Anti-Stacking Provision Limits Recovery

Injured Person Can’t Get More From Tortfeasor’s Insurer Than the Limit of One Policy

When a person has two different liability policies that provide coverage for the same risk of loss the insured may usually tap both policies. As a result insurers placed anti-stacking provisions in their policies limiting recovery to the highest limit of any one policy.

In Gohagan v. Cincinnati Ins. Co., — F.3d —- 2016 WL 66944 (USCA, 8th Jan. 6, 2016) a trial court refused to allow stacking of two policies and limited the plaintiffs to one policy limit. The plaintiffs appealed claiming they were entitled to stack the two policies and thereby double their recovery for injuries incurred. Since the action was brought by the injured parties it appears they took an assignment from the tortfeasor and placed their bets on the suit against the insurer rather than trying to collect their injuries from the assets of the tortfeasor over the insurance coverage.

FACTS

John and Jessica Gohagan appealed the district court’s grant of summary judgment to The Cincinnati Insurance Company (“Cincinnati”). The district court held that, even if both the Business Owners Package (“BOP”) and Commercial General Liability (“CGL”) policies issued by Cincinnati covered Mr. Gohagan’s injury, the terms of those policies prohibited a single injury from giving rise to more than the $1,000,000 in coverage benefits the Gohagans had already received under the CGL policy. On appeal, the Gohagans argue that they are entitled to coverage under both the BOP and CGL policies and that the policies’ anti-stacking provisions are ambiguous and therefore must be construed to allow coverage up to the $1,000,000 each-occurrence limit of both policies, for a total of $2,000,000 of coverage.

In January 2012, Thomas Campbell attempted to remove a tree from a property being developed for a residential subdivision. The tree fell on John Gohagan, who suffered serious injuries as a result. Mr. Gohagan asserted claims against Campbell for the injuries, and Mrs. Gohagan sought compensation from Campbell for loss of consortium. The Gohagans reached a settlement with Campbell, which included Cincinnati’s payment of the $1,000,000 per-occurrence limit under the Cincinnati-issued CGL policy held by Campbell and his wife. However, the Gohagans reserved the right to litigate whether Campbell’s BOP policy, which also had a $1,000,000 each-occurrence limit, provided additional coverage.

ANALYSIS

Although the parties stipulated to the fact that the BOP policy was in effect when Mr. Gohagan was injured, Cincinnati contended that the BOP policy’s bodily injury liability coverage did not apply to Mr. Gohagan because the injury did not arise out of Campbell’s ownership, maintenance, or use of certain business premises in Waynesville, Missouri, as the BOP policy required. Cincinnati also argued that, even if the BOP policy were applicable, the BOP and CGL policies’ anti-stacking provisions limited coverage to the $1,000,000 already paid by Cincinnati under the CGL policy.

The court ignored the obvious lack of coverage under the BOP’s location limitation and based its summary-judgment found that the language of the BOP and CGL policies prohibited the stacking of coverage when both policies covered the same injury. The policies thus limited the maximum coverage for any one occurrence to the each-occurrence limit of $1,000,000.

Because the Gohagans already received $1,000,000 from Cincinnati under the CGL policy, their appeal fails if the BOP and CGL policies’ anti-stacking provisions limit the combined total of coverage for Mr. Gohagan’s injury to $1,000,000.

The declarations pages of both the BOP and CGL policies refer to an “Each Occurrence Limit” of $1,000,000 and a “General Aggregate Limit” of $2,000,000. The Eighth Circuit Court of Appeal saw no ambiguity in the wording of the various policies. An ambiguity exists when there is duplicity, indistinctness, or uncertainty in the meaning of the language in the policy. Language is ambiguous if it is reasonably open to different constructions. A contract or provision is not ambiguous merely because the parties disagree over its interpretation.

Here, the anti-stacking provisions viewed in their entirety are unambiguous. By focusing solely on “aggregate maximum limit of insurance,” the Gohagans ignored the stipulation that the aggregate maximum limit “shall not exceed the highest applicable limit of insurance under any one policy.”

In this case, the tree-falling incident that resulted in Mr. Gohagan’s injury represents the “occurrence” from which the court’s interpretation of the policies flows. Both policies have an each-occurrence limit of $1,000,000. For the occurrence at issue, then, the “highest applicable limit of insurance” under either individual policy is equivalent to the each-occurrence limit. Thus, the aggregate maximum limit of insurance under both policies combined may not exceed the each-occurrence limit under either policy—in this case, $1,000,000.

Reading the anti-stacking provisions as a whole the Gohagans received the full amount of coverage owed to them under the BOP and CGL policies when Cincinnati paid them $1,000,000 pursuant to the CGL policy.

The Gohagans’ last gasp interpretation – reading the “other insurance clause” standing alone – mistakenly relies on reading an individual provision in isolation from the rest of the policy, an approach that would leave the anti-stacking provisions meaningless. The district court correctly determined that the “Other Insurance” provisions apply when policies covering the same injury are issued by Cincinnati and another insurance company, not when two policies are issued by Cincinnati. Instead, the “Two or More Policies Issued by Us” provisions apply when policies covering the same injury are issued by Cincinnati alone.

The Gohagans’ interpretation would render the “Two or More Policies Issued by Us” provisions meaningless, an outcome courts seek to avoid when interpreting contracts.  The Gohagans’ attempts to create ambiguity where none exists failed.

For the reasons set forth above, the district court did not err in finding that the BOP and CGL policies prohibit stacking where both policies cover the same injury, such that the maximum coverage for Mr. Gohagan’s injury is $1,000,000.

ZALMA OPINION

Insurance companies have the right to negotiate whatever terms and conditions they can obtain agreement from someone to acquire. When Cincinnati issued two different policies to its insured it did not want its liability exposure to exceed $1 million and included anti-stacking language to prevent paying more than the single limit. If the insured wished to avoid the anti-stacking language the insured only needed to buy one of the two policies from a different insurance company. The Gohagans’ should have obtained a judgment and executed against the assets of the tortfeasor.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Anti-Stacking Provision Limits Recovery

Ignorance Can Be Cured

The Need to Maintain a Claims Staff Dedicated to Excellence in Claims Handling

It is a certainty that the business of insurance will act in cycles. Premiums go up. Premiums go down. Catastrophes happen regularly and in some years there are no catastrophes. Insurers pay any claim presented to avoid litigation and investigation expenses. Insurers change and refuse to pay any case where they believe there is fraud.

Sometimes insurers are intelligent and conclude that the best way to make a profit is to maintain a staff of professional claims personnel who are dedicated to fulfilling the promises made by the insurance policy issued by the insurer, promptly, efficiently and in absolute good faith. To do so they maintain professional continuing education for the staff and insist that all claims be investigated thoroughly and all insureds be treated fairly and in good faith.

The expense incurred in keeping a professional claim staff becomes unbearable, human resources directors are instructed to eliminate expense and stop the training programs, fire the expensive and experienced claim staff, and hire in their place recent college graduates who are asked to deal with claims without training or experience.

The decimation of the professional claims staff is either due to corporate ignorance – that can be cured – or corporate stupidity which will remain until the corporation becomes insolvent.

Historic Basic Claims Training

In 1967 I was a young insurance claims trainee with a major insurance company. In my first month as an employee management sat me down at a desk and told me to read a classic insurance claims handling book written by Paul Thomas. Since I knew absolutely nothing about insurance reading the book gave me a basic understanding of insurance and insurance claims handling. I was then sent out to ride with experienced adjusters in every field of insurance written by the company from fire, casualty, comprehensive general liability, personal liability, all types of third-party liability, workman’s compensation (now renamed worker’s compensation), surety, fidelity, inland marine and motion picture insurance.

I was then allowed, under close supervision, to adjust minor claims over the telephone, for small injuries and minor theft claims. After three months of study, on the job training with experienced adjusters, and adjusting minor claims I was sent, at the insurer’s expense, to their Home Office Training School where I spent 30 days with other trainees for 9 to 5 classroom training on every aspect of insurance, insurance law, insurance policy interpretation, repairing damaged structures, medicine and evaluation of traumatic injuries, insurance contract interpretation, repairing of damaged automobiles, repair of damaged structures, and claims investigations techniques.

Since I had spent three years in the military as an Army Intelligence agent I had experience and skill as an investigator and was able to convert my experience and training as an investigator to become an effective claims investigator.

After I completed the Home Office training course I was sent back to the office in Los Angeles and allowed to deal with multiple insurance claims over the telephone with less strict supervision. After a year I was promoted to field adjuster and allowed to meet with the public because I had proved to management that I understood insurance, insurance claims, the duty of good faith and fair dealing, and could be trusted with the insurer’s assets.

I was admitted to the California Bar in 1972 and stopped being an adjuster. I did not, however, give up on insurance. Rather, I directed my law practice to nothing but insurance and insurance claims handling.

The Majority of Claims Training Today

Experienced adjusters who were trained as I was have been fired or laid off with regularity to cut down on the expenses of their relatively high salary and the low salary for which a novice adjuster can be paid.

Today, a new adjuster, recently graduated from a community college or four year college is given little or no training. Rather the new adjuster is given a check book, a cellular smart telephone with a digital camera, a digital recorder, and a company car. He or she is given discretionary authority to pay any claim up to $2500 without approval of management. As a result, if the adjuster is assigned 100 to 1000 claims a year he or she, knowing little or nothing about insurance and insurance claims handling, has the right to spend, without approval, as much as $250,000 to $2,500,000 – more than his supervisor or the company president. He or she is told they are adjusters and should resolve the claims provided to them by their supervisor. Only if they have problems with a claim are they to seek the advice of their supervisor who may only have two years of experience as an adjuster. Neither the new adjuster nor the supervisor had any formal training.

Insurance management, finding that the expense side of the ledger has moved downward, and the quarterly profit increased, believe that they are wise and have helped the insurer’s profit margin. They are wrong. They are, by forgetting that insurance profitability is determined over a quarter of a century, not a quarter of a year. They are destroying the insurer and depriving the insurer of the ability to keep the promises made by the insurance policies issued by the insurer.

The Problem

The short term expense savings is penny wise and dollar foolish. Because of their lack of education and experience a young and untrained adjuster has created litigation against the insurer who employed them by:

  • Writing in his file that the insured was obviously a fraud because (of any one of dozens of ethnic minorities).
  • Accusing an insured of arson-for-profit without evidence of any kind.
  • Denying a fire claim because it was set by a homeless person.
  • Denying a claim based on an exclusion and concealing from the insured the exception to the exclusion that made the loss one that was covered.
  • Denying a claim in writing by quoting only a portion of the policy wording and refusing to quote the language of the policy that made coverage clear.
  • Denying a claim because the damage was done by the insured’s negligence.
  • Accusing an insured of fraud because there were no receipts for stolen personal property.
  • Denying a claim for failure to submit a sworn proof of loss without first providing the form to the insured.
  • Deciding to pay the new owner of a property who was not named on the policy because he had an insurable interest.
  • Refusing to pay the named insured because he had sold the dwelling even though he kept an insurable interest by taking back a loan from the buyer.
  • Refusing to pay more than $1500 for a fire damaged Persian Rug when the limitation only applied to theft claims.
  • Refusing to defend an insured because a claim of defamation is an intentional tort.
  • Refusing to defend an insured because he did not like the insured.
  • Refusing to pay an independent lawyer because he charged too much.
  • Refusing to investigate a claim because it was reported a year after the loss occurred.
  • Refusing to return telephone calls from an insured because the adjuster was “too busy.”
  • Refusing to personally inspect the loss site because the adjuster was “too busy.”
  • Refusing to pay a claimant because he was not injured but had a disease only a horse could suffer.
  • Refusing to pay a claimant because of his or her race.

All of these, and many more, resulted in a suit against the insurer alleging breach of contract, breach of the covenant of good faith and fair dealing and resulted in verdicts providing the insured contract damages, tort damages, and punitive damages that far overshadowed the annual savings obtained as a result firing the insurer’s experienced claims staff. One judgment against an insurer for bad faith assessing tort and punitive damage can far exceed the annual payroll of the claims department.

This ignorance is not limited to insurance adjusters. Lawyers who should know better, who should understand how to analyze the wording of an insurance policy, do not. Insurance company lawyers are often referred to by lawyers working in large law firms, as “discount lawyers” who they believe deserve less than the respect that union leaders have for Walmart. That is because insurance companies, agreeing to provide regular business to a law firm, can negotiate low hourly rates from the law firms they retain to defend insureds and to advise the insurer. Of course, the law firms working to maximize profits, assign insurance claims to their least experienced and knowledgeable young associates who will be assigned to ghost write pleadings, discovery and opinion letters for a partner who will at most review the documents and usually simply sign them.

The young lawyers, although they charge low hourly fees, spend dozens – if not hundreds – of hours reinventing the wheel and learning their trade. The experienced lawyers and partners do little to help. When I was a young lawyer the law firm for which I worked gave me 250 litigation files and told me to start work explaining that if I had any questions the answers were in the firm’s law library (before computers, let alone computer aided research). I learned the hard way because no one would help me. Some clients paid the cost of my learning how to properly represent their interests.

Today I see even less from young lawyers whose advice caused an insurer to be sued. Their errors are too broad to list in detail but are as bad as the list of errors made by the adjusters. In fact, wanting to please their client, the young lawyers will adopt the adjuster’s opinions because they believe the adjuster – probably accurately – knows more about the subject than the lawyer. They will, rather, file a standard answer to the complaint they are asked to defend, serve multiple statutory forms of interrogatories, send custom draw interrogatories and requests for admission, and notice depositions of every person involved in the claim.

The ignorance that resulted in claimed savings by dismissing experienced claims people and refusing to pay the fees of experienced and knowledgeable claims counsel, can be cured. The stupidity that believes that the savings are appropriate and add to the insurer’s profits can never be cured.

If insurers wish to make a reasonable profit and actually keep the promises made by the policies they issue in good faith and deal with their insureds fairly and good faith they must give up on the short term savings on the expense side of the ledger. Rather, insurers need to create a program requiring excellence in claims handling. Insureds will be pleased, claims people will be confident, and litigation against the insurer will be rare and easily defended. If not they will continue to be an easy victim of fraud and they will be sued for bad faith regularly. Profits will dissipate and those who refuse to learn will become insolvent.

An Excellence In Claims Handling Program

To avoid claims of bad faith, punitive damages, and losses, and to make a profit, insurers must maintain a claims staff dedicated to excellence in claims handling. That means they recognize that they are obligated to assist the policyholder and the insurer to fulfill all the promises made by the insurer in the wording of the policy. The insurer that wants to create a claims staff dedicated to excellence in claims handling must, at least:

  • Hire insurance claims professionals.
  • If professionals are not available, the insurer must use the services of professional independent adjusters.
  • If professionals are not available the insurer must establish a system to train all members of the existing, and new members of the claims staff, to be insurance claims professionals.
  • Requiring each member of the claims staff to be trained annually on the local fair claims settlement practices regulations and SIU Regulations.
  • Employ insurance professionals who can intelligently supervise the work of each claims handler.
  • Supervise each claims handler closely to confirm all claims are handled professionally and in good faith.
  • Train, regularly, each member of the claims staff on the meaning of the covenant of good faith and fair dealing.
  • Require that the claims staff treat every insured with good faith and fair dealing.
  • Demand excellence in claims handling from the claims staff.
  • Let the claims staff know that failure to provide excellence in claims handling to those insured will result in immediate dismissal of any claims handler.
  • Be ready to have an executive of the insurer meet with an insured who was not treated professionally, apologize for the failure, advise that the offending claims person has been dismissed, and provide a means to fulfill the promise of good faith and fair dealing.

If any experienced claims professionals exist on the insurer’s staff, the insurer must cherish and nurture them and use their experience and professionalism to train new claims people. If none are available, the insurer has no option but to train its people from scratch. Those claims people who treat all insureds and claimants with good faith and fair dealing and provide excellence in claims handling must be honored with increases in earnings and perquisites. Similarly, those who do not treat all insureds and claimants with good faith and fair dealing should be counseled and given detailed training. If they continue with less than professional conduct they must be fired. The insurer must make clear to all employees that it is committed to immediately eliminating staff members who do not provide excellence in claims handling.

An excellence in claims handling program can include a series of lectures supported by text materials. It must be supplemented by meetings between supervisors and claims staff on a regular basis to reinforce the information learned in the lectures. The insurer also must institute a regular program of auditing claims files to establish compliance with the subjects studied. The insurer’s management must support the training and repeat it regularly. There is no quick and easy solution. The training takes time; learning takes longer. If the insurer does not have the ability to train its staff it should use outside vendors who can do so.

The excellence in claims handling program requires thorough training providing each member of the claims staff with a minimum of the following:

Training

The insurer seeking to create an excellence in claims handling program should institute regular training of its claims staff in all or more of the following subjects:

  1. How to read and understand the contract that is the basis of every adjustment, including but not limited to:
    1. The formation of the insurance policy.
    2. The rules of interpretation.
  2. Tort law including negligence, strict liability in tort, and intentional torts.
  3. Contract law including the insurance contract, the lease agreement, the bill of lading, nonwaiver agreements, proofs of loss, releases and other claims related contracts.
  4. The duties and obligations of the insured in a personal injury claim.
  5. The duties and obligations of the insurer in a personal injury claim.
  6. The duties and obligations of the insured in a first party property claim.
  7. The duties and obligations of the insurer in a first party property claim.
  8. The Fair Claims Practices Act and the regulations that enforce it.
  9. The thorough investigation:
    1. Basic investigation of an auto accident claim.
    2. Investigation of a construction defect claim.
    3. Investigation of a non-auto negligence claim.
    4. Investigation of a strict liability claim.
    5. Investigation of the first party property claim.
    6. The recorded statement of the first party property claimant.
    7. The recorded statement or interview of a third party claimant.
    8. The recorded statement of the insured.
    9. The red flags of fraud.
  10. The SIU and the obligation of the claims representative when fraud is suspected.

This training can be accomplished in several ways. The claims person may be required to read a chapter every week of “Insurance Claims: A Comprehensive Guide” available from National Underwriter Company at http://www.nationalunderwriter.com/reference-bookstore/property-and-casualty/zalma-insurance-claims-library.html. In addition, the claims person can be required to view a three to four minute video training session by starting at volume 1 and going through all videos, one or more a day, at Zalma Insurance 101.

Claims Report Writing

The new adjuster and new insurance lawyer must understand that an insurer needs information to evaluate the risks it is asked to take. To fulfill the needs of the insurer the claims person must recognize that report writing is essential to the duty imposed on the adjuster and insurance lawyer. The reports must include:

  • The name and address of each person insured.
  • The identity of the insurer.
  • The policy number.
  • The persons named as insured.
  • All persons who are insured or additional insureds by means of the policy wording.
  • The date of the loss.
  • The cause of the loss.
  • The risks of loss insured against by the policy.
  • The limits of liability available to the insured.
  • Whether the cause of the loss is due to a peril insured against.
  • Whether there are any exclusions in the policy that might apply to the situation.
  • The estimated exposure face by the insured so that appropriate reserves can be set.
  • The evaluation and settlement of the personal injury claim.
  • Whether there is a need to retain defense counsel to represent the insured.
  • Whether there is a need to retain coverage counsel to aid the insurer when a coverage issue is detected.
  • The need to control coverage counsel and defense counsel.
  • The need to evaluate the charges presented by defense and coverage counsel.
  • An evaluation of the plaintiff’s lawyer whose client is suing the insured or the insurer.
  • Dealing with personal injury defense counsel.
  • The evaluation of the injuries claimed by a plaintiff suing an insured.
  • The evaluation and settlement of the property damage claim.
  • The need for arbitration or mediation.
  • The estimated jury value of the case.
  • The estimated settlement value of the case.

Why an Excellence in Claims Handling Program?

 The answer is simple: an ability to keep all the promises made by the policy and an ability to make a profit by performing better than all other insurer.

                      © 2016 – Barry Zalma

Begin your Excellence in Claims Handling Program by requiring your people to view Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

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

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

Mr. Zalma’s 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

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

Buyers Remorse Not Enough To Create Coverage

You Only Get What You Pay For

Every state that allows uninsured motorist or underinsured motorist (UM/UIM) coverage allow insureds to either refuse UM/UIM coverage or write it down to minimum limits. Waiver or write down of limits reduce premium and many individuals decide to take the risk of insufficient coverage to save money. However, when they then are the victims of an uninsured or underinsured motorist buyers remorse takes charge and the insured sues to create UM/UIM coverage greater than that for which the insured paid.

In Kidd v. State Farm Mutual Automobile Insurance Company, Slip Copy, USDC, MD Pennsylvania, 2015 WL 9479997, (12/29/2015) the U.S. District Court for the Middle District of Pennsylvania heard evidence at a bench trial, reviewed briefing and ruled on the claims by the plaintiffs concerning the available limits of the UM/UIM coverage.

FACTS

Prior to October 1998, Plaintiff Sandra A. Kidd held an automobile insurance policy, which included coverage for up to four vehicles. One of these was purchased by her son, James Fred Brown, who was a resident relative in the Kidd household. Around that time, it became the desire of Sandra Kidd and her husband, David Kidd, that Mr. Brown’s vehicle be removed from their policy and that Mr. Brown would secure his own policy. At trial, Mr. Kidd testified that, as Mr. Brown reached adulthood, they wanted to effect this change to teach him responsibility. At the time, Mr. Brown was eighteen years old. The policy owned by Mrs. Kidd at that time already included reduced coverage for damage caused by under-insured or uninsured motorists (“UM/UIM”) due to a “Sign-Down Form” that had been executed previously.

In October 1998, a “Change Memo” was delivered to State Farm effecting a title transfer to Mr. Brown. On the Change Memo a new policy number was issued. Mr. Brown, thereafter, executed a sign-down form, agreeing to coverage of $15,000/$30,000, an amount lower than the original liability coverage of $100,000/$300,000. The parties do not dispute the fact that Mr. Brown lowered the liability coverage at that time.

On January 24, 2010, Mr. Brown was rendered incapacitated in an automobile accident involving an uninsured or underinsured motorist. Plaintiffs made a claim for benefits asking for UM/UIM benefits for Mr. Brown and Ms. McNeal, in the amount of $100,000.00. The insurer later indicated that it would pay only $15,000.00, due to their understanding that the policy included only reduced UM/UIM coverage.

DISCUSSION

This suit arises under the Pennsylvania Motor Vehicle Financial Responsibility Law, (“MVFRL”). The MVFRL was enacted to control the costs of automobile insurance, and also to address issues caused by uninsured and underinsured motorists. UM/UIM coverage provides protection for persons who suffer injury arising out of the maintenance or use of a motor vehicle and are legally entitled to recover damages therefor from owners or operators of uninsured [or underinsured] motor vehicles. Purchase of UM/UIM coverage is optional but must be offered as part of or in supplement to motor vehicle insurance.

In order to show that an insured validly reduced UM/UIM benefits, an insurance company must show that: (i) the insured had notice of his rights under the MVFRL; and (ii) the insured voluntarily requested in writing that the limits of his UM/UIM coverage be lowered.

The sole issue in this case is whether Mr. Brown waived his right to UM/UIM coverage equal to his bodily injury coverage when he executed the 1998 sign-down form. Plaintiffs make a variety of arguments that he did not validly waive the higher coverage.

Ambiguity in the Sign-Down Form

Plaintiffs’ first argument: that the sign-down form executed by Mr. Brown was impermissibly ambiguous and thus must be construed in favor of the insured.

The primary goal in interpreting a contract is to determine the intent of the parties, and the best way to arrive at this intent is to look to the plain language of the instrument. The language of a contract should be given its plain meaning, but if ambiguity exists, the particular ambiguous provision is to be construed in favor of the insured.

Given the particular set of facts presented in the bench trial the court found that the contractual terms at issue could only be interpreted in one way, and therefore are not ambiguous. Here, according to Mr. Brown’s testimony and those of the insurance agent, both were under the impression, and had the expectation, that Mr. Brown was obtaining his own new automobile insurance policy through his execution of the forms in question. Indeed, they had requested that precisely such an action occur. Also, the UM/UIM coverage on Mrs. Kidd’s policy had already been reduced by Mrs. Kidd at an earlier time, making it even less likely that Mr. Brown would presume he was currently electing to reduce the other policy’s coverage with this particular sign-down form.

Since Mr. Brown was primarily engaged in the establishment of his own new and separate policy it is far more likely and reasonable to infer that Mr. Brown expected that the sign-down pertained to that new policy and not to his mothers’ policy.

Subsequent to Mr. Brown’s execution of the forms, he enjoyed reduced premiums as a result of the decreased coverage. There was no testimony on any events taking place after the forms were signed, but the reduction Mr. Brown benefitted from presumably placed him on notice of the lesser UM/UIM coverage, and any mistake or unintended reduction of coverage could have been rectified between 1998 and 2010, when Mr. Brown’s accident took place. But no such rectification occurred. Rather, Mr. Brown continued to enjoy savings throughout that span of time. Courts are hesitant to find insurance coverage for which insureds have not paid. An insured is bound by having understood the policy limits and acquiesced to them by paying lower premiums.

The parties here acknowledge that Mr. Brown was signing the insurance forms in furtherance of his intent to obtain a new policy while his mother retained the old policy. The court found that given the circumstances under which Mr. Brown executed the sign-down form, Plaintiffs have failed to show by a preponderance of the evidence that Mr. Brown could have interpreted the sign-down form to pertain to his mothers’ coverage, and not his.

Validity of the Sign-Down Form

The notice set forth in the statute is identical to that which was provided to Mr. Brown in the important notice form that he executed along with the sign-down form. No testimony was adduced that indicates that Mr. Brown was not in receipt of the notice, nor unaware of the rights provided under the MVFRL after his receipt of that notice. Foul-Play in the Alteration of the Sign-Down Form

Not an iota of evidence was presented at trial to support the Plaintiffs’ allegations of foul play.

Though the system may be imperfect, there is no requirement that Defendants implement the most ideal system, and the court concluded that Defendants’ explanation is plausible and that Plaintiffs are unable to support their entirely speculative allegations of wrongdoing. Judgment was, therefore, entered in favor of State Farm.

ZALMA OPINION

Courts must never find insurance coverage for which insureds have not paid while insureds, like Mr. Brown in this case, try to get the court to provide them with insurance for which they did not pay because they are sorry that the insured who suffered serious injury does not have adequate coverage.  The attempt failed in this case. The insurance for which Mr. Brown paid indemnified him but refused to pay for insurance he did not buy. A major life lesson learned: you only get what you pay for.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Buyers Remorse Not Enough To Create Coverage

Assignment Against Insurer With No Coverage Is Ignorance

Intentional Acts Never Insurable

I have reported until I am blue in the face that insurance only provides coverage for contingent or unknown events. The loss, to be covered must be fortuitous. A battery, the intentional touching of another with the intent to cause damage that actually causes damage, can never be fortuitous. Therefore, letting the assailant off without a possibility for paying a judgment in exchange for an assignment of the assailant’s claim against his insurer, silly if the assailant has any assets worth attaching.

In Dittel v. Farmers Ins. Exchange, Not Reported in N.W.2d , 2015 WL 9437759 (12/28/2015) the Court of Appeals of Minnesota was asked to ignore a clear and unambiguous intentional act exclusion and allow the victim of a battery to recover from the assailant’s insurer. The trial court granted the insurer’s motion for summary judgment and the victim appealed.

FACTS

In June 2009, appellant Christine Dittel sued Woody’s Bar and Grill, Jeff Fusco, Bradley Smith, and Cary Jay Anderson for injuries Dittel sustained at Woody’s. Dittel asserted two causes of action in her complaint. First, Dittel alleged that Woody’s, Fusco, and Smith violated the law by “illegally [selling] and barter[ing] intoxicating liquor” to Anderson when he was “obviously intoxicated” and that Anderson “caused harmful contact with [her].”

The complaint describes Anderson’s actions as a “battery.” Second, Dittel incorporated the allegations from the first cause of action and further alleged that Anderson “intended to cause and did cause a harmful contact with [her] person” and that she did not consent to Anderson’s act. Specifically, the complaint alleges that Dittel approached Anderson outside Woody’s and that Anderson “grabbed her arm with both hands,” “lifted her up,” and “flipped her over onto the ground.”

Anderson was insured under a homeowner’s insurance policy issued by Farmers Insurance Exchange. Farmers investigated the incident and denied Anderson coverage.

Dittel and Anderson entered into a “Stipulation for Entry of Judgment,” under which Anderson agreed to entry of a $100,000 judgment against him, and Dittel agreed that she would only seek to satisfy the judgment from Farmers.

In May 2013, Dittel sued Farmers, seeking to collect the March 2011 judgment against Anderson from Farmers. The district court concluded that coverage was not available based on an intentional-act exclusion in Farmers’ policy and that Dittel therefore has no basis to collect her judgment against Anderson from Farmers.

The district court noted that Dittel “pled only an intentional tort against [Anderson],” that there was “no allegation of negligence,” that the stipulation “was based solely upon the settlement of an intentional tort,” and that Dittel “could have pled negligence against Mr. Anderson, but chose not to make that claim.”

DECISION

Summary judgment shall be granted when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that either party is entitled to a judgment as a matter of law.

Whether an insurance policy provides coverage in a particular situation is a question of law that appellate courts review as if the motion was presented directly to it. An insurance policy’s coverage exclusions are construed strictly against the insurer. The insurer generally bears the burden of proving that policy exclusions apply to bar coverage. When determining whether there is coverage under a policy, appellate courts compare the allegations in the complaint in the underlying action with the relevant language in the insurance policy.

Farmers’ policy requires Farmers to “pay those damages which an insured becomes legally obligated to pay because of bodily injury … resulting from an occurrence to which this coverage applies.” But the policy also provides that Farmers does not provide coverage for damages stemming from bodily injury that is either “caused intentionally by or at the direction of an insured” or “results from any occurrence caused by an intentional act of any insured where the results are reasonably foreseeable.” The policy defines “occurrence” as “an accident including exposure to conditions which results during the policy period in bodily injury or property damage.”

The law in Minnesota is well-settled: an intentional act exclusion applies only where the insured acts with the specific intent to cause bodily injury.  An insurer may establish intent to injure, and therefore lack of coverage, in two ways. An insurer may offer proof of actual intent to injure, or intent to injure may be inferred as a matter of law. As a general rule, intent is inferred as a matter of law when the nature and circumstances of the insured’s act are such that harm is substantially certain to result.

