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

Go to Zalma Books – E-Books and Articles by Barry Zalma – http://www.zalma.com/zalmabooks.htm

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.

Posted in Zalma on Insurance | Comments Off on What I am Thankful For

Always Best to Defend Close Cases

Duty To Defend Is Extremely Broad

Insurance companies have difficulty with class actions because they are often vague in asserting property damage, bodily injury or personal injury. Most class actions seek damages because of wrongful actions by a manufacturer who in one way or another cheated the members of the class. Insurers apply the lack of fortuity and multiple exclusions to avoid an obligation to defend or indemnify. In so doing the insurers guarantee that they will be involved in litigation with their insured.

In Hartford Fire Insurance Company v. Thermos L.L.C., Jenny Milman, and Ellen Thomas; Thermos L.L.C., Third-Party Plaintiff, v. the Travelers Indemnity Company of America and National Fire Insurance Company of Hartford, Third-Party Defendants; Slip Copy, 2015 WL 7293509 (N.D.Ill. 11/19/2015) Thermos L.L.C. (“Thermos”) sued to recover defense and indemnity costs from three of its insurers. The insurers, Hartford Fire Insurance Company (“Hartford”), the Travelers Indemnity Company of America (“Travelers”), and National Fire Insurance Company of Hartford (“National Fire”) (collectively, the “insurers”) refused to defend an action arising from a putative consumer class action lawsuit — Milman v. Thermos LLC, No. 13 C 7750 (N.D. Ill.) (the “Milman lawsuit”) — brought against Thermos in the Northern District of Illinois. The parties filed cross-motions for judgment on the pleadings or summary judgment regarding the duty to defend, Thermos’ claim that the insurers are estopped from denying coverage for the Milman settlement, and Thermos’ request for section 155 damages.

BACKGROUND

The Milman Lawsuit

Milman filed suit against Thermos in the United States District Court for the District of New Jersey. That case was voluntarily dismissed without prejudice and later the Milman lawsuit was filed in the Northern District of Illinois as a putative class action. The allegations in the Milman complaint are almost identical to those in the dismissed New Jersey action.

The plaintiffs in the Milman lawsuit alleged that Thermos manufactured two types of allegedly “leak-proof” bottles intended for use by young children. Although Thermos advertised the bottles as “leak-proof,” inducing the plaintiffs and putative class members to buy the bottles, the bottles had a “tendency to leak” and damaged the class who bought the leaking bottles.

The plaintiffs alleged that the leaks were “inherent in the design of the Bottles.”  Because Thermos advertised its bottles as leak-proof, the plaintiffs contended that Thermos was able to price the bottles at a premium over other similar non-leak-proof children’s bottles.

Thermos successfully moved to dismiss the injunctive relief portion of the complaint but otherwise let the complaint proceed. The parties then participated in a successful settlement conference with the plaintiffs and for settlement purposes, the court certified the following class: “All persons who purchased a Foogo® stainless steel vacuum-insulated straw bottle or a Foogo® plastic straw bottle in the United States at any time between January 1, 2007 and December 23, 2014 excluding (a) any such person who purchased for resale and not for personal or household use, (b) any officers, directors or employees, or immediate family members of the officers, directors or employees, of Thermos, and (c) the presiding judges and their immediate families.”

The Insurance Policies

Thermos had commercial general liability coverage with three different insurers, Hartford, Travelers, and National Fire, over the relevant time period. The relevant language of the insurance policies is the same. All insurance policies provide that the insurers “will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.” The policies also provide that the insurers are required to defend Thermos in suits seeking such damages.

ANALYSIS

Duty to Defend

To determine if an insurer has a duty to defend, the Court must compare the facts alleged in the underlying complaint to the relevant provisions of the insurance policy. The duty to defend is broader than the duty to indemnify, and an insurer may have to defend its insured even though coverage may not ultimately be found. An insurer may only refuse to defend if it is clear from the face of the underlying complaint that the allegations set forth in the complaint fail to state facts that bring the case within, or potentially within, the coverage of the policy.

The insurers argue that they had no duty to defend Thermos because the Milman complaint did not seek damages because of covered “property damage” caused by an “occurrence.” They also argue that several policy exclusions preclude coverage.

Property Damage

The parties’ dispute centers on whether the allegations of the complaint can be read to allege damage to property beyond the bottles themselves.

On the one hand, when setting forth its damages and injuries in connection with its specific claims, the plaintiffs tailored those statements to defects related to the bottles. However, the Milman plaintiffs never restricted their damages requests in their complaint to only economic damages. While their proposed class definition excluded those who suffered bodily injury, it did not include a similar exclusion for those who suffered property damage, meaning that damage to third party property and loss of use of milk, juice, and other liquids remained in play. The Court agreed with Thermos and, because the underlying complaint is to be construed in favor of coverage, finds that it could not ignore the explicit factual allegations of property damage to diaper bags and loss of milk and juices from the leaking bottles.

The allegations of property damage and loss of use are consistent with the plaintiffs’ main claim that Thermos’ misrepresentations that the bottles were leak-proof caused them injury which fits within the policies definition of property damage.

Alternatively, Hartford and Travelers asked the Court to take into account extrinsic evidence that allegedly demonstrates that the insureds had no duty to defend. Although the Court generally may only compare the allegations of the complaint to the insurance policy at issue to determine the duty to defend, Illinois courts have carved out an exception allowing the Court to look beyond the underlying complaint if doing so would not determine an issue critical to the outcome of the underlying litigation.

The Milman complaint contained allegations that raised the potential for damages arising from “property damage” caused by an “occurrence.” None of the policy exclusions raised by the insurers in their motions apply to preclude coverage. Thus, based on the facts before it, the Court found that the insurers had a duty to defend Thermos because a potential for coverage existed.

ZALMA OPINION

Regardless of the complexity of a class action like this one relating to leaking Thermos bottles, insurers should look carefully to the facts of the situation, and if a potentiality for some coverage exists, should work together to provided defense to the insured under a reservation of rights. The insurers had excellent arguments but could not overcome the fact that there was a potential for 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.

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 Always Best to Defend Close Cases

Unambiguous Exclusion Always Applies

Another Attempt to Rewrite a Policy

After a Loss

Insurers, working hard to make precise and understandable insurance policy language while still using “Sesame Street” English, write policy exclusions in language that a 4th grader or a judge can understand.

In Farm Bureau Mut. Ins. v. Wagner, Not Reported in N.W.2d, 2015 WL 7283387 (Mich.App., 11-2015) the Michigan Court of Appeal was asked to force an insurer, who had excluded a business risk, to cover the risks of loss by a pizza delivery driver who was clearly using a vehicle in business for which he was paid a salary plus a per-pizza fee.

FACTS

On May 17, 2010, defendant Conor Lewis was working as a delivery driver for a Pizza Hut restaurant in Kalamazoo, Michigan. He drove a Mazda owned by his father and insured by Farm Bureau. While delivering pizzas in the Mazda, Conor hit the rear of Michelle’s automobile while she was stopped and waiting to turn left. On April 17, 2013, Michelle and her husband James filed suit against Conor, his father Greg Lewis, and Pizza Hut for damages resulting from the accident. Pursuant to his No–Fault policy, Greg argued that plaintiff was obliged to defend him against claims and indemnify him for damages arising from the May 17, 2010 accident. Farm Bureau filed a complaint against Conor, Greg, Michelle, James, and Pizza Hut requesting declaratory relief that, pursuant to the insurance policy, it was not obligated to defend or indemnify anyone with regard to the accident.

The policy provided that “We do not provide Liability Coverage for any Insured: ¶  * * * ¶ f. for liability arising out of the ownership or operation of a vehicle while it is being used to carry persons or property for a fee. Reimbursement of reasonable mileage expenses incurred by the Insured is not considered a fee.”

The trial court held that the exclusion was not ambiguous and that there was no genuine issue of the material fact that Conor was delivering pizzas at the time of the accident. The trial court further held that the provision applied to exempt plaintiff from liability and the duty to defendant and granted Farm Bureau’s motion.

ANALYSIS

The statutes specifically permit insurers to limit insurance coverage on the basis of business use. Indeed, coverage under an insurance policy is lost if any exclusion in the policy applies to particular claims. Furthermore, because an insurance company cannot be liable for a risk it did not assume, clear and specific exclusions must be given effect.

The parties do not dispute that Greg owned the policy at issue at the time of the collision, that the policy listed Conor as a driver, that the Mazda automobile involved in the May 17, 2010 accident was insured under this policy at the time of the accident, or that Conor was driving the Mazda when the accident occurred. Michelle and James do not dispute that the trial court correctly held that there was no question of material fact that Conor was delivering pizzas pursuant to his employment with Pizza Hut when the accident occurred. Indeed, the evidence shows that the trial court properly held there was no question of material fact in that regard. In fact, Michelle stated that after striking her automobile, Conor apologized to her and told her he “looked down to see if I was supposed to turn on this road because I was delivering pizza for someone.”

Testimony corroborated by Pizza Hut’s timesheets show that Conor worked there from 10:44 a.m. until 5:21 p.m. that day, and evidence indicates that the accident occurred between 10:30 a.m. and 11:00 a.m. Conor was paid an hourly wage for delivering pizzas as well as $1.50 for each delivery to compensate him for mileage and fuel.

Although the provision here uses the word “fee” as opposed to the word “consideration” used in an earlier decision, the court did not believe the there is a substantive difference between the meaning of “fee” and “consideration” as used in various policies.  Because plaintiff was carrying property for a fee at the time of the accident and because the policy excluded from coverage damage arising from a vehicle used to carry property for a fee, plaintiff cannot be held liable for the risk it did not assume.

The exclusionary provision was lawful and not against public policy. Moreover, the exclusion is clear, unambiguous and not in contravention of public policy; consequently, it must be enforced as written. Plaintiff was not obligated to provide coverage arising from the accident, and under the terms of the policy plaintiff had no duty to defend any suit or settle any claim for bodily injury or property damage not covered under this policy.

Furthermore, plaintiff had no duty to defend or settle the claims in the underlying suit. Thus, as there is no question of fact that under this provision, plaintiff was not liable to indemnify or defend defendant, the trial court properly granted plaintiff’s motion for summary disposition on this basis.

Michelle and James nevertheless argue that the exclusion does not apply or that it is ambiguous. Although Pizza Hut’s delivery drivers did preparation work, washed dishes, and answered telephones in addition to delivering pizzas, he also testified that the duty of a delivery driver was first and foremost to take deliveries to the customer. The fact that Conor performed duties as an employee of Pizza Hut other than delivering pizzas does not negate the fact that he was paid a wage to deliver pizzas, and it did not render the exclusionary provision inapplicable.

Michelle and James also argue that because Conor was not licensed under the Motor Carrier Act (MCA), he was not engaged in the business of transportation; therefore, the exclusionary provision in the policy did not apply to him. Based on this premise, they further argued that transportation was merely incidental to Pizza Hut’s business and, therefore, Conor was not carrying property for a fee when he delivered pizzas, and the exclusionary provision does not apply.

The MCA confers “upon the [Michigan public service] commission the power and authority and to make it its duty to supervise and regulate the transportation of property by motor vehicle for hire upon and over the public highways of this state….” MCL 475.2. Although it is true that the MCA requires licensing in various circumstances, see MCL 476.1; MCL 477.1. The court found no provision of the MCA suggesting that any aspect of it applies to these circumstances. And, even assuming it does, nothing supports that it should or could be applied to aid in construing the exclusionary provision at issue.

