Ohio awarded Mr. Elkins $1,075,000, after it was determined that he was a wrongfully imprisoned person.

MR. ELKINS CIVIL SUIT

Mr. Elkins presented evidence that the investigating officers intimidated his alibi witnesses.

Prior to mediation, Mr. Elkins made a “bottom line” demand of $5.25 million to settle all claims. Elkins stated that if the case did not settle by the close of business November 16, 2010, the settlement demand would increase to $12 million. The case settled at mediation for $5.25 million.

BARBERTON’S INSURERS AND THE INSTANT DISPUTE

Selective maintains, coverage was triggered under RLI’s policy, whose policy period ended on June 29, 1998. RLI opposes the motion and moves for summary judgment, arguing that the tort of malicious prosecution occurred at the time the officers failed to disclose the Mann Memo, which happened no earlier than January 6, 1999. Because the Selective policy was in effect at that time, RLI argues coverage was triggered under the Selective policy.

The Court was required to determine, based on the relevant insurance policies, when the tort of malicious prosecution “occurred.” The Court began with the language of the applicable insurance policy noting that the starting point for determining the scope of coverage is the language of insurance policies. Contract terms are to be given their plain and ordinary meaning.

The RLI excess policy is occurrence based. As RLI sees it, there can be no coverage under the RLI policy because the only “occurrence” was the alleged violation identified by the district court. RLI contends that the violation occurred when Barberton’s officers failed to disclose the Mann Memo, which occurred no earlier than January 1999. Thus, because the RLI policy period ended in June 1998, there was no coverage for an “occurrence” that occurred six months later.

The court concluded that RLI assigned undue significance to the alleged violation. In fact, during the National/RLI policy period, Barberton officers allegedly failed to preserve biological evidence found at the crime scene; destroyed notes and recordings of witness statements; and ignored evidence of pubic and head hair belonging to someone other than Mr. Elkins that were recovered from Judith Johnson’s body.

These examples of alleged misconduct, among others, all took place while RLI’s policy was in effect, and there is no reason to believe, had the Elkins civil case gone to trial, that this evidence, to the extent it was admissible, would not have been part of Mr. Elkins’ case.

The district court concluded that the alleged failure to disclose the Mann Memo is not relevant to the question of coverage.

This is not to say that because the malicious prosecution claim was never proven to a jury that coverage under the RLI policy was not triggered. Quite to the contrary. Neither the RLI policy nor the National policy require a judgment to trigger an obligation to pay. Instead, under the RLI policy, Barberton became legally obligated to pay when it agreed to settle the case for $5.25 million in exchange for dismissal of the case. The “occurrence” was the pattern of misconduct on the part of Barberton, as alleged in the civil complaint, that occurred while the RLI policy was in effect.

Ohio courts have not directly faced the issue of when the tort of malicious prosecution “occurs” for coverage purposes, but courts from other jurisdictions have staked out two positions on the subject.

In adopting the majority rule, both the Eighth and Third Circuit relied on general principles of insurance law provided by the applicable state law. The Eighth Circuit observed that under Iowa law, “[t]he time of ‘occurrence’ is when the claimant sustains damages, not when the act or omission causing the damage takes place .” Genesis Ins. Co., 677 F.3d at 814 (quoting Tacker v. Am. Family Mut. Ins. Co., 530 N.W.2d 674, 676 (Iowa 1995). Similarly, the Third Circuit noted that “the determination of when an occurrence happens must be made by reference to the time when the injurious effects of the occurrence took place.” City of Erie, 109 F.3d at 162 (quoting Appalachian Ins. Co. v. Liberty Mut. Ins. Co., 676 F.2d 56, 61–62 (3d Cir.1982)).

The District court was persuaded that Ohio would follow the majority rule. When determining the triggering event for an occurrence based policy, courts should look to the time when injury began. Similar to the above cases, whether or not anyone was aware that Mr. Elkins’ prosecution was improvident at the time it was initiated, the injury to him began the day of his arrest, although it did not become undeniably apparent (to anyone besides Mr. Elkins) until charges were dismissed.