The nature and circumstances of Anderson’s acts, as described in the complaint, are such that intent to injure can be inferred as a matter of law. The factual assertions in Dittel’s complaint, as well as the identified legal theories, lead to one conclusion: Anderson intentionally caused Dittel’s injuries and coverage is therefore barred under Farmers’ intentional-act exclusion.

Dittel notes that her stipulation with Anderson “was not solely based on an intentional act” because it discharged Anderson from his liability “for negligence or any other liability.” The stipulation’s reference to a hypothetical negligence claim is immaterial. The gravamen of Dittel’s complaint is that Anderson intentionally caused her injuries. Farmers’ policy excludes coverage for damages stemming from such injuries.

ZALMA OPINION

The Court of Appeals of Minnesota correctly concluded the obvious, an intentional tort like battery is not covered by a policy of insurance, especially one with an intentional act exclusion putting the fortuity doctrine within the body of the policy. If Anderson had any assets that could have been collected after entry of judgment Ms. Dittel and her counsel took a chance on a lawsuit that they had little chance to win.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Assignment Against Insurer With No Coverage Is Ignorance

Insurance Agents do not Have an Affirmative Duty to Advise

Third Party Beneficiary’s Rights To Insurance Must Spring from Contract Itself

Third party beneficiaries to an insurance contract, as a matter of course, do not have contact with the insurer or the insurance agent obtaining the insurance for the named insured. In Emerald Coast Finest Produce Company, Inc. v. Sunrise Fresh Produce, LLC, Civil Action, 2015 WL 9461494 NO. 2:14-CV-166-KS-MTP, USDC, S.D. Mississippi,  Filed 12/23/2015 an attempt was made by a person claiming to be a third party beneficiary to collect more than the existing policy limit because of its claimed negligence of the insurance agent.

BACKGROUND

This case arose from a warehouse fire. Plaintiff Emerald Coast Finest Produce Company, Inc. (“Emerald Coast”) owned the building and leased it to Defendant Sunrise Fresh Produce, LLC (“Sunrise”). The lease agreement required Sunrise to “provide and keep in force fire and extended coverage property damage insurance on the Premises equal to 100% of the replacement value of the building.” The building burned down. Emerald Coast claims that the cost to repair or replace it is $15,000,258.19, but the policy insuring the building only provides $5,000,000 in coverage.

Emerald Coast asserted negligence claims against Defendants BancorpSouth Insurance Services, Inc. (“BancorpSouth”) and Alterra American Insurance Co. (“Alterra”). Specifically, Emerald Coast contends that it was a third-party beneficiary of the insurance policy. It argues that the agent negligently failed to procure insurance coverage equal to the replacement cost of the subject warehouse. Likewise, Emerald Coast argues that Alterra is liable for its insurance agent’s actions.

BancorpSouth and Alterra filed Motions for Summary Judgment. Each argues that it owed no duty to Emerald Coast, and that it procured a policy as specifically instructed by Sunrise.

MOTIONS FOR SUMMARY JUDGMENT

A Court is not permitted to make credibility determinations or weigh the evidence. When deciding whether a genuine fact issue exists, the court must view the facts and the inference to be drawn therefrom in the light most favorable to the nonmoving party.
Plaintiff contends that BancorpSouth and Alterra owed it a duty to 1) determine the replacement cost of the warehouse before placing coverage, 2) properly inspect the premises to determine the replacement cost before placing coverage, 3) take other precautions to determine the replacement cost before placing coverage, and 4) procure insurance coverage equal to the replacement cost of the warehouse. Each of these claims arises from the procurement of the policy; Plaintiff contends that Defendants negligently failed to procure enough insurance coverage on the warehouse.

THE ISSUE

Among other issues, Defendants’ Motions for Summary Judgment present a discrete question of law: may a third-party beneficiary of an insurance policy assert a negligence claim against the insurer and/or its agent arising from the policy’s procurement, rather than its fulfillment?

DISCUSSION

Applying the principles of agency, an insurer is bound by the acts of agents, and knowledge gained by an insurance agent within the scope of its agency is imputed to the insurer. An insurance agent must use that degree of diligence and care with reference thereto which a reasonably prudent person would exercise in the transaction of his own business. Insurance agents do not have an affirmative duty to advise buyers regarding their coverage needs, but if they offer advice to insureds, they have a duty to exercise reasonable care in doing so. Likewise, if an insurance agent or broker with a view to being compensated agrees to procure insurance for another and through fault or neglect fails to do so, he will be liable for any damage that results thereby.

Under Mississippi law, a third party may maintain an action as a third-party beneficiary to enforce a promise made for their benefit. However, this right must spring from the terms of the contract. A third-party beneficiary may sue for a contract breach only when the alleged broken condition was placed in the contract for their direct benefit. In order for the third person beneficiary to have a cause of action, the contracts between the original parties must have been entered into for his benefit, or at least such benefit must be the direct result of the performance within the contemplation of the parties as shown by its terms.

Assuming that Plaintiff is a third-party beneficiary of the insurance policy, its negligence claims against BancorpSouth and Alterra are untenable because an insurer’s duties to a third-party beneficiary must spring from the terms of the contract itself, and a third-party beneficiary may sue for a contract breach only when the alleged broken condition was placed in the contract for their direct benefit.  Plaintiff argues that BancorpSouth and Alterra owed it the duty of procuring coverage in a certain amount, and that this duty arose under the insurance policy acquired by Sunrise for its benefit.

Plaintiff cited no Mississippi case in which a third-party beneficiary of an insurance policy was permitted to assert a negligence claim arising from an insurance agent’s failure to procure adequate coverage. Indeed, the Court’s own research has revealed no such cases. Instead, Mississippi courts have consistently held that duties owed to the third-party beneficiary of a contract must “spring from the terms of the contract itself” to be enforceable. A duty to procure certain coverage can not spring from the terms of the contract itself.

ZALMA OPINION

An insurance agent or broker who merely fulfills the request of the insured owes nothing more to the insured or any third party beneficiary making a claim under the policy. The contract of insurance clearly and unambiguously provided $5 million in coverage and no more. The contract of insurance only made the owner an additional insured. If he knew there was a $15 million building he should have insisted that the tenant provide $15 million in coverage and cannot complain after the loss he did not get what he needed when he did receive what he ordered.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Insurance Agents do not Have an Affirmative Duty to Advise

Exception to Exclusion Defeats Summary Judgment

Agent Negligent but Claims No Coverage Anyway

An insurance agent is only required to obtain the insurance requested by the insured. The insurance agent does not guarantee that every claim the insured presents will be covered by the insurer.

In Glasser v. M&O Agencies, Inc., Not Reported in P.3d, Court of Appeal, Arizona, 2015 WL 9096764 (12/15/2015) an insured sued his agent because the policy he ordered was not in effect at the time of a loss. The agent defended based upon the fact that there was no coverage for the loss. The trial court granted summary judgment and Elliott J. Glasser appealed the summary judgment granted to M & O Agencies, Inc., Ryan James Bradley and Kristina N. Bradley (collectively, “Mahoney”) dismissing his claims for breach of contract, negligence, and negligent misrepresentation.

FACTS

Glasser bought a large commercial property in March 2010 (the “McDowell Property”) that was previously an automobile dealership. Glasser’s employees began cleaning and making repairs at the McDowell Property, but Glasser did not lease the property or occupy it himself.

Glasser, through his insurance agent Mahoney, added the McDowell Property as a scheduled location on his existing commercial insurance policy (the “Policy”) from Great American Insurance Company, which covered the McDowell Property with property and liability insurance. In April 2010, and at the direction of an employee of Glasser’s business, Mahoney instructed Great American to delete the property coverage for the McDowell Property.

On approximately July 6, 2010, Glasser discovered theft and vandalism at the McDowell Property, and submitted a claim for the loss to Great American. Great American denied the claim because the Policy did not cover property damage at the McDowell Property and the property had been vacant for more than 60 days before the loss, a vacancy exclusion term under the Policy.

Glasser filed this lawsuit against Mahoney alleging it breached the agreement with Glasser by failing to obtain appropriate insurance coverage for the McDowell Property; failed to exercise reasonable care, skill, and diligence to secure and maintain appropriate insurance coverage for Glasser’s real properties; and negligently misrepresented that it had secured appropriate insurance coverage for Glasser’s real properties, including the McDowell Property.

Mahoney moved for summary judgment on the grounds that Glasser had produced no evidence that the Policy would have covered the loss even if it had been in effect and he, therefore, could not prove that Mahoney’s allegedly negligent conduct caused him any damage.  Specifically, Mahoney argued that the terms of the Policy excluded coverage for theft and vandalism at the McDowell Property because it had been vacant for the 60 days preceding the loss. In response, Glasser maintained that an exception to the vacancy exclusion for buildings under “renovation” applied because his employees had been readying the building to serve as his business headquarters. Mahoney argued, however, that Glasser’s activities at the McDowell Property constituted routine maintenance and repair, not renovation.

The superior court granted summary judgment for Mahoney, ruling as a matter of law that there was insufficient evidence for a jury to find that the McDowell Property was under renovation at the time of the loss. The court determined that the evidence only supported an inference that the McDowell Property was being cleaned, repaired, and maintained and such acts, as a matter of law, did not constitute “renovation.”

DISCUSSION

The Policy excludes coverage for theft or vandalism occurring at a building that has been vacant for more than 60 consecutive days before the loss. As relevant, the Policy states that a “building is vacant unless at least 31% of its total square footage is: (i) rented to a lessee … and used by the lessee … to conduct its customary operations; and/or (ii) used by the building owner to conduct customary operations.” The Policy provides that “[b]uildings under construction or renovation are not considered vacant.”

Because Glasser does not dispute that the McDowell Property was vacant at the time of the loss, the court focused only on whether he produced sufficient evidence to allow a reasonable jury to find that the renovation exception to the vacancy exclusion applies in this case.

Webster’s defines the term “renovate” as “(1) to make new or like new; to clean up, replace worn and broken parts in, repair, etc.; to restore to good condition; (2) to refresh; to revive.” Webster’s New Universal Unabridged Dictionary 1531 (2d ed.1983). Similarly, the American Heritage Dictionary defines this word as “(1) [t]o restore to an earlier condition, as by repairing or remodeling. (2)[t]o impart new vigor to; revive.” American Heritage Dictionary of the English Language 1487 (5th ed.2011).

Based on these definitions, a question of fact exists regarding whether the activities of Glasser’s employees at the McDowell Property during the relevant time qualified as “renovation .” The evidence showed that two of Glasser’s employees were at the McDowell Property every day after the purchase making changes and repairs to render the property acceptable business headquarters.  If Great American and Glasser intended that the Policy’s renovation exception would apply only to substantial reconstruction activities, rather than minor repairs or cleaning, they were free to specify that meaning in the Policy.

Nevertheless, Mahoney argues courts from other jurisdictions have read similar policy language in conjunction with the overall purpose of a vacancy exclusion (to exclude coverage for those buildings that might invite liability and damage) and have refused to find an exception to a vacancy exclusion when the insured’s activities at the property were not substantial and continuing.

Accordingly, even though the activities at the McDowell Property might not be what is ordinarily envisioned by the word renovation, the Arizona Court of Appeal concluded that there is a question of fact under the Policy whether the activities on the property were “renovation.”  As a result, the court reversed the ruling for Mahoney on the grounds that, even if it had remained in effect, the Policy would not have covered Glasser’s loss because of the vacancy exclusion.

ZALMA OPINION

Factual issues almost always defeat summary judgment. The question of whether the exception to the exclusion applies is clearly factual and that is why the summary judgment was reversed. The agent’s error was to make a motion based on the exclusion rather than on the fact that the insured – through his employee – told the agent to cancel coverage for the building. Since the policy was not in effect there was no coverage and that is why Great American wasn’t sued.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Exception to Exclusion Defeats Summary Judgment

No License – No Coverage

Agent’s Sale of Policy to Unlicensed Driver Not a Waiver of Exclusion

Insurance companies are loathe to sell automobile liability insurance to non-licensed drivers unless it believes that person will never drive the vehicle. Since most insurers will trust their insureds and believe the insured’s representations, they also protect themselves by including in their policy an exclusion for any injuries or damages caused by an unlicensed driver.

The Louisiana Court of Appeal in Parker v. Taplin, — So.3d —-, 2015 WL 9434402 15-440 (La.App. 5 Cir. 12/23/15) was asked to resolve a tort action arising out of a motor vehicle accident where its insured admitted he was unlicensed but had coverage because the insurer sold the policy to him knowing he was not licensed. The trial court did not agree with the argument and granted summary judgment in favor of his insurer, Affirmative Insurance Company (“Affirmative”), finding there was no insurance coverage to Plaintiff for his loss because of an exclusion in the policy for unlicensed drivers.

FACTS

Plaintiff, Darryl Parker, filed suit seeking damages for property and personal injuries he allegedly sustained in an automobile accident when a vehicle driven by Laquida Taplin collided with his vehicle, a 2001. Plaintiff named as defendants Ms. Taplin; her insurer, State Farm Mutual Automobile Insurance Company; and his insurer, Affirmative. He alleged that Affirmative provided comprehensive and collision coverage for his 2001 BMW, and that it had denied his claim for property damage in bad faith.

Affirmative subsequently filed a motion for summary judgment claiming that the policy at issue excluded collision coverage for loss caused by an unlicensed driver. Affirmative asserted that Plaintiff was an unlicensed driver and, thus, the policy did not provide first party collision coverage for the accident at issue. In support of its motion for summary judgment, Affirmative attached a certified copy of the insurance policy issued to Plaintiff and a copy of the police report that showed Plaintiff was cited for having no driver’s license.

Plaintiff opposed the motion, arguing that the exclusion at issue was not enforceable under the law. He also argued that even if the exclusion was permissible, Affirmative was estopped from enforcing it because Affirmative knew at the time it issued the policy that Plaintiff did not have a driver’s license. In support of his opposition, Plaintiff attached his own affidavit stating that he informed the lady who assisted him with the purchase of the policy that he did not have a valid driver’s license and that the lady advised him that he would nonetheless be able to purchase the automobile policy. Plaintiff maintained that the factual issue of whether Affirmative knew that he did not possess a valid driver’s license at the time it issued the policy precluded summary judgment.

ISSUE

An insurance policy is a contract between the parties and should be construed by using the general rules of interpretation of contracts set forth in the Louisiana Civil Code. The judicial responsibility in interpreting insurance contracts is to determine the parties’ common intent. The parties’ intent, as reflected by the words of the policy, determines the extent of coverage.

An insurance company may limit coverage in any manner, as long as the limitations do not conflict with statutory provisions or public policy. A provision which seeks to narrow the insurer’s obligation is strictly construed against the insurer.

A review of the policy at issue shows that Affirmative provided automobile insurance for a 2001 BMW operated by Plaintiff and his spouse, Sandra Scieneaux, effective January 4, 2014 through July 6, 2014. The policy provided liability coverage in the amount of $15,000 for each person, $30,000 for each accident, and $25,000 for property damage for each occurrence. It also provided comprehensive and collision coverage subject to a $500 deductible.

ANALYSIS

Under the terms of the policy, collision coverage was provided for property damage to the insured vehicle caused by a collision. However, collision coverage was subject to any applicable exclusion in the policy. The policy specifically provided in pertinent part: “Loss caused by any person driving any auto insured under Parts D, E, F, and/or G without a valid and current driver’s license.”

Plaintiff does not dispute the fact that he did not possess a valid driver’s license at the time of the accident. Thus, under the plain words of the insurance contract, he was not afforded collision coverage under the terms of the insurance contract. However, Plaintiff argues Affirmative should not be allowed to rely on this exclusion under the theory of detrimental reliance. In support of his position, Plaintiff relies on his affidavit wherein he stated that he was told by an agent for Affirmative that he could purchase the insurance policy even though he did not have a valid driver’s license.

Under the theory of detrimental reliance, “[a] party may be obligated by a promise when he knew or should have known that the promise would induce the other party to rely on it to his detriment and the other party was reasonable in so relying.” The purpose of the doctrine of detrimental reliance is to prevent injustice by barring a party from taking a position contrary to his prior acts, admissions, representations, or silence. To prove detrimental reliance, a party must show by a preponderance of the evidence: (1) a representation by conduct or word; (2) justifiable reliance; and (3) a change in position to one’s detriment because of the reliance.

Even assuming Plaintiff’s statements in his affidavit are true, the court of appeal found them inconsequential. According to Plaintiff’s affidavit, when he purchased the automobile insurance in August 2013, he told Affirmative’s agent that “he did not have a valid driver’s license on that date,” and she then “informed Plaintiff that he would be able to purchase an automobile policy with Affirmative Insurance Company though he did not possess a valid driver’s license.”

This statement does not indicate what type of coverage would be afforded—only that insurance could be purchased. Nowhere in Plaintiff’s affidavit does he claim that the agent made any representations regarding the coverage provided by the policy, or that the agent indicated Plaintiff would be provided collision coverage while he was driving without a license in derogation of the clear terms of the contract. Additionally, in his application for insurance, Plaintiff indicated that he was instructed to read his policy.

Based on the record before the court of appeal it had no choice but to find that there was no evidence to support a claim of detrimental reliance.  As a result Affirmative was entitled to summary judgment as a matter of law.

It is undisputed that Plaintiff did not possess a valid driver’s license at the time of the accident at issue. Under the terms of the insurance contract, collision coverage was excluded for persons without a valid driver’s license. Additionally, Plaintiff presented no evidence that Affirmative’s agent made any representations regarding the type of coverage provided by the policy that would support his claim of detrimental reliance so as to preclude summary judgment nor did he provide any evidence that Affirmative intentionally waived any provision of the contract.

ZALMA OPINION

Since Mr. Parker bought a liability, comprehensive and collision coverage from Affirmative to protect his interest in the vehicle and his licensed spouse who also was listed as a driver of the vehicle. Affirmative sold the policy with a clear and unambiguous exclusion that limited the coverage if damage occurred while an uninsured person was driving the car. His wive was still covered as was he if the car was damaged while being operated by a licensed driver. His arguments against the summary judgment were, therefore, specious.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on No License – No Coverage

Umbrella is Excess Over Self-Insurance

A Municipal Self-Insurance Pool Is Self-Insurance

Excess or umbrella insurance is designed to protect the person insured against catastrophic losses. Umbrella insurance is fairly inexpensive to acquire because it does not come into play and has no duty to defend or indemnify until the agreed underlying insurance has been exhausted. In Illinois Municipal League Risk Management Ass’n v. State Farm, 2015 IL App (1st) 143336-U (Dec. 22, 2015) a Municipal self-insurance pool attempted to collect its payment of a claim from the umbrella insurer, State Farm. State Farm refused to pay because the underlying insurance and self-insurance had not been exhausted.

The trial court found enforceable a clause in the umbrella policy that made its coverage apply only after exhaustion of the limits of all applicable “insurance and self insurance.” The self-insurance pool appeals, arguing that the umbrella policy should count as primary insurance because the self-insurance pool uses public funds.

BACKGROUND

State Farm Fire & Casualty Company issued an insurance policy to Roel Valle, who worked as the City Clerk for the Village of Lynwood. Lynwood belonged to the Illinois Municipal League Risk Management Association (Association), a municipal risk-pooling organization.

On February 4, 2011, a car owned by the Village of Lynwood and driven by Valle collided with a car driven by Manuel Little. Little sued Valle and Lynwood. Valle and Lynwood notified the Association and State Farm about the lawsuit. The Association invited State Farm to participate in the defense of the lawsuit and settlement negotiations. On August 16, 2011, the Association agreed to pay Little and his passengers a total settlement amount of $5,822,500 for a release of all their claims against Valle and Lynwood. The Association, as subrogee of Valle and Lynwood, then sued State Farm claiming it breached its contract by failing to contribute its policy limits to the settlement.

State Farm’s insurance policy, titled “Personal Liability Umbrella Policy,” required Valle to purchase automobile liability insurance and other forms of primary insurance. The policy states, “Other Insurance. The coverage provided by this policy is excess over all other insurance and self insurance.”

The Association’s contract with Lynwood provided that the Association would pay on Lynwood’s behalf “all sums which [Lynwood] shall become legally obligated to pay * * * because of ‘bodily injury’ * * * to which this form applies, caused by an ‘occurrence’ and arising out of the ownership, maintenance or use * * * of any ‘automobile,’ “ up to a limit of $8 million.

The Association admitted that the contract expressly covered the liability of Lynwood and “any other person while using an ‘owned automobile’ * * * with the permission of [Lynwood],” but not “the owner of a ‘non-owned automobile.’ “ The Association also admitted that Valle, as an employee of Lynwood permitted to drive Lynwood’s automobile, qualified as a person covered under the Association’s contract with Lynwood.

The trial court found that the Association, by contract, agreed to pay the liability of Lynwood and Valle, up to the contract limits of $8 million, and State Farm’s umbrella policy provided coverage for the accident only if the liability exceeded $8 million. Because the Association settled the lawsuit for less than $8 million, the trial court held that State Farm owed the Association nothing. The trial court entered a judgment in favor of State Farm.

ANALYSIS

An umbrella policy, in contrast to a primary policy that contains an other insurance clause, has been recognized as providing unique and special coverage. Umbrella or catastrophe coverage has been defined as a needed form of coverage which picks up, above the limits of all other contracts, such as automobile and homeowners coverages, to give the security and peace of mind so necessary today where jury verdicts, or court awards, may be very substantial, to discharge the unexpected, but potentially bankrupting, judgment.

State Farm issued an umbrella liability policy to Valle. The Association provided primary coverage to Lynwood. Thus, if we treat the Association’s contract with Lynwood as an insurance policy, the umbrella policy would provide coverage only if Valle’s liability exceeded the limits of the Association’s coverage. But the Association’s contract is not an insurance policy. In Antiporek v. Village of Hillside, 114 Ill.2d 246 (1986), the Illinois Supreme Court held that a contract like the Association’s contract with Lynwood “is pooled self-insurance, through formal agreement, of governmental entities which share the risks and costs of civil liabilities.”  Lynwood and other participating municipalities form a risk-management pool in which only Illinois municipalities may participate.

The Association asked the court of appeal to limit the interpretation of “self-insurance” in State Farm’s policy to privately-funded self-insurance risk pools. When a court construes insurance policies it must ascertain and give effect to the intentions of the parties as expressed by the words of the policy. The Court of Appeal construed the umbrella policy to provide insurance coverage only when the loss exceeded available limits of insurance and self-insurance, including pooled self-insurance.

Finding that State Farm’s umbrella policy was unambiguous the Court of Appeal concluded that the State Farm policy makes the insurance “excess over all other insurance and self insurance.” Because the Association provides coverage for the accident under the contract for pooled self-insurance, it found that the Association provided coverage for the losses up to $8 million, and State Farm’s policy would cover losses in excess of that amount. Because the Association settled the claims for less than $8 million, State Farm did not owe the Association any reimbursement for the loss.

CONCLUSION

The Association’s contract with Lynwood qualifies as self-insurance within the meaning of the other insurance clause in State Farm’s umbrella liability policy. Public policy does not make the State Farm contract unenforceable.

ZALMA OPINION

State Farm’s wisdom in issuing its umbrella policy made it clear that it was excess over the stated underlying insurance, all other applicable insurance, and self insurance. Since the municipal pool was self insurance in Illinois the umbrella policy had no obligation to pay defense or indemnity to the Village of Lynwood or its employee.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Umbrella is Excess Over Self-Insurance

Who Are You Going to Believe – Me or Your Lying Eyes?

Two Categorically Different Sworn Statements Establish Fraud

Insurance fraud takes from the U.S. insurance industry between $80 billion and $300 billion a year because it is an easy crime to commit without any downside. In a case like Rizka v. State Farm Fire and Casualty Company, Slip Copy, 2015 WL 9314248 (12/23/2015) an obvious fraud was presented to the United States District Court, E.D. Michigan, Southern Division, that resulted in a sixteen page opinion without ever considering the evidence of two major crimes: Bankruptcy Fraud and Insurance Fraud.

RELEVANT FACTUAL BACKGROUND

In August 2011, Plaintiff Nahid Rizka (“Ms. Rizka”) declared personal bankruptcy. Ms. Rizka had nearly $45,000 in credit card debt, no job, few assets to speak of, and no way to pay her bills. Ms. Rizka said in her sworn bankruptcy schedules that she (1) did not own any real property – and was renting her home – and (2) owned only $1,800 in personal property. Less than a year later, Ms. Rizka’s home suffered water damage; personal property in the home was also damaged. Ms. Rizka then filed a homeowners insurance claim with Defendant State Farm Fire and Casualty Company (“State Farm”). She swore to State Farm that she personally owned the home and the damaged personal property. She sought more than $250,000 for damage to the home and more than $200,000 for the personal property she claimed to have lost. State Farm denied Ms. Rizka’s claim as fraudulent.

Ms. Rizka sued State Farm claiming it failed to pay her “valid and legitimate insurance claim.”

In 2002, Ms. Rizka and her four children (Kamal, Summer, Tarek, and Mike) began living in a home at 435 Woodcrest in Dearborn, Michigan (the “Woodcrest Home”). The Woodcrest Home was originally purchased by the father of Ms. Rizka’s children. He lost the home to foreclosure in 2005. In 2006, Ms. Rizka’s sister, Georgina Mercer (“Mercer”), purchased the Woodcrest Home for Ms. Rizka.  Mercer paid $250,000 for the Woodcrest Home, and Ms. Rizka contributed $20,000 towards the purchase price. Mercer took out a mortgage on the property, and has been the mortgagor ever since.

In 2008, Ms. Rizka applied for a State Farm homeowners insurance policy for the Woodcrest Home. After reviewing her application, State Farm issued a homeowners policy to Ms. Rizka for the Woodcrest Home (the “Policy”).

In August 2011, Ms. Rizka declared personal bankruptcy. During her bankruptcy proceedings, Ms. Rizka swore under oath in the asset schedules to her bankruptcy petition that she did not own any real property and did not own any interest of any kind in any such property. Ms. Rizka stated in her bankruptcy schedules that she leased the Woodcrest Home from Mercer on a “month-to-month residential rental,” and she identified her “rental” payment as monthly expenditure. Ms. Rizka also stated in her bankruptcy schedules that she possessed only $100 in “cash in hand” and owned just $1,500 in “household goods and furnishings” and $200 in “clothing.”

On September 8, 2011, the bankruptcy court held an on-the-record Meeting of Creditors. Ms. Rizka personally appeared at the meeting, took an oath, and again specifically stated that she had read her bankruptcy petition and the attached schedules and confirmed that they were accurate. The bankruptcy court granted Ms. Rizka a discharge on November 8, 2011 – one that had the effect of wiping away her entire debt load of over $45,000.

In July 2012 (less than one year after Ms. Rizka exited bankruptcy), the Woodcrest Home suffered water damage. Ms. Rizka then made an insurance claim with State Farm. As part of her claim, Ms. Rizka submitted two sworn “Proof of Loss” statements: one for the Woodcrest Home and one for the personal property in the home. In the Proof of Loss statement for the Woodcrest Home, Ms. Rizka swore that she was the “OWNER” of the home “at the time of loss” and that she had been the “OWNER” since at least July 30, 2011, when the Policy was last renewed. In the Proof of Loss statement for the damaged personal property, Ms. Rizka swore that she was the “OWNER” of the damaged property, and that “[n]o other person or persons had any interest” in the personal property. Ms. Rizka claimed the replacement cost of the damaged personal property was $200,413.76.

ANALYSIS

The doctrine of judicial estoppel is utilized in order to preserve the integrity of the courts by preventing a party from abusing the judicial process through cynical gamesmanship. Courts have even characterized it as a rule against playing fast and loose with the courts. The Sixth Circuit has explained that in order to apply judicial estoppel based on a position taken by a party in an earlier bankruptcy proceeding, a district court “must find” that a party assumed a position that was contrary to the one that the party asserted under oath in the bankruptcy proceedings;  the bankruptcy court adopted the contrary position either as a preliminary matter or as part of a final disposition; and  the party’s omission did not result from mistake or inadvertence.

The evidence here easily satisfies all three elements.  There is no way to reconcile Ms. Rizka’s statement to the bankruptcy court that she owned no real property (and was renting the Woodcrest Home) with her assertion in this action that she owned the home “[a]t all material times,” including at the time of the water loss. The statements are contrary to one another, and the first element for application of judicial estoppel is therefore satisfied.

Ms. Rizka indisputably had a motive during her bankruptcy to conceal her ownership interest in the Woodcrest Home. It is always in a bankruptcy petitioner’s interest to minimize income and assets. By identifying the Woodcrest Home as a “rental” and claiming her monthly lease payments as a monthly expenditure, Ms. Rizka both decreased her assets and inflated her liabilities. Thus, the uncontroverted evidence establishes that Ms. Rizka had a motive to conceal her ownership of the Woodcrest Home during her bankruptcy proceedings.

Likewise, when State Farm first raised its judicial estoppel argument in this action, Ms. Rizka submitted a sworn affidavit in which she said that she believed that she was “a tenant” of the Woodcrest Home, not its owner. Ms. Rizka’s affidavit flatly contradicts her repeated sworn testimony and statements that she regarded herself as the owner of the home at the time she filed bankruptcy. Ms. Rizka’s attempt to stave off summary judgment by submitting such an affidavit raises serious questions about whether she has proceeded in good faith.

Ms. Rizka Made Fraudulent Statements to State Farm in Connection With Her Personal Property Claim, and Those Statements Void Entirely Ms. Rizka’s Right to Coverage Under the Policy

As part of its defense in this action, State Farm has invoked the “Concealment or Fraud” provision of the Policy. That provision states: “This policy is void as to you and any other insured if you or any other insured under this policy has intentionally concealed or misrepresented any material fact or circumstance relating to this insurance, whether before or after a loss.”

A “Concealment or Fraud” provision like the one in the Policy bars an insured’s claim for coverage and State Farm has established all of the elements stated in the policy. It has shown that Ms. Rizka made a materially false statement in order to collect a substantial payment for damage to personal property that she now says she did not own.