ZALMA OPINION

Creative arguments no matter how worthy cannot change the clear and unambiguous language of a contract of insurance. Arguing that Connor, while delivering pizza, was not a commercial user of a vehicle, although creative, failed to allow coverage for a person using a vehicle for a fee, facts that were undisputed.

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 Unambiguous Exclusion Always Applies

Insurer Has the Right to Limit Coverage

No Coverage for an Insured v. Insured Exclusion

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

The Second Circuit Court of Appeal was asked to limit the right of an insurer to effectively choose what risks it will accept and exclude the risk of loss when one insured sues another in St. Paul Guardian Ins. Co. v. Leopold, — Fed.Appx. —-, 2015 WL 7273240 (C.A.2 (Vt.) 11-18-2015) after the trial court granted judgment in favor of the insurer.

Jonathan Leopold appealed from a judgment of the United States District Court for the District of Vermont granting judgment on the pleadings to St. Paul Guardian Insurance Co. (“St.Paul”) and dismissing Leopold’s counterclaims.

FACTS

In this insurance coverage dispute, St. Paul issued a policy to the City of Burlington that afforded primary and excess public entity management liability (“PEML”) coverage. The PEML coverage provides that St. Paul will pay whatever amount any “protected person” is legally required to pay as damages for a “covered loss,” and will defend a “protected person” against a suit for such loss. The PEML policy also contains an Insured v. Insured exclusion that stated that coverage does not extend to “loss for which any claim or suit is made or brought by, or on behalf of, any current or former protected person against any current or former protected person.” Leopold was the Chief Administrative Officer of Burlington (a “protected person”) and was a defendant in a lawsuit filed by two former city councilmen on behalf of the City of Burlington (the “Underlying Action”).

The district court granted judgment for St. Paul on three separate grounds:

(i)     the damages sought in the Underlying Action did not qualify as a “covered loss,”

(ii)     the two former city councilmen who brought the Underlying Action were insureds, triggering the Insured v. Insured exclusion in the PEML policy, and

(iii)     the Underlying Action was brought on behalf of the City of Burlington, which is an insured, triggering the Insured v. Insured exclusion in the PEML policy.

The district court also dismissed Leopold’s counterclaim for attorney’s fees relating to the various criminal investigations because St. Paul had no duty to defend in the Underlying Action.

ANALYSIS

An insurer has a duty to defend if any claims in the underlying action are potentially covered by the policy, but if there is no possibility that the insurer might be obligated to indemnify, there is no duty to defend.  City of Burlington v. Nat’l Union Fire Ins. Co., 655 A.2d 719, 721 (Vt.1994). Courts construe insurance policies according to their terms and the evidenced intent of the parties and give disputed terms their “plain, ordinary and popular meaning.” Id.

As the district court concluded, the Underlying Action fell within the Insured v. Insured exclusion to the PEML policy. There is no dispute that Leopold is a “protected person,” and it is clear that the suit was brought on behalf of the City of Burlington, a public entity protected by the policy. Under the plain wording of the contract, any “loss for which any claim or suit is made or brought by, or on behalf of, any … protected person against any … protected person” is excluded from coverage. The Second Circuit concluded that it is therefore clear that St. Paul had no duty to defend or indemnify Leopold for the Underlying Action.

Because St. Paul had no duty to defend or indemnify Leopold in the Underlying Action, the Second Circuit agreed with the district court that St. Paul has no duty to pay the attorney’s fees Leopold has incurred in connection with various criminal investigations into the conduct that was the basis of the Underlying Action.

ZALMA OPINION

I continue to be surprised by litigants who attempt to avoid the clear and unambiguous language of an insurance policy. Fortunately the courts, like the Second Circuit, refuse to change insurance contracts and the law. In this truly brief and direct opinion the Second Circuit affirmed the decision of the trial court since it was clearly a correct decision.

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 Insurer Has the Right to Limit Coverage

Murder Does Not Pay

Murder Conviction Defeats Claim on Life Insurance Policy

The U.S. District Court for the Northern District of Alabama was faced with an unusual claim made by a person with unmitigated gall – a murderer seeking the benefits of the life insurance policy on the life of the person he murdered. The decision should have been easy but, because the plaintiff-killer was litigating in pro se the court was forced to bend over backwards to reach a fair result in Richard Carl Parton v. Roy Thomas Smith, Jr., Slip Copy, 2015 WL 7176415 (N.D.Ala., 11/16/2015)

FACTS

The Prudential Insurance Company of America (“Prudential”), as stakeholder, filed an interpleader action on March 28, 2011. At issue are who is entitled to receive the proceeds from insurance issued by Prudential to its insured, Carla Smith, which became payable as a result of the death of Ms. Smith. Named in the complaint as defendants were Richard Carl Parton and Roy Thomas Smith, Jr. They are now the only parties remaining. The proceeds at issue have been paid into the court registry.

The case comes before the court on the motion for summary judgment filed by the plaintiff, Richard Carl Parton. The motion seeks a determination that Parton is entitled to all of the proceeds. Because the defendant is proceeding pro se, the district court must give that party express notice of the summary judgment rules, of his right to file affidavits or other materials in opposition to the motion, and of the consequences of default. This court did so on September 15, 2015. Still, the defendant has filed no opposition to the motion.

Since the defendant filed no response to the motion. Pursuant to the court’s Uniform Initial Order, each proffered fact should be deemed admitted for the purpose of ruling on this motion. However, because the defendant is proceeding pro se, the court has reviewed the record, and the submissions by the plaintiff, and notes that there is undisputed evidence in support of each proffered fact.The court, after conducting an independent review of the evidence available found that there is no genuine issue of material fact as to the following:

  1. Prudential provided certain Group Life Insurance coverage on the life of Carla Smith (the “Insured”), with a total death benefit of $244,000.00 payable upon her death.
  2. The defendant was the primary beneficiary under the coverage, but the coverage provides that if he were determined to be ineligible to receive the receive the death benefit, the plaintiff, as the contingent beneficiary under the coverage, was entitled to the death benefit.
  3. The Insured was found to have died as the result of “manual strangulation”, and the defendant was criminally charged with the Insured’s death.
  4. In his Answer to the Interpleader Complaint, the defendant confirmed that, under pertinent law, he would not be eligible to receive the death benefit if convicted of the crime with which he was charged, although he denied that the law was applicable, contending that he was innocent of such crime.
  5. In his Answer filed to Prudential’s Interpleader Complaint in this case, the defendant confirmed that if he was not entitled to the death benefit, the plaintiff, as contingent beneficiary, may be entitled thereto.
  6. As evidenced by “Judgment of the Court” entered on March 21, 2014, after trial in Case Number: CC-11-455-WAM, Circuit Court of Etowah County, Alabama, the jury returned a verdict on March 18, 2014, finding the defendant guilty of the offense of Capital Murder, for the murder of the Insured.. In its sentencing order, the court confirmed that the jury actually found the defendant guilty “of the offense of Murder for Pecuniary Gain, a Capital Offense.”
  7. As evidenced by “Sentencing Order” entered on April 22, 2014, in Case Number: CC-11-455-WAM, the defendant was sentenced on April 17, 2014, by the Circuit Court of Etowah County, Alabama, to life in prison without the possibility of parole.
  8. As shown by Certificate of Judgment issued by its clerk, the Alabama Court of Criminal Appeals, on November 7, 2014, affirmed the judgment of conviction.
  9. As shown by Certificate of Judgment issued by its clerk, the Supreme Court of Alabama, on February 13, 2015, denied the petition for writ of certiorari to the Court of Criminal Appeals.

ANALYSIS

Under Alabama law, a named beneficiary of a life insurance policy who feloniously and intentionally kills the person upon whose life the policy is issued is not entitled to any benefit under the policy and it becomes payable as though the killer had predeceased the decedent. In Alabama, “[a] final judgment of conviction of felonious and intentional killing is conclusive for purposes of this section.” Ala. Code § 43-8-253(e).

Here, the defendant has been convicted of the crime of “Murder for Pecuniary Gain,” a Capital Offense in Alabama. Ala. Code § 13A-5-40(7)

In light of the foregoing, the District Court concluded that there is no genuine issue of material fact that there has been a final determination that the defendant feloniously and intentionally killed the insured, Carla Smith. Thus, under applicable Alabama law, the defendant is deemed to have predeceased the insured, and the plaintiff, as the contingent beneficiary under the coverage, is due to receive the death benefit.

ZALMA OPINION

This should not have been a difficult decision and probably was not. There should be no question that a murderer should never profit from his crime. Although the court wrote a clear and well researched decision if I was the judge I would have issued an order that said no more than defendant, as the convicted murderer of the insured, is deemed to have predeceased the insured, and the plaintiff, as the contingent beneficiary under the coverage, will receive the death benefit.

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 Murder Does Not Pay

Claims Made & Reported Condition Defeats Late Claim

“Notice Prejudice Rule” Does Not Apply to Claims Made & Reported Policies

Claims made and reported policies require that a claim be both made and reported to the insurer during the policy period. Insureds who know of a claim against it must report it to the insurer before the expiration of the policy or lose all coverages.

In Alaska Interstate Construction, LLC, v. Crum & Forster Specialty Insurance Company, Inc., Slip Copy, 2015 WL 7253673 (D.Alaska, 11/17/2015) Plaintiff Alaska Interstate Construction, LLC (“AIC”) sued Crum & Forster Specialty Insurance Company, Inc. (“C&F”) as a result of C&F’s refusal to provide liability insurance coverage. AIC sought coverage from C&F in response to a lawsuit filed by VC Sellers Reserve (“VC Sellers”) in the Superior Court for the State of Alaska (‘Underlying Suit’). AIC asserts that its policy from C&F provides coverage for the Underlying Suit and C&F is therefore obligated to both defend and indemnify AIC. C&F has disclaimed any obligation to provide coverage under the suit.

BACKGROUND

AIC is a company providing engineering and construction-related services throughout Alaska, including heavy civil construction, bridge building, mining-support, oilfield services, and thermal soil remediation. AIC was approached by Restoration Science and Engineering (‘RSE‘) in the spring of 2008 to provide thermal soil remediation services on the North Slope. The project was completed on September 19, 2010, but a dispute arose regarding an internal deadline of August 31, 2010, and payment for work after that date. In meetings during the suit, VC Sellers complained about AIC’s practice of blending already remediated and contaminated soil, which they alleged led to inflated charges because material was being weighed and billed each time it was put on the conveyor belt.

AIC eventually dropped their lawsuit on January 11, 2013. However, VC Sellers responded by filing its own lawsuit on June 14, 2013. In the Underlying Lawsuit VC Sellers alleges that it was overbilled due to AIC charging for multiple burning of the same soil, charged for burning soil blended from clean and contaminated material, utilized an uncertified scale, and used a scale that was uncalibrated.

Shortly after VC Sellers filed suit, AIC tendered a claim to C&F on June 20, 2013. C&F denied AIC’s claim and disclaimed any liability, indicating that the allegations of VC Sellers were not ‘wrongful acts‘ committed in the course of ‘professional services.’ C&F also denied coverage because the claim was not reported during the policy period, because certain wrongful acts were committed prior to retroactive coverage, and because AIC knew of and failed to report the wrongful acts prior to renewal of the policy. AIC filed the present suit seeking a determination on the existence of coverage.