Selective’s motion for partial summary judgment was granted and RLI’s motion for summary judgment was denied.

ZALMA OPINION

Determining the date of an occurrence is often difficult. In this case Mr. Elkins was damaged over a long period of time and was convicted of a crime he did not commit because of the wrongful conduct of the police who ignored evidence that would have stopped his trial and hid a confession by the real killer. He deserved the settlement he received and it would have been more prudent if all the insurers got together to provide defense and indemnity for the city. In this case, taking a strong position on a weak review of relevant legal authorities, was not wise and will be expensive.

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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

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

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on How to Obtain Coverage for Malicious Prosecution

How to Lose an Insurance Coverage Case

Insured Has Burden to Establish Coverage

Making a claim is not sufficient. It is the obligation of the insured first to establish that there is coverage for the loss that is the subject of the claim. It is never automatic that the insured, by simply presenting a claim, shifts the burden to the insurer.

In Copacabana Realty, LLC v. Fireman’s Fund Ins. Co., — N.Y.S.3d —-, 2015 WL 4257001 (N.Y.A.D. 2 Dept., 7/15/2015), the appellate court, in an action for a judgment declaring that the defendant American Automobile Insurance Company is obligated to provide insurance coverage to the plaintiff for a loss to its property, the plaintiff appeals from an order of the Supreme Court (trial court), which granted the motion of the defendant American Automobile Insurance Company for summary judgment declaring that it is not so obligated.

“In determining a dispute over insurance coverage, the appellate court must first look to the language of the policy” (Consolidated Edison Co. of N.Y. v. Allstate Ins. Co., 98 N.Y.2d 208, 221). Although the insurer has the burden of proving the applicability of an exclusion (see Seaboard Sur. Co. v. Gillette Co., 64 N.Y.2d 304, 311), it is the insured’s burden to establish the existence of coverage (see Lavine v. Indemnity Ins. Co., 260 N.Y. 399, 410).

Where the existence of coverage depends entirely on the applicability of [an] exception to the exclusion, the insured has the duty of demonstrating that it has been satisfied” (Borg–Warner Corp. v. Insurance Co. of N. Am., 174 A.D.2d 24, 31).

The defendant American Automobile Insurance Company (hereinafter AAIC) established its prima facie entitlement to judgment as a matter of law by demonstrating the applicability of an exclusion in the plaintiff’s policy (see Platek v. Town of Hamburg, 24 NY3d 688, 694; Alvarez v. Prospect Hosp., 68 N.Y.2d 320, 324–325).

In opposition to AAIC’s prima facie showing, the plaintiff failed to raise a triable issue of fact regarding the applicability of an exception to the exclusion (see Platek v. Town of Hamburg, 24 NY3d at 694; Zuckerman v. City of New York, 49 N.Y.2d 557, 562; Broome County v. Travelers Indem. Co., 125 AD3d 1241).

Accordingly, the trial court properly granted AAIC’s motion for summary judgment declaring that it is not obligated to provide insurance coverage to the plaintiff for the loss to its property.

Since this is, in part, a declaratory judgment action, the matter must be returned to the trial court for the entry of a judgment declaring that AAIC is not obligated to provide insurance coverage to the plaintiff for the claimed loss

ZALMA OPINION

When an insurer establishes the existence and application of an exclusion the insured must carry the burden of producing evidence establishing that the exclusion does not apply and that there is coverage. When the insured fails to produce evidence that a loss is covered and the exclusion does not apply or that there are no facts to support the exception to the exclusion, the court must rule in favor of the insurer.