State Farm has established that Ms. Rizka acted with the intent to defraud. There is a huge disparity between the value of the personal property Ms. Rizka claimed to own in her bankruptcy schedules in 2011 (just $1,500 in “household goods and furnishings” and $200 in “clothing”) and the value of the personal property she claimed to own in the Proof of Loss she submitted to State Farm (more than $200,000) less than one year later.

In sum, the Concealment or Fraud provision of the Policy applies here and bars all of Ms. Rizka’s claims for coverage, including for damage to the Woodcrest Home and to personal property.

CONCLUSION

This case requires a finding of both judicial estoppel and the fraud bar to coverage.   Ms. Rizka has always taken the position that is most favorable to her. When it was in her interest to appear penurious (like it was in the bankruptcy), she claimed that she did not own the home or the personal property. But when it was in her interest to own the home and the personal property, she claimed to own both. Even worse, she has taken these irreconcilable positions under oath.

ZALMA OPINION

It is a federal felony to make false statements in a bankruptcy filing. It is a state felony to file a false and fraudulent insurance claim. Although the District Court reached the appropriate decision in this civil action it should have reported Ms. Rizka to the U.S. Attorney and the local District Attorney for prosecution. She profited from the bankruptcy fraud and cost State Farm a great deal of money defending her claim and action.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Who Are You Going to Believe – Me or Your Lying Eyes?

Assault & Battery Exclusion Effective

A Risk Few Insurers are Willing to Take

Insurance is no an entitlement. It is not a right protected by the U.S. Constitution. Insurance is a contract where one (the insurer) agrees to indemnify another (the insured) against certain identified risks of loss as long as they are contingent or unknown prior to the loss. An insurer, a profit making entity, has the unquestioned right to determine who it will insure, limit the risks of loss it is willing to insure, and rely upon the person to be insured for sufficient facts so that the insure may make a wise discrimination in making the decision to insure or not insure the risk of loss.

In Amato v. National Specialty Ins. Co., — N.Y.S.3d —-, 2015 WL 9309126,  Supreme Court, Appellate Division, Second Department, New York, Dec. 23, 2015 the New York Supreme Court, Appellate decision was asked to rule that regardless of the clear and unambiguous language of the assault and battery exclusion of the policy, plaintiff claimed a right to the proceeds of the policy.

FACTS

Amato sued the insurers seeking judgment declaring that the defendants National Specialty Insurance Company and Risk Control Associates Insurance Group are obligated to defend and indemnify the defendant Hylan Bistro, Inc., doing business as Bistro Restaurant, in a personal injury action entitled Amato v. Hylan Bistro, Inc., doing business as Bistro Restaurant, pending in the Supreme Court, Richmond County, the plaintiff appeals from the trial court’s conclusion that granted the motion of the insurers  for summary judgment declaring that they were not obligated to defend and indemnify the defendant Hylan Bistro, Inc., doing business as Bistro Restaurant, in the underlying action.

The plaintiff alleged that on December 21, 2007, she sustained injuries as a result of an altercation with an intoxicated patron at an establishment owned by the defendant Hylan Bistro, Inc., in Richmond County. The plaintiff commenced a personal injury action against the patron and Hylan Bistro alleging, that Hylan Bistro was liable for her injuries for having unlawfully and knowingly sold or provided alcohol to a visibly intoxicated patron, who was known by Hylan Bistro to become intoxicated and violent, and that such intoxication contributed to the patron suddenly assaulting, battering, striking, and/or otherwise injuring the plaintiff.

On January 26, 2009, after acknowledging receipt of a notice of claim, the insurance defendants disclaimed coverage based on the existence of an assault and battery exclusion endorsement in the insurance policy issued to Hylan Bistro.

After the plaintiff sued the insurers they moved for summary judgment declaring that they were not obligated to defend and indemnify Hylan Bistro in the underlying action, and the plaintiff cross-moved for summary judgment. The Supreme Court (the trial court) granted the insurance defendants’ motion on the ground that coverage and a defense of Hylan Bistro was precluded under the terms of the policy, specifically the assault and battery exclusion endorsement, because each of the claims raised by the plaintiff against Hylan Bistro in the personal injury action arose out of the assault and/or battery by the intoxicated patron.

ANALYSIS

The duty to defend is triggered whenever the allegations of a complaint, liberally construed, suggest a reasonable possibility of coverage, or the insurer has actual knowledge of facts establishing a reasonable possibility of coverage. An insurer may also disclaim coverage on the basis of a policy exclusion by demonstrating that the allegations of the complaint cast that pleading solely and entirely within the exclusion. An exclusion for assault and/or battery applies if no cause of action would exist but for the assault and/or battery.

In support of their motion, the insurance defendants demonstrated their prima facie entitlement to judgment as a matter of law by establishing that the claims asserted by the plaintiff against Hylan Bistro in the personal injury action fall within the terms of the assault and battery exclusion endorsement. Each of the claims asserted by the plaintiff in the personal injury action arises out of the assault and/or battery, and thus, fall within the subject policy’s exclusion endorsement.

Since all of the plaintiff’s injuries resulted from the battery by the intoxicated patron the exclusion applied and the insurers were not required to defend or indemnify the Bistro Restaurant.

ZALMA OPINION

Assault and battery are risks of loss most insurers are unwilling to take. This is especially true in areas where the insured sells or otherwise provides alcoholic beverages to its patrons. Serious injuries result often in such situations with little chance of avoiding large judgements. Coverage is available but it is expensive and insureds must be aware of the risks, actively manage the risks, and realize that any damages will come out of their own pockets, not those of an insurer.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

 

Posted in Zalma on Insurance | Comments Off on Assault & Battery Exclusion Effective

Employment Records Are Admissible Evidence

Decedent Must Fulfill Employment Requirements to Obtain ERISA Life Insurance

Wendy S. Malishka appealed from the District Court’s grant of summary judgment in favor of Metropolitan Life Insurance Company (“MetLife”) on her claim that MetLife improperly denied her life insurance benefits claim following her son’s death. The Third Circuit Court of Appeal, in Malishka v. MetLife, — Fed.Appx. —- 2015 WL 9311399, USCA 3rd Circuit (Dec. 23, 2015) was asked to overturn the denial of a claim based upon the fact that the decedent was qualified during his employment but, at the time of his death, was not qualified for the Union controlled and designed life insurance plan.

BACKGROUND

Malishka filed a life insurance claim following the death of her son, T. Alexander Malishka (“Decedent”). Decedent was a member of the Boilermakers & Iron Ship Builders and Blacksmiths and Forgers and Helpers, Local 13 (“Union”). As a member of the Union, Decedent was given the opportunity to purchase coverage under the Boilermakers National Health and Welfare Fund (“Plan”), an employee welfare benefit plan governed by the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §§ 1001, et seq.

MetLife serves as the claims administrator of the Plan, in which role MetLife has discretionary authority for interpretation and determination of eligibility requirements.
To obtain coverage under the Plan, participants must meet requirements to establish initial eligibility and must meet separate requirements to maintain eligibility. The Plan provides that, for initial eligibility, “[a]n Employee becomes eligible on the first day of the Benefit Quarter next following the end of an Eligibility Quarter in which he worked for a Contributing Employer for at least 350 Hours.” Upon establishing initial eligibility, participants must satisfy the continuing eligibility requirements.

Relying on the detail summaries, MetLife determined that Decedent was not covered under the Plan at the time of his death. In his first eligibility quarter, MetLife determined that Decedent worked 395 hours. Thus, Decedent met the initial eligibility requirement and was able to apply 45 hours to his reserve bank. In his second eligibility quarter, MetLife determined that Decedent worked 282.50 hours, satisfying the continuing eligibility requirement and successfully maintaining coverage. In his third eligibility quarter, however, MetLife determined that Decedent worked only 159 hours. Decedent was therefore rendered ineligible for coverage as, even with his 45 reserve hours, he did not meet the continuing eligibility requirement. In his fourth quarter, MetLife determined that Decedent worked 348.50 hours, 1.50 hours short of meeting the initial eligibility requirements.

Having determined that Decedent failed to meet the requisite hour requirement under the Plan, MetLife concluded that Decedent did not have life insurance coverage at the time of his death.

ANALYSIS

Here, MetLife reasonably determined from the Administrative Record that Decedent lost eligibility for coverage under the Plan in the third Eligibility Quarter in 2011 and did not regain eligibility prior to his death. The detail summaries that MetLife relied upon were provided by the Union, which advised that the hours attributed to Decedent were accurate and had been confirmed by the employer.  Malishka urged the District Court to consider evidence that was not presented to the administrator at the time of the decision, even though Malishka had the opportunity to present such evidence. MetLife reasonably relied on the Administrative Record to conclude that the Decedent was not eligible for coverage at the time of his death.

As such, the District Court properly granted MetLife’s Motion for Summary Judgment.

ZALMA OPINION

ERISA plans are strictly construed by federal courts. In this case the decedent was only 1.5 hours short of eligibility for life insurance at the time of his death which deprived his beneficiaries of coverage as effectively if he was 100 hours short. The Third Circuit affirmed that the contract said what it desired to say and that MetLife was able to show with admissible evidence that the decedent did not qualify for the coverage.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

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Statute of Limitations Bars Suit Against Insurer

Policy’s Change in Limitation Period Not Viable

Several years ago the state of California refused to enforce a private limitation of action provision in an insurance policy and ordered that the limitation period was tolled between the time the claim was reported and did not run again until the claim was denied in Prudential-LMI Com. Insurance v. Superior Court, Supreme Court of California, In Bank. November 01, 1990 51 Cal.3d 674 798 P.2d 1230. State Farm incorporated the provision in its homeowners policy.

In Thill v. State Farm Fire & Cas. Ins. Co., Not Reported in N.W.2d, 2015 WL 8985857 (12/15/2015) a Michigan court was faced with an issue whether to apply the policy language or to apply the local statute.

FACTUAL HISTORY

This case arises out of an insurance-coverage dispute relating to what the parties refer to as “ice dam” damage to plaintiffs’ home that occurred on March 1, 2010. On March 26, 2010, plaintiffs notified defendant State Farm, whom they maintained homeowners insurance through, of the damage and sought coverage. Defendant’s claim representative, Al Pool, inspected the damage to plaintiffs’ home on June 14, 2010 and determined that the exterior wood siding was “rotted and deteriorated.” Plaintiffs were informed that due to the rot and deterioration, the exterior damage to their home was excluded from their coverage. Plaintiffs thereafter expressed a desire to no longer pursue their claim, and that desire was confirmed in a letter sent by Pool to plaintiffs on September 16, 2010.

Nearly one year later, plaintiffs resumed pursuing their claim. Pool re-inspected the home on January 11, 2012, and State Farm denied coverage shortly thereafter based on the original and further rot and deterioration. Defendant did issue, however, a payment in the amount of $156.18 to plaintiffs, representing what defendant determined was “the covered portion of their claim.” On March 28, 2012, defendant sent a letter to plaintiffs indicating that “State Farm will not give any further consideration to their claims.” More than one year later, on May 8, 2013, plaintiffs’ attorney sent a letter to Pool requesting an explanation for its denial of coverage. State Farm denied that request. More than nine months later plaintiffs sued State Farm.

Plaintiffs alleged that defendant denied their claim without completing a reasonable investigation; did not act in good faith in denying their claim; acted in an unfair and deceptive manner; caused plaintiffs financial and emotional distress; and violated MCL 500.2026(f)(g), the Uniform Trade Practices Act, and the Fair Trade Practice Act. State Farm argued that summary disposition pursuant to MCR 2.116(C)(7) was appropriate because plaintiffs suit was barred by the applicable statute of limitations under the insurance policy and MCL 500.2833(1)(q). Plaintiffs countered that, under the terms of the insurance policy, the statute of limitations was lengthened and their suit was therefore timely.

The trial court granted State Farm’s motion, concluding that the language used in the insurance policy provided for the tolling, not the lengthening, of the statute of limitations.

APPLICABLE LAW

Summary disposition is appropriate when the undisputed facts establish that the plaintiff’s claim is barred under the applicable statute of

Insurance policies are subject to the same contract construction principles that apply to any other species of contract. Unless a contract provision violates law or one of the traditional defenses to the enforceability of a contract applies, a court must construe and apply unambiguous contract provisions as written.

APPLICATION

In this case, the contractual provision at issue, Endorsement FE–5498, provides the following:

“SUIT OR ACTION EXTENSION

“In the event a claim is formally denied, in whole or in part, the period of time in which a suit or action may be commenced against the company is extended by the number of days between the date the notice of loss is provided to the company and the date the claim is formally denied.”

Both parties contend that this provision should be enforced according to its plain and unambiguous language, albeit in extremely different ways. However, the Michigan courts have previously concluded that this provision is “absolutely void” and “unenforceable” because it “is not compatible with” MCL 500.2833(1)(q). Smitham v. State Farm Fire & Cas. Co., 297 Mich.App 537, 549–550; 824 NW2d 601 (2012). Thus, both parties reliance on this provision is misplaced, and we turn to the provision expressly required by MCL 500.2833(1)(q). Randolph v. State Farm Fire & Cas. Co., 229 Mich.App 102, 106–107; 580 NW2d 903 (1998).

Applying MCL 500.2833(1)(q)’s one-year statute of limitations to this case, it becomes clear that plaintiffs’ suit is barred. It is undisputed that the loss at issue occurred on March 1, 2010; that plaintiffs notified State Farm of the loss on March 26, 2010; and that plaintiffs’ claim was formally denied on March 28, 2012. Under MCL 500.2833(1)(q), plaintiffs had one year from March 1, 2010, to file their complaint, and that one-year period was tolled by the 733 days between March 26, 2010, and March 28, 2012. In sum, plaintiffs had 1099 days, i.e., until March 4, 2013, to file their complaint.

Therefore, because their complaint was filed on January 21, 2014, their suit is barred by the statute of limitations and the trial court properly granted summary disposition pursuant to MCR 2.116(C)(7).

ZALMA OPINION

No insurance policy insures against every possible risk of loss. There was clearly no coverage for rot apparently caused by an ice dam. The insured could sue State Farm for wrongfully denying the claim as long as it did so within a year of the loss or within a year of the denial. The plaintiffs did neither. Their lack of attention to their rights and sloth in finally filing suit was their downfall. Every insured must comply with the local statute of limitations or the private limitation of action provision in the policy.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

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Lie on Application Voids Insurance

Lie Makes Policy Void Ab Initio

Insurance policies almost always are preceded by an application for insurance. The application is a request for offers of insurance from the insurance companies to whom it is presented. Since insurers rely on the facts stated in the application in making a decision to insure or not insure a particular risk.

A trial court found that Columbia Mutual was entitled to a summary judgment rescinding Caldwell’s insurance policy because of material misrepresentations in the application.  In Caldwell v. Columbia Mutual Insurance Company, Not Reported in S.W.3d, 2015 Ark. App. 719 (12/16/15) Caldwell argued that it was error for the trial court to rescind the policy based on material misrepresentations in his application.

FACTS

On June 11, 1998, Caldwell submitted an application for homeowner’s insurance to Smith Insurance Agency. While the policy was in effect, the home was destroyed by fire on May 29, 2004. In 2009, Columbia Mutual filed a complaint for rescission of the insurance contract ab initio due to fraud. Columbia Mutual claimed that material misrepresentations were discovered in Caldwell’s application after he gave a statement under oath following the fire. Columbia Mutual contended that it was fraudulently induced into entering the contract and would not have issued the policy if truthful information had been provided on the application. In addition, the policy included a provision stating that the entire policy would be void if, before or after a loss, an insured had intentionally concealed or misrepresented any material fact or circumstance, engaged in fraudulent conduct, or made false statements relating to the insurance.

Caldwell filed a counterclaim seeking $199,240 under the policy. The trial court bifurcated the case and first held a bench trial on Columbia Mutual’s claim for rescission. If Columbia Mutual’s claim was denied, Caldwell’s counterclaim would be tried by a jury. After considering the evidence the trial court entered an order making extensive findings. The court found that Judy Rohrscheib of the Smith Insurance Agency asked questions of Caldwell to complete the application, and Caldwell provided his answers to her. The court found that Caldwell’s “no” answer to each of the four following questions constituted a material misrepresentation:

  1. “Any business conducted on premises?”;
  2. “Has applicant had a foreclosure, repossession or bankruptcy during the past five years?”;
  3. “Is the property situated on more than five acres?”; and
  4. “Is the property within 300 feet of a commercial or non-residential property?”

The court concluded that, but for Caldwell’s incorrect responses, Columbia Mutual would not have issued the insurance coverage. The court declared the contract void ab initio,  from its inception, and ordered Columbia Mutual to return Caldwell’s paid premiums, and dismissed Caldwell’s counterclaim.

ANALYSIS

Arkansas follows the general common-law rule that a material misrepresentation made on an application for an insurance policy and relied on by the insurance company will void the policy. The materiality of the misrepresentation goes to whether or not the insurer, with knowledge of the true facts, would have accepted the risk and issued the policy. Caldwell contends that none of his responses to the four questions quoted above were material misrepresentations justifying rescission.

Question 11 of the insurance application asked, “Is the property situated on more than five acres?” Ellen Bender, an underwriter for Columbia Mutual, testified that if this question is answered “yes,” the property is disqualified from homeowner’s insurance. Caldwell testified at trial that the property was, in fact, more than five acres. On appeal, he admits that the application contained this false statement, but he contends that Columbia Mutual waived its ability to rescind on this basis.

Testimony at trial established that, when Caldwell applied for the insurance in 1998, Mark Smith of the Smith Insurance Agency went to Caldwell’s property and photographed the house. A photograph was attached to the insurance application. Caldwell also notes that a representative of Columbia Mutual was on his property in 2004. The company issued a cancellation letter just weeks before the fire stating that, because an inspection had revealed that a business was being conducted on the premises and that there was a lack of maintenance on the house, the policy would not be renewed and would expire on June 11, 2004.

Caldwell argued that Columbia Mutual knew the true facts before the fire, and its failure to rescind at that point constituted a waiver.

The trial court addressed this contention in its order and concluded that “the ‘business’ argument was not waived.” However, Caldwell did not argue below that Columbia Mutual knew the house was located on more than five acres and waived rescission on this ground. The trial court’s determination that the false statement was a material misrepresentation in the application for insurance was sufficient in itself to declare the policy void either by rescission or based on the fraud language of the policy.

Because the court affirmed the finding that Caldwell materially misrepresented the size of the property, it was not necessary to address these arguments. Based on the holding affirming the rescission of the policy the other issues raised by Caldwell were moot.

ZALMA OPINION

The covenant of good faith and fair dealing requires the insurer to believe the facts stated on the insured’s application for insurance and the insured is obligated to tell the truth when he applies for the insurance. Since an insurer has the unquestioned right to rely on what is stated in the application if it is deceived equity allows the insurer to rescind the policy from its inception. The fact that the fire happened shortly after the insurer notice of non-renewal added to the suspicion of the insurer and the case was resolved when the insured admitted that he had lied in the application.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

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The Duty to Defend Almost Limitless

Form Defeats Logic

States that limit decisions regarding the duty to defend are forced to compel defense when there is no possibility that evidence could be produced that would bring the case within coverage. In Employers Insurance Company of Wausau v. Northfield, United States District Court, E.D. New York — F.Supp.3d —- 2015 WL 8901180 (12/15/2015), the District Court for the Eastern District of New York properly applied the law and failed or refused to do justice.

INTRODUCTION

MPCC Corp. (“MPCC”) is a general contractor named as a defendant in a personal injury case filed in New York Supreme Court, Kings County, captioned Wagstaffe v. MPCC Corp., et al., No. 12729–2013 (“Wagstaffe Action”). Defendant, Northfield Insurance Company (“Northfield”), refuses to defend MPCC in the Wagstaffe Action.

Plaintiff, Employers Insurance Company of Wausau (“Employers Insurance”), is MPCC’s general insurance liability carrier. Employers Insurance argues that Northfield is obligated to provide a defense of MPCC in the Wagstaffe Action pursuant to a commercial general liability insurance policy between it and Finest Window, Inc. (“Finest”), a MPCC sub-contractor.

Moving for summary judgment, plaintiff relies on the traditional and substantive New York insurance rule of a broad, powerful, and longstanding policy in favor of an insurer’s duty to defend, even when indemnification claims verge on, or fail to pass, a frivolity test.

FACTS

The underlying injury which triggered the insurance policy claim at issue occurred on February 4, 2014, at 250 Schermerhom Street, Brooklyn, New York.  The building had undergone renovations that were substantially complete by 2011.

The plaintiff in the underlying action, Horatio Wagstaffe, was employed in the building. He alleges that an unknown assailant gained entrance to the building through what was supposed to be a locked door and assaulted him on February 4, 2014; access was gained because a claimed defect in the door or its lock.  Wagstaffe sued the builder and installer of the door and lock.

The contract between MPCC and Finest required Finest to maintain a commercial general liability insurance policy from the date of the contract April 19, 2010 through the final project completion date. The policy terms were required to “include a two year extension beyond acceptance date” for “Products/Completed Operations,” to name MPCC as an additional insured, and to provide for $1,000,000 in coverage for each occurrence of bodily injury and property damage. The policy was also to serve as primary insurance, rather than excess insurance.

Finest obtained a commercial general liability insurance policy from defendant Northfield. Finest was listed as the Named Insured on the Policy; it provided for $1,000,000 in coverage for each occurrence and a policy period of January 10, 2013 to January 10, 2014.
In addition to Finest, the Policy covered “any person or organization that you [Finest] agree in a ‘written contract requiring insurance’ to include as an additional insured on this Coverage Part.”  The terms of the Policy limited the coverage provided to these additional insureds, excluding “ ‘bodily injury’ or ‘property damage’ caused by ‘your work’ and included in the ‘products-completed operations hazard.’ ”

After completion of work, coverage did not apply.

MPCC separately obtained a general commercial liability insurance policy from Employers Insurance. Employers Insurance, as MPCC’s general liability carrier, made a formal demand for insurance coverage to Northfield for the costs incurred in defending the Wagstaffe Action. After receiving no response to its letter, Employers Insurance wrote to Northfield on September 11, 2013, requesting that Northfield acknowledge the demand for coverage and honor its obligations under the contract between MPCC and Finest.

Northfield formally rejected Employers Insurance’s request for coverage. Northfield’s letter denying coverage stated that MPCC did not qualify as an additional insured under the Policy with Finest for two reasons. First, “[t]o the extent the plaintiff [Wagstaffe] has alleged independent acts of negligence against [MPCC], they do not qualify as an additional insured under the policy issued to Finest Window.”  Second, “because this claim involves ‘bodily injury’ included in the ‘products-completed operations hazard’ [MPCC] does not qualify as an additional insured on the policy issued to Finest Window.” .

Northfield declared in its disclaimer that the indemnification requirement in the contract between MPCC and Finest only existed “during the performance” of Finest’s work.  Employers Insurance argued that the Policy should cover the claims raised in the Wagstaffe Complaint because Finest was responsible for the “actual installation of the doors and frames,” and it was the allegedly negligent acts or omissions of Finest with respect to the doors that caused Mr. Wagstaffe’s injuries.

Northfield replied to Employers Insurance on October 15, 2013, maintaining its refusal to provide insurance coverage for MPCC.  It repeated the position that the Policy does not provide coverage for completed operations, and even if work was being done to correct or repair previously completed work, the Policy considers such work to be “completed.”

Employers Insurance seeks a declaratory judgment with respect to Northfield’s obligations to defend and indemnify MPCC under the Policy, and money damages for Northfield’s failure to provide coverage as requested.

LAW

Insurer’s Duty to Indemnify and Defend

While the duty to indemnify is determined by the actual basis for the insured’s liability to a third person, the duty to defend is measured against the allegations of pleadings of the underlying case.

An insurer will be called upon to provide a defense whenever the allegations of the complaint suggest a reasonable possibility of coverage. Where allegations fall within the scope of the risks undertaken by the insurer, regardless of how false or groundless those allegations might be, there is a duty to defend.

Application

Because of the breadth of the duty to defend under New York law, the inclusion of an allegation in the Wagstaffe state court complaint that falls outside of the products-completed operations hazard exception—even if the allegation is against the weight of the evidence in the record—requires a finding that Northfield does have a duty to defend MPCC in the Wagstaffe Action.

The Wagstaffe Complaint alleges that the door through which the unknown assailant purportedly gained entrance was “designed and/or installed to be permanently locked from the outside and only accessible with a key.” This allegation indicates that installation of the door had been completed sometime prior to February 4, 2013, the date of the assault. Moreover, the Wagstaffe Complaint alleges that Mr. Wagstaffe used that same door on the same morning. Thus, not only was installation of the door complete, but it was in use.

The Policy excludes coverage for bodily injury caused by “completed” work. This conclusion is supported by the contract between MPCC and Finest, which defines the scope of Finest’s work to installation of doors and windows, and by deposition testimony.

If the Wagstaffe Complaint alleged nothing further, then it would be appropriate to grant Northfield’s motion. The Wagstaffe Complaint, however, also alleges that Finest’s work included “manag[ing]” and controll[ing]” the door in question. This allegation—regardless of its truth—is not covered by the products-completed operations hazard exception.

Because the allegations of the complaint do not wholly fall within the exception, New York’s long-standing policy favoring a very broad duty to defend requires Northfield to defend MPCC in the Wagstaffe Action.

ZALMA OPINION

To avoid the duty to defend, an insurer must demonstrate that the allegations of an underlying complaint place that pleading solely and entirely within the exclusions of the policy and that the allegations are subject to no other interpretation. The District Court stretched the duty to defend as far as it could go and refused to consider the extrinsic facts that established that the allegations bringing the policy to bear was ridiculous and unproveable.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

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Additional Insured Covered Even If 100% Responsible

Liability Arising Out of Work Makes Exxon Additional Insured

Major corporations, like Exxon Mobil Corporation, can demand whatever additional insured language it demands, regardless of what is in normal policies. For example the additional insured coverage usually does not apply if the additional insured is solely responsible for the loss or injury. Exxon, faced with such a claim, explained to the Texas Court of Appeal, that the additional insured endorsement that is the subject of its claim, did not contain that standard language.

In Liberty Surplus Insurance Corporation and Commerce & Industry Insurance Company v. Exxon Mobil Corporation, NO. 14-14-00254-CV, 2015 WL 9256675, Texas Court of Appeal, Opinion filed December 17, 2015,  the trial court granted Exxon Mobil Corporation’s motion for partial summary judgment, holding that a contractor’s primary and excess commercial general liability policies provided additional-insured coverage to Exxon for personal-injury claims arising out of the contractor’s services.

On appeal, the insurers argued that the underlying contract between Exxon and the contractor, Wyatt Field Service Company, required Wyatt to provide Exxon additional-insured coverage only for liability arising out of Wyatt’s ongoing operations, and that the insurance policies incorporate such a coverage limitation.

FACTUAL BACKGROUND

Exxon and Wyatt were parties to a five-year contract under which Wyatt would perform “Services” as set forth in various work orders from Exxon’s affiliates. The contract also required Wyatt to maintain $5 million of commercial general liability insurance. The parties agreed that the policies must cover Exxon and its affiliates “as additional insureds in connection with the performance of Services,” and must be primary to all other policies, including deductibles or self-insured retentions.

In 2008, Wyatt was assigned to work on a flexicoker unit at Exxon’s Baytown refinery during an intensive maintenance period known as a “turnaround.” Three years after the turnaround one of the dummy nozzles  installed by Wyatt unexpectedly pulled all the way free from its packing, and the escaping steam and coke burned several of contractor LWL, Inc.’s employees who were working on the unit.

The injured workers sued Exxon in the 125th District Court in Harris County, Texas. After Exxon designated Wyatt as a responsible third party, the plaintiffs added Wyatt as a defendant, and Exxon and Wyatt asserted cross-claims against each other. The Insurers denied that they provided Exxon additional-insured coverage for the injured workers’ claims, and they did not contribute to Exxon’s costs of defense or to its settlement with the injured workers.

In the consolidated case, Exxon filed a motion for partial summary judgment concerning the Insurers’ liability, arguing that the policies covered the injured workers’ claims against Exxon as an additional insured.

Construction of the Policies’ Endorsements

In their first issue, the Insurers argue that the trial court erred in granting Exxon’s motion for summary judgment because Exxon was an additional insured only for liability arising from Wyatt’s ongoing operations, not for liability arising from Wyatt’s completed operations.

Rules of Construction

An insurance policy generally is governed by the same rules of construction that apply to other contracts. Unless obligated to do so by the terms of the policy, however, we do not consider coverage limitations in underlying transactional documents. If the policy does not incorporate any coverage limitations from the underlying contract, then the insurer’s obligation depended only on what it contracted to do.

If the parties offer differing constructions of the policy but only one is reasonable, then the policy is unambiguous and we will adopt that construction. But if the policy’s provisions are unclear or inconsistent, and after applying the pertinent rules of construction, more than one interpretation is reasonable, then the contract is ambiguous.

Liberty’s policy includes three endorsements that potentially make Exxon an additional insured. Commerce’s policy insures any person or entity that is included as an additional insured under Liberty’s policy, “but not for broader coverage than would be afforded” by Liberty’s policy.

The Texas Supreme Court explained that under the express terms of the policies, additional-insured status hinges on (1) the existence of an oral or written contract, (2) pertaining to the business of an ‘Insured’, and (3) under which an ‘Insured’ assumes the tort-liability of another party and is ‘obliged’ to provide insurance to such other party. Under the unambiguous language of Endorsement 3, Exxon is an additional insured with respect to liability arising out of Wyatt’s operations. It therefore was unnecessary for the court to consider the coverage available under the remaining, more restrictive endorsements.

NO GENUINE ISSUES OF MATERIAL FACT

In their second issue, the Insurers contend that the trial court erred in granting summary judgment because there is a genuine issue of material fact about whether the injured workers’ claims fall within the coverage afforded to Exxon with respect to liability arising out of Wyatt’s operations. Both Insurers make the legal argument that Exxon cannot conclusively establish that claims against it fall within the scope of coverage unless and until Wyatt is found to be liable to the injured workers.

Coverage is Neither Dependent on a Finding that Wyatt’s Negligence Caused the Accident Nor Excluded by a Finding that Exxon’s Negligence was the Sole Cause of the Accident.