Insurance Policy Interpretation

When interpreting an insurance policy, Alaska law instructs courts to look to the language of the disputed provision, other provisions in the policy, extrinsic evidence, and case law interpreting similar provisions. Insurance policies are construed in a manner that honors a lay insured’s reasonable expectations. Any ambiguity should be construed in favor of the insured and against the insurer. Also, grants of coverage should be viewed broadly, while exclusions should be viewed narrowly. Nevertheless, where a reasonable lay interpretation of the policy would not encompass coverage under the circumstances, there is no ambiguity and therefore no coverage.

Duties of Insurer

An insurer’s duty to defend and its obligation to indemnify are separate and distinct contractual elements, with the duty to defend being broader than the duty to provide coverage. Under Alaska law, an insurer must defend the insured whenever a complaint states a cause of action within, or potentially within, the policy coverage.

DISCUSSION

C&F argues that AIC fraudulently represented in the previous motion for summary judgment the existence of a single policy period in this dispute. C&F maintains that the two distinct policies existed and the ‘renewal‘ on May 1, 2013, was in fact a new policy.

Claims Made and Reported During Same Policy Period – Affirmative Defense 5(e)
The parties are in agreement that coverage under the E&O Policy will only exist if a claim is made (i.e. a lawsuit is filed or threatened) and the claim is reported (i.e. tendered) to the insurer during the policy period at issue.

AIC conceded two important facts. First, that a claim was first made against it on or about January 10, 2013. And second, that this claim was not reported to C&F in any way until June 20, 2013. The language of the policies indicate that these are claims-made policies, rather than occurrence based policies. For claims-made policies, giving notice within the policy period is what actually creates coverage in the first instance.

AIC appears to have taken a gamble by choosing to not report the claim against it to C&F before the policy was renewed. This may have been in hopes that the claim would in fact go away permanently if they dropped their suit against VC Sellers and the unreported claim would not negatively affect AIC’s insurance premiums under future renewal policies. Had AIC reported the claim soon after it was made in January 10, 2013, or any time before the explicit policy end date of May 1, 2013, there would be no question of coverage.

AIC undeniably made the decision to delay reporting the claim to C&F during the first policy period dates and benefitted from having no claims reported when it negotiated the terms for the renewal policy. Allowing the ‘policy period‘ to span beyond the initial policy to include every subsequent renewal is neither equitable nor a reasonable interpretation. Accordingly, the Court concluded that the term ‘policy period‘ — for claims to be both made and reported within — refers distinctively to December 1, 2011, to May 1, 2013, for the policy EPK 100301 and May 1, 2013, to May 1, 2014, for policy EPK 101290 and is therefore not enlarged with each renewal.

AIC asserts that even if the policies were viewed as separate policies, the five month delay between notice of the claim and the tender of the claim to C&F under the first policy is the sort of delay that is generally excusable. The Court found that, similar to other states in this circuit, the Alaska Supreme Court would not extend the “notice-prejudice” rule to “claims-made” policies.

Because of AIC’s failure to meet the policy requirement that the claim be both made and reported during the policy period, there is no possibility of coverage and C&F has no duty to defend or indemnify AIC in the underlying suit.

Knowledge of ‘wrongful Act‘ Prior to the Policy Period – Affirmative Defense 5(h)

AIC admits that as of June 19, 2012, during the first policy period, it was aware of an allegation of a wrongful act that could reasonably give rise to a claim during the second policy period. AIC’s response is again that there is only a single policy in existence and the subsequent policy periods are merely an extension of that initial policy period start date.

Even if AIC were to assert that the claim was made and reported during the second policy period, when the Underlying Suit was filed and then reported to C&F, there is no coverage because they knew of the wrongful act before obtaining the renewal.

Therefore, without valid coverage, C&F has no duty to indemnify or defend.

ZALMA OPINION

Insurance coverage is not a place for gambling. In this case AIC gambled and lost by not reporting the claim when it learned about it and not reporting the existence of the claim when it renewed its policy with C&F. The “Notice Prejudice Rule” applies to occurrence polices but cannot fit within a claims made and reported 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.

Please Check 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 Claims Made & Reported Condition Defeats Late Claim

No Excuse For Refusing to Respond to Motion for Summary Judgment

Bad Faith Charges Don’t Eliminate The Burden of Proof

Because most people dislike insurance companies and believe just filing suit against an insurer seeking bad faith damages is enough to win major damages. Those people are wrong. Every plaintiff, even one suing an insurance company for the tort of bad faith, has the burden of proof.

When a party files a motion for summary judgment the opposing party is obligated to present evidence that is sufficient to raise an issue of fact. Failure to do so is fatal to the suit.

In Bailey v. State Farm Fire and Casualty Company, Slip Copy, 2015 WL 7069415 (S.D.W.Va., 11-12-2015) the Plaintiffs, Justin and Robyn Bailey, sued State Farm asserting that their home and property were insured under a policy purchased from State Farm when they suffered losses caused by a derecho wind storm.

FACTUAL BACKGROUND

State Farm filed a motion for summary judgment. The plaintiffs sought more time after delaying responses to discovery and failing to respond to interrogatories or appear for depositions up to an including the discovery cut offs. Plaintiffs claimed that caring for an ill parent was sufficient to avoid the need to respond.

DISCUSSION

Extension of Time

The Baileys responded to State Farm’s motion for summary judgment with a request for an extension of the deadlines contained in the Court’s scheduling order. They explain that Ms. Bailey’s father “has been extremely ill undergoing medical procedures for suspected lung mass with possible metastasis.” They assert that Ms. Bailey’s father’s medical appointments, care, and treatment have left them unavailable to their own counsel, as well as for depositions. In light of their circumstances, they seek entry of a new scheduling order that permits completion of discovery and the taking of depositions.

State Farm opposed the requested extension. It notes the history of failure to respond to discovery requests (and failure to respond to the motion to compel), as well as the repeated attempts to schedule depositions over the course of several months.

The Court found that an extension of the deadlines at this point in the litigation is not appropriate. First, while the Plaintiffs have explained that their time and attention is devoted to Ms. Bailey’s father’s medical care, they have not provided evidence that the care interfered with their ability to conform to the Court’s deadlines. It is not clear to the Court that the family medical issue prevented the Plaintiffs from answering interrogatories or scheduling at least one of the Plaintiffs for a deposition at a time and location convenient to the Plaintiffs.

Parties have an obligation to both the Court and the opposing party to either comply with the deadlines or seek extensions in a timely manner. The Plaintiffs simply ignored their obligations in this case. The Court concluded that no extension of the long-expired discovery deadlines contained in the scheduling order to be warranted.

Summary Judgment

Because the Plaintiffs have the burden of proof, and can no longer rest on their pleadings, State Farm argues that it is entitled to summary judgment as to the breach of contract claim, and consequently as to the claims for damages, bad faith, and punitive damages.

The Court agreed that State Farm has satisfied its burden of demonstrating that it is entitled to judgment as a matter of law. The burden on the moving party may be discharged by ‘showing’ there is an absence of evidence to support the nonmoving party’s case.

Plaintiffs bear the burden of proof with respect to claims for breach of contract. They, therefore, have the burden, when challenged at the summary judgment stage, of making a sufficient showing on each essential element of their case. Because the Plaintiffs have presented no evidence to support their allegations, State Farm is entitled to summary judgment.

ZALMA OPINION

Insurers are not evil. Plaintiffs, who may have a viable suit against an insurance company, cannot ignore their obligation to the court and the legal system to provide legitimate and honest response to discovery requests and fail to respond to a motion for summary judgment. This case is like the plaintiffs failing to show up for trial because it is inconvenient.

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 Excuse For Refusing to Respond to Motion for Summary Judgment

Failure to Maintain Insurance a Crime In Arkansas

Homicide is Not Always Criminal – Lack of Insurance Is

Many states, like Arkansas, require that everyone who operates a motor vehicle must carry insurance and, if he or she is involved in an accident, can be criminally responsible and go to jail for failure to carry adequate insurance.

In Gill v. State, Not Reported in S.W.3d, 2015 Ark. 421, 2015 WL 7063029 (Ark., 11/12/2015) William Gill was convicted of negligent homicide and inadequate insurance and sentenced to jail for his crimes. He appealed from the sentencing order reflecting his convictions for negligent homicide and inadequate insurance during an accident and his total sentence of six months in the county jail.

FACTS

On March 19, 2012, Gill was driving on North Apple Street in Beebe, Arkansas. The victim, Emmaly Holt, was driving on Highway 367 with no requirement to stop at the intersection of those two roads. In a statement given at the scene, Gill said that he “stopped at the stop sign on Apple,” and “looked both ways,” but “did not see any car coming.” Gill proceeded through the stop sign, and a collision occurred between his vehicle and Holt’s vehicle. Holt was pronounced dead at the scene of the collision. Blood testing determined that Gill had neither drugs nor alcohol in his system at the time of the collision; he was seventy-one years old at the time.

On October 28, 2013, the State filed a misdemeanor information, alleging that Gill had committed the offenses of negligent homicide and failure to maintain adequate liability insurance. The circuit court found Gill guilty of both offenses and sentenced him to six months in the county jail and $2500 in fines and court costs.

Trooper Andy Simpson of the Arkansas State Police testified that  he saw a pickup truck and a car off the east shoulder of the road and that  that the vehicles were “impacted together” and that the pickup truck “was still up against the driver’s side door” of the car. According to Simpson, Holt, the driver of the car, was still in her vehicle, and she was obviously deceased.

Gill was not given a traffic citation by Simpson or any other police officer.

Trooper Ronald Laslo, qualified as an expert in accident reconstruction, testified that at the point of impact, Gill’s truck was traveling at a minimum of ten miles per hour, and Holt’s vehicle was traveling at a minimum of thirty eight miles per hour. The vehicles collided in Holt’s lane, and there were no skid marks visible from either direction made by either vehicle.

ANALYSIS

A person commits negligent homicide if he or she negligently causes the death of another person. The criminal code states that a person is criminally negligent when the person should have been aware of a substantial and unjustifiable risk that the attendant circumstances exist or the result will occur. The criminal code further states that the risk must be of such a nature and degree that the actor’s failure to perceive the risk involves a gross deviation from the standard of care that a reasonable person would observe in the actor’s situation considering the nature and purpose of the actor’s conduct and the circumstances known to the actor.

In cases of criminally negligent conduct the negligence must be a gross deviation from the standard of care that a reasonable person would observe in the actor’s situation.

In the present case, there is no question that Gill’s failure to see Holt’s vehicle traveling on Highway 367 resulted in the fatal accident. That failure may well constitute civil negligence. The State presented no evidence that Gill was engaged in any criminally culpable risk-creating conduct; rather, the evidence established only that Gill inexplicably failed to see Holt’s vehicle when he pulled onto Highway 367.

The evidence did not show that Gill was speeding, that he was driving erratically, that he was under the influence of alcohol, that he was using a phone, or that he was engaged in some similar conduct.

Gill’s failure to see Holt’s vehicle resulted in a tragic death, but that unexplained failure, without more, does not constitute criminally negligent homicide. Accordingly, we reverse and dismiss Gill’s conviction for negligent homicide.