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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

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

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on How to Lose an Insurance Coverage Case

How to Plead a Consumer Fraud Case for Denial of a Claim

Win Some, Lose Some

When people are unhappy with their insurance company they refuse to limit themselves to a suit for breach of contract and obtain the indemnity promised by the policy. Rather, they file lawsuits seeking tort damages for breach of the covenant of good faith and fair dealing and violation of consumer protection acts as well as any other cause of action the imagination of the plaintiffs’ lawyer can conceive of placing into the complaint. Ignoring the principle that in litigation “less is more” they insist on overkill. The tort of bad faith should be sufficient to provide damages to an unhappy insured but they insist on also seeking consumer fraud damages from an insurer who fails to pay what the insured wanted.

In Robert J. v. Liberty Mut. Ins., Slip Copy, 2015 WL 4138990 (D.N.J., 7/8/2015) the U.S. District Court for the District of New Jersey was called upon to limit the litigation brought by a victim of Hurricane Sandy against their insurer Defendant Liberty Mutual Insurance (“Liberty Mutual”). Liberty Mutual, attempting to bring the litigation to reasonableness, moved the court to dismiss Plaintiffs’ claims for violations of the New Jersey Consumer Fraud Act, punitive damages, and attorneys’ fees.

FACTUAL BACKGROUND

Plaintiffs Robert and Jaime Ryan, New Jersey residents whose home was damaged during Hurricane Sandy, initiated this action against Liberty Mutual on October 10, 2014. Plaintiffs allege that they purchased homeowner’s insurance from Liberty Mutual, with maximum coverage of $1,635,740, and that their “home and its contents were essentially destroyed by Hurricane Sandy.”

Plaintiffs alleged that “Liberty Mutual has unreasonably and in bad faith denied coverage and underpaid for the damage.”  They assert that Liberty Mutual’s agents “improperly adjusted and denied Plaintiffs’ claims without adequate investigation, even though Plaintiffs’ losses were covered by the Policy.”  They also claim, among other things, that Liberty Mutual was “deceptive in the adjustment of this claim” by “fraudulently creating values and assigning them to the covered loss to increase its own profitability” and by “fraudulently telling its policyholder that the losses were not covered despite evidence that they were.” Plaintiffs further allege that Liberty Mutual’s response to their claim was part of “an ongoing, widespread and continuous scheme to defraud its insureds in the payment of benefits under their policies of insurance.”

Plaintiffs assert claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of the New Jersey Consumer Fraud Act (“NJCFA”). They seek compensatory, consequential, punitive, and statutory damages as well as attorneys’ fees and costs. Liberty Mutual moved to dismiss Plaintiffs’ NJCFA claim, their claim for punitive damages, and their claim for attorneys’ fees and costs.

DISCUSSION

Liberty Mutual moves to dismiss Plaintiffs’ NJCFA claim. Def.’s Mem. 5–9. The NJCFA “is remedial legislation” that the New Jersey Supreme Court “construe[s] liberally to accomplish its broad purpose of safeguarding the public.” Furst v. Einstein Moomjy, Inc., 182 N.J. 1, 11–12, 860 A.2d 435 (2004). In relevant part, the statute prohibits “[t]he act, use or employment by any person of any unconscionable commercial practice, deception, fraud, false promise, [or] misrepresentation … in connection with the sale or advertisement of any merchandise or real estate, or with the subsequent performance of such person as aforesaid, whether or not any person has in fact been misled, deceived or damaged thereby….” N.J. Stat. Ann. § 56:8–2.

There are three elements to an NJCFA claim: “1) unlawful conduct by defendant; 2) an ascertainable loss by plaintiff; and 3) a causal relationship between the unlawful conduct and the ascertainable loss.”   D’Agostino v. Maldonado, 216 N.J. 168, 184 (2013) (citing Bosland v. Warnock Dodge, Inc., 197 N.J. 543, 557, 964 A.2d 741 (2009)).

Liberty Mutual argues that Plaintiffs’ claim must be dismissed because the NJCFA “does not apply to disputes about insurance benefits or coverage.” In the 1980s, the New Jersey Appellate Division held that the NJCFA does not apply to the payment of insurance benefits. The New Jersey Appellate Division has since maintained that “while the [NJ]CFA encompasses the sale of insurance policies as goods and services that are marketed to consumers, it was not intended as a vehicle to recover damages for an insurance company’s refusal to pay benefits.” Myska v. New Jersey Mfrs. Ins. Co., No. A–027514T4, 2015 WL 2130870, at *13 (N.J.Super.Ct.App.Div. May 8, 2015).