In arguing that coverage is dependent on a finding that Wyatt caused the accident and is excluded if Exxon was found to be the sole cause of the accident, the Insurers rely on the procedural posture of the workers’ separate personal-injury suit. After the injured workers settled with Exxon, they tried their claims against Wyatt.

Regardless of the underlying service agreement’s terms, the court interprets the language “with respect to operations” under a broader theory of causation. Generally, an event “respects” operations if there exists “a causal connection or relation” between the event and the operations; the law does not require proximate cause or legal causation. The particular attribution of fault between insured and additional insured does not change the outcome.

As Commerce correctly points out, the existence of a duty to indemnify often depends on the resolution of disputed facts. Under the terms of the policies Exxon’s additional-insured coverage was neither dependent on a finding that Wyatt was negligent nor excluded if Exxon’s negligence were found to be the sole proximate cause of the workers’ injuries. Exxon was an additional insured “with respect to liability arising out of [Wyatt’s] operations,” (emphasis added) and this language does not require proximate cause or legal causation.

Exxon was not required to prove that Wyatt proximately caused the workers’ damages. The jury’s negligence findings in the underlying case accordingly do not constitute or create a genuine issue of material fact precluding summary judgment.

In sum, Exxon’s evidence showed that Wyatt did the work, and the Insurers did not respond with controverting evidence. Exxon was sued because of the work that Wyatt did. After reviewing the summary-judgment evidence in the light most favorable to the Insurers and drawing all reasonable inferences in their favor, we conclude that Exxon met its burden to establish that the claims against it fall within its additional-insured coverage “with respect to liability arising out of” Wyatt’s operations.

ZALMA OPINION

Insurance contracts, when clear and unambiguous, must be applied. Exxon obtained coverage from a vendor that made it an additional insured if the loss resulting in a claim against Exxon arose with respect to the vendor’s operations even if those operations were perfect and non-negligent. Since the vendor installed the item that caused the injuries and the injuries were “with respect to liability arising out of the” vendor’s operations, Exxon was entitled to defense and indemnity as an additional insured because the insurer agreed to the one sided endorsement and agreed to insure Exxon to tort liability it probably would not have done if Exxon came to them directly. Underwriters, read what you agree to, before allowing an entity to be an additional insured.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Additional Insured Covered Even If 100% Responsible

Agent Need Only Acquire Policy Ordered

Residence is Different From Domicile

When a person submits an application for insurance he or she must be accurate in the representations made. Failure to do so can cause serious difficulties for the person insured.

In Allstate Insurance Co. v. Nicholas J. Popyack et al., 2015 WL 9260050, Civil Action No. 15-1765 | (12/17/2015) Allstate Insurance Company (“Allstate” or “Plaintiff”) sued Nicholas Popyack (“Nicholas”), Jeffrey Popyack (“Jeffrey”) (collectively “the Popyack Defendants”), and Andrew Stahl (“Andrew”) (collectively “Defendants”) for declaratory relief.  Andrew filed a Motion for Summary Judgment. Allstate filed a Response and also filed its own Motion for Summary Judgment.

BACKGROUND

This case concerns an underlying Philadelphia Court of Common Pleas action. In the Philadelphia Court of Common Pleas, Andrew sued Nicholas and Jeffrey for personal injury relating to an accident. The underlying accident occurred in Philadelphia, Pennsylvania. Nicholas, driving a 2010 Toyota Camry, struck Andrew as Andrew was crossing the street.

The vehicle was insured by Jeffrey, as the named insurer, through Allstate Insurance Company policies, including: an Allstate Auto Insurance Policy (“the Primary Policy”) with a limit of $250,000.00 per person and an Allstate Personal Umbrella Policy (the “PUP”) with a limit of $1,000,000.00. When Jeffrey entered into the PUP, he believed that Nicholas was covered. The PUP’s premium stated that “Your policy premium has been developed using the following information: 6 Vehicle(s), 3 Operator(s) in the household…” The application for the PUP states that the “Licensed Operators in the Household” are “Jeffrey Popyack, Rene Popyack, and Nicholas Popyack.” The application for the PUP was prepared following a discussion between Mark McCaffrey, the Allstate agent, and Jeffrey. Information about the licensed operators was derived from such conversations and from Jeffrey’s previous auto insurance policy. The PUP application includes information about the three licensed operators’ drivers licenses. Nicholas’s driver’s license stated that his address was Plumtry Drive.

After the May 9, 2013 accident, Nicholas provided Allstate with notice of the underlying action and demanded that Allstate defend and indemnify him pursuant to Jeffrey’s two policies. Allstate tendered a $250,000 payment to Andrew (representing the limit of the Primary Policy). However, Allstate asserts that it has no further obligation to indemnify Nicholas under the PUP. In the underlying state court action, Andrew seeks to recover damages in excess of the $250,000. Specifically, Andrew demands an additional $1,000,000 (representing the limit of the PUP).

During the policy period, Jeffrey and his wife owned and lived at a house located at 809 Plumtry Drive, West Chester, PA 19382 (“Plumtry Drive”). During the policy period, Nicholas had signed a one year lease with two roommates, with a term running from June 1, 2012 to May 31, 2013 at 627 N. 35th St., Philadelphia, PA (“35th St.”).

On the day of the accident underlying this case, Nicholas stayed the night at 35th Street. On the day after the accident, Nicholas gave a statement to Allstate about the accident and told Allstate that his “current address” was 35th Street. Nicholas confirms that this was a truthful answer. Nicholas brought a bed, a dresser, cups and plates, and other personal belongings to 35th Street. He cooked most of his meals in the apartment, including dinner roughly every night. Nicholas considered 35th Street his “home.”

However, Nicholas also considered Plumtry Drive “home” during this same period. While living at 35th Street, he would periodically go home to visit his parents, sometimes staying for a few days, with the frequency of those visits increasing after mid-April 2013. Allstate has refused to provide Nicholas with coverage under the PUP because he “did not reside with [his] father at his address.”

DISCUSSION

The Court must decide whether or not Nicholas was a “resident” of Jeffrey’s “household” (Plumtry Drive) at the time of the underlying accident under the terms of the PUP. Construction of the term “resident” in an insurance policy is a matter of law

The terms “resident” and “household” are not defined in the PUP. Ambiguous terms must be interpreted in favor of the insured. Thus, determining whether or not a place is a person’s residence is not a question of the person’s intent, but rather, is defined purely in terms of physical facts.

The undisputed facts in support of Nicholas’s dual residency with Plumtry Drive include that such residence was listed on official documents (e.g., his driver’s license, his tax forms, etc.), that he had a key to Plumtry Drive and would come and go as he pleased, that he would spend roughly one night per week at Plumtry Drive, sometimes staying for longer periods of time, that he left clothing and other personal mementos at Plumtry Drive, and that he was periodically moving belongings to Plumtry Drive on a weekly basis.

Even considering all of these facts, including the disputed ones, in the light most favorable to Defendants, the Court finds that there is not sufficient evidence to find that Nicholas had a dual residence at Plumtry Drive. The evidence shows that he was sleeping, eating, and living almost every day of his life at 35th Street.

The personal belongings left at his parents’ house were the types of things one leaves in a storage unit (childhood video games, heavy sweaters during the summer months). A storage unit, however frequently visited, is not a residence. Further, his driver’s license, tax information, and voting registration are not dispositive of his residence. At best, they reflect his residence at the time he filed the relevant forms, rather than his residence on the particular date of the accident.

CLAIM THAT AGENT MISREPRESENTED COVERAGES

Defendants have failed to state a claim for affirmative misrepresentation.
In the absence of an affirmative misrepresentation by the insurer or its agent about the contents of the policy, the plain and unambiguous terms of a policy demonstrate the parties’ intent and they control the rights and obligations of the insurer and the insured. Thus, there is a crucial distinction between misrepresentation cases and cases where the insured received precisely the coverage requested but failed to read the policy to discover clauses that are the usual incident of the coverage applied for.

Defendants argue that Mr. McCaffrey affirmatively misrepresented the PUP’s coverage of Nicholas.In this case, Defendants have pointed to no facts showing that Allstate or its agent, Mr. McCaffrey, affirmatively misrepresented the terms of the PUP to Jeffrey. The evidence during the PUP application process shows that Mr. McCaffrey prepared an application based on information provided by Jeffrey and based on Jeffrey’s previous auto policy. In part, Mr. McCaffrey relied on information provided in Nicholas’s driver’s license. Nicholas’s driver’s license stated that his address was Plumtry Drive. Neither Jeffrey nor Mr. McCaffrey can recall discussing Nicholas’s address or Nicholas’s coverage under the PUP.

In conclusion, there is a crucial distinction between cases where one applies for a specific type of coverage and the insurer unilaterally limits that coverage, resulting in a policy quite different from what the insured requested, and cases where the insured received precisely the coverage that he requested but failed to read the policy to discover clauses that are the usual incident of the coverage applied for.

CONCLUSION

The Court found that pursuant to the terms of the Allstate personal umbrella insurance policy issued to Jeffrey Popyack, Nicholas Popyack was not a resident of Jeffrey Popyack’s household at the time of the accident.

ZALMA OPINION

When the policy in issue was obtained neither Nicholas nor his father advised the agent that Nicholas had moved from the family home. The policy was issued as ordered claiming Nicholas was a resident of his parent’s home. He was not. The insureds failed to read the policy to discover clauses that are the usual incident of the coverage and had they done so would have recognized that Nicholas was not a resident of his parents’ household and therefore had no coverage under the PUP.  It was the insured who concealed material facts and could not force coverage for his mistake.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Agent Need Only Acquire Policy Ordered

Regular Use of Auto Exclusion There to Prevent Abuse

Regular Use of Auto Eliminates Coverage

Automobile liability insurance exists to protect a person who actually uses the automobile and not automobile or its owner. As a result automobile liability insurance companies place exclusion in their policy to prevent using one policy protecting one person from allowing coverage for another. Although the policy covers a resident relative it does not insure the resident relative who regularly uses the vehicle since that regular user was not subject to underwriting review and because a premium was not paid for regular use.

In Nationwide Mutual Ins. Co. v. Shimon (2015) , Cal.App.4th, [No. C071776. Third Dist., Dec. 3, 2015.] the California Court of Appeal was asked to provide coverage for a regular user of a GMC pickup truck that was not identified in the policy and was not declared to be regularly used by a 17-year-old driver who was not specifically insured to save money.

FACTS

This insurance coverage case arose when a 17-year-old driver, Simone Lionudakis (Simone), got into a motor vehicle accident, injuring Aweia Shimon and Flora Shimon. Simone was driving a GMC pickup truck owned by and registered to her father Phillip Lionudakis, but he had excluded Simone from his insurance policy to save money, even though Simone was the only one who ever drove the GMC. Phillip’s ex-wife (Simone’s mother) Kristen Doornenbal had insurance through plaintiff Nationwide Mutual Insurance Company (Nationwide) for her own and her current husband’s vehicles, but not the GMC. The Doornenbals’s Nationwide policy provided coverage for a household family member’s use of a “non-owned” vehicle, but not if the non-owned auto was “furnished or available” for her “regular use.”

Non-owned-auto insurance coverage is meant to allow an insured to be covered for occasional use of a non-owned automobile, while the exclusion for regular use is meant to prevent an insured from regularly using a non-owned vehicle without paying insurance premiums for the use of that vehicle.

The trial court entered declaratory judgment in favor of plaintiff Nationwide against the Shimons as defendants, finding the GMC was furnished or available for Simone’s regular use and therefore coverage was excluded.

The accident happened on February 9, 2008, around 4:45 p.m., between Modesto and Sonora. Simone was a few months shy of her 18th birthday and had been driving the GMC for over a year and a half, since she got her driver’s license. Her father, divorced from her mother since 2002, bought the GMC shortly before Simone’s 16th birthday in May 2006, after asking her what kind of vehicle she wanted. The GMC was owned by and registered to Simone’s father, who had several other vehicles and did not drive the GMC. He excluded Simone’s use of the GMC from his own auto insurance policy, in order to save money.

Simone’s mother and father lived about 10 minutes apart in Escalon, and Simone split her time between them. Simone’s mother and new husband each had their own vehicles. After Simone got her driver’s license in July 2006, her father gave her her own set of keys for the GMC, and she drove it every day. It became her “way of transportation.” She anticipated it would be hers some day.

On the day of the accident in February 2008, Simone was not supposed to be driving the GMC because her mother had taken the keys away due to Simone’s poor grades. Simone nevertheless obtained her father’s set of keys from his home before going to her mother’s home and, in her mother’s absence, took the GMC from the mother’s residence, drove to pick up a friend, and drove to a pool hall in Modesto. An inebriated female stranger at the pool hall asked for a ride to her home in Sonora, about 50 miles away, and Simone agreed in exchange for $100 “gas money.”

On the way to Sonora, Simone got into the accident with the Shimons.

The trial court found the GMC was furnished and available for Simone’s regular use, indeed her exclusive use, hence triggering the exclusion from coverage for a non-owned automobile. The trial court entered judgment in favor of Nationwide.

DISCUSSION

The Exclusion of Coverage for Regular Use Applies

The exclusion of coverage for regular use of vehicles not included in the policy, sometimes called “drive other cars” or “additional insured automobile” provisions, is intended “to prevent abuse, by precluding the insured and his family from regularly driving two or more cars for the price of one policy.” (Highlands Ins. Co. v. Universal Underwriters Ins. Co. (1979) 92 Cal.App.3d 171, 176 (Highlands).) The provision is intended to provide coverage for occasional use of other nonowned cars without requiring payment of additional premiums. The Court of Appeal concluded that, “for obvious reasons, coverage was not intended to include the regular use of other cars because insurance companies would necessarily bear an increased risk without receiving a related increase in premiums.” Specifically, the exclusion serves to prevent a situation in which the members of one family or household may have two or more automobiles actually or potentially used interchangeably but with only one particular automobile insured.

Even though it was registered to her father and he had a key, Simone had her own key and was the only one who drove it for a year and a half, with the possible de minimus exception that her mother may have driven it once or twice.

Certainly, Simone’s use of the GMC at the time of the accident was not a casual or incidental use. Her use was not only the principal use of the GMC; it was the exclusive use of the GMC. Appellants nevertheless argued the truck was not furnished or available for Simone’s regular use because her parents placed some parental restrictions on her such that she should not have been driving the truck at that particular time and place. Here, in contrast to cases cited by Simone, Simone was the exclusive user of the car owned by her father, who deliberately excluded it from his insurance policy to save money.

This is exactly the abuse the “regular use” exclusion is designed to prevent.

That Simone drove that day in defiance of her parents’ discipline for poor grades, and drove further than she was supposed to go without permission, does not render the “regular use” exclusion inapplicable. Where the driver is the exclusive user of the vehicle, we see no reason, and appellants offer none, why “regular use” should vary with each trip the driver takes.

Here, the parental discipline was by both a non-owner of the GMC (mother) and the owner (father). However, the insurance policy at issue in this appeal is the mother’s policy only, and the mother was not the GMC’s owner.

ZALMA OPINION

It seems to me that this case is one where the parties thought, although the language of the policy was clear, it was worth their effort to take the case to trial and up on appeal. What the case did not say was that Simone’s father, who owned the truck and gave it to her for her regular use, refused to insure it and specifically excluded her from his policies. The mother’s policy had no relationship to the truck and kept the insurer ignorant of the risk she and Simone’s father was taking allowing a 17-year-old to operate a GMC pickup without insurance.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Regular Use of Auto Exclusion There to Prevent Abuse

Dr. Huxtable v. AIG

Declaratory Relief Action Determines Coverage as a Matter of Law

Insurance companies who believe they do not owe a defense will file a suit seeking declaratory relief, especially when the parties involve celebrities. When Bill Cosby, the actor and comedian, was charged with sexually assaulting several women in the 1960’s and 1970’s he denied the charges and was sued for defamation. He sought and obtained a defense from his insurer, subject to a reservation of rights. The insurer filed suit for declaratory relief in the same court where the defamation action was filed.

FACTS

In AIG Property Casualty Company v. Tamara, 2015 WL 8779732 (12/15/15)  AIG Property Casualty Company (“AIG”) sued William H. Cosby Jr., Tamara Green, Therese Serignese, and Linda Traitz seeking a declaration that it has no duty to defend or indemnify Cosby under two homeowners insurance policies in relation to a defamation case also pending in this court, Green v. Cosby, Case No. 14-cv-30211-MGM (“Underlying Litigation”), brought by Green, Serignese, and Traitz (“Underlying Plaintiffs”).

The policies contain similar language stating AIG will cover claims against Cosby for “[d]efamation, libel or slander” but will not cover claims “arising out of any actual, alleged or threatened … sexual molestation, misconduct or harassment.”

The Massachusetts Policy contains an exclusion which states that it “does not provide coverage for liability, defense costs or any other cost or expense for … personal injury arising out of any actual, alleged, or threatened by any person: (a) sexual molestation, misconduct or harassment … or (c) sexual, physical or mental abuse.” Similarly, the Excess Policy contains an exclusion stating it “does not provide coverage for liability, defense costs or any other cost or expense … [a]rising out of any actual, alleged or threatened: a. Sexual misconduct, molestation or harassment … or c. Sexual, physical or mental abuse.”

The Underlying Litigation was commenced on December 10, 2014. (Green v. Cosby, Case No. 14-cv-30211-MGM, Dkt. No. 1.) A second amended complaint, which added Serignese and Traitz as plaintiffs along with Green, was filed on April 16, 2015. (Id., Dkt. No. 48.) The second amended complaint asserts defamation claims pertaining to statements issued on behalf of Cosby in response to public allegations of sexual misconduct made by the Underlying Plaintiffs. On December 12, 2014, Cosby notified AIG of the Green lawsuit. On January 6, 2015, AIG sent Cosby a letter stating that it accepted his claim for the Green lawsuit, subject to a full reservation of rights. On June 26, 2015, AIG filed this declaratory judgment action. (Compl.)

On September 14, 2015, Cosby filed the motion to dismiss or, in the alternative, to stay this declaratory judgment action. Meanwhile, on October 9, 2015, this court denied Cosby’s motion to dismiss the Underlying Litigation, concluding that the second amended complaint alleged actionable defamation claims. Thereafter, on October 20, 2015, AIG filed its own motion in this action to stay further proceedings in the Underlying Litigation so the insurance issue can be resolved first.

The only question presently before the court is the sequence in which this action and the Underlying Litigation will be resolved.

DISCUSSION

Cosby’s motion asks this court to dismiss or at least stay this action pending the completion of the Underlying Litigation. He provides three separate grounds for this request. First, Cosby seeks abstention doctrine because another suit involving the same parties and presenting opportunity for ventilation of the same state law issues is pending in state court, is sufficient to allow a federal court may abstain from exercising jurisdiction over a declaratory judgment action.  Second, Cosby seeks abstention based on the fact that state and federal courts are exercising concurrent jurisdiction contemporaneously it may be appropriate in some instances for the federal court to defer to the state court.  Third, Cosby cites Montrose Chem. Corp. v. Superior Court, 861 P.2d 1153, 1162 (Cal. 1993), a California case which provides that an insurance coverage lawsuit which could prejudice the insured in defending the underlying action should be stayed pending resolution of the underlying litigation.

Of course there is no parallel state-court action; rather, the Underlying Litigation is pending before this same court. While the Declaratory Judgment Act itself gives the court discretion to decline to exercise jurisdiction here, Cosby has not cited any case in which a federal court abstained in favor of a pending federal court action, much less a case pending before the same judge.

Most importantly, as AIG argues, in deciding whether it owes Cosby a duty to defend, this court will not have to resolve any of the factual issues at stake in the Underlying Litigation. Instead, “[t]he duty to defend is determined based on the facts alleged in the complaint, and on facts known or readily knowable by the insurer that may aid in its interpretation of the allegations in the complaint.” Billings v. Commerce Ins. Co., 963 N.E.2d 408, 414 (Mass. 2010.) In order for the duty of defense to arise, the underlying complaint need only show, through general allegations, a possibility that the liability claim falls within the insurance coverage.  An insurer has a duty to defend an insured when the allegations in a complaint are reasonably susceptible of an interpretation that states or roughly sketches a claim covered by the policy terms.

Moreover, this is not a case in which the insurance company seeks to exclude coverage based on questions of fact, such as whether the insured acted intentionally rather than negligently. Rather, the question here is simply whether the claims for defamation arise out of sexual misconduct such that they fit within the exclusions, and this is a question of law that can be decided primarily, if not exclusively, based on the allegations set forth in the underlying complaint.

Accordingly, the court concluded that,m adjudicating this issue presents no risk of inconsistent findings with the Underlying Litigation and, thus, no risk of prejudice to Cosby in that action.  A declaratory judgment action will only prejudice the defendant in the underlying case when the same issues are implicated in both, and this is not the case here.

For example, when the third party seeks damages on account of the insured’s negligence, and the insurer seeks to avoid providing a defense by arguing that its insured harmed the third party by intentional conduct, the potential that the insurer’s proof will prejudice its insured in the underlying litigation is obvious. However, when the coverage question is logically unrelated to the issues of consequence in the underlying case, the declaratory relief action may properly proceed to judgment. That latter category of cases is the situation here, at least with regard to the duty to defend issue.

The court therefore denied Cosby’s motion to dismiss or, in the alternative, to stay this action pending resolution of the Underlying Litigation.

AIG, for its part, filed a motion to stay the Underlying Litigation case following this court’s denial of Cosby’s motion to dismiss in that action.  AIG also argues that the alleged sexual assaults at issue in the Underlying Litigation occurred many years ago, so it is not unreasonable for the parties to wait slightly longer, especially when AIG is incurring expenses funding Cosby’s defense in the meantime.

Because AIG likely could intervene in the Underlying Litigation under Rule 24(b), and because this court is also presiding over that action and thus would have to decide whether to stay the matter if AIG successfully intervened, the court addressed this issue in the interest of judicial economy.

As the alleged sexual assaults occurred in the 1960s and 1970s, delaying the Underlying Litigation “would increase the danger of prejudice resulting from the loss of evidence, including the inability of witnesses to recall specific facts, or the possible death of a party.” Clinton v. Jones, 520 U.S. 681, 707-708 (1997). In addition, as Cosby and the Underlying Plaintiffs point out, if AIG is correct that this insurance issue can be resolved soon, then AIG will not have to incur significantly more costs in defending Cosby and denying a stay will encourage AIG to seek a quicker resolution.

Accordingly, the court will deny AIG’s motion to stay the Underlying Litigation.

ZALMA OPINION

The court, rather than agreeing with either party, did justice and decided to reach the issue of duty to defend itself. If the facts of the defamation action is found to have only arisen out of sexual misconduct it will find no coverage and if there is a potential for coverage it will be in a position to decide that AIG is obligated to continue to defend Cosby subject to its reservation of rights.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Dr. Huxtable v. AIG

No Occurrence – No Coverage

Defense Provided Under a Reservation Requires Return of Defense Costs When Court Determines No Coverage

It is axiomatic that liability insurance only pays for damage caused by an “occurrence” as defined in the policy. It does not guarantee the work of the insured and the insurer does not act as a surety of the insured’s work.

In Maxum Indemnity Company v. A One Testing Laboratories, Inc. aka A-1 Testing Laboratories, Inc., 610 West Realty LLC, Riverview West Contracting LLC, B&V Contracting Enterprises, Inc. and ACE Inspecition and Testing Services, Inc. 2015 WL 8492756, (Filed 12/10/2015) the  United States District Court, Southern District of  New York was called upon to determine coverage and whether the insured is entitled to recover funds paid to defend from the insured.

FACTS

Plaintiff Maxum Indemnity Company, an insurer, sought a declaration that it does not owe a duty to defend or indemnify its insured, defendant A-1 Testing Laboratories, in a lawsuit (the “Underlying Action”) that defendant 610 West Realty LLC filed in state court against A-1 and defendants Riverview West Contracting LLC, B&V Contracting Enterprises, Inc., and Ace Inspection and Testing Services, Inc.  The crux of Maxum’s argument in its motion for summary judgment is that the general liability policy it entered into with A-1 does not cover 610 West’s theory of liability in the Underlying Action because 610 West does not allege an “occurrence” resulting in “property damage” that occurred during the policy period.

In the Underlying Contract, 610 West has asserted breach of contract, negligence, and fraudulent conveyance causes of action against A-1. These causes of action stem from allegations that A-1’s faulty workmanship in performing certain inspections required 610 to undertake repair work. As a matter of law, the general liability insurance contract between Maxum and A-1 does not cover such allegations, and even if it did the damage occurred outside of the policy period.

Maxum provided A-1 with commercial general liability coverage between February 28, 2011 and February 28, 2012. The contract provided that Maxum would “pay those sums that [A-1] becomes legally obligated to pay as ‘damages’ because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.”  It established that the insurance applied “only if … [t]he ‘bodily injury’ or ‘property damage’ is caused by an ‘occurrence’ … and … occurs during the policy period.”

The policy defined “occurrence” to mean “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

In October, Maxum sent A-1 a letter explaining that “[t]he summons with notice [gave] little information with which to establish a true evaluation of the covered and/or uncovered damages,” and that Maxum was therefore “continu [ing] to investigate this matter under a full reservation of rights.” Maxum’s letter also explained that it had retained counsel “to secure an extension of time for A One to appear, move or otherwise act and demand plaintiff provide more information through a formal complaint,” which would put Maxum “in a better position to evaluate its obligations regarding defense and indemnity for the action.”

610 West filed its complaint in the Underlying Action (“UAC”). The UAC alleged that 610 West was the sponsor of project to build condominiums and in 2005 had hired Riverview as a general contractor for the construction. It further alleged that Riverview had, during 2004 and 2005, hired B&V as a subcontractor to provide drywall and carpentry work and A-1 as a subcontractor “to perform controlled inspections in connection with, among other things, the ‘Fire Stops.’ ” According to the UAC, B&V’s work was defective, a fact that neither Riverview nor A-1 detected or caused to be corrected, and which was only discovered by 610 West sometime prior to June 2010. As a result, the UAC alleged, 610 West was required to remediate and repair the defective work over a number of years.

The two causes of action asserted against A-1 mirrored each other; the breach of contract claim alleged that A-1 “breached its duties and obligations under the A-1 Testing Subcontract by failing to perform its controlled inspection services with reasonable care and in accordance with accepted industry standards and practices,” while the negligence claim alleged that A-1 “owed a duty to plaintiff to perform its controlled inspection services with reasonable care and in accordance with accepted industry standards and practices,” and breached that duty “by performing its controlled inspection services in a negligent fashion and contrary to accepted industry standards and practices.”

In March 2014, Maxum’s counsel wrote to A-1 to “advise [it] of Maxum’s coverage position based upon the allegations and information presently known.” Notwithstanding the determination of non-coverage, the letter went on to explain that Maxum would continue defending A-1 in the Underlying Action. This agreement to provide defense counsel was, however, subject to an explicit statement that Maxum did not “waive the right … to contest the duty to defend, or indemnify or seek to recover back defense costs paid on behalf of [A-1].” Specifically, Maxum “reserve[d] its right to commence a coverage action to obtain a declaration of no coverage and/or recover back defense costs.”

Maxum sued seeking a declaration of non-coverage and a determination that it was entitled to recoup defenses costs expended in the Underlying Action. Eventually Maxum sought summary judgment.

General Commercial Liability Insurance Coverage

Under New York law, like everywhere else, an insurer’s duty to defend is far broader than its duty to indemnify. The New York Court of Appeals has, however, eschewed wooden application of the four corners of the complaint rule, in favor of a rule requiring the insurer to also provide a defense where, notwithstanding the complaint allegations, underlying facts made known to the insurer create a reasonable possibility of coverage.

New York law permits insurers to provide their insureds with a defense subject to a reservation of rights to, among other things, later recoup their defense costs upon a determination of Courts have consistently determined that insurers are entitled to reimbursement of defense costs upon a determination of non-coverage so long as the reservation was communicated to the insured, who did not expressly refuse to consent to the reservation.

DISCUSSION

Based on the requirement that covered damage result from an “occurrence,” the policy was never intended to provide contractual indemnification for economic loss to a contracting party because the work product contracted for is defectively produced, and that requiring the insurer to defend would transform it into a surety for the performance of the insured’s work.
There can be no doubt that the allegations that 610 West includes in the UAC bring this matter within the “no occurrence, no coverage” rule for commercial general liability policies under New York law. The damages 610 West seeks to recover represent the cost of repairing the allegedly defective work in order to bring it into compliance with the underlying contracts, industry standards, and legal requirements. New York law is clear that the recitation of a cause of action labeled “negligence” in the underlying complaint does not suffice to create coverage for faulty work product under a commercial general liability insurance policy.

Even if the claims asserted in the Underlying Action were properly connected to an “occurrence,” under the definitions in the policy they would have occurred prior to the policy period and thus be excluded from coverage. When faulty workmanship in building materials is the gravamen of an allegation of property damage, under an injury-in-fact analysis, the injury may be said to occur at the time of installation. Even if A-1’s alleged non-performance could be said to be an “occurrence” triggering coverage, it took place entirely before the February 2011 through February 2012 coverage period of the policy at issue.

Maxum does not owe a duty to defend or indemnify A-1 in the Underlying Action because that action does not contain allegations that create a reasonable possibility of coverage under the commercial general liability policy between Maxum and A-1. It is entitled to a declaration of that fact.

Because Maxum has to date provided A-1 with a defense in the Underlying Action under an express reservation of right “to recover back defense costs,” it is further entitled to recoup from A-1 defense costs Maxum has incurred in its defense of the Underlying Action.

ZALMA OPINION

No insurance policy insures against every eventuality and every suit that may be filed against an insured. In this case the damage occurred before the policy came into effect and further did not seek indemnity for property damage or bodily injury but only for replacement of defectively built damage. Importantly, a proper reservation, allowed the insurer to recover from the insured the funds it paid to defend under reservation.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on No Occurrence – No Coverage

No Claim for Person Not Named as an Insured

Only Insured Can Make Claim for Replacement Value After Actually Replacing Property

First party property insurance policies do not insure property, rather, they insure people against the risk of loss of certain identified property against perils the insurer agreed to insure. In Wallace Auto Parts & Services, Inc. v. Charles L. Crane Agency Company and the Travelers Indemnity Company of Connecticut, 2015 WL 8606429 USDC, SD Illinois, (12/14/2015) the United States District Court for the Southern District of Illinois, was called upon to deal with a claim for the difference between a replacement cost loss and actual cash value when the insured decides not to replace.