INADEQUATE INSURANCE DURING AN ACCIDENT

When the operator of any motor vehicle is involved in a motor-vehicle accident in Arkansas and the vehicle, or the operator while driving the vehicle, is found not to be adequately insured, as required by the operator shall be deemed guilty of a Class A misdemeanor.

Trooper Simpson testified that Gill provided him with an insurance document at the scene. That document did not reflect coverage on the day the collision occurred. Gill claims that, at trial, he provided proof of insurance on the pickup truck that he was driving at the time of the collision.  Stephanie May, a State Farm Insurance agent who handled Gill’s insurance account, testified that the document presented was not proof of insurance; rather, it was a renewal certificate that was merely an offer of insurance for the stated period of time. According to May, Gill accepted the renewal offer, to be paid on a monthly basis. May testified that Gill’s automobile insurance ceased to exist after February 16, 2012, for nonpayment of the premium. May testified that the policy had not been renewed by the date of the collision. Therefore, no other proof of insurance was offered by Gill and Gill failed to rebut the presumption that his vehicle was uninsured at the time of the accident.

ZALMA OPINION

No one is perfect. No driver of an automobile always acts prudently and carefully when driving an automobile. Gill’s failure to see Holt’s vehicle resulted in a tragic death, but that unexplained failure, without more, does not constitute criminally negligent homicide. For that reason it is clearly prudent to carry insurance to protect oneself against the risks of loss as a result of negligent conduct. Mr. Gill failed to pay his premium, his policy was cancelled as a result and he was uninsured at the time of the fatal accident. In Arkansas he was found to be in violation of a criminal statute and was properly sentenced for that crime. He will also be sued in civil court and will, after he leaves jail, be forced to pay a judgment from his own assets.

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 Failure to Maintain Insurance a Crime In Arkansas

CGL Provides No Cover For Building House on Someone Else’s Land

Insured’s Work On Property Was Clearly Excluded

No insurance policy provides coverage for every possible risk of loss. When an insured builder built a house that encroached on the property of another, it sought coverage for the damages of the true property owner. The insurer provided a defense under a reservation of rights but refused to pay the damages assessed.

In Probuilders Specialty Ins. Co. v. Coaker, Slip Copy, 2015 WL 7018415 (W.D.Wash., 11/10/2015) Probuilders Specialty Insurance Company, RRG’s (“PBSIC”) moved for summary judgment seeking a declaration that PBSIC owed no duty to indemnify Defendants Michael and Marilee Coaker (“the Coakers”), Sundance Builders, Inc. (“Sundance”), and Mike’s Roofing, Inc. (“Mike’s Roofing”) for damages arising out of the construction of the Coakers’ single-family home in Duvall, Washington.

BACKGROUND

This is an insurance coverage case that arises out of a mistake concerning property lines.

In 2004, the Coakers purchased a piece of real property in Duval, Washington, for the purpose of building one or more houses there. Adjacent to the Coakers’ property sits a parcel of undeveloped forest land owned by three brothers named Chen (“the Chens”). The Chens’ property included a 30–foot by approximately one-quarter-mile strip of land known as “the panhandle” that extended out to the west from the bulk of the Chens’ property. The panhandle lay between the southern border the Coakers’ property and the northern border of the property of another neighbor, Robert Wilan. Mr. Coaker did not know of the panhandle when he and his wife purchased their property, and he mistakenly believed that his southern property line abutted Mr. Wilan’s northern property line.

Sundance Builders, Inc. is a company that the Coakers formed in 2005 for the purpose of constructing residential homes and townhouses. Their policies provided three coverages: Bodily Injury and Property Damage (Coverage A), Personal Injury and Advertising Injury (Coverage B), and Medical Payments (Coverage C).

In 2008, the Coakers, acting through Sundance, began building a house for themselves. Defendants believed that they were building the house entirely on the Coakers’ property, but in fact the house encroached on the Chens’ panhandle.  When Mr. Coaker learned of the error, he contacted Eric Chen and began negotiating a possible solution. The boundary agreement ultimately fell through, however, and at some point negotiations ceased.

In 2014, the Chens filed suit against the Coakers, Sundance, and Mike’s Roofing in King County Superior Court alleging causes of action for trespass and negligence and seeking damages, ejectment, and specific performance of the boundary agreement. PBSIC received notice of the Chens’ suit on August 8, 2014. PBSIC defended under a reservation of rights.

The case proceeded to a bench trial before the Honorable Samuel Chung, and on August 17, 2015, Judge Chung found that the Coakers had been negligent in building the house on the Chens’ panhandle. Nevertheless, Judge Chung concluded that the appropriate remedy was to quiet title to the panhandle in the Coakers and require the Coakers to pay the Chens the monetary value of that land.

On December 12, 2014, PBSIC sued contesting coverage. PBSIC sought summary judgment declaring that the policies it issued to Sundance provide no coverage for any damages arising out of the construction of the Coakers’ house. PBSIC offers several arguments to support this request, including that (1) no “property damage” occurred, as the policies define that term, and (2) even if property damage did occur, various exclusions preclude coverage.

DISCUSSION

Insurance Contract Interpretation

The interpretation of an insurance policy is a question of law for the court.

Bodily Injury, Advertising Injury, and Personal Injury

PBSIC argues, with citations to relevant policy provisions, that neither the allegations in the underlying litigation nor any facts in the record in this case trigger bodily injury, advertising injury or personal injury coverages. The court agreed with PBSIC and finds that summary judgment in PBSIC’s favor is appropriate on this issue of whether it owes indemnity. PBSIC has no duty under the policies’ bodily injury, advertising injury, and personal injury coverages to indemnify Defendants for damages arising out of the construction of the Coakers’ house.

Property Damage & Exclusion (J)(5)

PBSIC’s motion turns on the parties’ dispute over whether the policies’ property damage coverage applies here. PBSIC asserts that such coverage does not apply because the underlying litigation did not involve “property damage,” as the policies define that term. PBSIC further argues that even if the underlying litigation involved property damage, multiple exclusions bar coverage for such property damage.

The court concluded that exclusion (J)(5) precludes coverage for damages arising out of the construction of the Coakers’ house. Even if the underlying litigation involved property damage as the policies define that term, the policies’ property damage coverage remains subject to multiple exclusions. Pursuant to exclusion (J)(5), however, “[t]his insurance does not apply to … [p]roperty damage to … [a]ny real property on which you … are performing operations, if the property damages arises out of those operations ….”

It is undisputed that Sundance was in the home construction business that Sundance selected the site for the Coakers’ house and constructed the house on that site, that the house encroached on the Chens’ real property, and that the construction caused the alleged damage to the Chens’ real property. As such, the Chens’ property damage was (1) property damage to real property on which Sundance was performing operations, and (2) property damage that arose out of Sundance’s operations. Exclusion (J)(5) therefore bars coverage in this case. Under that exclusion, the Chens’ property damage was not “property damage to which this insurance applies.”

The court concluded that the policies excluded coverage for damages arising out the construction of the Coakers’ home.

ZALMA OPINION

The exclusion on which the court relied was clear an unambiguous. Even if it did not exist there was no bodily injury, property damage or personal injury as those terms are defined in the policy. The court decided to use the exclusion since it was more clear than relying on a definition to avoid coverage although both were appropriate.

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 CGL Provides No Cover For Building House on Someone Else’s Land

30 Year Failure of Notice Bars Coverage

Ignorance Can Be Cured But When it Was Not Insured Lost $8 million

When a client is sued the first question every defense lawyer should ask of the client is: “what insurance do you have that could possibly provide coverage for defense or indemnity?” Then, if the claims relate back many years, the lawyer must insist the client research all insurance policies whether current or expired. Failure to do so can be very expensive to the client who may find the insurance it paid for is not required to provide defense or indemnity because of the failure of the insured to comply with the notice provision of the policy(ies) because satisfaction of the notice provision in an insurance policy is a condition precedent to coverage for the policyholder.

In The Travelers Indem. Co. v. U.S. Silica Co., — S.E.2d —-, 2015 WL 7045391 (W.Va.. 11/10/2015) the failure to locate policies cost U.S. Silica more than $8 million. In cases which involve liability claims against an insurer, several factors must be considered before the Court can determine if the delay in notifying the insurance company will bar the claim against the insurer. The length of the delay in notifying the insurer must be considered along with the reasonableness of the delay. If the delay appears reasonable in light of the insured’s explanation, the burden shifts to the insurance company to show that the delay in notification prejudiced their investigation and defense of the claim. If the insurer can produce evidence of prejudice, then the insured will be held to the letter of the policy and the insured barred from making a claim against the insurance company. If, however, the insurer cannot point to any prejudice caused by the delay in notification, then the claim is not barred by the insured’s failure to notify.”

The Travelers Indemnity Company (“Travelers”) appealed from an order entered March 5, 2014, by the Circuit Court of Morgan County that denied Travelers’ post-trial motions for judgment as a matter of law or a new trial following the court’s entry of a jury verdict against Travelers, and in favor of U.S. Silica Company (“U.S.Silica”), in the amount of $8,037,745. By its March 5, 2014, order, the circuit court also awarded U.S. Silica attorney’s fees and prejudgment interest.

FACTUAL HISTORY

U.S. Silica mines and processes silica sand.  As a producer of silica sand, U.S. Silica, as well as its predecessors, has been named as a defendant in numerous silica claims seeking damages for injuries allegedly caused by exposure to silica sand. The first silica claims were filed against U.S. Silica when it was known as PGS in 1975. From the record in this case, it appears that U.S. Silica incurred the majority of its unreimbursed defense and settlement costs related to silica claims between 2001 and 2005.

In 2005 U.S. Silica reviewed its policies of insurance to determine whether any coverage existed to pay its unreimbursed silica claims costs. Travelers had policies in effect from April 1, 1949, until April 1, 1958. Upon its belated discovery of these policies, U.S. Silica sent Travelers a letter on September 20, 2005, informing Travelers of the silica claims and requesting coverage under these Travelers policies for out-of-pocket expenses.

A jury trial was held in September 2013, resulting in a jury verdict in favor of U.S. Silica. As noted in the circuit court’s October 15, 2013, “Order of Judgment,” the jury found for U.S. Silica in the amount of $8,037,745.00.

DISCUSSION

Each of the three Travelers policies of insurance at issue contained a notice provision requiring U.S. Silica to notify its insurer Travelers: “If claim is made or suit is brought against the insured, the insured shall immediately forward to the company every demand, notice, summons or other process received by him or his representative.”

With respect to this type of notice provision, the Supreme Court of Appeals of  West Virginia previously observed, and now expressly holds, that the satisfaction of the notice provision in an insurance policy is a condition precedent to coverage for the policyholder. The duty to notify an insurance company of potential liability is a condition precedent to the company’s liability to its insured.

If U.S. Silica failed to comply with the notice provision, such lack of notice is a bar to coverage, and Travelers has no duty to provide insurance for the losses claimed by U.S. Silica. However, if U.S. Silica properly notified Travelers of its claims for which it seeks coverage, Travelers would be required to provide the requested insurance unless another policy exclusion operates to preclude coverage.

The pivotal issue in this assignment of error is whether U.S. Silica complied with the notice provision in its policies of insurance when it requested Travelers to provide coverage for silica claims on September 20, 2005, by way of reimbursement for settlement and defense costs U.S. Silica had incurred before that date.