Most recently the Third Circuit noted in dicta that “New Jersey courts … have consistently held that the payment of insurance benefits is not subject to the Consumer Fraud Act.” Granelli v. Chicago Title Ins. Co., 569 F. App’x 125, 133 (3d Cir.2014).

Here, Plaintiffs’ NJCFA claim goes to Liberty Mutual’s subsequent performance of its obligations under the insurance contract. Plaintiffs do not merely claim that Liberty Mutual underpaid their benefits, which would amount only to breach of contract, but instead assert that Liberty Mutual acted deceptively and fraudulently when investigating their property damage. Their NJCFA claim accuses Liberty Mutual of “telling its policyholder that the losses were not covered despite evidence that they were,” in “creating values and assigning them to the covered loss to increase its own profitability,” and “in falsely misrepresenting what its responsibilities were under the policy.” By alleging that Liberty Mutual’s investigatory conduct was deceptive, Plaintiffs make clear that their NJCFA claim targets Liberty Mutual’s conduct in performing its contract obligations-which distinguishes their NJCFA claim from the type of mere underpayment allegation that concerns the New Jersey Appellate Division. This Court predicts that the New Jersey Supreme Court would apply the NJCFA to Liberty Mutual’s allegedly deceptive conduct in investigating Plaintiffs’ property damage. Liberty Mutual’s motion to dismiss Plaintiff’s NJCFA claim is denied.

Plaintiffs’ Claim for Punitive Damages Is Insufficient

Liberty Mutual argues that Plaintiffs’ claim for punitive damages must be dismissed because the complaint omits “any allegation of an outrageous intentional tort.” Deliberate, overt, and dishonest dealings, insult and personal abuse constitute torts entirely distinct from the bad-faith claim.  Plaintiffs have not pled facts that rise to the level of egregiousness necessary for punitive damages in an insurance contract case. Their claim for punitive damages is dismissed.

Plaintiffs May Be Entitled to Attorneys’ Fees

Plaintiffs’ complaint includes two requests for attorneys’ fees, in connection with their claim for breach of the implied covenant of good faith and fair dealing and in their Request for Relief. The New Jersey Supreme Court’s holdings bar the recovery of attorneys’ fees in connection with Plaintiffs’ claim for breach of the implied covenant. Plaintiffs’ request for attorneys’ fees arising from their breach of implied covenant claim is dismissed.
Plaintiffs argue that they are still “entitled to attorney’s fees by virtue of their Consumer Fraud Act claims.”

The NJCFA mandates the recovery of attorneys’ fees. As such, the Court denied Liberty Mutual’s motion to dismiss Plaintiffs’ claim for attorneys’ fees in the Request for Relief.

ZALMA OPINION

This is, at best, a Pyrrhic victory for Liberty Mutual. They eliminated a claim for punitive damages for breach of the covenant of good faith and fair dealing only to lose on its claims for statutory based damages. If, as the plaintiffs allege, Liberty acted wrongfully in dealing with the insurance claims, it will be punished. This is, however, just an analysis of pleadings, including an interpretation where there is a split in district court finding concerning the application of the statute to insurance. It would be useful if the New Jersey Supreme Court clarified the issue and determined that its consumer fraud act either applies to or does not apply to insurance.

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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

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

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on How to Plead a Consumer Fraud Case for Denial of a Claim

Zalma’s Insurance Fraud Letter – July 15, 2015

 Prosecutions Continue for Perpetrators of Health Insurance Fraud

In this, the fourteenth issue of the 19th year of publication of Zalma’s Insurance Fraud Letter (ZIFL) Barry Zalma, on July 15, 2015 continues the effort to reduce the effect of insurance fraud around the world. The issue indicates that, regardless of some success, the efforts must be increased.