BACKGROUND

Plaintiff Wallace Auto is a corporation that sells auto parts and manufactures/retrofits underground mining equipment. Rod Wallace is the president and sole shareholder of Wallace Auto. Beginning in 1992, Wallace Auto leased (and, at the time of depositions, continued to rent) property located at 5605 Highway 34 North in Raleigh, Illinois from Amy Wallace. Although Amy Wallace and Rod Wallace are married, Amy Wallace holds no ownership interest in Wallace Auto.

Crane is a full-service insurance brokerage firm that sells, solicits and negotiates insurance coverage for its clients. George Hubbard is a broker for Crane. Beginning in 1994, through Hubbard as broker, Crane procured quotes and policies with Amy Wallace’s name listed as an additional insured at the request of Rod Wallace. However, Amy Wallace’s name did not appear on policies procured by Crane after 1999. Rod Wallace did not request that Amy Wallace’s name be removed as an additional insured.

Through Hubbard, Crane procured a commercial insurance policy for Plaintiff from Defendant Travelers. When two buildings on the property were destroyed by fire in November 2012, Defendant Travelers paid to Plaintiff the agreed-upon cash value of the damages. Wallace Auto decided not to rebuild. Instead, Amy Wallace procured vacation rental cabins in Tennessee to replace her income stream. Because Amy Wallace was not a named insured on the policy, Travelers denied Plaintiff’s $349,006.49 replacement value claim. Plaintiff seeks to recover this amount pursuant to a breach of contract claim against Travelers policy or on a breach of fiduciary duty and/or negligence claim against Crane.

ANALYSIS

Summary judgment is appropriate where “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a).

First, Travelers argues that it is not liable to compensate Plaintiff for the replacement value of the destroyed buildings because Plaintiff did not replace the buildings. Thus, when it issued payment for the loss value under the policy, it fulfilled its obligation. Plaintiff argues that the insurance policy does not define the term “replacement” and that the Court should resolve ambiguity of the term in favor of Wallace Auto. Ultimately, Plaintiff argues that the log cabins purchased in Tennessee by Amy Wallace constitute replacement because Amy Wallace had an insurable interest in the destroyed buildings (despite the absence of her name on the insurance policy).

The Court need not address whether log cabins in Tennessee constitute a “replacement” under the Travelers policy or whether the term is ambiguous. Amy Wallace was not a party to the contract between Plaintiff and Travelers, has not brought an action on her own behalf as a third-party beneficiary and has no ownership interest in Wallace Auto. Wallace Auto, through its president and sole shareholder, cancelled its lease and decided not to rebuild after the fire. Instead, Wallace Auto entered into a subsequent rental agreement with Amy Wallace and began renting a trailer and “storage container type pods” after the buildings were destroyed. Wallace Auto— the sole insured entity named on the policy with Travelers— did not purchase log cabins or otherwise replace the property in question by any definition.

As Travelers correctly states, Wallace Auto’s payment of $349,006.49 to Amy Wallace (whether required by the lease agreement or not) does not oblige Travelers to compensate Wallace Auto under the replacement cost coverage provision of the insurance policy. The policy is clear that Wallace Auto must replace the insured property in order to be compensated for replacement. There being no material issues of fact to be resolved, the Court granted summary judgment in favor of Defendant Travelers’ Indemnity Company of Connecticut.

AGENT’S MOTION FOR SUMMARY JUDGMENT

For its motion, Defendant Crane first contends that Plaintiff’s negligence and breach of contract claims (Counts II and IV) are barred by the two-year statute of limitations. Crane argues that the claims accrued in July, 2012 when a copy of the policy on which Amy Wallace’s name was omitted as an additional insured was delivered to Plaintiff. Plaintiff counters that its cause of action against Crane did not accrue until November, 2014—when the replacement claim was denied.

Illinois law requires that “[a]ll causes of action brought … against an insurance producer… concerning the sale, placement, procurement, renewal, cancellation of, or failure to procure any policy of insurance shall be brought within 2 years of the date the cause of action accrues.” 735 ILCS 5/13-214.4. In actions against insurance producers, the discovery rule may delay the commencement of a limitations period if the plaintiff was not immediately aware of a discrepancy.

The Court found, for the purposes of the application of the discovery rule, Plaintiff reasonably should have known of Crane’s alleged breach of contract and negligence when Rod Wallace received a copy of the insurance policy in July, 2012. No appellate decision relieves a policyholder from an obligation to review an insurance policy and, as a result, leaving Amy off the policy, defeats the claim.

Defendant Crane also moved for summary judgment of Plaintiff’s breach of fiduciary duty claim. In this regard, Crane argued that it is shielded from liability as an “insurance producer” under the Illinois Insurance Placement Act (hereinafter, “the Act”) 735 ILCS 5/2-2201(b). The court agreed and made the following rulings:

•     Defendant Travelers Indemnity Company of Connecticut’s Motion for Summary Judgment is GRANTED.
•     Defendant Charles L Crane Agency Company’s Motion for Summary Judgment is GRANTED.
•     Plaintiff Wallace Auto Parts & Services’ Motion for Summary Judgment is DENIED.

ZALMA OPINION

This case teaches very important issues relating to first party property insurance:

  1. If not named as an insured even a person with an insurable interest has no rights to the policy proceeds.
  2. If the insured doesn’t read the policy the insured has no right to complain that an additional insured was not added to the policy.
  3. The insured can only collect the difference between actual cash value and replacement value after the insured actually replaces the property.
  4. Replacement by a person not an insured does not count.
  5. An insurance agent is only obligated to buy the insurance ordered.
  6. Suits must be filed before the expiration of the statute of limitation.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on No Claim for Person Not Named as an Insured

Sue Within a Year of Denial or Lose

Private Limitations of Action Affirmed in Tennessee

Some states, like Tennessee have long statutes of limitations for breach of contract and other actions. Insurance companies, because of the terms of the contract and the problems with evidence concerning insurance disputes, almost always include in first party property insurance policies, include a private limitation of action provision to avoid stale lawsuits over insurance disputes.

In Buffy Hall v. Allstate Insurance Co.,  et al., Slip Copy, 2015 WL 8492458, 2015 WL 8492458 the U.S. District Court was called upon to apply Tennessee law with regard to a suit filed two years after the expiration of the private limitation of action provision of a policy issued by Allstate but well within the state statute of limitations.

FACTS

Plaintiff owned the property at 228 Hassler Mill Road, Harriman, Tennessee, (“the Property”), which was covered by a policy issued by Defendant Allstate Insurance Company and Allstate Property and Casualty Insurance Company (collectively “Allstate”).
The Property was damaged by fire on or about June 2, 2010. Plaintiff submitted a claim to Allstate, which Allstate investigated and then denied the claim on September 22, 2010. Plaintiff sued Allstate in state court and was later removed to federal court.

Plaintiff claims she did not receive a copy of her policy. Plaintiff testified in her deposition that she first requested a copy of her policy from her insurance agent, Janet Sill, in September 2010 following the fire. Plaintiff testified that Ms. Sill gave her a copy of her declarations page, rather than the actual policy.

The policy states: “No one may bring an action against us in any way related to the existence or amount of coverage, or the amount of loss for which coverage is sought, under a coverage to which Section I Conditions applies, unless: ¶ a) there has been full compliance with all policy terms; and ¶  b) the action is commenced within one year after the inception of loss or damage.”

ISSUES

Allstate argues that it is entitled to summary judgment in its favor, as a matter of law because: (1) Plaintiff filed suit more than one year after Allstate denied her claim, and therefore, her claim is barred by the one-year limitation period contained in the Policy; (2) Plaintiff’s Consumer Protection Act claim against Allstate is barred by Tenn. Code Ann. § 56-8-113; and (3) her claim for punitive damages is barred by Tenn. Code Ann. § 56-7-105.

ANALYSIS

Breach of Contract

Under Tennessee law, actions on contracts shall be commenced within six years after the cause of action accrues. However, Tennessee, like many states has a history of upholding contractual limitations periods that reduce the statutory period for filing suits.

Plaintiff has not disputed that the Property was insured through the Policy presented by Allstate, and the Court found that there is no evidence to the contrary before the Court. Further, Plaintiff has not disputed that the Policy contains a contractual limitations period of one year, and there is no evidence to the contrary before the Court. The limitations period is/was applicable to any suit or legal action “brought asserting claims relating to the existence or amount of coverage ….”

Under Tennessee law, the contractual limitation provision runs from the date on which the insurer actually denies the claim. In this case, the undisputed date of denial is September 22, 2010. Thus, the Plaintiff had up to and including September 21, 2011, in which to file her suit yet Plaintiff waited for two more years before filing suit against Allstate.

The evidence in the record, even when viewed in the light most favorable to the Plaintiff, does not constitute a basis upon which a reasonable finder of fact could find in that Allstate and state officials participated in a conspiracy meant to deny Plaintiff funds owed to her under the policy.

The District Court concluded, rather, that the Tennessee Supreme Court would hold that the suit is absolutely barred by the one-year limitation in the insurance policy.

The Plaintiff did not present any evidence that Allstate prevented Plaintiff from obtaining a copy of the Policy. After the agent advised Plaintiff that she only had the declarations page Plaintiff conceded that she simply left the agent’s office and never sought a copy of the entire policy directly from Allstate. Moreover, the Plaintiff has done little to respond to the sworn testimony supporting Allstate’s assertion that it mailed a copy to Plaintiff and would have been notified if the mail had been returned. The  evidence in the record could not support a jury finding that Allstate interfered with or obstructed Plaintiff’s attempts to obtain a copy of her policy so that the one-year contractual limitations period would be tolled or potentially inapplicable.

Based upon the foregoing the Plaintiff was required to file her suit on or before September 22, 2011. She filed suit almost two years too late. Therefore, Plaintiff’s breach of contract claim is barred by the one-year limitations period contained in the Policy.

“Bad Faith” under Tennessee Code Annotated § 56-7-105

An insured may recover for bad faith pursuant to Tennessee Code Annotated § 56-7-105, where: a policy has become due and payable; the insured made a formal demand for payment; sixty days passed from the date of demand; and the refusal to pay was in bad faith. It is well-established that a formal demand for payment by the insured is a prerequisite to recovery under the statute.

Plaintiff concedes that she did not make a formal demand in this case, and therefore, she cannot recover for bad faith, as a matter of law.

Constructive Fraud and/or Fraud

Even viewing the evidence in the record in the light most favorable to the Plaintiff did not bring forth any evidence that Allstate made a misrepresentation as to a material fact, either intentionally or unintentionally. To the extent the Plaintiff contends that the failure to provide a copy of the Policy was a misrepresentation, the evidence before the Court could not support a finding that Allstate either intentionally or even negligently withheld the Policy, because as discussed above, the Plaintiff apparently acquiesced to accepting the declarations page from Ms. Sills without following-up with Allstate.

Negligent Misrepresentation

The Court could not find that the Plaintiff has brought forth any evidence that Allstate made a misrepresentation as to a material fact, and thus, an essential element of Plaintiff’s claim is absent.

Based upon the foregoing, Defendant Allstate Insurance Company and Allstate Property and Casualty Insurance Company’s Second Motion for Summary Judgment is GRANTED, and judgment will be entered in favor of Allstate Insurance Company and Allstate Property and Casualty Insurance Company.

ZALMA OPINION

The Plaintiff in this case waited almost three years after the claim was denied to file suit against Allstate. One could speculate that the delay might have been due to the fact that a criminal investigation concerning the fire was pending. Whether to avoid prosecution or simply due to sloth, the insured failed to file suit within the limitation period and tried the specious argument that the limitation period should not apply because Allstate did not provide a copy of the policy. The argument, for good reason, failed.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

 

Posted in Zalma on Insurance | Comments Off on Sue Within a Year of Denial or Lose

Zalma’s Insurance Fraud Letter – December 15, 2015

Merry Christmas  

A Belated Happy Chanukah 

In this, the twenty fourth issue of the 19th year of publication of Zalma’s Insurance Fraud Letter (ZIFL), Barry Zalma, on December 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.

Insurance fraud investigations must be conducted fairly, thoroughly, and always in good faith. Insurance professionals must understand and act ethically in everything they do in their claims investigations and evaluation of an insurance policy and its coverages.

The current issue of ZIFL reports on:

  • Politicians Convicted of Fraud
  • Amazing Trial Testimony
  • Proformative Academy Webinars
  • Arson for Profit Fails
  • New from Barry Zalma
  • False Claim of Fraud By Insurance Department Fails
  • E-Books from Barry Zalma
  • The Coalition Against Insurance Fraud’s Hall of Shame
  • The Zalma Insurance Claims Library
  • Health Care Fraud Conviction Affirmed
  • Where there is a Will, There are Relatives
  • Good News From the Coalition Against Insurance Fraud
  • Health Insurance Fraud Convictions
  • Other Insurance Fraud Convictions
  • Zalma Books from the American Bar Association
  • Zalma’s Insurance 101

Zalma’s Insurance Fraud Letter — Vol. 19, Number 24

Visit the Website of Zalma Insurance Consultants

Visit the Zalma Insurance Claims Library

Insurance Publications by Barry Zalma

The Zalma Insurance Claims Library

Insurance Claims: A Comprehensive Guide

     For Readers of ZIFL a Special 25% Discount

In addition the standard FC&S Online published by The National Underwriter Company now includes a Fraud Channel with the majority of the information taken from my work on insurance fraud. It is available at http://www.nationalunderwriterpc.com/Pages/default.aspx. The Fraud Channel covers issues like: Fraud Basics, Checklists and Charts, Investigation, Ethics, Reference Materials, Fraud Of The Week, and  both the full text and summaries of insurance fraud Cases.

Buyer Bonus:

You automatically receive-AT NO ADDITIONAL COST-a subscription to the author’s e-newsletter: The Monday Claims Report, a weekly e-newsletter featuring coverage and analysis on the top insurance law court decisions from across the country.

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

http://shop.americanbar.org/eBus/Default.aspx?TabID=251&productId=214624; or  orders@americanbar.org, or 800-285-222

800-285-2221.

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:

Check in every day for a case summary

I have also created a video blog called Zalma’s Insurance 101 which currently has over 154 three to four minute videos explaining the basics of insurance and insurance claims handling in a painless fashion that can be viewed every morning with the first cup of coffee at Zalma’s Insurance 101

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

Fraudulent Claim Defeated by Failure of Insured to Fulfill Condition

No Excuse for Failure To Give Prompt Notice

The factual basis of this case has occurred many times. I wrote a story similar to this on in the 1980’s when I first started writing my E-book “Heads I Win, Tails You Lose” which was fiction based on a real case.

In NIKOLAI MINASIAN and HARUTYUN MINASIAN, Plaintiffs,v.IDS PROPERTY CASUALTY INSURANCE COMPANY and STATE FARM FIRE AND CASUALTY COMPANY, Defendants.14-cv-10125 (KBF), 2015 WL 8485257, Filed 12/09/2015 a New York federal District Court ruled based solely on claim by insurers that the insureds failed to report their claims promptly because the fraud, as obvious as it appears, was more difficult to prove when New York enforces reporting conditions.

FACTUAL BACKGROUND

Plaintiffs have alleged that they sustained a loss by theft from the insured premises at 240 Main Street, Apt. 11, Nyack, New York (the “Apartment”), on January 1, 2014. Plaintiffs claim that the Apartment was burglarized and that jewelry consisting of two watches, two bracelets and two rings owned by plaintiffs and $1,150 cash were stolen from the Apartment. According to plaintiffs, they were given the jewelry by Harutyun’s mother, which they brought with them on a return trip to the United States from Armenia on or about June 19, 2013. Plaintiffs testified that they did not declare the jewelry at United States Customs when they brought it to the United States and do not have any documentation relating to the acquisition or purchase of the jewelry.

According to plaintiffs, Nikolai had three pieces of jewelry appraised in or about September 2013 as follows: a Gentleman’s 18 Karat Yellow Gold Diamond Ring, appraised at $40,500, a Gentlemen’s 18 Karat Rose Gold Egona Swiss Chronograph Watch, appraised at $23,500, and a Gentlemen’s 18 Karat Yellow Gold Diamond Bracelet, appraised at $33,000.  According to plaintiffs, Harutyun also had three (rather remarkably similar) pieces of jewelry.

The Investigative Report of the Orangetown Police Department indicates that Detective Frank Buhler, along with a finger print unit of officers, responded to plaintiffs’ call at approximately 6:45 p.m.  Nikolai testified that he spoke with the police a few times regarding the burglary after first reporting the burglary.

Insurance Policy Provisions and Denial of Claims

Plaintiffs allege that their losses were covered by three separate insurance policies, one policy issued by IDS and two policies issued by State Farm.

The court, indicating some suspicion about the loss noted that “although the purported burglary happened on January 1, 2014,” Nikolai testified that plaintiffs did not report the loss to State Farm until March 28, 2014, 86 days later.

Detective Buhler testified that on January 2, 2014, he spoke with a State Farm agent, Eric Jaslow, about the fact that he was investigating a burglary at 240 Main Street and that the resident alleged that he had a renter’s policy through State Farm.  Detective Buhler testified that he asked Jaslow if there was any documentation regarding the policy or an application to get a policy and if Jaslow could provide the policy, which he did.

On December 24, 2014, State Farm sent a letter to plaintiffs via their counsel disclaiming coverage for plaintiffs’ claims based on plaintiffs’ breach of the policies’ notice conditions, plaintiffs’ intentional concealment and misrepresentation of material facts or circumstances during the presentation of the claim, the absence of an accidental direct physical loss, the theft exclusion and the fact that the loss involved an intentional act.

Notice Under New York Law

Timely notice is a condition precedent to coverage. Am. Ins. Co. v. Fairchild Indus., Inc., 56 F.3d 435, 438 (2d Cir. 1995); see also White v. City of New York, 81 N.Y.2d 955, 957 (1993)

An untimely delay may be found inexcusable as a matter of law “when either no excuse is advanced or a proffered excuse is meritless.” Green Door Realty Corp. v. TIG Ins. Co., 329 F.3d 282, 287 (2d Cir. 2003).  The insured bears the burden of showing any delay was excusable under the circumstances.

The test for determining whether a notice provision has been triggered in the first instance is whether the circumstances known to the insured at that time would have suggested to a reasonable person the possibility of a claim. Each insurance policy imposes a separate contractual duty on the insured to provide notice. S

DISCUSSION

The sole ground upon which defendants seek summary judgment is that plaintiffs failed to comply with the timely notice requirements of the three applicable insurance policies.

Plaintiffs do not dispute that they failed to provide defendants with notice of their potential claims until Friday, March 28, 2014, 86 days after the January 1, 2014 burglary of the Apartment.

Furthermore, even if the weight of authority did not make clear that an unexcused 86 day delay is untimely as a matter of law, the surrounding contract language makes clear that initial notice was to be provided far more quickly than plaintiffs provided it here. First, in the very same sentences in which the policies stated that plaintiffs had to provide notice to the insurer in the event of loss, all three provisions also stated that, if the loss was due to theft, plaintiffs also had to notify the police.

As for plaintiffs’ purported mitigating factors (i.e. their lack of sophistication and experience with filing insurance claims), Plaintiffs baldly assert their lack of sophistication and experience, yet the record shows that they were sophisticated enough to obtain appraisals, insurance coverage, safety deposit boxes, and specifically schedule the jewelry for coverage. If plaintiffs were sophisticated enough to take each of these steps, they were certainly capable of providing timely notice to IDS and State Farm.

“In determining a motion for summary judgment involving the construction of contractual language, a court should accord that language its plain meaning giving due consideration to the surrounding circumstances and apparent purpose which the parties sought to accomplish.” Cable Sci. Corp. v. Rochdale Vill., Inc., 920 F.2d 147, 151 (2d Cir. 1990)

Use of the term “covered loss” clearly connotes that property which is covered under the policy is no longer in the physical possession of the insured, and use of the phrase “loss … which may become a claim” indicates that an insured need not (and should not) wait until the loss has definitively ripened into a meritorious claim for payment. No reasonable person could interpret this language to mean that a known theft of property only becomes a covered loss once the police cease to conduct an active investigation. A

For the reasons set forth above, defendants’ motions for summary judgment are GRANTED.

ZALMA OPINION

Insurance fraud is often often difficult to prove. Jurors do not like it when an insurer designates an insured as a fraud, no matter how obvious the factual basis of the claim makes – as it did in this case – fraudulent. The insurers, although they denied the claims on various bases, moved for summary judgment on one condition, failure to give prompt notice. It worked because insurance criminals know crime but do not understand insurance. Fraud investigators should take note of the work of the insurers in this case and remember there is more than one way to defeat a fraudulent claim.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

 

Posted in Zalma on Insurance | Comments Off on Fraudulent Claim Defeated by Failure of Insured to Fulfill Condition

Expert on Causation Must be Able to Testify to an Engineering Certainty

Trier of Fact Must Determine Whether Excluded or Covered Cause Predominates

First party property insurance determines whether it is obligated to indemnify an insured for damage to property whether the predominant and moving cause of the damage is excluded or not. Sometimes that decision requires the assistance of an expert. In Stochel v. Allstate Property and Casualty Insurance Company, Slip Copy (12/09/2015) 2015 WL 8331394 the court was asked to find the actual cause and eliminate the testimony of certain experts whose testimony was less than definitive.

FACTUAL BACKGROUND

Plaintiffs Maria Stochel and Eugene Nowakowski suffered damage to their home following a water main break. At the time of the break, Plaintiffs maintained a homeowners’ insurance policy with Defendant Allstate that excludes coverage for flood or groundwater damage.

On August 20, 2014, Plaintiffs filed a second claim with Allstate alleging that the City of Philadelphia’s efforts to repair the water main had caused vibration damage to the property. The parties appear to agree that this vibration damage, if proven, would be covered under the insurance policy.

Rosen’s Expert Reports

Allstate’s expert Jawad issued a report concluding that there was no damage to Plaintiffs’ home caused by vibration. Rosen, the insured’s expert, issued a report. Rosen concluded that “the house was damaged due to the forces that occurred during the water main breakage and subsequent flooding. The flooding resulted in saturation of the lower levels of the structure and damage to the existing foundation and exterior walls.”

On February 26, 2015, Rosen issued a supplemental report without re-inspecting the property. The supplement clarified that “[a]s per my original report, the damage that occurred due to the water main break is attributable to the initial flooding and [sic] well as vibration due to the equipment used to reconstruct the main.” The parties hotly dispute whether Rosen’s February 2015 supplement altered the September 2014 report.

Allstate contended that Rosen’s initial report made no mention of damage to the property as a result of vibrations from heavy equipment and attributed all costs to flooding. Plaintiffs counter that Rosen’s initial report made factual assertions consistent with vibration damage such that his supplemental report merely clarified any ambiguity.

During his deposition, Rosen repeatedly emphasized that it is difficult to separate damage caused by water from damage caused by vibration. He could not provide a scientific basis for his conclusion about the water line as causal boundary.

After this litigation had commenced as outlined below, Allstate conducted a second inspection of Plaintiffs’ property. Present were Allstate’s structural engineer Gary Popolizio and an estimator working for the Plaintiffs named Walter Clark.
Clark prepared interior and exterior damage estimates. Clark relied on Rosen’s initial September 2014 report, conversations with the Plaintiffs, and a visual inspection in making his estimates. Clark assumed that all damage to the exterior was attributable to vibration damage while all damage to the interior was caused by flooding.

Allstate denied Plaintiffs’ vibration claim on grounds that damage to the property resulted from earth movement, not vibration. Plaintiffs filed suit.

ANALYSIS

Motion to Preclude

In this case, Defendant has not argued that Plaintiffs failed to produce qualified experts. Both of plaintiffs’ experts were clearly qualified.

The difficult issue concerned whether Rosen’s February 2015 supplemental report and Clark’s damages estimate resulted from reliable processes. Determining whether an expert report is reliable is a “flexible” inquiry that can consider the following non-exhaustive list of factors: (1) whether a method consists of a testable hypothesis; (2) whether the method has been subject to peer review; (3) the known or potential rate of error; (4) the existence and maintenance of standards controlling the technique’s operation; (5) whether the method is generally accepted; (6) the relationship of the technique to methods which have been established to be reliable; (7) the qualifications of the expert witness testifying based on the methodology; and (8) the non-judicial uses to which the method has been put.

One portion of Rosen’s February 2015 report, in which Rosen claims that the water line provides a way to demarcate damage caused from flooding from damage caused by vibrations, fails to meet the reliability standards outlined above. As noted, Rosen testified repeatedly during his deposition that he was “hedging” and picking a bright line for its own sake.

However, the remaining conclusion in Rosen’s February 2015 report (that there is harm present in the Plaintiffs’ home from both vibration and water damage, without apportioning relative degrees) is admissible. Defendant can cross-examine Rosen at trial on what Defendant characterizes as an inconsistency between Rosen’s September 2014 and February 2015 reports on this issue.

Clark’s damages estimate is also admissible. Defendant’s main objection is that Clark’s estimate cannot opine on what caused the damage to the exterior of the property. However, Clark’s report merely assumes that all damage to the exterior of Plaintiffs’ residence is from vibration damage; it does not purport to establish causation. To the extent Plaintiffs cannot first prove that exterior damage resulted from vibration, Clark’s report may be of little use to them. But to the extent they can, his report may provide a sound scientific basis for approximating how much damage they incurred. Motion for Summary Judgment.

Defendant’s argument that Plaintiffs have failed to prove damages with reasonable certainty similarly fails for purposes of this Motion for Summary Judgment. Ordinarily in insurance coverage disputes an insured bears the initial burden to make a prima facie showing that a claim falls within the policy’s grant of coverage. If the insured meets that burden, the insurer then bears the burden of demonstrating that a policy exclusion excuses the insurer from providing coverage if the insurer contends that it does.

Here, assuming the fact finder credits Plaintiffs’ contention that vibration damage is present, Plaintiffs will have made that prima facie showing.  Defendant would then rely on an exclusion covering situations of damage from both covered and uncovered loss: at page 16, the policy notes, “[w]e do not cover loss to the property…when: 1) there are two or more causes of loss to the covered property; and 2) the predominant cause(s) of loss is [excluded as flooding damage per page 15].”

Rosen’s February 2015 opinion that the water line on Plaintiffs’ property provides a bright line causal break between damage caused by flooding and damage caused by vibration is not the product of reliable methodology. It is therefore inadmissible. The portion of Rosen’s report clarifying that both vibration and water damage are present, as well as Clark’s estimate of damages, do not suffer from the same defect and are thus admissible.

Because issues of fact exist as to the cause of damage to the property, Defendant’s Motion for Summary Judgment shall be denied.

ZALMA OPINION

Experts are often necessary to establish coverage when more than one cause work together to cause damage and one of those causes are covered and one is not. For the last decade or two insurers, following the lead of appellate courts, have avoided concurrent cause allegations by requiring the insurer to prove that the predominant cause of the loss was excluded. Since the decision is fact based the ability to resolve the case on summary judgment is almost impossible.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Expert on Causation Must be Able to Testify to an Engineering Certainty

Lack of Approved Claim Defeats Demand for Benefits Under a Bond

Bond Need Not Pay Limits Without Proof of Loss

The plaintiff in this bond insurance coverage case, Scott Jensen (“Jensen”), in his capacity as Director of the Rhode Island Department of Labor and Training (“DLT”), brought a claim against North River Insurance Company (“North River”) in connection with a workers’ compensation bond (the “Bond”) issued by North River to Landmark Health Systems, Inc. (“Landmark”).  In Scott Jensen, in his capacity as Director of the Rhode Island Department of Labor and Training v. North River Insurance Company, 2015 WL 8041998, C.A. No. 15-083-MML | Filed 12/04/2015 DLT sought recovery of the limits of the bond, $500,000, although there was no agreed claim in that amount.

The limit of liability of a bond is only paid when there are claims up to that limit. The DLT tried to collect the penal limit of the bond but refused to present evidence that established an entitlement to the limit.

FACTUAL BACKGROUND

On September 24, 1990, North River issued the Bond to Landmark as the principal and for the benefit of DLT.  The Bond, limited to a penal sum of $500,000, secured payment of benefits and services pursuant to R.I. Gen. Laws 28-33 and 28-34, including workers’ compensation benefits for Landmark employees. Landmark, which was self-insured at the time in question, was responsible for a portion of workers compensation claim payments. After that, Republic Western Insurance Company (“Republic Western”) was responsible to pay medical and other expenses under an excess policy (the “Excess Policy”) and Landmark was obligated to make continuing indemnity payments.

After a number of annual renewals, the Bond was cancelled effective October 1, 1999, and, as DLT acknowledged, no liability exists under the Bond for injuries incurred on or after that date. Following an injury on November 17, 1998, a workers compensation claim was made by Frances Valeika (the “Valeika Claim”). After compensation payments were ordered in 1999, Landmark made payments on the Valeika Claim, first directly and, beginning in 2003, through Beacon Mutual Insurance Co. as its third party administrator. After Landmark’s payments on the Valeika Claim reached $350,000, Republic West began reimbursing Landmark for medical and other expenses pursuant to the Excess Policy, while Landmark continued to make indemnity payments.

In 2008, Landmark entered receivership. Pursuant to an agreement with its court-appointed receiver, the indemnity payments on the Valeika Claim continued. Landmark’s assets were acquired by Prime Healthcare, which failed to continue making the indemnity payments. Republic West continued to make medical and other payments on the Valeika Claim.

DLT filed a complaint against North River in Rhode Island state court, which was removed by North River to the federal District Court.

North River timely filed a motion for summary judgment. DLT’s response to North River’s motion was due on October 19, 2015. As of the date of this Memorandum and Order, no response was received to North River’s motion.

DISCUSSION

Although its motion for summary judgment is unopposed, North River, as the moving party, must meet its burden to demonstrate undisputed facts entitling it to summary judgment as a matter of law. It is undisputed that the Bond was cancelled effective October 1, 1999 and that North River was “not responsible thereunder for any Acts or Defaults committed or Loss occurring after said date of cancellation.”  North River asserts—and DLT does not dispute, nor has it offered any evidence to the contrary—that the only outstanding claim asserted against the Bond is that of Frances Valeika. After Prime Healthcare acquired Landmark’s assets and failed to make indemnity payments on the Valeika Claim, North River made payments totaling $94,502 on the Valeika Claim. Eventually, the Valeika Claim was settled by Republic West, which sought a $77,876 contribution from DLT. Defs.’  In turn, DLT requested that North River pay that amount under the Bond, to which North River agreed.