Where the provisions of an insurance policy contract are clear and unambiguous they are not subject to judicial construction or interpretation, but full effect will be given to the plain meaning intended.  Finally, an insurance policy should never be interpreted so as to create an absurd result, but instead should receive a reasonable interpretation, consistent with the intent of the parties.

It is impossible to calculate the precise length of U.S. Silica’s delay in notifying Travelers of the claims for which it seeks coverage. It is undisputed that U.S. Silica first requested coverage from Travelers on September 20, 2005, for silica claims that it previously had defended and settled before this date. However, given that the plain language employed by the notice provision requires an insured to “immediately forward to the company every demand, notice, summons or other process received by him or his representative.”  The policies required notice to be provided when the insured, i.e., U.S. Silica, received a “demand, notice, summons or other process” in the silica claims for which it now seeks coverage. Therefore, U.S. Silica, or its predecessor, was required to notify Travelers of such claims when it first received them, which, as supported by the record evidence in this case, occurred as early as 1975 and continued through the date that U.S. Silica first contacted Travelers in 2005. With respect to some of these claims it is apparent that approximately thirty years elapsed between U.S. Silica’s receipt of the silica claims, which sought damages for injuries allegedly caused by silica exposure, and U.S. Silica’s notice to Travelers of the silica claims’ existence.

The Supreme Court concluded, without hesitation, it is difficult to fathom how such a substantial delay in providing notice could be perceived as reasonable.

Prior cases also have concluded that such a determination of reasonableness is a question of fact for the jury. However, when the facts of the case are not in dispute, what constitutes reasonable notice is a question of law for the court to decide.

Throughout these proceedings, U.S. Silica repeatedly has explained that it failed to provide timely notice to Travelers because it simply did not know that it had policies of insurance that would have provided coverage for the defense and settlement costs it incurred in the silica claims. U.S. Silica also contends that, despite repeated due diligence inquiries conducted in conjunction with its several changes of ownership, the subject Travelers policies were not discovered —until U.S. Silica searched its own insurance files upon the expiration of the ITT indemnity agreement in September 2005. An insured’s lack of knowledge of its own policies of insurance does not, however, provide reasonable grounds to justify its late provision of notice to its insurer.

ZALMA OPINION

The court could not accept the excuse that an insured, who claims the benefits of an insurance policy, did not know for more than two and one half years that such a policy existed. The insurance company is severely prejudiced by a more than 30 year delay. Prejudice should be obvious since most witnesses are unavailable and probably dead. Therefore, the failure of counsel for U.S. Silica and its predecessors, to find the Travelers policies and give notice of the claims, defeat the current claim and the jury verdict was reversed.

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 30 Year Failure of Notice Bars Coverage

Zalma’s Insurance Fraud Letter – November 15, 2015

BZINCLOGO.gif
In this, the twenty second issue of the 19th year of publication of Zalma’s Insurance Fraud Letter (ZIFL), Barry Zalma, on
November 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:

  • More on Failed CO-OPs – How Government Programs Failed For Lack of Subidie
  • Guilty of 31 Counts of Insurance Fraud Sustained.
  • Convicted of Arson-For-Profit in Iowa.
  • Fraud After Catastrophes.
  • Good News From The Coalition Against Insurance Fraud
  • Convictions for Health Insurance Fraud & P&C Insurance Fraud

Visit the Website of Zalma Insurance Consultants

Insurance Publications by Barry Zalma

Insurance Claims: A Comprehensive Guide

     For Readers of ZIFL a Special 25% Discount

Insurance Law

Mold Claims Coverage Guide

URL:  www.nationalunderwriter.com/Mold

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.

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» 1-Hour Webinar: Construction Defect Insurance Claims 101
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http://www.nationalunderwriter.com/reference-bookstore/property-and-casualty/zalma-insurance-claims-library/construction-defect-insurance-claims-101-webinar.html

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Filed Rate Doctrine Defeats Class Action

Forced Placed Insurers Face Higher Risks of Loss

No one, neither the lender nor the borrower, like forced placed policies because they only protect the lender and are invariably expensive because of the increased risk faced by the lender dealing with a borrower who fails to buy insurance directly.  The borrower who is required to pay the high premium for the forced placed policies will complain that the higher premiums are due to tortious or criminal conduct rather than admitting that their failure to buy insurance increased the risk of loss the insurers are taking. Regulators understand the additional risk and will approve the higher rates.

In Trevathan v. Select Portfolio Servicing, Inc., — F.Supp.3d —-, 2015 WL 6913144 (S.D.Fla., 11/06/2015) Assurant, Inc. Moved to Dismiss the Class Action Complaint With Prejudice, American Security Insurance Company moved to Dismiss the Class Action Complaint With Prejudice, and Select Portfolio Servicing, Inc. moved to Dismiss Class Action Complaint (the “Motions”).

BACKGROUND

Plaintiff, on behalf of himself and all other persons similarly situated sued Defendants Select Portfolio Servicing, Inc. (“SPS”), Assurant, Inc. (“Assurant”), and American Security Insurance Company (“American” and, together with Assurant, the “Assurant Defendants”) for damages incurred as a result of placement of force placed insurance on the Plaintiff.  SPS services and/or owns mortgage loans secured by real property.

The terms of all standard mortgage loans require borrowers to purchase and maintain property insurance coverage on the secured property as a condition to funding. Such standard mortgage terms typically permit the lender or servicer to “force place” insurance if a borrower fails to maintain adequate hazard, flood, or wind insurance coverage themselves.

The Plaintiff alleged that SPS, in collaboration with the Assurant Defendants, charged inflated and unnecessary force place flood insurance policy premiums to borrowers whose loans it serviced or owned. Plaintiff obtained a mortgage loan, serviced by SPS, secured by real property located in a low-risk flood zone in Broward County, Florida in 2006. On the open market, the premium for flood insurance coverage of $250,000 would cost about $414.00. From 2010–2014, SPS force placed insurance on his property, issued by American, as Plaintiff failed to provide acceptable proof of coverage. The insurance premium for the coverage of $250,000 ranged from $1,493.58 to $2,326.50 per year-long policy period.

Plaintiff alleges that SPS and the Assurant Defendants failed to disclose to him that the premium included “unearned kick-backs to SPS and the cost of servicing SPS mortgage portfolios.”  Plaintiff brings six counts: Count I: Breach of Contract (against SPS); Count II: Breach of the Implied Covenant of Good Faith and Fair Dealing (against SPS); Count III: Unjust Enrichment (against SPS); Count IV: Unjust Enrichment (against the Assurant Defendants); Count V: Violation of the Truth in Lending Act (“TILA”) (against SPS); and Count VI: Tortious Interference with a Business Relation (against all Defendants).

DISCUSSION

Each of the three Defendants filed Motions to Dismiss. SPS argues that the Complaint should be dismissed because: (1) Plaintiff does not allege compliance with the requirement that he provide SPS notice and an opportunity to cure; (2) Plaintiff’s common law claims (Breach of Contract, Implied Covenant, Unjust Enrichment, and Tortious Interference) fail as a matter of law; (3) Plaintiff’s TILA claim fails; and (4) the filed-rate doctrine bars Plaintiff’s “excessive premium” claims. American argues that this action should be dismissed because: (1) the filed-rate doctrine bars Plaintiff’s “excess premium” claims; (2) controlling authority bars Plaintiff’s claims; and (3) Plaintiff has failed to exhaust administrative remedies under Florida law.

Filed-rate Doctrine Bars Plaintiff’s Inflated Premiums Claims

Defendants argue that Plaintiff’s claims based on “excessive premiums” must fail, because the premiums American charged were the exact amounts authorized by Florida insurance regulators. Under the filed-rate doctrine, a regulated entity is forbidden to charge rates for its services other than those properly filed with the appropriate federal regulatory authority. The two principles underlying the doctrine are nondiscrimination and nonjusticiability. Under the nondiscrimination principle, the doctrine bars any claim that would allow an award of damages to effectively change the rate paid by that plaintiff to one below the filed rate paid by other customers. Under the nondiscrimination principle, a claim is barred if an award of damages to the plaintiff would result in judicial reasonableness of the rate even if the claim does not directly attack the filed rate.

Plaintiff argues that it is not the rate itself, but rather the “kickback” present in the inflated rate and the Defendants’ alleged “collusion and self-dealing” that is at issue. Defendants respond that the purported distinction is meaningless.  The Court found that all of Plaintiff’s claims arising from inflated rates, as to each of the three Defendants, should be dismissed with prejudice.

Only Count IV, for Unjust Enrichment, and Count VI, for Tortious Interference with a Business Relation, are asserted against the Assurant Defendants. The unjust enrichment claim is predicated solely upon excessive premiums that included kickbacks. The tortious interference with a business relation claim alleges only against the Assurant Defendants that they offered kickbacks to entice SPS to utilize their services, resulting in additional debt arising from inflated force placed insurance premiums. Thus, as both of the claims against the Assurant Defendants fall within the purview of excessive insurance coverage or inflated premiums, all claims against the Assurant Defendants are dismissed.

Plaintiff’s “inflated premium” claims are dismissed with prejudice on the basis of the filed-rate doctrine;

The remaining claims are DISMISSED without prejudice;

Plaintiff may file an Amended Complaint on or before December 3, 2015.

ZALMA OPINION

This suit could have been avoided by the plaintiff buying insurance directly to protect him against the risk of losing his home and concurrently insure his lender against the same risk. By his breach of the loan document he allowed the lender to force place insurance at a rate approved by the state. This is what the lender and the insurers did and the claims failed. The Plaintiff, and those similarly situated, had no one to blame but themselves.

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 Filed Rate Doctrine Defeats Class Action

It’s The Insured’s Fault

The Duty of an Insurance Producer is Limited in Illinois

In the news today it appears clear that no one is willing to take responsibility for his or her own acts. If something goes wrong, if someone loses money, if a building is damaged, if insurance does not cover a loss, it’s someone else’s fault. No one seems willing to take responsibility for their own acts or errors.

In Office Furnishings, Ltd. v. A.F. Crissie & Co., Ltd., — N.E.3d —-, 2015 IL App (1st) 141724, 2015 WL 6939958 (Ill.App. 1 Dist., 11/9/2015) the plaintiff suffered serious damage to its inventory when the roof leaked and water rained into the building like its interior was a rain forest. It made a claim to its insurer only to have the claim denied because the loss was not fortuitous and because they misrepresented material facts in the application for insurance. Rather than accepting they did wrong the insured’s sued their insurance producer for failing to obtain appropriate coverage. At trial the plaintiff won only to have the court enter judgment for the defendant not withstanding the jury’s verdict (“NOV”).

BACKGROUND

In 1993, plaintiff leased warehouse and office space in a building located at 725 South 25th Avenue in Bellwood, Illinois. Brathan Property LLC (Brathan) purchased the property in 2000, and plaintiff continued to lease space from the building. Ray Meyers holds controlling ownership in both Brathan and plaintiff Office Furnishings Ltd.

The building had two types of roofing. One section of roof was made of PVC membrane and the other was made of tar and gravel. When Brathan purchased the property, the building’s roofing was inspected by a roofing contractor.  The report stated that the PVC membrane had shrunk and that “a substantial amount of water is trapped between the two layers of roofing.” It recommended that the roof be replaced within one or two years.