The current issue of ZIFL reports on:

1.    Ties to Democrats Failed to Protect Crooked Doctor
2.    Fairly Debatable Defeats Claim by Criminal Doctor
3.    Exposing Fraud Saves UK Customers $5.588 Million a Day.
4.    The End of a Never Ending Story.
5.    The Orphan Child of the Criminal Justice System.

The issue closes, as always, with reports on convictions for insurance fraud across the country making clear the disparity of sentences imposed on those caught defrauding insurers and the public with sentences from probation to several years in jail.

ZALMA’S INSURANCE FRAUD LETTER

ZIFL is published 24 times a year by ClaimSchool. It is provided free to clients and friends of the Law Offices of Barry Zalma, Inc., clients of Zalma Insurance Consultants and anyone who subscribes at http://zalma.com/phplist/.  The Adobe and text version is available FREE on line at http://www.zalma.com/ZIFL-CURRENT.htm.

THE “ZALMA ON INSURANCE” BLOG

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

•    Is Breach of Contract Required for Bad Faith? – July 14, 2015
•    Why a Risk Manager in Louisiana Should be Licensed as an Agent – July 13, 2015
•    Should a Signed Rejection Of UM/UIM Cover Be Ignored? – July 12, 2015
•    Insurance Fraud Is Epidemic – July 9, 2015
•    Can Murder Be Accidental? – July 8, 2015
•    How Do You Set Aside an Appraisal Award? – July 7, 2015
•    What Is Needed to Refuse a Defense? – July 6, 2015
•    Why Insured Should Never Sign a Release Without Advice of Counsel – July 3, 2015
•    You Can’t Con an Honest Person – July 2, 2015
•    Sometimes Insurance Fraud Doesn’t Pay – July 1, 2015
•    Heads I Win, Tails You Lose – June 30, 2015
•    When Does an Endorsement Supersede the Base Coverage Wording? – June 30, 2015
•    When is a “Known Loss” Not Known? – June 29, 2015
•    Can Insured Get Back Premium if No Loss? – June 26, 2015
•    SIU Regulations Webinar – June 25, 2015
•    Can an Insured Receive Coverage for Breach of Fiduciary Duty – June 25, 2015
•    What is a “Residence Premises” & Who Are Resident Relatives? – June 24, 2015
•    Condition Precedent Enforced – June 24, 2015
•    Does the Notice-Prejudice Rule Unfairly Disadvantage an Insurer of Its Contractual Rights? – June 23, 2015
•    When Must An Appraisal Award Be Reversed? – June 22, 2015

NEW FROM NATIONAL UNDERWRITER

Available from the Zalma Insurance Claims Library.

URL: http://www.nationalunderwriter.com/reference-bookstore/property-and-casualty/zalma-insurance-claims-library.html

Insurance Law

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

URL:  http://www.nationalunderwriter.com/insurance-law.html

Mold Claims Coverage Guide

URL:  www.nationalunderwriter.com/Mold

Construction Defects Coverage Guide

URL:  www.nationalunderwriter.com/ConstructionDefects

Insurance Claims: A Comprehensive Guide

URL:  www.nationalunderwriter.com/InsuranceClaims

Barry Zalma

Mr. Zalma is an internationally recognized insurance coverage and insurance claims handling expert witness or consultant.  He is available to provide advice, counsel, consultation, expert testimony, mediation, and arbitration concerning issues of insurance coverage, insurance fraud, first and third party insurance coverage issues, insurance claims handling and bad faith.

Mr. Zalma publishes books on insurance topics and insurance law at http://www.zalma.com/zalmabooks.htm where you can purchase  e-books written and published by Mr. Zalma and ClaimSchool, Inc.  Mr. Zalma also blogs “Zalma on Insurance” at http://zalma.com/blog.

You can follow Mr. Zalma on Twitter at https://twitter.com/bzalma

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