The Bond requires payment only to “persons entitled thereto,” i.e., to “persons who may be entitled to such sums for the compensation benefits and services provided by” Rhode Island’s worker compensation laws.

Nothing in those statutes or in the Bond itself imposes an obligation on North River to pay the full amount of the Bond’s penal sum to DLT without a corresponding identified and approved claim. In the absence of even an assertion that such a claim exists; that such a claim may be raised more than sixteen years after the Bond was cancelled; or of any factual or legal support for DLT’s demand under the Bond, DLT cannot withstand North River’s motion for summary judgment.

ZALMA OPINION

DLT failed to respond to the motion for summary judgment because it did not have any evidence that it was entitled to more than North River had already paid based upon a provable claim.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Lack of Approved Claim Defeats Demand for Benefits Under a Bond

Defendant Abuses Judicial System

Summary Judgment Required When There is No Response

Liability insurance policies agree to defend and indemnify the person insured against contingent or unknown events that are not excluded by the terms and conditions of the policy. Not all risks of loss are covered. The prudent insurer, faced with a claim that it believes is not covered will file a complaint for declaratory relief to gain an order of a court that their is no coverage.

In National Casualty Company v. Kevin Lee Wallace, et al., Slip Copy, 2015 WL 7854401 (E.D.Ky., 12/03/2015) National Casualty Company sought a declaration of rights concluding that it has no obligation to provide insurance coverage for the civil claims asserted in Kevin Lee Wallace’s state court negligence lawsuit.

FACTS

Plaintiff National Casualty Company brought suit against Defendants Kevin Lee Wallace and Timothy Justice d/b/a/ TJ’s Marine and ATV Repairs, seeking a declaration that it has no insurance coverage obligations for claims by the Defendants arising out of a work-related accident that occurred on or about September 19, 2012 in Lancaster, Garrard County, Kentucky. On or about that date, Wallace was working for TJ’s Marine and was assisting in transporting a houseboat to Pulaski County. As the TJ’s Marine employees transporting the boat approached Lancaster, Kentucky, on their way to the TJ’s Marine shop, Wallace was directed to raise a stoplight and wires so that the houseboat could safely pass underneath. As Wallace did so, another employee, Paul Weber, struck a utility cable with a truck. The utility cable then struck and injured Wallace. Wallace filed a civil action for negligence and a violation of Ky. Rev. Stat. § 342.690, which concerns employers’ workers’ compensation coverage. Shortly after Wallace filed the state court suit, Plaintiff National Casualty Company filed this declaratory relief action.

Although Defendant Wallace has timely answered both the initial and the amended complaint, his participation in this lawsuit has been what the court described as “somewhat abnormal.” The record indicates that National Casualty Company has served two written discovery requests on Wallace; however, Wallace has failed to respond to either request. The record is absent of any signs of discovery that Wallace himself has conducted.

National Casualty Company filed the motion for summary judgment that is now before the Court. Wallace failed to respond to the summary judgment motion.

Although the Court is required to review the evidence and draw inferences in favor of Defendant Wallace, the non-moving party, at this stage, the Court was faced with the \ situation in which the non-moving party has failed to present any evidence at all. Wallace has not offered proof supporting his position, nor has he made any arguments opposing National Casualty Company’s position. As a result, Wallace is in the precarious position of hoping that the general denials made in his answer to National Casualty Company’s amended complaint are sufficient to create a genuine issue of material fact.

National Casualty Company’s motion for summary judgment was well-supported. National Casualty Company sets forth the exclusions in the insurance policy in question that apply to employees of the insured. It explains why Wallace is a properly excluded employee under the policy, regardless of Wallace’s contention that he was acting as an independent contractor of TJ’s Marine when he was injured. On the whole, there is evidence showing that the accident giving rise to the underlying state court and present federal actions does not trigger coverage obligations on behalf of National Casualty Company. Defendant Wallace offered nothing to the contrary, such that a reasonable jury could return a verdict for him.

Summary judgment for National Casualty Company against Defendant Kevin Wallace is appropriate, and National Casualty Company’s motion was granted.

ZALMA OPINION

Wallace forced National Casualty to litigate with a party who had no intention or ability to return the favor. The court bent over backwards to protect the rights of Wallace even though he refused to do anything to defend himself. He, National Casualty, and the court knew that he was an employee at the time he was injured and that no coverage existed under the National Casualty policy and by answering the suit and doing nothing more he abused the judicial system.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Defendant Abuses Judicial System

Where there is a Will, There are Relatives

Don’t Make Yourself Beneficiary of Life Policy for Incompetent Person

Elderly, sick people are often the subject of fraud because they do not have the capacity to protect themselves. This is especially true in the last days of their lives when they can be influenced by a person charged with caring for the old, ill and demented.

In Metropolitan Life Insurance Company v. Michelle Austin and Laura Brown, Slip Copy, 2015 WL 7770659 (E.D.Mich., 12/03/2015) the District Court for the Eastern District of Michigan, was faced with a dispute over who was the appropriate beneficiary of a life insurance policy.

FACTS

Metropolitan Life Insurance Company (“MetLife”) initiated an interpleader action be depositing into court the benefits of the policy and allowing the two competing beneficiaries to litage who should received the benefits. The proceeds of a life insurance policy owned by Clara Austin, who died in 2013. Defendant Laura Brown (“Ms. Brown”), the adult great niece of Clara Austin, was named the primary beneficiary of the policy in March 2008. At that time, Michelle Austin (“Ms. Austin”), Clara Austin’s adult granddaughter, was removed as the primary beneficiary. Ms. Brown and Ms. Austin each claim entitlement to the insurance proceeds.

BACKGROUND

Clara Austin, a retiree from General Motors Corporation, was a participant in the General Motors Life and Disability Benefits Program (the “Plan”), an employee welfare benefit plan regulated under the Employee Retirement Income Security Act (“ERISA”). The Plan is funded by a group life insurance policy issued by MetLife. The latest beneficiary designation on file with the Plan for Clara Austin is dated March 21, 2008. The form was completed via the Internet (i.e., online) and names Ms. Brown as the sole primary beneficiary of Clara Austin’s life insurance benefits.

The next prior beneficiary designation on file with the Plan for Clara Austin is dated October 17, 2005, and names Ms. Austin as the sole primary beneficiary of the life insurance benefits. This beneficiary designation also was completed online.

Clara Austin died on May 22, 2013. At the time of her death, Clara Austin was enrolled under the Plan for life insurance coverage in the total amount of $16,813.00 (“plan benefits”). Ms. Austin and Ms. Brown submitted life insurance claim forms to MetLife for the plan benefits. Ms. Austin filed an allegation of fraud with MetLife, contesting the latest beneficiary designation.

To resolve the conflicting claims, MetLife filed this interpleader action. MetLife thereafter deposited the full amount of the plan benefits with the Court, minus its costs and attorney’s fees totaling $1,400.00, and was dismissed from this case.

APPLICABLE LAW

As a general rule, the proceeds of an ERISA plan are to be paid in accordance with the plan documents. However, the improper procurement of a beneficiary designation would call into question the validity of the plan document itself and, thus, creates a limited exception to this general rule.

The Sixth Circuit Court of Appeals held that claims touching on the designation of a beneficiary of an ERISA-governed plan fall under ERISA’s broad preemptive reach and are consequently governed by federal law. Thus the determination of which claimant is entitled to the proceeds from Clara Austin’s life insurance plan due to the alleged “fraud” on the 2008 beneficiary designation change form is preempted by ERISA and governed by federal law. As such, this court must look to either the statutory language or, finding no answer there, to federal common law which, if not clear, may draw guidance from analogous state law.

ERISA contains no provisions regulating the problem of beneficiary designations that are forged, the result of undue influence, or otherwise improperly procured. There is no established federal common law in the Sixth Circuit dealing with forgery and undue influence in the designation of beneficiaries, and thus it is necessary for the federal court to look to state-law principles for guidance.

Under Michigan law determining the mental competency of the insured to change the beneficiary of an insurance policy, the test is whether he had sufficient mental capacity to understand the business in which he was engaged, the extent of his property, the manner in which he desired to dispose of it, and who were dependent on him.Adults are presumed to be competent enough to enter into contracts. However, a person under guardianship is conclusively presumed to be incompetent.  Michigan law has long held that a person under guardianship is conclusively presumed incompetent to make a valid contract and that any contract made by a person under guardianship is void.

According to the records of the Wayne County Probate Court, a guardianship petition identifying Clara Austin as a legally incapacitated individual was filed on September 14, 2007, and Ms. Brown was appointed as Clara Austin’s guardian in November 2007. Ms. Brown remained Clara Austin’s guardian until Clara Austin’s death in 2013. As such, Clara Austin was incompetent to change the beneficiary of her life insurance policy when the change was made in March 2008.Ms. Brown admitted during a status conference with the Court that she, not Clara Austin, submitted the beneficiary designation form making herself the primary beneficiary of Clara Austin’s policy in 2008.

According to Ms. Brown, she made the change to comport with Clara Austin’s wishes, as expressed to Ms. Brown previously. Therefore, the Court concluded that the purported designation of Ms. Brown as a beneficiary of the life insurance policy of Clara Austin is invalid and, therefore, ineffective for purposes of paying any benefits under the policy.

For the above reasons, the Court held that the beneficiary designation that controls the disposition of the plan benefits is the designation naming Ms. Austin as the primary beneficiary.

ZALMA OPINION

Although less than $17,000 was involved the relatives, Ms. Brown and Ms. Austin, tried to take the benefits of Clara’s life insurance policy. If it was truly Clara’s intent to change beneficiaries Ms. Brown should have obtained Ms. Austin’s permission before attempting to change beneficiaries on line. As a result she now is the party to a reported decision showing she attempted a fraud that failed only because Clara and Ms. Austin had the foresight to have Ms. Austin appointed Clara’s Guardian.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Where there is a Will, There are Relatives

Actual Physical Injury Required For Coverage

Installation Of Defective Product Not Physical Damage

Liability insurance is not a warranty of an manufacturer’s product. It is only designed to provide coverage for accidental physical injury to property of others.

In U.S. Metals, Incorporated v. Liberty Mutual Group, Incorporated, — S.W.3d —-, 2015 WL 7792557 (Tex.) the Supreme Court of Texas was asked to resolve a coverage issue by submitting certified questions to the Supreme Court so it could resolve a coverage dispute filed in federal court.

FACTS

The insured under a standard-form commercial general liability insurance policy supplied flanges for use in constructing refinery processing units. The flanges leaked and had to be replaced to avoid the risk of fire or explosion. The flanges were welded to the pipes they joined and therefore had to be cut out while the refineries were shut down. The insured claims that its liability for the refinery owner’s replacement costs and downtime damages are covered by its CGL policy.

U.S. Metals, Inc. sold ExxonMobil Corp. some 350 custom-made, stainless steel, weld-neck flanges for use in constructing nonroad diesel units at its refineries in Baytown, Texas, and Baton Rouge, Louisiana. The units remove sulfur from diesel fuel and operate under extremely high temperatures and pressures. ExxonMobil contracted for flanges made to meet industry standards and designed to be welded to the piping. The pipes and flanges, after they were welded together, were covered with a special high temperature coating and insulation.

In post-installation testing, several flanges leaked. Further investigation revealed that the flanges did not meet industry standards, and ExxonMobil decided it was necessary to replace them to avoid the risk of fire and explosion. For each flange, this process involved stripping the temperature coating and insulation (which were destroyed in the process), cutting the flange out of the pipe, removing the gaskets (which were also destroyed in the process), grinding the pipe surfaces smooth for re-welding, replacing the flange and gaskets, welding the new flange to the pipes, and replacing the temperature coating and insulation. The replacement process delayed operation of the diesel units at both refineries for several weeks.

ExxonMobil sued U.S. Metals for $6,345,824 as the cost of replacing the flanges and $16,656,000 as damages for the lost use of the diesel units during the process. U.S. Metals settled with ExxonMobil for $2.2 million and then claimed indemnification from its commercial general liability insurer, Liberty Mutual Group, Inc., for the amount paid.

ISSUES

The policy covers “physical injury” to property and the loss of use of property that could not be restored by replacing the flanges. Four questions certified to the Texas Supreme Court by the United States Court of Appeals for the Fifth Circuit raise two issues. One is whether property is physically injured merely by installing a defective product into it. The other issue is whether replacing the flanges restored the refinery property to use when some of the property was destroyed in the process.

ANALYSIS

All damages for which U.S. Metals claims coverage arose out of its defective flanges. Under the policy’s Exclusion K, damages to the flanges themselves are not covered, and U.S. Metals does not claim them. Under Exclusion M, the policy does not cover damages to property, or for the loss of its use, if the property was not physically injured or if it was restored to use by replacement of the flanges.

Liberty Mutual denied coverage, and U.S. Metals sued in federal district court to determine its right to a defense and indemnity under the policy. The court granted summary judgment for Liberty Mutual. On appeal, the Fifth Circuit certified to the Supreme Court of Texas the following questions:

1.     In the “your product” and “impaired property” exclusions, are the terms “physical injury” and/or “replacement” ambiguous?

2.     If yes as to either, are the aforementioned interpretations offered by the insured reasonable and thus, must be applied pursuant to Texas law?

3.     If the above question 1 is answered in the negative as to “physical injury,” does “physical injury” occur to the third party’s product that is irreversibly attached to the insured’s product at the moment of incorporation of the insured’s defective product or does “physical injury” only occur to the third party’s product when there is an alteration in the color, shape, or appearance of the third party’s product due to the insured’s defective product that is irreversibly attached?

The interpretation of an insurance policy, like other contracts, begins with the text, and requires that undefined words be given their plain, ordinary, and generally accepted meanings absent some indication of a different intent. An interpretation that gives each word meaning is preferable to one that renders one surplusage. And a policy provision is ambiguous only if it is subject to more than one reasonable interpretation and not merely because the parties or other courts differ over its interpretation.

A thing whose use or function is diminished by the incorporation of a faulty component can fairly be said to be injured, even if the injury is intangible, latent, or inchoate. Here, the installation of the leaky flanges—or at least potentially leaky, and in any event below-standard—can certainly be said to have injured—harmed or damaged—the diesel units by increasing the risk of danger from their operation and thus reducing their value. But if that increased risk amounted to physical injury within the meaning of the CGL policy, then it is difficult to imagine a non-physical injury. The policy’s limitation of coverage to damages from physical injury necessarily implies that there can be non-physical, non-covered injuries. Otherwise, the requirement that injury be “physical” would be superfluous. To give “physical” its plain meaning, a covered injury must be one that is tangible.

The Texas Supreme Court agreed with most courts that have considered the issue that the best reading of the standard-form CGL policy text is that physical injury requires tangible, manifest harm and does not result merely upon the installation of a defective component in a product or system. Since a defective product that causes damage is not an occurrence until the damage actually happens, it would be inconsistent to now find that a defective product that does not cause damage is nevertheless an occurrence at the time of incorporation.

ExxonMobil’s diesel units were not physically injured merely by the installation of U.S. Metals’ faulty flanges. But the units were physically injured in the process of replacing the faulty flanges. Because the flanges were welded to pipes rather than being screwed on, the faulty flanges had to be cut out, pipe edges resurfaced, and new flanges welded in. The original welds, coating, insulation, and gaskets were destroyed in the process and had to be replaced. The fix necessitated injury to tangible property, and the injury was unquestionably physical.

Thus, the repair costs and damages for the downtime were “property damages” covered by the policy unless Exclusion M applies. Exclusion M denied coverage of damages to impaired property—defined by the policy as property that could be “restored to use by the … replacement” of the faulty flanges.

The diesel units were restored to use by replacing the flanges and were therefore impaired property to which Exclusion M applies. Thus, their loss of use is not covered by the policy. But the insulation and gaskets destroyed in the process were not restored to use; they were replaced. They were therefore not impaired property to which Exclusion M applied, and the cost of replacing them was therefore covered by the policy.

We come finally to the questions certified to us by the Fifth Circuit. The first asks whether the terms “physical injury” or “replacement” are ambiguous as incorporated into the “your product” or “impaired property” exclusions of the CGL policy. The answer, in the situation presented, is “no”. The second question is conditioned on a “yes” answer to the first, and thus need not be answered. The third question asks whether installation of the faulty flanges alone physically injured the diesel units. The answer is “no”.

ZALMA OPINION

The result in this case has, as the Supreme Court stated,  “a perverse aspect to it.” If ExxonMobil was negligent or reckless—had it not tested the flanges, or had it found the defect but decided to risk the danger of leaks—and an explosion had resulted, U.S. Metals would not be denied coverage for the damages to persons and property for want of physical injury. But because ExxonMobil was careful and cautious, U.S. Metals is not entitled to indemnity for the costs of remedying the installation of the faulty flanges. The text of the policy is clear and must be enforced.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Actual Physical Injury Required For Coverage

No Fraud Regarding Policy When Plaintiff Has Copy

Poor Lawyering Not Fraud Damaged Plaintiff

I started seriously reading insurance policies in 1967. I still read one or more every week. I have even written insurance policies. It is amazing to me that any lawyer will accept the word of an insurance company about the availability of the policy to pay a judgment when the lawyer has a copy of the policy. It is even more amazing that a lawyer would recommend a settlement for less than the damages provable at trial if there is a defendant with sufficient assets to pay any judgment even if the defendant had no insurance.

In Arrowood Indem. Co. v. Cristini, — Fed.Appx. —-, 2015 WL 6874682 (2015) that is exactly what happened.

FACTS

Michael Cristini appeals the district court’s dismissal of his fraud, silent fraud, civil conspiracy, and negligent misrepresentation claims against two insurers. In settling for $1.5 million, Cristini was allegedly misinformed that the City of Warren’s available insurance was no more than $2.32 million.

In 1991, Michael Cristini and Jeffrey Moldowan were jointly convicted of kidnapping and rape. An eyewitness statement exculpating Cristini and Moldowan surfaced and resulted in retrials and acquittals for both individuals. This came after Cristini and Moldowan spent approximately 13 years in prison. Following their acquittals, Cristini and Moldowan filed separate complaints against the City of Warren and the estate of Detective Donald Ingles, alleging, among other claims, that Detective Ingles withheld exculpatory evidence and that the city engaged in malicious prosecution. Because of procedural issues, Moldowan’s case progressed at a faster rate than Cristini’s case.

In October 2011, the parties in the Moldowan case settled for approximately $2.8 million. The Warren defendants had insurance policies with Arrowood Indemnity Company and U.S. Fire Insurance Company, and of the $2.8 million settlement amount, Arrowood contributed $1.12 million, U.S. Fire contributed $1.43 million, and the city contributed $250,000.  Cristini alleges, and the appellate court accepted as true for the purposes of review, that on July 18, 2013, counsel for the Warren defendants informed Cristini that Arrowood was denying coverage for Cristini’s suit, and that Arrowood refused to contribute to or participate in any settlement. Arrowood confirmed this position by filing a separate action for declaratory judgment, asking the district court to declare that Arrowood’s policy with the Warren defendants did not cover Cristini’s claims.  Arrowood  filed a declaratory relief action and attached a copy of its policy to the complaint.

At a status conference, counsel for the Warren defendants repeated their statements that the maximum available insurance was $2.32 million because Arrowood would not participate in any settlement.

Cristini and the Warren defendants reached a settlement shortly before their scheduled trial, and the parties stated on the record that they agreed to settle for $1.5 million.

Following the settlement, counsel for the Warren defendants circulated a draft release. The draft revealed that Arrowood would contribute $500,000 to the Cristini settlement; this news surprised Cristini, due to the previous representations regarding Arrowood’s refusal to involve itself.

Feeling tricked, Cristini filed cross-claimed in the declaratory relief action against Arrowood and U.S. Fire charging fraud and negligent misrepresentations.

The district court dismissed each of Cristini’s claims based on the lack of reasonable reliance on the insurers’ misrepresentation. The insurers argued that Cristini had the ability to determine for himself whether the Warren defendants were covered under the Arrowood insurance policy and that necessarily means that Cristini’s reliance was not reasonable.

The district court found, however, that Cristini’s reliance on the representation that Arrowood would not participate in or contribute to the final settlement of the case was not reasonable because there were other sources of funding from which Cristini could ultimately collect. While acknowledging that Cristini did indeed rely to his detriment on Arrowood’s misrepresentation, the district court engaged in a further analysis and asked, “was it reasonable for Cristini to rely on Arrowood’s false representation when making his decision to settle his case for $1.5 million?” The answer to this question, according to the district court, is “no.” The court reached that conclusion by considering the facts that the Warren defendants were “readily collectable” and that the Arrowood insurance policy was not the only source from which Cristini would be able to collect a potential debt.

The District Court also concluded that Cristini failed to plead a plausible civil conspiracy claim because the underlying tort pleadings failed the plausibility test. The court stated that without the viable intentional tort claims, the conspiracy claim must fail as well. Thus, the district court found that all of Cristini’s claims failed due to a lack of reasonable reliance.

ANALYSIS

Cristini possessed copies of the Warren defendants’ insurance policies with Arrowood by virtue of his being named a defendant in the declaratory judgment suit; the Arrowood policies were attached to the complaint. If someone has either “full knowledge to the contrary of [the] representation,” Montgomery Ward & Co. v. Williams, 47 N.W.2d 607, 611 (Mich.1951), or “the means to determine that [the] representation is not true,” Nieves v. Bell Indus., Inc. 517 N.W.2d 235, 238 (Mich.Ct.App.1994), then that individual cannot plausibly assert reasonable reliance on the representation. In the present case, Cristini could have compared the insurers’ representations regarding the insurance coverage amount with the policy, and this capability to determine the falsity of the first misrepresentation keeps Cristini’s claim from entering the realm of reasonable reliance.

The foregoing principle applies with particular force in the context of an insurer’s misrepresentation: “when the insurer has made a statement that clearly conflicts with the terms of the insurance policy, an insured cannot argue that he or she reasonably relied on that statement without questioning it in light of the provisions of the policy.” Cooper v. Auto Club Ins. Ass’n, 751 N.W.2d 443, 451–52 (Mich.2008). If the insurers falsely represented that the Warren defendants had $2.32 million of insurance coverage, Cristini could have simply examined the policies to determine whether the representations were indeed false.

Cristini also failed to allege plausibly that he reasonably relied on the insurers’ statements that Arrowood would not contribute. Cristini argues that he settled his claims for $1.5 million because of the defendants’ misrepresentation that Arrowood would not participate in the settlement. Even if Arrowood did not participate in the settlement, the Warren defendants had other assets—including tax receipts—they could use to pay off an amount higher than $1.5 million (or the $2.32 million U.S. Fire policy limit).

In deciding to accept the $1.5 million settlement rather than go to trial, Cristini could not have reasonably thought that more than $1.5 million could be negotiated if Arrowood participated in the settlement.

It was, to the appellate court, simply not plausible that Cristini could reasonably have relied upon the allegedly fraudulent statements indicating that Arrowood could not or would not contribute to a Cristini settlement.

In the present case, Cristini was represented by attorneys who were presumably physically and mentally fit to transact business with the Warren defendants and the insurers. Kordis is therefore inapposite.

The lack of reasonable reliance disposes of each claim in this case. Under Michigan law, reliance is an essential element of the tort of fraud. Thus, because the fraud and silent fraud claims fail for want of reasonable reliance, the civil conspiracy claims also fail.

ZALMA OPINION

Mr. Cristini was seriously abused when he was falsely convicted of kidnapping and rape. After he was exonerated he was again abused by his lawyers who believed the lawyers for the city of Warren. He is not without a remedy. Rather than appeal the District Court’s dismissal of his fraud action he should find new lawyers who will sue those who talked him into accepting a $1.5 million settlement when he could have obtained more at trial. If, of course, the city had a viable defense then there is no case against the lawyers and the $1.5 million was a good settlement and if it was this action was spurious.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

 

Posted in Zalma on Insurance | Comments Off on No Fraud Regarding Policy When Plaintiff Has Copy

Health Care Fraud Conviction Affirmed

Convicted Podiatrist’s Efforts to Avoid Jail Fail

Dr. Curtis Holden appealed from his conviction for thirty-two counts of health care fraud in violation of 18 U.S.C. § 1347. In U.S. v. Holden, — F.3d —- (2015) 2015 WL 7769350 the Ninth Circuit focused on Holden’s challenges to the original and superseding indictments the government brought against him (1) whether revised Count 41 was barred by the statute of limitations; (2) whether revised Count 41 improperly broadened the charges against Holden; (3) whether revised Count 41 alleged an execution of a fraudulent scheme; and (4) whether the inclusion of two counts in the superseding indictment resulted in a constructive amendment to the original indictment.

FACTS

Dr. Curtis Holden is a podiatrist and the owner of Advanced Podiatry Specialists, P.S. (“Advanced Podiatry”) in Yakima, Washington. Holden, along with other podiatrists employed at Advanced Podiatry, treated patients covered by Medicare, Medicaid, Washington State Department of Labor and Industries, and private insurance programs.On April 21, 2011, the government brought a 59–count indictment against Holden, charging fifty-six counts of health care fraud under 18 U.S.C. § 1347 and three counts of “false statements relating to health care matters,” violating 18 U.S.C. § 1035.

The government contended that the new count alleged a continuing scheme to defraud.
Holden once again filed a motion to dismiss arguing that the superseding indictment violated the statute of limitations. He contended that revised Count 41 still violated the five-year statute of limitations, and also substantially broadened the language of the original indictment, such that it did not relate back to the original indictment and the limitations period was not tolled. The district court denied the motion, holding that Holden had adequate notice of all the charges against him, and that “the Superseding Indictment did not ‘substantially or materially’ broaden the charges against [Holden],” tolling the statute of limitations.After a seven-day trial, the jury convicted Holden of thirty-two counts of health care fraud, acquitting him of Counts 1–2, 11–13, 19–20, 22–23, and 42–44. The Ninth Circuit reviewed the sufficiency of an indictment as if it was the trial court and also review a district court’s decision not to dismiss an indictment on statute of limitations grounds anew.

STATUTE OF LIMITATIONS

A continuing offense involves (1) an ongoing course of conduct that causes (2) a harm that lasts as long as that course of conduct persists. Unlike most crimes, it is only after this ongoing course of conduct is complete that the crime is complete for statute of limitations purposes. Thus, a continuing offense punishes each execution of a fraudulent scheme rather than each act in furtherance of such a scheme.

The Ninth Circuit had not previously considered whether health care fraud in violation of 18 U.S.C. § 1347 is a continuing offense. The Fifth Circuit has, however, evaluated this issue in United States v. Hickman, 331 F.3d 439, 445–46 (5th Cir.2003). Like the Fifth Circuit, the Ninth Circuit has already held that § 1344 is a continuing offense.

Though the government may be allowed to allege that many fraudulent acts make up a single scheme, it does not necessarily follow that the government may combine those acts into a single charge when some acts fall outside the statute of limitations. Thus, the district court was only justified in permitting revised Count 41 if the multiple acts completed in relation to the 2006 nursing home visit could be charged together as a single scheme to avoid statute of limitation problems.

In the Second Superseding Indictment, the government was careful to allege only one execution of an ongoing scheme in relation to the services performed at the nursing home in 2006. “Holden … knowingly and willfully executed and attempted to execute the above-described scheme and artifice to obtain, by means of materially false and fraudulent pretenses, representations and promises, money owned by and under the custody and control of Medicare….”

Although some acts in furtherance of the alleged scheme may have been outside the statute of limitations, the scheme, as charged in revised Count 41, was within the five-year period under 18 U.S.C. § 3282(a).The Ninth Circuit concluded that the district court did not err by allowing the government to proceed on revised Count 41. Health care fraud in violation of 18 U.S.C. § 1347 is a continuing offense, which may be properly charged as a single scheme in a single count.

OTHER INDICTMENT CHALLENGES

Holden contends that revised Count 41 impermissibly broadened the charges against him by including facts substantially different from those alleged in the original Counts 41–56. Specifically, Holden argues that the new charge exposed him to liability for any patient seen at the nursing home for up to fourteen months, the time period alleged in revised Count 41. But his claims are based on a misreading of the superseding indictment. An indictment must be read in its entirety and construed in accord with common sense and practicality. The test for sufficiency of the indictment is not whether it could have been framed in a more satisfactory manner, but whether it conforms to minimal constitutional standards. Holden had sufficient notice of the charges brought against him.

The government did exactly what the district court said would be permissible when the district court dismissed Counts 41 and 43–56 without prejudice — combine the seventeen fraudulent billings as a single count. Therefore, the Ninth Circuit concluded that revised Count 41 was based on the same factual allegations as the original indictment, and did not substantially broaden the charges against him.For the first time on appeal, Holden argued that revised Count 41 did not allege an execution of a fraudulent scheme. The indictment must be liberally construed in favor of validity.

The Second Superseding Indictment alleged an execution of a scheme, as it stated that Holden “submi[tted] or caus[ed] to be submitted claims for payment from Medicare which falsely represented the service of an ‘Evaluation and Management’ office visit for patients seen at Garden Village, a skilled nursing facility, when, in fact, an Evaluation and Management visit was not the service provided.”  Holden had notice of the charges against him.As a result the Ninth Circuit affirmed the jury conviction finding Holden guilty of thirty-two counts of health care fraud in violation of 18 U.S.C. § 1347.

ZALMA  OPINION

Health insurance fraud is a lucrative exercise. Those, like Dr. Holden, have the funds to try to avoid jail. Unfortunately, his arguments, no matter how much it cost Dr. Holden to avoid his conviction for perpetrating the crime his convictions stand and he will spend a great deal of time in Club Fed where he will serve at least 80% of his sentence. It is imperative that the Department of Justice continue to do everything necessary to make certain that scofflaws like Dr. Holden are convicted and spend as much time as possible in prison as the only effective deterrent against insurance fraud.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Health Care Fraud Conviction Affirmed

Mandatory Insurance Does Not Prevent Rescission

Lie To Insurer Lose All Coverage

Insurance is, and always will be, a business of the utmost good faith. The duty to do nothing to prevent another to receive the benefits of a contract of insurance applies to both the insurer and the insured. If the insured misrepresents a material fact about the insurance the insurer has the right to rescind the policy back to its inception and treat the person claiming to be an insured as if the insurance contract never came into effect.