Jim Werner was the insurance producer for plaintiff doing business through his agency, A.F. Crissie & Company (Crissie). Up to December 2002, plaintiff and Brathan were insured by a policy from Meridian Insurance Company. In August 2002, Meridian informed Werner that it would not be renewing coverage for plaintiff. Meridian did not renew plaintiff’s policy because it had paid out more in claims than it received in premiums. Werner testified that he did not know the age of the building’s roof.

As plaintiff’s insurance producer, Werner sought replacement coverage from other insurance companies through the ACORD application. Werner sent the ACORD application to eight insurance companies in October 2002. After reviewing the application, the eight companies declined to offer insurance to plaintiff due to past loss experience. Acting as a broker Werner went to another broker who was able to place insurance with American Family.

American Family’s agent, had “his own application that needed to be—that he would ask questions and that had to be signed.” Werner was present at that meeting because they did not know Joe Kobel.

At the meeting, Kobel used the ACORD application to obtain some information he needed, and he asked more questions of Meyers and Johnson to complete the application. The American Family insurance application stated that the building’s roof was five years old. This information was not listed on the ACORD application. The application listed no problems with the roof.

The American Family policy provided insurance coverage to plaintiff from December 1, 2002, to December 1, 2003.

On January 31, 2003, when Meyers went to the warehouse he saw that “[i]t was raining like a rain forest” inside. He and his employees protected as much of the merchandise as they could, but the company sustained more than $1 million in damages.

Plaintiff submitted a claim to American Family. In investigating the claim, American Family discovered that plaintiff misrepresented the age and condition of the roof on their application. American Family denied the claim because “the alleged occurrence was not a fortuitous event.” It also pointed out other misrepresentations, including that plaintiff never made a claim for damages caused by wind to the roof, and that no contractors had ever examined the roof’s condition.

Plaintiff and Brathan filed this professional negligence claim against defendants, alleging damages of $1,349,872 for damage to the building, $759,259 for damage to business personal property, and $88,074 for expenses related to installing a temporary roof.

Three issues of negligence were presented to the jury: (1) Werner failed to ensure that plaintiff understood the questions on the American Family application; (2) Werner failed to ensure that plaintiff understood that coverage could be denied if the answers on the application are not correct; and (3) Werner failed to ensure that the information on the application accurately reflected the information provided. The jury found in favor of Office Furnishings for $467,721.50, but found against Brathan.

Defendants filed a motion for a judgment n.o.v. arguing that the verdict reflected an improper imposition of a duty upon Werner, and the manifest weight of the evidence warranted a new trial. The trial court granted the judgment n.o.v., finding that Werner had no duty “to verify the information on the application” or to review the application with Meyers. Werner’s duty was only to procure the insurance request of plaintiff, and since “[h]e did provide the coverage and everything that he was looking for,” Werner fulfilled his duty.

ANALYSIS

Generally, to state a cause of action for negligence, plaintiff must show that defendant owed plaintiff a duty, defendant breached that duty, and defendant’s breach was the proximate cause of plaintiff’s injury. In the context of an insurance broker procuring insurance on behalf of the plaintiff, the primary function of an insurance broker as it relates to an insured is to faithfully negotiate and procure an insurance policy according to the wishes and requirements of his client.

This common law duty of a broker is codified in section 2–2201(a) of the Code of Civil Procedure (Code) (735 ILCS 5/2–2201(a), which requires an insurance producer to “exercise ordinary care and skill in renewing, procuring, binding, or placing the coverage requested by the insured or proposed insured.” Under this section, the duty to exercise ordinary care arises only after coverage is requested by the insured or proposed insured. Once such coverage is requested, insurance producers exercise ordinary care and skill in responding to the request, either by providing the desirable coverage or by notifying the applicant of the rejection of the risk.

The Illinois Supreme court in the past has determined that such a duty may not be imposed based on a vague request to make sure the insured is covered. Here, plaintiff contends that in finding that Werner had no duty to verify the information on the American Family insurance application, or to review the application with plaintiff, and granting the motion for judgment n.o.v., the trial court confused duty with evidence of conduct proving breach of a duty. In order to find a duty to provide specific coverage, the insured must make a request for that specific coverage; a general request to make sure the insured is covered is insufficient to create such a duty.

The evidence shows that Meyers did not make a specific request for coverage, only that it was assumed Werner would find replacement insurance for plaintiff. Werner, as the insurance producer, found an insurer, American Family, to provide a replacement policy as requested. Through Kobel, American Family’s agent, plaintiff was issued a replacement policy. This evidence is undisputed. Imposing a duty on Werner makes no sense here, where the evidence showed that Werner did not know the age of the roof and could not have known whether Meyers or Johnson answered that question accurately.

Where no duty is owed, there is no negligence, and the plaintiff is precluded from recovery as a matter of law.

ZALMA OPINION

When a business owner ignores the advice of professional roofers to replace a worn out and defective roof, when the business has its policy cancelled because of multiple claims resulting from leaks in the defective roof, and then allows a false application to be submitted to a new insurer, that business has no one to blame but itself for the loss of coverage. The agent and broker were not negligent, the insured was, and the court refused to allow the plaintiff to recover from the broker for the insured’s negligence and what was apparently intentional misrepresentations to get the 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.

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 It’s The Insured’s Fault

Coverage for Consequential Property Losses

Claim for Coverage for Consequential Property Losses

California Code of Regulations, Section 2695.9. Additional Standards Applicable to Fire and Extended Coverage Type Policies with Replacement Cost Coverage provides: ”

Section 2695.9. Additional Standards Applicable to First Party Residential and Commercial Property Insurance Policies

(a) When a residential or commercial property insurance policy provides for the adjustment and settlement of first party losses based on replacement cost, the following standards apply:

(1) When a loss requires repair or replacement of an item or part, any consequential physical damage incurred in making the repair or replacement not otherwise excluded by the policy shall be included in the loss. The insured shall not have to pay for depreciation nor any other cost except for the applicable deductible.

(2) When a loss requires replacement of items and the replaced items do not match in quality, color or size, the insurer shall replace all items in the damaged area so as to conform to a reasonably uniform appearance.

(b) No insurer shall require that the insured have the property repaired by a specific individual or entity.

Not all states have codified the “line of sight rule” but most apply it. Without the Regulation like that imposed by the state of California, litigation often results. Such was the case in Great American Insurance Company of New York Vs. The Towers of Quayside No. 4 Condominium Association, Slip Copy, 2015 WL 6773870 (S.D.Fla., 11/05/2015) where the District Court for the Southern District of Florida was called upon to deal with damage to a 25 story condominium building who wanted replacement of both damaged and undamaged portions of the building to allow all 25 floors to be aesthetically the same.

Great American moved for Summary Judgment.

BACKGROUND

Great American issued Quayside a property insurance policy that provided first-party property insurance coverage for the premises located at 4000 Towerside Terrace, Miami, Florida 33038, which includes a condominium building that is the subject of this action. A release of water from a broken valve on an air conditioning unit in the building caused water damage to the drywall, carpeting, baseboards, insulation, and wallpaper in the east hallways of the eleventh floor and the floors below. Floors three through twenty-five of the building have a uniform appearance by design with respect to the carpet, wallpaper, and woodwork in the common area hallways. The carpeted east hallways of the building are separated from the carpeted west hallways by a tiled elevator landing on each floor.

Quayside submitted a claim to Great American for loss and/or damage to the building arising from the release of water, including loss and/or damage to drywall, carpeting, baseboards, insulation, and wallpaper of the east hallways of the eleventh floor and floors below. Great American paid Quayside a total of $170,291.84 for the damage to the east hallways of the eleventh floor and the floors below. Quayside asserts that this amount does not fully compensate it for the direct physical loss caused by the water damage.

Quayside sought coverage to repair or replace undamaged carpeting, wallpaper, baseboards, and woodwork in 1) the west hallways and elevator landings of the eleventh floor and floors below and 2) floors twelve through twenty-five. Quayside contends it is entitled to repair or replacement of these undamaged components because 1) it will otherwise not be possible to achieve aesthetic uniformity between the new carpeting, wallpaper, baseboards, and woodwork installed in the area that suffered water damage and the rest of the building and 2) the loss of aesthetic uniformity devalues the building and constitutes a loss to the building. Great American disputes this position, and informed Quayside that no coverage is available for repair or replacement of building components that were not physically damaged.

THE POLICY

The policy’s Difference in Conditions (‘DIC‘) Coverage Form provides: “We will pay for your ‘loss’ to Covered Property from a Covered Cause of Loss.” The DIC Declarations form provides: “DIC Direct Physical ‘Loss’ The most we will pay for direct physical ‘loss’ from a Covered Cause of Loss … is … [the limits of insurance set forth in the policy.]” As amended by an endorsement, the policy defines “Covered Cause of Loss” as “direct physical loss” to Covered Property, except those causes of “loss” listed in the exclusions. Through its Specified Cause of Loss Form, the policy specifically excludes coverage for consequential loss, which it defines as “Delay, loss of use, loss of market, or any other consequential loss.”

DISCUSSION

The policy plainly only provides coverage for “direct physical loss,” specifically excludes coverage for consequential loss, and makes no mention of “matching” or “aesthetic uniformity” at all. While the Court concluded that coverage for matching, for the purpose of achieving aesthetic uniformity, is appropriate where repairs concern “any continuous run of an item or adjoining area” for materials such as wallpaper, baseboards, woodwork, and carpeting, it is plain that matching is not otherwise required under the policy. To hold otherwise would do violence to either the parties’ mutual duties of good faith or the plain terms of the policy.

Accordingly, the Court concluded that Great American is entitled to a declaration that it has no obligation to provide coverage to replace: 1) undamaged components on floors twelve through twenty-five or 2) undamaged carpeting in the west hallways of floors three through eleven.

However, as it is unclear whether the wallpaper, baseboards, and woodwork on floors three through eleven form a continuous run from one end of the building to the other, or whether these components are separated from each other in the same manner the carpeting in the east and west hallways is separated by the central elevator lobby on each floor, Great American has failed to establish it is entitled to summary judgment with respect to whether it must provide “matching” coverage for these components. That determination is left to the presentation of further evidence.

ZALMA OPINION

First party property insurance is designed to indemnify the insured for losses incurred. It is not a means of remodeling and making new a 25 story condominium structure. Although the lack of a complete match of materials throughout the structure might not be aesthetically perfect the contract did not promise to pay for both direct and consequential losses. The District Court refused, therefore, to rewrite the policy. It followed the “line of sight rule” codified by California.

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.

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 Coverage for Consequential Property Losses

Connecticut Explains Meaning of “Arising Out Of”

Loss Arising Out Of Business Excluded

No matter how egregious the fact situation; no matter how badly a claimant was injured; no matter who is claiming what, when there is an exclusion for a loss arising out of a business pursuit, an injury that arises out of the insured’s business pursuits may never be a covered loss for defense or indemnity.

In Nationwide Mut. Ins. Co. v. Pasiak, — A.3d —-, 2015 WL 6688097 (Conn.App., 11/10/2015) Nationwide lost  a declaratory judgment action attempting to be relieved of the duty to defend and/or indemnify its insured. Nationwide appealed.

THE ISSUE

The dispositive issue in this appeal is whether the court properly determined that a provision in the umbrella policy excluding occurrences “arising out of the business pursuits or business property of an insured” from coverage did not bar the defendant’s indemnification claim.