In DeMarco v. Stoddard, — A.3d —- (2015) the New Jersey Supreme Court was asked to allow an innocent patient of a podiatrist to obtain from the podiatrist’s insurer the limit required by statute even though the insurer had rescinded the policy for misrepresentation of material facts.

Patient brought medical malpractice action against podiatrist and his out-of-state medical malpractice insurer, and sought declaratory judgment requiring insurer to provide indemnification coverage, notwithstanding insurer’s rescission of the policy due to material misrepresentations made concerning the state in which podiatrist maintained his primary practice. The Superior Court, Law Division, Ocean County, entered judgment in patient’s favor, requiring insurer to indemnify physician in patient’s lawsuit.

In this appeal, the Supreme Court was asked to consider whether the Rhode Island Medical Malpractice Joint Underwriting Association (RIJUA) must defend and indemnify a podiatrist in a medical malpractice action pending in New Jersey following rescission of the podiatrist’s medical malpractice liability policy. The policy had been rescinded due to material misrepresentations concerning the state in which the insured podiatrist maintained his primary practice. The trial court and the Appellate Division, applying New Jersey law, held that in a medical malpractice action pending in this State, the insurer had the duty to defend and indemnify the insured podiatrist up to $1 million, the amount of professional liability insurance physicians and podiatrists are required to maintain in this State.

THE ISSUE

The critical inquiry in this case is whether a rescinded policy of medical malpractice liability insurance provides any coverage to the insured for claims that arose prior to rescission.

FACTS

Plaintiff Thomas DeMarco, a New Jersey resident, sought treatment for chronic plantar fasciitis from defendant Sean Robert Stoddard, D .P.M. Dr. Stoddard practiced podiatry at the Center for Advanced Foot & Ankle Care, Inc., which had offices in Toms River and Lakewood.

In 2007, Dr. Stoddard applied to the RIJUA for medical malpractice liability insurance.  The application listed Dr. Stoddard’s office at a Rhode Island address, but the office phone number had a New Jersey area code. The application also provided that Dr. Stoddard was “currently applying” for affiliation with a Rhode Island hospital. The “Licensure” section of the application asked whether at least fifty-one percent of the applicant’s practice was generated in Rhode Island. The application had “Yes” checked off, but that answer was false. The application then stated, partly in bold letters: “IF YOUR ANSWER IS NO, DO NOT CONTINUE. You are not eligible for coverage under the Rhode Island MMJUA.” The agent claims that Dr. Stoddard provided all of the information required in his initial application.

In October 2011, DeMarco and his wife, Cynthia DeMarco (the DeMarcos) filed a medical malpractice complaint in New Jersey against Dr. Stoddard and the Center for Advanced Foot & Ankle Care, Inc., alleging that Dr. Stoddard negligently performed surgery. Dr. Stoddard forwarded the DeMarcos’ complaint to the RIJUA, which responded with a reservation of rights letter.

Less than a week later, Dr. Stoddard wrote a letter to the attorney representing the DeMarcos, advising that he “has no malpractice coverage in regards to [their] claim.”  Additionally, Dr. Stoddard stated that he had no assets, his new practice—a professional corporation in California—was struggling, he was in the midst of a divorce, he had defaulted on his student loans, and he had “a significant amount of debt.” Dr. Stoddard conceded that he could not prove that he satisfied the RIJUA’s fifty-one percent requirement, and stated that “it would be a waste of time to pursue this claim against me based on these facts.” In May 2012, the Rhode Island court entered a default judgment against Dr. Stoddard, declaring his renewal policy from 2010 to 2011 void and holding that the RIJUA had no duty to defend or indemnify Dr. Stoddard for the DeMarcos’ claims.

ANALYSIS

In New Jersey, the Legislature first instituted mandatory malpractice insurance for physicians and podiatrists in 1998. In 2004, the Legislature amended the statute and set the minimum amount of malpractice insurance for physicians at $1 million per occurrence and $3 million per policy year.

There is scant case law interpreting the statutes and regulations requiring physicians and podiatrists to obtain and maintain medical malpractice liability insurance. In the context of compulsory legal malpractice insurance, however, there is a well-developed body of law holding that a legal malpractice insurance policy may be declared void from its inception due to a misrepresentation of material fact by the insured in an application for insurance. Upon rescission, the insurer owes no duty to defend or indemnify the law firm or any defalcating attorney of the firm for any complaints pending or claims that accrued at the time of rescission.

It is well established in New Jersey that an attorney will not have access to insurance coverage to respond to claims from injured third parties, clients, or title companies, if the professional liability insurance policy has been rescinded due to the attorney’s misrepresentations of material fact in the policy application. The Supreme Court saw no reason to apply a different analysis to other professionals.

Rather, the same reasons that permit rescission of a legal malpractice insurance policy pertain to medical malpractice liability insurance. A policy will be issued following an analysis of the risk to be assumed. A misrepresentation of a material fact in an application undermines the risk assessment and ultimately the decision to provide coverage by an insurer.  Permitting reformation of a medical malpractice liability policy to conform to statutorily mandated minimum amounts would result in the conclusion that fraudulent conduct is condoned. Therefore, the compulsory automobile insurance model has no relevance to the remedial response to a fraudulently obtained policy of professional liability insurance and the effect of rescission on innocent third parties.

The Supreme Court concluded that the Appellate Division’s reference to and reliance on the compulsory automobile liability insurance model was misplaced. Its reliance on that model also ignored this State’s longstanding rule that an insured professional cannot expect insurance coverage to respond to third-party claims when the professional liability insurance has been rescinded due to misrepresentations of material fact in the application.

It is well established in New Jersey that a professional who has made a misrepresentation of material fact in an application for professional liability insurance can expect that the policy may be rescinded on application of the insurer. A professional in that position can also expect that claims that arose prior to discovery of the misrepresentation will be excluded from coverage. Once the policy has been rescinded, the professional responds to any claims from injured third parties without coverage.

Here, the policy of professional liability issued to Dr. Stoddard was rescinded due to misrepresentations concerning the extent of his practice in Rhode Island. Those misrepresentations went to his eligibility of insurance through the RIJUA. As a result of the RIJUA’s rescission of the policy, Dr. Stoddard stood without coverage to respond to the DeMarcos’ claim.

The right to the benefits of third-party claims following rescission of a policy is governed by the rule announced in First American Title Insurance Co. v. Lawson, 177 N.J. 125, 827 A.2d 230 (2003), and its progeny. Applying that rule, the RIJUA owed neither a duty to defend nor a duty to indemnify its insured, who had misrepresented the proportion of his practice generated in Rhode Island, which was a fact that formed the basis for his eligibility for insurance through the RIJUA. We therefore reverse the judgment of the Appellate Division.

ZALMA OPINION

When a person is seriously injured by the malpractice of a professional judges, whether sitting in a trial court or appellate court, feel for the injured person and have no emotional contact with an insurer. As a result they work to find coverage for the tortfeasor to benefit the injured. That emotional response, honorable as it is, does not change the law or how the law should be applied. Although the DeMarco’s suffered real injury, Dr. Stoddard lied to obtain a policy, and the insurer properly rescinded the policy.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Mandatory Insurance Does Not Prevent Rescission

Defeating a Workers’ Compensation Claim Is Almost Impossible

Iowa Stretches What Is a Work Related Injury

Bryan Sloan was injured at work and received workers’ compensation benefits. He was treated and returned to full, unconditional work with his employer. Later, helping a friend, he reinjured his back and sought workers’ compensation benefits. His employer refused saying that the injury happened while doing something not in the course and scope of his employment.

In Carl A. Nelson & Co. v. Sloan, Slip Copy, 2015 WL 7574232 (Iowa App., 11/25/2015) the Iowa Court of Appeal was asked to resolve a dispute between the employee and his employer.

Carl A. Nelson & Company and Zurich North American Insurance Co. (the Employer) appeal the workers’ compensation commissioner’s award of benefits to Byran Sloan. The Employer claimed the district court erred in affirming the agency’s causation finding and erred in affirming the agency’s misinterpretation and misapplication of the law of intervening causes.

In the cross-appeal, Sloan claims the district court erred in modifying the provision of the agency’s decision that ordered medical “bills” that had been paid by Sloan’s private health insurer be paid directly to Sloan.

BACKGROUND FACTS

At the agency level, the parties stipulated Sloan sustained an injury to his back in the course and scope of his employment on August 15, 2011, while lifting concrete forms out of a trench. Sloan was treated for what was described as a back strain, and he was returned to full-duty work with no restrictions on August 24, 2011. The dispute in this case centers on what effect an incident that occurred on October 30, 2011, had on the work injury.

On October 30, 2011, Sloan was assisting a friend move some go-kart frames into a trailer. When Sloan tried to slide a frame that had been placed on the trailer by a bobcat, he felt a sudden onset of pain and numbness in his back and legs. Sloan described the pain as being similar to what he experienced when the initial injury occurred. When conservative treatment for this injury failed, Sloan underwent back surgery and was subsequently released at maximum medical improvement on January 14, 2013.

The workers’ compensation case was tried before a deputy commissioner on April 9, 2013. The deputy denied Sloan’s claim after determining the go-kart incident was an intervening and superseding cause of Sloan’s injury. It was the deputy’s opinion that “[t]he greater weight of the evidence supports a finding that [Sloan] sustained an injury, returned to baseline and then suffered a new injury assisting a friend.” The deputy further concluded, “There were no competent medical opinions tying [Sloan’s] original work injury to his ongoing back problems.”

Sloan appealed to the commissioner, who reversed the deputy’s conclusion, finding “the greater weight of evidence supports the finding that claimant’s work injury was a proximate and natural cause of the disability he suffered from at the time of the arbitration hearing.” The Commissioner concluded that the go-cart incident did not amount to an intervening or superseding cause because Sloan “was simply engaged in an ordinary activity of daily living, namely helping a friend transport items on a trailer he owned” and not engaged in conduct that was “contrary to any express or implied duty owed to his employer following his work injury.”

The commissioner ordered the Employer to pay bills incurred by Sloan directly to the medical provider. However, those bills that were paid by Sloan’s private health insurance “shall be reimbursed directly to [Sloan] as the Iowa Supreme Court has mandated in Ruud.” [Midwest Ambulance Serv. v. Ruud, 754 N.W.2d 860, 867–68 (Iowa 2008).]

CAUSATION

The question of medical causation is essentially within the domain of expert testimony. It is the commissioner, as the trier of fact, who must weigh the evidence and measure the credibility of witnesses. The determination of whether to accept or reject an expert opinion is within the peculiar province of the commissioner as fact finder.

In this case, the commissioner reviewed the medical opinions on the issue of causation and determined, of the three experts who offered opinions on causation, the opinion of Kenneth Bussey, M.D., was most persuasive.

The commissioner credited Sloan’s testimony that he requested a full-duty release to work on August 24, 2011, not because he was healed but because he could not financially afford to be on light-duty with shorten work hours any longer. The commissioner concluded there was “simply no reasonable basis to disbelieve claimant’s uncontroverted, sworn testimony that he was still suffering from back and leg pain (radiculopathy) when he was released” back to work. The commissioner concluded: “Therefore, the work-related injury either caused the herniated disc or it weakened claimant’s discs in his spine so that the second injury caused the final or worsened herniation. In either event, claimant has met his burden of proof to demonstrate that the disability was a natural consequence of the work injury. The subsequent non-work injury merely completed or furthered the injury which began at work.”

Substantial evidence supports the commissioner’s causation determination. The basic rule is that a subsequent injury, whether an aggravation of the original injury or a new and distinct injury, is compensable if it is the direct and natural result of a compensable primary injury.

The commissioner held the go-kart incident was a direct and natural result of the August 15, 2011 work injury based on the opinion of Dr. Bussey. The commissioner then concluded this connection was not severed by Sloan’s activity in attempting to slide the go-kart frame on the trailer because the back was rendered “more vulnerable” by the work injury.

Sloan had been released by the Employer’s doctor to full duty with no restrictions as of August 24, 2011, and the action Sloan took was not any more physically demanding than the work he had performed for the Employer during the interim two months between his return to work and his subsequent reinjury.

PAYMENT OF MEDICAL EXPENSES

Sloan cross-appealed the district court’s judicial review decision. He claims the court erred when it modified the agency’s decision by holding that the Employer can either pay the medical expenses that had been paid by Sloan’s private health insurance to him directly or to his health insurance company.

Sloan maintains the supreme court’s ruling in Ruud mandates the payments must be made to him, not his private health insurance company. In Ruud, the employee sustained an injury and was unable to return to work.  The appellate court concluded that the supreme court’s ruling was definitive with regard to whom an employer should pay medical expenses that have previously been paid by health insurance coverage to which the employer did not contribute.

The court of appeal found that the supreme court’s ruling in Ruud was not distinguishable, as the district court did, because Sloan did not personally pay for the premiums or provide proof his wife paid the premiums—the health insurance at issue in this case was provided through his wife’s employer. The dispositive issue in Ruud was that the injured worker’s employer did not contribute to the plan but the employee secured coverage independent of any employer contribution. The same holds true here.

The Employer is responsible to make direct payment to Sloan for “past medical expenses paid through insurance coverage.”

ZALMA OPINION

This deputy commissioner who actually saw the testimony of the witnesses found no relationship between the work related injury and the non-work-related injury. The deputy’s decision was reversed by the commissioner who did not see the witnesses. His opinion should not have been given more weight than that of the deputy who saw the witnesses. Finally, the injured worker will profit from his injury since he receives payment directly for what his private insurer paid. The court allowed an injured employee to profit from his injury.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Defeating a Workers’ Compensation Claim Is Almost Impossible

Insolvency of Primary Insurer not an “Occurrence”

Excess Insurer Need Not Drop Down on Insolvency of Primary Insurer

No one likes to believe it but insurers go broke. When an insurer becomes insolvent its insureds try everything possible to make some other insurer take on the burden to defend an indemnify the insured. When the insolvent insurer provides primary liability insurance coverage and there is an excess or umbrella policy over the primary insurer’s limits the insured attempts to get the excess insurer to “drop down” and act as a primary insurer. In so doing the insured attempts to rewrite the excess or umbrella policy.

In Canal Ins. Co. v. Montello, Inc., — Fed.Appx. —-, 2015 WL 7597429 (C.A.10 (Okla.) 11/27/2015) Montello, Inc. appealed from a final judgment in favor of various insurers.

BACKGROUND

Montello Inc. (“Montello”), an Oklahoma corporation, is a distributor of products used in the oil-drilling industry. One of the products distributed was a drilling mud viscofier containing asbestos. The product was distributed between 1966 and 1985. Thereafter, Montello was sued by individuals claiming injuries as a result of exposure to asbestos.

Montello had acquired primary insurance coverage from The Home Insurance Company (“Home”) from March 1975 to March 1984. In 2003, Home was declared insolvent by a New Hampshire court. At the time of the insolvency, Home had not paid out any claims for bodily injury on Montello’s behalf.

After Home’s insolvency, excess insurer Canal Insurance Company (“Canal”) filed a declaratory judgment action against Montello alleging it had no present duty to defend or indemnify Montello in third-party personal injury actions arising from Montello’s distribution of asbestos products.

The district court divided the case into phases and through a series of rulings, rejected Montello’s various claims.

DISCUSSION

The parties do not dispute that Oklahoma law applies. The Oklahoma Supreme Court has not directly addressed this issue, therefore, where no controlling state decision exists, the court must attempt to predict what the state’s highest court would do.

Insurance policies are contracts. Oklahoma courts interpret them in accordance with principles applicable to all contracts.  The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the others.

Under Oklahoma law, an excess insurer provides coverage that is secondary to the primary coverage; there is usually no obligation to the insured until after the primary coverage limits have been exhausted.

CANAL’S DROP DOWN OBLIGATION

The terms of the insurance policy Canal issued to Montello are undisputed.  Rather than reading the Coverage Section in its entirety, Montello focuses exclusively on the introductory clause. (“The company will indemnify the insured for all sums which the insured shall become legally obligated to pay as damages and expenses, all as hereinafter defined as included within the term ultimate net loss .”) Montello argues that as a result of Home’s insolvency, it has incurred expenses and may become legally obligated to pay damages.

The District Court held that  “Canal did not undertake to insure the solvency of Montello’s primary insurer.” Canal Ins. Co., 2013 WL 6732658. The Coverage Section clearly states that Canal’s obligation to indemnify is only triggered by personal injury, property damage, or advertising liability caused by or arising from an occurrence. The policy defines an “occurrence” as “an accident which takes place during the policy period … which causes personal injury, property damage or advertising liability[.]”

The Tenth Circuit agreed with the district court that the “insolvency of the underlying insurer is not an occurrence” as defined in the contract. Montello may be incurring defense expenses and may be legally obligated to pay damages, however, those expenses do not arise from the insolvency of Home which is not an “occurrence” as defined in the contract.

EXCESS CLAUSE

The Excess Clause is clear: When the underlying insurer’s limits are reduced by payment of loss, Canal’s liability is triggered. The underlying insurer’s inability to pay is not payment of loss. Montello also argued that the absence of language in Canal’s policy expressly preventing drop down coverage signals that the inverse must be true: insolvency must trigger the excess insurers’ drop down obligation. This argumentum ex silentio is weak and generally unpersuasive. It is common for courts to hold that excess insurers have no obligation to drop down, even when the contract does not expressly prohibit it.

THE UMBRELLA CLAUSE

An umbrella policy “provide[s] primary coverage for risks that the underlying policy does not cover. For Canal’s umbrella policy to apply, the underlying insurance must be inapplicable to the occurrence. Home’s policies provided coverage for asbestos related claims, making them applicable to the occurrence.

OTHER INSURANCE CLAUSE

An Other Insurance Clause is a standard provision intended to limit the excess insurer’s liability in the event that insurance other than the scheduled underlying insurance is available to the insured. It is not intended to expand an excess or umbrella insurer’s liability. The Other Insurance Clause does not require Canal to assume the obligations of underlying insurers listed in the Schedule of Underlying Policies simply because those insurers are no longer able to fulfill their obligations. Rather, the Tenth Circuit concluded that it would be inequitable to read an other insurance clause as insuring the solvency of the underlying primary insurer.

When the term “collectible” appears only in the Other Insurance Clause the isolated use of the word is not enough to transmogrify the policy into one guaranteeing the solvency of whatever primary insurer the insured might choose.

Alternatively, Montello argues because courts must read contracts as a whole, the term “valid and collectible” found in the Other Insurance Clause should be considered when interpreting the Excess and Umbrella Clauses. This, however, does not allow a court to modify the contracts and impose such an obligation throughout the contract given the applicable provisions.

DEFENSE COVERAGE

Canal’s duty to defend is outlined in the Endorsement for Defense Coverage. It arises only when: “1) the defense involves a claim for which the Canal Policies provide coverage; and 2) there is no underlying insurer obligated to defend. This comports with the traditional view that an excess insurer is not required to contribute to the defense of the insured so long as the primary insurer is required to defend.

The district court correctly held the excess insurer’s duty to defend does not arise as a result of the primary insurer’s inability to defend. The implications resulting from requiring an excess insurer to insure the solvency of a primary insurer would be widespread and would require insurance companies to scrutinize one another’s financial well-being before issuing secondary policies.

In the present case, the language of the defense endorsement is clear: the excess insurer must provide defense coverage only when the extent of the underlying insurer’s obligations have been satisfied.

REASONABLE EXPECTATIONS

In Oklahoma, the doctrine of reasonable expectations applies only when there is ambiguity in the contract. Even if the Tenth Circuit determined there was ambiguity, which it refused to do, it is clear that Montello was buying excess, not primary, insurance from Canal.

Therefore, the Tenth Circuit concluded that Oklahoma would probably follow the clear majority rule that an excess insurer is not required to “drop down” to assume the primary insurer’s coverage obligations when the primary insurer becomes insolvent. A reasonable person in the position of the insured would have understood the contract to provide excess and umbrella coverage, not coverage insuring the solvency of the primary insurer.

The district court correctly dismissed the present action for a lack of case or controversy noting that the “the existence of a duty to defend and indemnify Montello is contingent on future events, which have not and may never take place.”

ZALMA OPINION

The Tenth Circuit wisely applied the full language of the insurance policy when interpreting its conditions and allowed an excess policy to be an excess policy. Excess insurance, with a large primary policy below, can charge a low premium because the primary policy will cover everything but the rare catastrophic loss. If the excess policy was required to drop down when the primary becomes insolvent the court would rewrite the policy and change the entire insurance marketplace.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Insolvency of Primary Insurer not an “Occurrence”

ZALMA’S INSURANCE FRAUD LETTER – 12-01-2015

 

Zalma’s Insurance Fraud Letter

December 1, 2015

Volume 19, No. 23

Click Here to Obtain today’s Issue.

The Essential Resource For The Insurance Fraud Professional

A ClaimSchool ™  Publication, Written by Barry Zalma, Esq., CFE
©  2015 ClaimSchool, Inc. & Barry Zalma

Volume 19, No. 23 –  December 1, 2015

Subscribe to e-mail Version, it’s Free! or read at http://www.zalma.com/ZIFL-CURRENT.htm 
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Zalma’s Insurance Fraud Letter – December 1, 2015

ZALMA’S INSURANCE FRAUD LETTER

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

This Issue contains stories dealing with the following subjects:

  • Refuse to Submit to EUO – Lose Everything
  • Profomative Academy Courses by Barry Zalma
  • New Books from Barry Zalma
  • Insurance Fraud Conviction Affirmed
  • Fortuity — Necessary to Understand Insurance Fraud
  • Strange Testimony
  • Good News From the Coalition Against Insurance Fraud
  • Health Insurance Fraud Convictions
  • Other Insurance Fraud Convictions

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:

Zalma’s Insurance 101

Zalma Insurance Consultants and ClaimSchool Inc. have launched “Zalma’s Insurance 101,” a new online resource that provides video-based insurance training on http://www.zalma.com/videoblog/. Each educational video, which is about three minutes each, offers free commentaries on insurance, insurance claims handling, and insurance coverage.

Designed for people in the insurance business, whether they are working as an insurance agent, insurance broker, insurance claims person or insurance lawyer, the video series teaches the basics and beyond. It starts with a definition of insurance, moves through methods to read and understand an insurance policy, and continues on to deal with the claim and use of investigative techniques.

Said Zalma, “It is my intent in creating these videos to provide anyone interested in insurance a means to painlessly learn everything there is to know about property and casualty insurance in three-minute increments. If you start at Video Volume 1 and watch a new video every day, three minutes a day, five days a week, you will have 12.5 hours of insurance education at the end of a year.”

View one a day, starting at Volume 1 each day for a year or watch as many as you like. I will continue to add to the list as time goes by with the information adapted from my book Insurance Claims: A Comprehensive Guide, available from National Underwriter Company.
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.

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.html 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
If for some reason the current issue is not attached it will be available for a month at http://www.zalma.com/ZIFL-CURRENT.htm.  If you receive this notice in plain text the attachment is found at the link at the end of the message called “Location.”

Click Here to Obtain today’s Issue.

Insurance 101 – Construction Defects

December 2, 2015 at 2pm EDT Featured Speaker: Barry Zalma, Esq., CFE, Zalma Insurance Consultants

Barry Zalma is a nationally-renowned insurance coverage and claims expert, attorney,
author, consultant, expert witness and certified fraud examiner.

Exclusive $79 Webinar Bundle Offer Includes: » 1-Hour Webinar: Construction Defect Insurance Claims 101 » Construction Defects Coverage Guide: 2-volume book | 1,248 pages (a $196 value!) » CE Credit has been applied for CA, CT, FL, LA, NC, NY, OH, PA, TX, and VA and is pending certification by their respective Departments of Insurance.

1-Hour Webinar Covers: » Construction Defect Defined » Footings, Foundations, and Frame Construction » Defective Roofing Materials and Failure of Roofing Materials » The Defects » Construction Experts and Consultants » Building Code Compliance » The Construction Defect Suit » And MORE!
Construction Defects Coverage Guide 2015 | Retail Price: $196 | Paperback | 2-volumes | 1,248 pages
Product Number: 6230000   http://www.nationalunderwriter.com/reference-bookstore/property-and-casualty/zalma-insurance-claims-library/construction-defect-insurance-claims-101-webinar.html

Construction Defects Coverage Guide helps property owners, developers, builders, contractors, subcontractors, insurers, and lenders, as well as their risk managers and lawyers rapidly resolve construction defect claims when they arise and avoid construction litigation. If litigation becomes necessary it will help the prosecution or defense of construction defect suits effectively.

The wide range of topics covered helps you: » Identify the potential exposures throughout the entire construction process » Successfully manage the risks » Acquire the correct construction defect insurance » Underwrite against construction defect claims » Understand exactly how insurers decide whether to insure » Confront and minimize losses caused by construction defects » Decide when to pursue litigation or alternative dispute resolution.

Posted in Zalma on Insurance | Comments Off on ZALMA’S INSURANCE FRAUD LETTER – 12-01-2015

Fortuity

The Unwritten Exclusion

Before insurance or insurance fraud can be fully understood it is essential to understand that, as the Restatement of Contracts, Section 291, states insurance is: “A fortuitous event . . . is an event which so far as the parties to the contract are aware, is dependent on chance. It may be beyond the power of any human being to bring the event to pass; it may be within the control of third persons; it may even be a past event, such as the loss of a vessel, provided that the fact is unknown to the parties.”

Similarly, California Insurance Code Section 22 provides: “Insurance is a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event.”

FORTUITY & FRAUD

A fraudulent claim – one made with the intent to deceive an insurer to its detriment – can never be fortuitous, contingent or due to an unknown event.

It is essential that every person involved in the work to defeat insurance fraud understand the often unstated exclusion of fortuity. That is, for insurance to apply there must be an accident, a fortuitous event.

The investigator that collects evidence that establishes, by a preponderance of the evidence, that the claim was based on an intentional act, a fraud, or some event that was not accidental has established that there is no coverage. It is not necessary to prove that the insured intended to defraud the insurer only that the acts were not fortuitous, that the event was known before the policy was acquired or that it was not a contingent event.
Contrary to statements made by politicians, insurance is not a right. Insurance is not a means of curing social ills. Insurance is not a means of curing environmental problems. Insurance is not designed to protect against known losses. Insurance is not issued to protect against intentional acts. Insurance is not available to protect against a loss that happened before the policy is purchased. Insurance only protects the person insured from certain designated risks of loss that are both contingent and unknown at the time the policy is acquired.

Politicians and courts – faced with a horrendous fact situation – attempt to make insurance something it is not, a charitable institution that pays losses the insurer did not agree to pay by the words of the insurance contract. The California Courts of Appeal and Supreme Court have struggled with this concept for many years as a result of the discharge of pollutants from the Stringfellow acid pits and other polluted properties.

In State v. Continental Insurance Co., 169 Cal.App.4th 1114, 170 Cal.App.4th 160, 88 Cal.Rptr.3d 288 (Cal.App. Dist.4 01/05/2009), the California Court of Appeal, appears to have ignored the definition of insurance established by California Insurance Code § 22 and has allowed the state of California to stack all coverages it had for a loss that continued over a very long period of time. The Court of Appeal, in a lengthy decision, ignored a key concept of insurance law: that a loss, to be covered, must be contingent or unknown to the insured.

The State of California sought to recover from its liability insurers the amounts that a federal court had ordered the state to pay as much as $500 million for the cleanup of a hazardous waste site that first started leaking pollutants in 1969 and that continued to cause damage over a long period of time. The court described the factual basis for the suit as follows: “In 1969, heavy rains caused contaminants to overflow the dam. In 1972, groundwater contamination was discovered, and the site was closed. However, it continued to leak. In 1978, heavy rains once again made the ponds overflow; the State decided to allow a ‘controlled discharge’ of contaminants into Pyrite Channel. Hazardous waste released from the site merged into a plume that ultimately extended miles away.”

The Federal Court master outlined the problem as follows: “The hazardous waste disposal facility was opened in 1956. At the direction and under the control of the State, more than 30 million gallons of liquid industrial waste were deposited in the Stringfellow ponds during the facility’s operation; the State closed the site to new deposits in 1972 after the discovery of groundwater contamination…By 1960, a State expert found, chemical pollution was seeping into the groundwater through the fractured rock and around the ends of the barrier dam, which had been negligently constructed. A plume of contaminated groundwater moved down gradient from the site.

“In addition to underground leaking, two major overflow episodes occurred at the site. In March 1969, a rainstorm of around 20 inches (statistically expected to occur no more than once every 50 years), following on earlier heavy rains in January and February, flooded the site, causing the waste ponds to overflow and send polluted water down the canyon. In March 1978, again following extraordinarily heavy rains, the ponds were once more near overflowing and the retention dam began to fail. The State made a series of controlled discharges from the ponds, releasing about one million gallons of diluted waste down the Pyrite Creek channel. (The circumstances of the 1969 and 1978 releases are discussed in greater detail in connection with the legal issues.)”

The policies issued by the insurer defendants covered periods from 1964 until 1975 dates after the state first became aware of the pollution because a “State expert found, chemical pollution was seeping into the groundwater through the fractured rock and around the ends of the barrier dam, which had been negligently constructed. A plume of contaminated groundwater moved down gradient from the site.”

The trial court ruled that every excess liability policy in effect for any policy period during which the hazardous waste loss was occurring covered the entire loss sustained by the state, subject to the policy limits; that the policies could not be stacked; and that the insurers were entitled to a setoff for prior settlements. The policies defined an occurrence to include a continuous or repeated exposure to conditions.

The Court of Appeal reversed the judgment and remanded the case back to the trial court for further proceedings. The court held that the continuous injury trigger of coverage was applicable and that under the all-sums approach, every insurer that issued a liability policy for any period during which a continuous loss occurred was liable for the full extent of the loss up to the policy’s limits. The court determined that the state was entitled to stack the policy limits of all applicable policies across all applicable policy periods.

There was only a single occurrence, which was the deposit of hazardous waste at an unsuitable site. In light of the court’s reversal of the trial court’s no-stacking ruling, a challenge to the setoff ruling was moot.

This, however, seems to conflict with the recent decision of the California Supreme Court that concluded: “the proper focus of analysis here is on discharges from the ponds, rather than deposits to them.”

Justice Richli, writing for the Court of Appeal noted that: “In this action, the State of California (the State) seeks to recover from its liability insurers the amounts that a federal court has ordered it to pay for the cleanup of the Stringfellow hazardous waste site. Some insurers were granted summary judgment; the propriety of that ruling is currently before the California Supreme Court in State of California v. Underwriters at Lloyd’s London (2006) 146 Cal.App.4th 851 [54 Cal. Rptr. 3d 343], review granted April 18, 2007, S149988. Other insurers settled with the State.”

At the time of the appeal only six insurers were left litigating: Continental Insurance Company (Continental), Continental Casualty Company (Casualty), Employers Insurance of Wausau (Wausau), Horace Mann Insurance Company (Horace Mann), Stonebridge Life Insurance Company (Stonebridge), and Yosemite Insurance Company (Yosemite) (collectively the Insurers). Each of them had issued to the State an excess corporate general liability policy covering a two- or three-year policy period. The State was held liable for all past and future remediation costs, which the State claims could be as much as $ 700 million. The Insurers stipulated that the State was liable for at least $ 50 million.
The state of California was ordered by a federal court to clean up the pollution caused by the construction and use of the Stringfellow Acid Pits in Riverside County, California that is anticipated to cost the state as much as $700 million. The state that may not be able to fulfill the order because of a lack of assets and because of growing budget deficits turned to the California Supreme Court to obtain funds from the insurers who insured the state while the pits were constructed and the period when the pits polluted the land and water of Riverside County. To fulfill its obligation to clean up the pollution the state needed as much money as it could squeeze from its insurers.

The California Supreme Court considered the complex questions of insurance policy coverage interpretation that arose in connection with a federal court-ordered cleanup of the state’s Stringfellow Acid Pits waste site. The Supreme Court initially addressed the “‘continuous injury’ trigger of coverage,” as that principle was explained in Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645, 655 (Montrose) and the “all sums” rule adopted in Aerojet-General Corp. v. Transport Indemnity Co. (1997) 17 Cal.4th 38, 55-57 (Aerojet). The California Supreme Court brought to an end the dispute that started in the 1960?s when the Stringfellow Acid Pits began to leak.

ZALMA OPINION

In this case the state, as insured, was or should have been, aware of an ongoing progressive loss after 1960 when the state was made aware that contaminants were overflowing the Stringfellow pits. Once it had that knowledge it was obligated to so advise the insurer of a claim and all future insurers of the ongoing loss so that they could properly underwrite the risk. Failure to do so is a concealment of a material fact.

Therefore, in my opinion, any policy purchased after 1960, even if the state was unaware of the extent of the damage, the fortuity doctrine or “loss in progress” rule, where damage has begun to occur prior to the inception of the policy no part of the loss may be insured against. (See e.g., Summers v. Harris, (5th Cir. 1978)573 F.2d 869, 872; Presley v. National Flood Insurers Association (E.D. Mo. 1975) 399 F. Supp. 1242).

Unfortunately, for the insurers, I do not sit on the California Supreme Court so their decision must be followed until they change their mind and decide, in some future case, to enforce the fortuity requirement.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Fortuity

Crooked Doc Gets Nothing From Insurer

Refusal to Answer Relevant Question at EUO Defeats Claim

In no-fault states a physician, treating a person injured in an auto accident, obtains an assignment of the no-fault benefits, and steps into the shoes of the injured person. The physician can then make claim directly to the insurer. However, as the assignee of the injured person and insured, the physician is obligated to prove the claim and if requested, to appear for and testify at examination under oath (EUO).

In Country–Wide Insurance Company and Country–Wide Insurance Company d/b/a Country–Wide Management Services v. Gotham Medical, P.C., No. 109903/11, Nov. 20, 2015 the defendant counterclaimed for attorney’s fees and compensation for bills for the medical services that defendant allegedly provided to occupants of insured automobiles.

Plaintiffs, at the same time, moved for summary judgment declaring that defendant is not entitled to no-fault benefits from plaintiffs with respect to the no-fault claims at issue in this action, and to dismiss defendant’s counterclaims; or alternatively, to stay all American Arbitration Association (AAA) no-fault arbitration proceedings filed by defendant against plaintiffs to recover no-fault benefits for the no-fault claims at issue in the action, including a stay of enforcement and payment of previously issued AAA arbitration awards, pending determination of this declaratory judgment action.

THE ALLEGED FRAUD

Plaintiffs allege that defendant, as an assignee of first-party no-fault benefits, submitted to plaintiffs claims for defendant’s supposed treatment of “approximately” 31 people who sought medical treatment following motor vehicle accidents. In support of defendant’s claims it submitted medical reports with identical findings in relation to eight of the 31 patients, who were injured in different motor vehicle accidents. Plaintiffs also contend that defendant was engaging in a systematic upcoding of claims by using the same CPT codes, which are for the highest level of care on an initial examination, in relation to the treatment of minor soft tissue injuries.

INVESTIGATION RESULTS

Due to the suspicious nature of defendant’s claims, plaintiffs conducted an investigation, which revealed that Alexandre Scheer, M.D. (Dr. Scheer), defendant’s owner, was the subject of professional discipline by the Office of Professional Medical Conduct (OPMC) for allegedly engaging in the fraudulent practice of medicine. Dr. Scheer had agreed to a consent order that he did not contest the charge and consented to a 60 month probation period during which he was allowed to practice medicine only with supervision. The consent order stated as a term of Dr. Scheer’s probation: “Respondent shall practice medicine only when monitored by a licensed physician, board certified in an appropriate specialty, (practice monitor’) proposed by Respondent and subject to the written approval of the Director of OPMC. Any medical practice in violation of this term shall constitute the unauthorized practice of medicine.”

With this information, plaintiffs requested that defendant submit to an examination under oath (EUO) to verify defendant’s claims. Dr. Scheer appeared at the EUO on behalf of defendant. Defendant’s counsel directed him at the EUO not to answer questions as to OPMC’s investigation of him and as to whether he complied with the probation condition of being supervised by an appropriate doctor while treating the no-fault claimants whose claims are at issue in this action. Defendant’s attorney asserted that issues relating to the OPMC’s investigation, documents, proceedings, and the consent order were not proper subjects of the EUO because the investigation was about prior unrelated conduct by Dr. Scheer and was confidential. Furthermore, Dr. Scheer did not answer questions concerning the medical treatment rendered to a particular patient due to the claim having been denied by plaintiffs based on negative physical examinations.

Following the EUO, defendant’s claims were denied for the 31 patients on the grounds that defendant systematically upcoded its claims and that Dr. Scheer refused to answer pertinent questions at the EUO. Plaintiffs sued seeking declaratory relief for a declaration that defendant is not entitled to no-fault benefits for the approximately 31 claims.

Commencing in 2012, defendant pursued some of its claims through arbitration before the AAA. Plaintiffs participated in the arbitrations before the AAA. In the arbitrations, the indictment was excluded or given no weight, as the indictment contained only allegations, and Dr. Scheer had not been convicted. Arbitration awards were issued in defendant’s favor.

ANALYSIS

A party moving for summary judgment must demonstrate that there are no disputed issues of fact and that he, she, or it is entitled to judgment as a matter of law.

Dr. Scheer’s failure to answer all relevant questions at the EUO, as required by the provisions of the applicable insurance policies, constitutes a material breach of contract, and precludes recovery by defendant. A condition precedent to coverage is cooperation in submitting to an EUO. The insurance policies provide that plaintiffs, as insurers, may request that defendant, as a claimant, submit to an EUO, as a condition precedent to disbursement of benefits. Dr. Scheer stepped into the shoes of the insureds and, as an assignee of all the rights, privileges and remedies to which the patient was entitled under the No–Fault Law, the plaintiff stood in the shoes of the patient and acquired no greater rights than he had. Dr. Scheer’s refusal to answer relevant questions in relation to the claims was not proper and led to an appropriate disclaimer of coverage by plaintiffs.

Plaintiffs’ inquiry at the EUO regarding Dr. Scheer’s medical license was permissible. As a professional service corporation, defendant was required to be owned and controlled by a licensed professional, who rendered the services provided by defendant. Although Dr. Scheer was entitled to confidentiality regarding the OPMC administrative proceeding itself the effect of the consent order on the manner in which Dr. Scheer was entitled to practice medicine was not confidential. With respect to questions about treatment, Dr. Scheer’s refusal to answer them resulted in obstructing plaintiffs from obtaining relevant information to evaluate the treatments rendered and the sums claimed.

Plaintiffs’ motion was appropriately granted to the extent of awarding plaintiffs summary judgment declaring that defendant is not entitled to no-fault benefits from plaintiffs with respect to the no-fault claims at issue in this action and dismissing defendant’s counterclaims.

ZALMA OPINION

In New York, as in almost every state, an EUO is a condition precedent to recovery of indemnity from an insurer. The doctor’s lawyer, instructing Dr. Scheer not to answer questions posed to him at EUO was sufficient to destroy Dr. Scheer’s right to recover the benefits he claimed from the no-fault policies issued by Country Wide. What does not seem reasonable is the fact that Dr. Scheer is still practicing medicine and is not in jail.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Crooked Doc Gets Nothing From Insurer

Never Volunteer To Pay More Than Your Policy Limit

Primary Insurer May Not Obtain Contribution from Excess for Voluntary Payment

Insurance companies make payments based upon the terms and conditions of the contract of insurance. Every liability insurance contract has a limit of liability amount stated on its declarations page. The limit of liability is the most the insured will pay in the event of a covered loss. Insurers will only make payments in excess of their policy limits if they believe they acted in bad faith and could be held for any judgment entered or in error as a volunteer.

In Government Employees Insurance Company  v. RLI Insurance Company, et al.,  — N.Y.S.3d —-, 2015 WL 7491866 (N.Y.A.D. 2 Dept.), 2015 N.Y. Slip Op. 08706 (11-25-2015) GEICO sought contribution from RLI, the excess insurer, for amounts GEICO paid in excess of its policy limit.

THE ISSUES & ANALYSIS

In an action for a judgment declaring that the defendant RLI Insurance Company is obligated to indemnify the defendants Rachel E. Freier and Tzvi Freier in an underlying action entitled Bi Bo Chiu v. Malik, commenced in the trial court and the plaintiff appeals.

In 2007, the defendant Rachel E. Freier was involved in an automobile accident, in which Bi Bo Chiu, a passenger in one of the vehicles involved in the accident, was injured. Bi Bo Chiu subsequently commenced an action (hereinafter the underlying action) against Rachel E. Freier and the defendant Tzvi Freier, the owner of the car Rachel E. Freier was operating, to recover damages for personal injuries. The Freiers had primary insurance coverage from the plaintiff, Government Employees Insurance Company (hereinafter GEICO), and an umbrella policy from the defendant RLI Insurance Company (hereinafter RLI).

GEICO defended the Freiers in the underlying action, and after RLI disclaimed coverage based upon late notice, GEICO sued RLI seeking a judgment declaring that RLI was required to indemnify the Freiers in the underlying action.

As the trial court properly concluded, GEICO did not have standing to seek that relief. A party has standing where it has “‘an interest in the claim at issue in the lawsuit that the law will recognize as a sufficient predicate for determining the issue at the litigant’s request’” (Wells Fargo Bank Minn. N.A., v. Mastropaolo, 42 AD3d 239, 242, quoting Caprer v. Nussbaum, 36 AD3d 176, 182).

It is undisputed that the coverage provided by the RLI policy was excess to GEICO’s policy and, thus, RLI’s duty to indemnify the Freiers was not triggered until coverage under GEICO’s policy was exhausted. Therefore, GEICO did not stand to benefit from the RLI policy, depriving it of standing to seek a declaration of RLI’s duty to indemnify under that policy. As a result the appellate court concluded that the court properly granted RLI’s motion to dismiss the complaint for lack of standing.

The appellate court also concluded that the trial court properly denied GEICO’s cross motion for summary judgment on an unpleaded cause of action for a judgment declaring that RLI was required to reimburse it for $200,000 it paid above its policy limits to settle the underlying action, because GEICO’s proof did not support such a cause of action. Specifically, GEICO failed to demonstrate the existence of any duty running from RLI, the excess carrier, to GEICO, the primary insurer, with respect to RLI’s coverage determination. Moreover, contrary to GEICO’s contention, the doctrine of equitable subrogation cannot be invoked where, as here, the payments sought to be recovered were voluntary.

ZALMA OPINION

Unlike New York some courts find that a primary insurer owes a duty to the excess insurer to resolve the case in favor of the insured and within the primary insurer’s available limits. However, until the primary limits are exhausted the excess owes no duty to the primary insurer or to the insured. By paying more than its policy limit GEICO acted as a volunteer and as such had no right to contribution because it did not pay the extra $200,000 on its policy because its policy clearly and unambiguously had a limit that was enforceable.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Never Volunteer To Pay More Than Your Policy Limit

Potential for Coverage Requires Defense

Poor Underwriting Defeats Attempt to Defeat Defense Duty

Insurance companies have the right to choose who they wish to insurance and to rely upon he who will be insured for sufficient information to make a well-reasoned decision whether to insure or not insure particular insureds against particular risks. Underwriters are charged by the insurers who employ them to carefully assess the risk and obtain – by means of an application – with sufficient information to make the decision that a particular risk will be profitable.

People who run residential properties for poor people whose only source of income is governmental largess are often called “slum-lords” and eke profits out of their property by failing to keep the properties habitable and treating their tenants wrongfully. The tenants then gather together, retain a contingency fee lawyer, who sues the landlords for damages who then pass the obligation to pay damages to their insurers.

In Scottsdale Insurance Company v. David and Betty Kaplan Family Trust, David Kaplan and Betty Kaplan, individually and as trustees for David and Betty Kaplan Family Trust, Laleh Zelinsky Family Trust, Laleh Zelinsky, individually and as trustee for Laleh Zelinsky Family Trust, ASM Investments, Inc., a California corporation, AND DOES 1-50, Slip Copy, 2015 WL 7423231 (N.D.Cal., 11/23/15) Scottsdale attempted to avoid the obligation to defend by asserting the “know loss” exclusions against their insureds who were being sued as slum-lords.

STATEMENT OF ISSUES

Scottsdale sued the landlord defendants, the insureds, to determine the parties’ rights and obligations under landlord defendants’ commercial general-liability because, it claimed, that there is no coverage for a known loss. That is, the losses claimed against the insureds were not fortuitous and were known before the insured acquired the policy from Scottsdale. Defendants are landlords who own the Warfield Hotel, a single-resident-occupancy hotel located at 118 Taylor Street in San Francisco’s Tenderloin neighborhood. The Landlord defendants have been sued numerous times by residents of the Warfield as well as by the City and County of San Francisco due to the uninhabitable conditions maintained at the hotel.

Most recently, and relevant to our case, is Toliver v. Shaikh, et al., No. CGC 14-542085. The Toliver action is currently pending in San Francisco Superior Court and is set to go to trial in June 2016. There, seventy-eight plaintiffs, most of whom were not plaintiffs in prior actions against the Warfield, brought suit for: (1) negligence; (2) breach of the warranty of habitability; (3) breach of the warranty of quiet enjoyment; (4) violation of the San Francisco Rent Ordinance; (5) intentional infliction of emotional distress; (6) violation of California Civil Code Section 1942.4; and (7) violation of California Civil Code Section 1940.1.

Scottsdale Insurance Company undertook the defense of the Toliver action, pursuant to a reservation of rights, and filed the instant complaint for declaratory relief. Scottsdale argues that the Toliver action is not covered based on the known-loss provisions in the insurance policy.

Essentially, the policy creates a coverage exclusion if the insured had been put on notice, before inception of the policy, by receiving a demand for damages or by other means, of the injury claimed during the policy period. The policy contains a similar known-loss provision for personal and advertising injury.

Prior to the Toliver action, Warfield hotel residents had sued landlord defendants on several occasions relating to habitability issues.  The accusations against the Warfield hotel dated back to 2001. Based on the existence of these prior lawsuits, and landlord defendants’ knowledge of them, Scottsdale seeks a declaration that it has no duty to indemnify or defend landlord defendants in relation to the most recent Toliver action.

ANALYSIS

Summary judgment is proper where the pleadings, discovery, and affidavits show that there is “no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Rule 56(c). Material facts are those which may affect the outcome of the case.

A liability insurer’s duty to defend will arise when a suit against an insured potentially seeks damages within the coverage of the policy. An insurer, however, need not defend if the third party complaint cannot, by any conceivable theory, raise a single issue which would bring it within policy coverage. Thus, the settled rule is that where a pleading against the insured raises the potential for coverage, the insurer must provide a defense. In order to prevail on a motion for the summary adjudication of the duty to defend, the insured need only show that the underlying claim may fall within coverage; the insurer must prove it cannot.

The Court of Appeal concluded that issues of material fact remain as to whether the policy’s known-loss provisions absolved Scottsdale of its duty to defend in the underlying Toliver action. Specifically, Scottsdale has not established as a matter of law that the previous civil lawsuits put landlord defendants on notice of all specific claims alleged in Toliver.

Many of the defects alleged in the previous actions overlap with the Toliver allegations. Many of the same units are involved and all allege violations in common areas. The existence of the prior lawsuits likely put landlord defendants on notice of at least some violations alleged in Toliver. This is especially true in regards to the claims of the seventeen plaintiffs in Toliver who were also plaintiffs in the previous Santa-Iglesias action.

Nevertheless, Scottsdale has not established beyond “any doubt” that the known-loss provisions in the policy apply to all of the claims in Toliver. The California Supreme Court has established that “in a mixed action, the insurer has a duty to defend the action in its entirety.” Buss v. Superior Court, 16 Cal.4th 35, 48 (1997).

Scottsdale essentially contends that the longstanding habitability issues at the Warfield put landlord defendants on notice of the habitability violations alleged in Toliver. Scottsdale correctly points out that landlord defendants “received a demand or claim for damages relating to habitability issues at the Warfield Hotel prior to the May 1, 2013 inception date of the Policy”.  An insured being on notice of general habitability allegations in certain parts of a building does not negate any future insurance coverage for allegations relating to other partially overlapping, partially different habitability issues.

The underlying Toliver action has seventy-eight plaintiffs. Only seventeen of those plaintiffs had been involved in actions commenced before the parties entered into the insurance agreement. Additionally, as stated above, the Toliver action involves twenty-five separate units not implicated in prior suits. Based on the differences between the underlying action and the previously settled actions, factual issues remain to be decided as to the scope of landlord defendants’ knowledge of the alleged Toliver violations.

ZALMA OPINION

If Scottsdale had, before issuing the policy to the defendants, done minimal underwriting it would have asked the owners about the previous actions, about its claims history, about whether the problems involving the prior lawsuits had been resolved, and whether any of the tenants were making claims against the owners for similar bad conduct. If they simple put the name of the hotel in Google they would have learned that: “The Warfield is #1 on the Department of Building Inspection’s “Hit List” because of the countless violations that have never been corrected and the substandard conditions the building is in. The San Francisco and California Housing Codes clearly list all requirements any kind of housing must have if a human is going to live there, and The Warfield lacks almost all of them…” [http://www.yelp.com/biz/warfield-hotel-san-francisco] If Scottsdale was deceived it should have rescinded the policy. If it knew what it was insuring the “known loss” defense won’t fly unless they can get admissions from the owners during trial.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on Potential for Coverage Requires Defense

No Right to Bad Faith Claim Against NFIA

NFIA Preempts State Law

Most people, probably because of the name given to the National Flood Insurance Program (NFIP), believe it is insurance. It is not. Insurance is a risk taking and risk spreading device that agrees to indemnify an insured against a fortuitous and contingent event where the insurer expects the opportunity to make a profit. The NFIP, on the other hand, only agrees to indemnify against certain limited damages by flood and will, by federal statute, never make a profit and almost always lose money. As a result claims are not paid from premiums collected and invested but from the Treasury of the United States.

In James Durward v. Hartford Insurance Company of the Midwest, Slip Copy, 2015 WL 7351510 (D.Colo., 11/20/2015) Mr. Durward attempted to make the NFIP act as if it is a state licensed insurer who is subject to contract and tort damages and allow for punitive damages against the insurer that acts for government.

FACTS

The plaintiff, James Durward, owns a commercial building in Estes Park, Colorado. In September 2013 the building was damaged by flooding. Mr. Durward submitted a claim under a Standard Flood Insurance Policy (“SFIP”). The defendant, Hartford Insurance Company of the Midwest, which administered the SFIP, denied the majority of the claim, citing a limitation of coverage for damage to items in a basement. The coverage dispute is whether the property has a basement as that term is defined in the SFIP.

Dr. Durward brought this suit alleging claims for (1) a declaratory judgment as to coverage, (2) breach of contract, (3) bad faith breach of insurance contract, a tort recognized in Colorado common law, and (4) a statutory penalty under a Colorado statute. The Third Claim asserts that Hartford engaged in a number of unfair claims handling practices, i.e., inadequate communication, inadequate investigation, inadequate efforts to effectuate a prompt and fair settlement, inadequate justification of its coverage decisions, and ultimately unreasonable delay and denial of coverage. The Fourth claim also asserts unreasonable delay or denial of the insurance benefit.

THE NATIONAL FLOOD INSURANCE ACT

The National Flood Insurance Act, 42 U.S.C. § 4001 et seq., was enacted by Congress in 1968 to make affordable flood insurance available on a national basis. The Act, referred to herein as the NFIA, created the National Flood Insurance Program, which is administered by the Federal Emergency Management Agency (“FEMA”). Insurance coverage under this program is provided through the SFIP, a uniform, standard-form insurance contract. 44 C.F.R. pt. 61, app. A(1) (2014). FEMA created a “Write-Your-Own” or “WYO” program whereunder private insurance companies are authorized to issue and administer SFIP’s .

Durward purchased his SFIP coverage from Hartford acting as a WYO company.
A WYO company is a fiscal agent of the United States. FEMA bears the risk and is responsible for the ultimate payment of claims using U. S. Treasury funds, not the WYO company’s funds. The WYO company collects premiums, adjusts claims, and issues the payments on covered claims. It cannot waive, alter or amend any of the provisions of the SFIP.

CONCLUSIONS

Motion to Dismiss First Claim: Declaratory Judgment & Second Claim, Breach of Contract.

The First Claim appears to serve no useful purpose in this case. Plaintiff seeks a declaration “as to the extent of Defendant«s obligation to provide coverage to Plaintiff under the Policy for the foregoing property damage and related losses.” In plaintiff’s Second Claim, seeking damages for breach of contract, plaintiff alleges that “Defendant failed to perform under the Policy, in that it failed to provide coverage for the foregoing property damage and other losses.” It seeks damages caused by the breach. Thus, in resolving the Second Claim, the Court necessarily will resolve the coverage issue.

Therefore, while it probably can be said that leaving the First Claim in the case would do no harm, it also does no good. It is substantively redundant.

2. Third and Fourth Claims: Bad Faith.

The issue is whether these state law claims are preempted by the NFIA. This is by no means the first case to address that issue. Based on the parties’ briefs and my own research, it appears that seven circuit courts have addressed that issue, and each one has answered the question affirmatively.

The circuit decisions do not necessarily rely on the same theory of preemption. Federal law can preempt state law in three different ways: express preemption (Congress explicitly preempts state law); field preemption (Congress intended to occupy the field and therefore impliedly preempts state law); and conflict preemption (state law conflicts with federal law). The Third, Fifth, Ninth and Tenth Circuits also found conflict preemption.

Congress recognized that WYO companies might incur state law liability for errors or omissions in the procurement of SFIP policies or in handling claims. If so, then the statute immunizes FEMA and the U.S. Treasury from responsibility for such liability.

Under Utah law, insurers can be estopped to deny coverage when an insured relies to his detriment on inaccurate representations by an agent as to the scope of coverage. Also, a warranty by one party to a contract of the existence of a fact that induces reliance amounts to a promise to respond in damages proximately caused by the nonexistence of the fact.

Some district courts have been open to state-law claims arising out of the policy procurement process while finding that claims arising out of the claims handling process are preempted.

The District Court for the District of Colorado concluded that Durward’s bad faith claims are preempted by the NIFA and FEMA’s regulations issued thereunder. First, as indicated, all seven circuits that have addressed the issue, including the Tenth Circuit, have found preemption. Second, the SFIP, which was prepared and issued by FEMA, plainly provides that claims-handling disputes are exclusively governed by federal law.

ZALMA OPINION

This case makes clear that the NIFA and the SFIP’s issued as a result are not insurance. If it is anything NFIA is government program providing benefits to people who cannot buy commercially issued flood insurance for prices they can afford. The Federal Government subsidizes those who acquire an SFIP and limits the purchasers of an SFIP to remedies limited to those allowed by the statute. It seems, therefore, you get what you pay for and it isn’t much.

ZALMA-INS-CONSULT                      © 2015 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 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.

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

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

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

Mr. Zalma’s 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 on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on No Right to Bad Faith Claim Against NFIA

What I am Thankful For

 I am Thankful that I am an American

MY FAMILY HISTORY

About 100 years ago my grandparents escaped the Ottoman Empire where people who did not follow Islam were subject to automatic execution if found on the street, and brought my parents, then about five years old, to the United States. My father explained to me that he, as a child, saw Turks on white horses ride through the Jewish quarter of Istanbul – where he was born – slicing off the heads of Jews with a long sword just because they were visible to the horseman. As a result of the wisdom of my grandparents, all but one who died before I was born, I was born an American to my Naturalized American parents.

I was born in Los Angeles and have lived all of my 73 years in Southern California except for the three years I spent in the U.S. Army. I became an insurance adjuster, lawyer, consultant and author with some success. I have either met or communicated with all of you because my grandparents were able to immigrate through Ellis Island.

My grandparents asked for nothing from the United States but the opportunity to live safely and work to earn their living. They did so while learning English, found menial work, and survived to make life better for their children. My father made it through the third grade and worked full time thereafter. My mother had very little formal education and as a young girl worked in a sewing business often called a “sweat shop” where she was paid pennies per garment completed. Before my parents met they both worked multiple jobs for minimal wages.

Because he worked three jobs all through the Depression and the 1940’s, from building Liberty Ships to driving a cab, driving a delivery van, being a short order cook, and many other odd jobs my dad was able to open a dry cleaning business that supported our family in comfortable poverty. By the time my dad retired that business allowed my brother to support his family and kept my mother well cared for until she passed when she was 100-years-old.

I was the black sheep of the family and was the first to graduate college and attend law school. I practiced law actively for more than 43 years. I now limit my work to consulting and testifying as an expert witness on insurance claims handling, insurance coverage and insurance bad faith.

Thanks to the wisdom of my grandparents to make their way to the U.S. my parents survived, met, married and gave my siblings and I life that we would never have seen if they stayed in the Ottoman empire since my grandparents would never have survived to give birth to my parents and neither I nor my siblings would have been born.

MY FAMILY NOW

Today, I and my extended family, live comfortably in Southern California and I get to do what I like to do most, write about insurance and insurance fraud and tackle convoluted insurance coverage and claims matters as a consultant and expert witness.

My family and I have much to be thankful for this year, not the least of which is you, my friends, clients and readers of my blogs “Zalma on Insurance” and “Zalma’s Insurance 101″, the Newsletter  “Zalma’s Insurance Fraud Letter,” and my books and columns.

We Americans (first generation Americans like me) or those who came over from England on the Mayflower, have celebrated Thanksgiving when we were just a colony of Great Britain to give thanks for the good things in life at least once a year. It took Abraham Lincoln, our greatest President, to make it an official holiday. The Thanksgiving holiday gives me the opportunity to consider the blessings my family and I have received and to thank all who have made it possible.

I AM THANKFUL

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

  1. I have loved my wife of 48 years since she was 9 and I was 12 when we first met. I am thankful that she still loves me and lets me make clear every day that I love her more now than I did when I was 12.
  2. My three adult children who are successes in their own right.
  3. That my three children and one grandson live nearby, put up with my wife and me, and are healthy, successful, and mostly happy in what they do.
  4. My clients who, for the more than 42 years have allowed me to earn a living doing what I love.
  5. My grandparents for having the good sense to leave the Mediterranean at the beginning of the 20th Century so we could avoid the Holocaust.
  6. My country for giving me a place to live and work in peace and complain about it without fear.
  7. Those of you who read what I write and gain something from it.
  8. Seventy three years of mostly good health that gives me the ability to continue to work – albeit at a reduced rate.
  9. The hundreds of friends I have never met but with whom the Internet has allowed me to communicate in parts of the world I have never visited.
  10. My publishers and editors who help me make whatever I write intelligible and in proper English.
  11. The wonder of the Internet that allows me to publish E-books, ZIFL and my blog instantly on line.
  12. That my family can get together to express our thanks for each other and our happiness this year again without a need for anything but enjoying each other’s company.
  13. That most of you can gather with your families to express your thanks.

The United States – contrary to what you may hear from politicians – has been at war, on and off, with portions of the Islamic world since President Thomas Jefferson sent the Marines to Tripoli. Even with the evil of those Ottoman’s who convinced my grandparents to escape to the U.S. or the terrorist attacks from the decedents of the same people Jefferson’s Marines fought in Tripoli, there is no better place or country in which I would rather raise my family nor better place to live.

When I started practicing law in 1972 new technology allowed a typewriter to erase errors from the keyboard, legal research was done in a large library and took days to find support for an issue, and I needed three professional legal secretaries to keep up with my dictation. Now, using modern technology, I can do the same legal research in 30 minutes on line, need no secretary, and can operate my consulting business with no employees.

Thanksgiving is a day to think about the good things we have in this life, eat a great deal of food, and enjoy the company of family and friends. I cannot express how thankful I am for all of you and that I have been able to enjoy the life my forbears could not even dream of achieving.  I hope, on this Thanksgiving weekend, that you can join my family and me remembering that it is more important to think about our blessings and those things that we have to be thankful for than to get in line for “Black Friday” to buy an inexpensive flat screen t.v. or tablet computer.

Remember all that you have to be thankful for this Thanksgiving holiday and hold each member of your family close and let them know you are thankful that they are part of your family and that there is no need to escape to a safe place. You live in the safest, most free, and best place on planet Earth.

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