FACTS

Sara Socci was an employee of the defendant’s company, Pasiak Construction Services, LLC, and worked out of an office located on the second floor of the defendant’s home. On May 9, 2006, while she was working alone at the office, a masked intruder entered the office carrying a gun and demanded that she open the safe. Unaware that a safe even existed in the home, she could not provide the intruder with the safe’s combination. The intruder led her into a bedroom, where he tied her hands, gagged her and blindfolded her. At one point, he pointed a gun at her head and threatened to kill her family if she did not give him the combination.

The defendant returned home during the incident and was attacked by the intruder. The defendant, Pasiak identified the assailant as Richard Kotulsky, a friend. Pasiak conversed with Kotulsky and was lead to the bedroom, where Sara Socci was found on the floor, crying and hysterical. Pasiak picked her up and removed her restraints, all the while conversing with Kotulsky.  She asked to leave, but the Pasiak told her to stay and sit down. After further discussions with Kotulsky, the defendant allowed him to leave the house. Only after he drove Sara Socci to Greenwich to discuss the incident with a mutual friend did he allow her to leave. Eventually, the police were contacted, ultimately leading to Kotulsky’s arrest and subsequent conviction.

As a result of the incident, Sara Socci developed post-traumatic stress disorder, requiring extensive therapy, and was unable to return to work. She and her husband, Kraig Socci, sued Pasiak alleging causes of action for false imprisonment, negligence, intentional, reckless, and negligent infliction of emotional distress, and loss of consortium (Socci action). On February 23, 2010, a jury returned a general verdict in favor of the Soccis. It awarded Sara Socci compensatory damages of $628,200 and punitive damages of $175,000, and awarded Kraig Socci $32,500 for loss of consortium.

Although Nationwide provided the defendant with counsel they notified him by letter on that they were reserving their right to contest coverage. Nationwide eventually sued and sought a declaration that the plaintiffs did not have a duty to defend the defendant in the Socci action under any of his policies with the plaintiffs; and a declaration that the plaintiffs had no duty to indemnify the defendant under those policies.

Regarding Nationwide’s argument that the duty to defend was barred pursuant to the policies’ business pursuits exclusions, the trial court found that although it was undisputed that the defendant owns and operates a construction business that employed Sara Socci to assist in office related work, the complaint did not expressly allege that Sara Socci was injured as a result of her employment. The allegations regarding the tortious conduct of the defendant related to his treatment of her after the attempted robbery of his home.  The trial court ultimately concluded that the exclusion did not apply because the evidence “strongly support[ed] the conclusion that [the defendant] was attempting to protect his friend” rather than further his business pursuits.

ANALYSIS

The plaintiffs argue that the language of the exclusion establishes a broad causal standard, which was satisfied by the evidence introduced at trial, and that the court improperly focused on the defendant’s motivations rather than on determining whether his conduct arose out of his business pursuits.

If the terms of the policy are clear and unambiguous, then the language, from which the intention of the parties is to be deduced, must be accorded its natural and ordinary meaning.  However, when the words of an insurance contract are, without violence, susceptible of two equally responsible interpretations, that which will sustain the claim and cover the loss must, in preference, be adopted. This rule of construction favorable to the insured extends to exclusion clauses.

Homeowners’ liability policies typically exempt from coverage bodily injury or property damage arising out of or in connection with a business engaged in by an insured. People characteristically separate their business activities from their personal activities, and, therefore, business pursuits coverage is not essential for their homeowners’ coverage and is excluded to keep premium rates at a reasonable level.

The provision relevant to this appeal provides in relevant part that “[e]xcess liability and additional coverages do not apply to … [a]n occurrence arising out of the business pursuits or business property of an insured.” “Occurrence” is defined in the policy as “an accident including continuous or repeated exposure to the same general conditions. It must result in bodily injury, property damage, or personal injury caused by an insured.” The term “business” is defined as “a trade, profession, occupation, or employment including self-employment, performed on a full-time, part-time or temporary basis.”

Nationwide argued that the defendant’s coverage claim falls within the scope of this exclusion because the incident giving rise to the claim—essentially, the defendant’s refusal to let Sara Socci leave his presence and her resulting injuries—arose out of the operation of his construction business. More particularly, they argue that Sara Socci would not have been attacked by Kotulsky, and consequently would not have been threatened and restrained by the defendant, if she had not been at the office of the defendant’s construction business performing her duties as an employee.

It is sufficient to show only that the accident or injury was connected with, had its origins in, grew out of, flowed from, or was incident to the use of the business, in order to meet the requirement that there be a causal relationship between the accident or injury and the use of the business. Thus, when used in an exclusionary clause of an insurance agreement, the term “arising out of” establishes an “[expansive] standard of causation” and must be “interpreted broadly.

Applying this broad standard to the facts Sara Socci’s injuries arose out of the defendant’s business pursuits. The sine qua non of the defendant’s tortious conduct was Sara Socci’s presence at his business office fulfilling her responsibilities as his employee. Had Sara Socci not been at the office performing her duties as an employee of the defendant’s business, there is no reason to believe that she would have been assaulted by Kotulsky and, consequently, detained by the defendant. Indeed, there was no other reason for Sara Socci’s presence on the premises, and her acquiescence in obeying the defendant’s commands to wait and not leave were, in part, a function of their employer-employee relationship. Accordingly, the defendant’s conduct, and Sara Socci’s resulting injuries, were connected with, had their origins in, grew out of, flowed from, or were incident to the defendant’s business pursuits.

It is sufficient for Nationwide to demonstrate that the tortious acts and resulting injuries in the underlying action were connected with, had their origins in, grew out of, flowed from, or were incident to the defendant’s business pursuits to establish the necessary causal nexus. The fact that Sara Socci’s injuries would not have occurred had she not been engaged in work for the defendant’s business at the time of her injuries is sufficient to require the exclusion to be enforced.

ZALMA OPINION

The exclusion clearly applied since the injuries suffered by Sara Socci grew out of, flowed from, or were incident to the defendant’s business pursuits. Therefore, no coverage under the homeowners or umbrella policy. Of course, and not touched on by this case, is the fact that as an employee she is entitled to Workers’ Compensation benefits as an exclusive remedy available to her for the injuries incurred in the course and scope of her employment. How she obtained a judgment against her employer is a mystery and not spoken of by the Court of Appeal.

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.

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 Connecticut Explains Meaning of “Arising Out Of”

Medical Liens – A Way to Avoid The Limits of Howell v. Hamilton

Does a Medical Lien Have Any Relationship to The Value of the Medical Services?

Some physicians and health care providers are willing to provide services on a lien where they agree to be paid only after the injured person recovers money in a suit. In such a situation the health care providers are gambling that the patient wins his or her suit. If he or she loses there will be no coverage. Since the health care providers are gambling the billing is usually inflated to hedge the bets they make. Usually, the health care providers then discount their lien so that the injured person can recover more. Essentially, their billing have little or no relationship to the value of the services provided.

Defendants and their insurers who are faced with a plaintiff who uses health care providers who agree to take a lien and wait for payment (if any) until the suit is resolved, must work to determine the true value of the services provided. Failure to do so will invariably be expensive. In Uspenskaya v. Meline, — Cal.Rptr.3d —-, 2015 WL 6510915 (Cal.App. 3 Dist., 10/28/2015) the California Court of Appeal pointed out the danger and expense of failure to obtain evidence – expert testimony – of the true value of the services provided.

FACTUAL BACKGROUND

Defendant Clare Meline appealed from the entry of judgment on a jury verdict finding her negligent and awarding plaintiff Anna Uspenskaya $261,713.71 in past medical expenses.

This case raised an issue in the evolving body of case law on the calculation of reasonable medical expenses in economic damages awards. Plaintiff lacked medical insurance and contracted with her medical providers to treat her in exchange for a lien on whatever she might recover from defendant in this lawsuit. A third party assignee, MedFin Managers, LLC (MedFin), purchased the lien from the medical providers for a discounted amount.

Plaintiff remained liable on the total bill. Defendant contends that the trial court erred in denying her motion to admit evidence of the amounts MedFin paid to purchase the right to recover the full amounts plaintiff’s medical providers billed plaintiff. Defendant argued that the trial court should have allowed her to introduce evidence of the amounts MedFin paid to the medical providers (the MedFin payments) as evidence of the reasonable cost of treatment provided plaintiff, particularly since the court denied defendant’s motion to exclude evidence of the billed amounts.

The jury found defendant negligent and awarded plaintiff a total of $429,773.71 in damages, including $261,773.71 in past medical expenses, which was the full amount of her medical bills. The trial court then entered judgment on the verdict.

DISCUSSION

Exclusion of Evidence under Evidence Code Section 352

The trial court ruled that the collateral source rule is inapplicable in this case because plaintiff did not receive compensation from MedFin nor did MedFin pay her medical bills on her behalf. On the contrary, she still owes MedFin the full billed amounts pursuant to the liens.

Defendant frames this appeal as a question of first impression in California courts related to the aforementioned established principles: “whether the amounts a medical provider accepts from a non-insurer third-party are admissible as evidence of the reasonable value of the service.” The court ruled that without any evidence tending to show that the MedFin payments represented a reasonable value of the treatment provided, evidence of those amounts was likely to confuse the jury and cause the jury to speculate.

The MedFin payments are relevant because they have a tendency in reason to prove reasonable value. However, without evidence that those payments represented a reasonable value for the treatment, the probative value of that evidence as to reasonable value was minimal. There was a substantial danger of undue prejudice and that the evidence of the MedFin payments would confuse or mislead the jury. These dangers substantially outweighed any probative value that evidence of the payments may have had.

The problem in cases involving MedFin, or similar companies purchasing accounts receivable (sometimes referred to as factors), is that MedFin’s purchase price represents a reasonable approximation of the collectability of the debt rather than a reasonable approximation of the value of the plaintiff’s medical services. In other words, the health care providers evaluate the risk of collectability and make a decision to settle for some amount that may or may not reflect the actual value for those services. As the California Supreme Court held in Howell v. Hamilton, 52 Cal.4th 541257 P.3d 1130129 Cal.Rptr.3d 325 (2011) even if evidence of payments is relevant, “under Evidence Code section 352 the probative value of a collateral payment must be ‘carefully weigh[ed] … against the inevitable prejudicial impact such evidence is likely to have on the jury’s deliberations.’ ”

Defendant proposed to admit the amount MedFin paid as her only evidence of the reasonable value of plaintiff’s medical services.  Thus, the evidence of the MedFin payments, without additional testimony, presented a substantial danger of misleading the jury to conclude that the MedFin payments were a reasonable valuation of the medical services rather than a reasonable valuation of plaintiff’s likelihood to pay her debt.

This case does not involve a transaction between the buyer of health care treatment (the injured party and that person’s health care insurance carrier) and the seller of that treatment (the health care provider). It involves the sale of an asset—the right to collect the injured person’s debt—to a third party buyer unrelated to the person who has been injured.

As we see it, the inquiry into reasonable value for the medical services provided to an uninsured plaintiff is not necessarily limited to the billed amounts where a defendant seeks to introduce evidence that a lesser payment has been made to the provider by a factor such as MedFin. In such cases, the inquiry requires some additional evidence showing a nexus between the amount paid by the factor and the reasonable value of the medical services.

As the trial court observed, such evidence was not offered here. The trial court did not abuse its discretion when it excluded evidence of the MedFin payments.

ZALMA OPINION

This case is an example of the use of a method to avoid the application of Howell and use the lien to inflate the value of the health care provided to the plaintiff. Defendants, and their insurers, can defeat this type of medical billing inflation by retaining the services of a professional medical biller or physician to appear as an expert witness and explain to the trier of fact the true value of the services rendered. Without such evidence, billings whether inflated or not, will be allowed as evidence with no ability to find true value of services rendered.

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.

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 Medical Liens – A Way to Avoid The Limits of Howell v. Hamilton

Accident Must “Arise out of” the Use of Auto

Nexus to Injury Required

Automobile insurance is, by definition, limited to actions or events causing bodily injury or property damage arising out of or as a result of the operation, use, loading or unloading of a vehicle. It is not enough to find coverage that a vehicle was close to the site where the injury occurred and might have been used in the future. In Selective Ins. Co. of America v. Zurich American Ins. Co., Not Reported in A.3d, 2015 WL 6758358 (N.J.Super.A.D., 11/06/2015), Plaintiff, Selective Insurance Company of America (Selective), appealed the trial court’s granting of summary judgment to defendants Zurich American Insurance Company (Zurich), and Republic Services, Inc., doing business as Midco Waste Systems (Midco) claiming that since the vehicle was at the location to do work its insurer should provide coverage for the injury incurred by its driver. The court needed to determine, therefore, whether there was any nexus between the vehicle and the injury.

FACTS

In May 2009, trees and vegetation were being cleared from a right-of-way owned by Public Service Electric and Gas (PSE & G).  The initial tree-cutting was done by Nelson Tree Service (Nelson). Dante Enterprises (Dante) was engaged to remove the vegetation and the trees felled by Nelson. Midco was hired to provide a truck and a driver, Nicholas Ciuba, to haul away the trees and vegetation.

After all of the trees had been cut by Nelson and were left wherever they fell. Ciuba drove his truck to the site and parked near a retaining wall at the bottom of a hill. Dante employees were responsible for “staging” the logs, which required moving the logs down the hill to the edge of the retaining wall, and loading them into the Midco truck. The hill was too steep for a machine, so the logs had to be moved by hand. Dante employees brought the logs to the edge of the retaining wall, then Ciuba would move his truck as close to the wall as possible and the logs would be rolled into the truck.

Ciuba was injured by a rogue log that rolled from the hill and over the retaining wall, striking him in the head and causing severe injuries. At the time of the accident, three Dante employees were on the jobsite.

All of the Dante employees confirmed that no one was near the rogue log when it began to roll down the hill. Although Dante employees were working their way up the hill clearing logs row by row, the closest Dante employee was about twenty feet from the rogue log as it was rolling down the hill.

Ciuba sued PSE & G, Nelson, and Dante, claiming they failed to provide him with a safe place to work. On the date of Ciuba’s accident, Selective was the general liability insurer for Dante and Zurich was Midco’s commercial automobile insurer.

The underlying action settled with Selective paying $800,000 on Dante’s behalf. Zurich and Midco did not contribute to the settlement. Selective then sued seeking contribution. The trial court concluded that Zurich did not afford coverage to Dante for Ciuba’s accident because the log that struck Ciuba was never given into Midco’s possession, which is a requirement to be part of the loading and unloading process; and Dante’s “staging” of the logs was not part of the loading process because it was “not necessary for Midco’s truck to be at the site for this staging to occur.”

ANALYSIS

The Zurich policy covers “all sums an insured legally must pay as damages because of bodily injury … caused by an accident and resulting from the ownership, maintenance or use of a covered auto.”

Because it is not disputed that the Midco truck was a covered vehicle under the auto policy, the issue is whether the accident to Ciuba arises out of the vehicle’s use. “[T]he phrase ‘arising out of’ must be interpreted in a broad and comprehensive sense to mean ‘originating from’ or ‘growing out of’ the use of the automobile.” Penn Nat. Ins. Co. v. Costa, 198 N.J. 229, 237 (2009) (internal citations omitted).

For an injury to arise out of a vehicle’s use, there must be a substantial nexus between the injury suffered and the asserted negligent use of the motor vehicle. Automobile insurance coverage only comes into play if the injuries were caused by a negligent act and that negligent act, although not foreseen or expected, was in the contemplation of the parties to the insurance contract a natural and reasonable incident or consequence of the use of the automobile.

In Penn, a worker was injured as he was leaving his employer’s property after offering to assist his employer in changing a tire on a pickup truck parked in the employer’s driveway. The worker slipped on ice on the driveway and struck his head on a bumper jack that was being used to lift the truck.  The Court held that there was not a substantial nexus between the maintenance of the truck by the employer and the worker’s fall because the injury occurred as a result of the employer’s failure to keep his driveway clear of ice rather than the vehicle’s maintenance.

Plaintiff argues that the “staging” was done in preparation for the loading of the Midco truck, and that the purpose was to facilitate the loading of the logs. Here, it is undisputed that Dante employees were not engaged in loading the Midco truck when the rogue log struck Ciuba. Rather, they were engaged in staging the logs at the time of the accident. Dante’s staging of logs was not an integral part of the loading process. It was not even necessary for Midco’s truck to be at the site for staging to occur.

Indeed, as the motion judge observed, the staging could have been completed “even before Midco was hired.”

Therefore the motion judge correctly determined that the staging of the logs was not part of the “loading and unloading” process and did not constitute “use” of the Midco truck.

Ciuba’s accident arose not from any loading or unloading activities but from the negligent acts of those involved in the clearing of the trees. As such, those involved parties were in the best position to avert harm and Dante’s insured is not entitled to contribution from defendants.

ZALMA OPINION

The accident did not arise out of the operation or use of the vehicle. When an accident is caused by the negligent maintenance of the premises and the only connection to that event is the fact that the motor vehicle is present no realistic social or public policy is served by straining to shift coverage from the property owner’s insurer to the auto insurer. The only connection with the vehicle in this case was that it was close by not a cause of the 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.

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.

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 Accident Must “Arise out of” the Use of Auto

Insurance 101 – Volume 35 – Liability Insurance

Liability Insurance

Liability insurance is a promise made by an insurer to pay for all or part of a loss of money that results from a specified type of accident. The promise is in the form of a written, legal contract (the insurance policy) that spells out the kinds of losses that will be paid and the extent of payment. The insurance company’s promise is given in exchange for the insured’s promise to pay money (the premium).

The following video was adapted from my book, “Insurance Claims A Comprehensive Guide” Published by the National Underwriter Company and is available at the Zalma Insurance Claims Library.

(c) 2015, Barry Zalma

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 101 – Volume 35 – Liability Insurance

Precise Use Of Language in Policy Controls

Second Circuit Applies Policy Language as Written

What should be obvious to anyone reading Zalma on Insurance is that insurance is nothing more than a contract. When a dispute arises the court is required to look to the words of the policy and, if unambiguous, must apply those clear and unambiguous terms. They must also avoid the application of precedent when the policy wording is different than that in the earlier cases.

In Endurance American Specialty Ins. Co. v. Century Sur. Co., — Fed.Appx. —-, 2015 WL 6717686 (C.A.2 (N.Y.) 11/4/2015) The Century Surety Company (Century) appealed from a final judgment entered  by the United States District Court for the Southern District of New York (Peck, M.J.), which granted the Endurance American Specialty Insurance Company’s (Endurance) motion for summary judgment in full, denied the Century’s cross-motion for summary judgment in full, and entered judgment against Century for its share of the cost of the underlying defense of the state court action.

On appeal Century claimed that the district court erred when it found that the relevant insurance policy’s Action Over Exclusion clause, when read in combination with the policy’s Separation of Insureds clause, did not exclude the additional insured coverage of the general contractor, Hayden Building Maintenance Corporation (“Hayden”) for an injury to an employee of the subcontractor, Pinnacle Construction and Renovation Corporation (“Pinnacle”).

THE POLICY

The Second Circuit, initially, concluded that the language of Century’s insurance policy (the “Policy”) is unambiguous. Its Action Over Exclusion clause, which excludes insurance coverage for injury to certain employees, states as follows: “‘bodily injury’ to: ¶ (1) An “employee” of the named insured arising out of and in the course of:  ¶ (a) Employment by the named insured; or ¶ (b)Performing duties related to the conduct of the named insured’s business….”

The Policy clearly states, in its Declarations section, “NAMED INSURED: Pinnacle Construction & Renovation Corp.”  Section II of the Policy, entitled “Who Is An Insured” further clarifies that the named insured is “[a]ny organization you newly acquire or form, other than a partnership, joint venture or limited liability company … will qualify as a Named Insured if there is no other similar insurance available to that organization.”  And “you” is defined as follows: “[t]hroughout this policy the word[ ] ‘you’ … refer[s] to the Named Insured shown in the Declarations.”

Here, the only named insured is Pinnacle. And the insurance coverage sought is to defend Hayden in a lawsuit brought by one of Pinnacle’s employees, Arthur Sleszynski, for injuries he incurred during the course of his employment with Pinnacle. Accordingly, the Second Circuit concluded that the text unambiguously excludes insurance coverage for injuries to Sleszynski.

ANALYSIS

Century contends that the Separation of Insureds provision requires this Court to read the Action Over Exclusion provision from the perspective of the particular insured seeking coverage. The Separation of Insureds provision states that: “Except with respect to the Limits of Insurance, and any rights or duties specifically assigned in this Coverage Part to the first Named Insured, this insurance applies: ¶ a. As if each Named Insured were the only Named Insured; and ¶ b. Separately to each insured against whom a claim is made or “suit” is brought.”

Thus, “the named insured” in the Action Over Exclusion provision should, according to Endurance, be replaced with “Hayden,” because “this insurance applies … [s]eparately to each insured.”  Because Sleszynski was not an employee of Hayden, Endurance contended that the Policy would therefore not exclude coverage to Hayden for Sleszynski’s injuries.

This logic would apply only if the Action Over Exclusion clause used the language “the insured” rather than “the named insured.” In that scenario, the provision would be read to replace “the insured” with “Hayden,” because Hayden is seeking coverage. But here, the Action Over Exclusion clause states “the named insured.”

In analogous circumstances, where, for example, employee exclusions have altered the language “the insured” to language expressing a different intent, such as “any insured,” courts have held that the insurance policy precludes coverage of injuries to any employee, whether employed by the insured seeking coverage or not, because to do otherwise would render the unambiguous language referring to any insured “a nullity.” Here, like the language “any insured,” the language “the named insured” evinces that the Action Over Exclusion clause specifically exclude coverage for bodily injury to employees of the named insured, Pinnacle.

Hayden is not a named insured; rather, it is an additional insured. Indeed, the Action Over Exclusion clause replaced and explicitly modified the previous employee liability clause to change the words “the insured” to “the named insured.”

Thus, the district court erred in reading “Hayden” into the words “the named insured” in the Action Over Exclusion provision and its decision was reversed.

ZALMA OPINION

By changing the wording from “any insured” to the “named insured” the insurer limited its coverage for additional insureds and deprived the additional insured of the right to defense from the insurer who made it an additional insured. The words used in an insurance policy must always be precise and if the insurer wishes to limit its exposure it must always used precise language. In this case replacing “any insured” with the “named insured” the insurer effectively limited 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.

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.

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 Precise Use Of Language in Policy Controls

Mailing Sufficient to Establish Cancellation

Failure to Get Photo of Vehicle Required Cancellation

In New Jersey state law requires that a new policy of auto material damage insurance cannot be in force if the vehicle is not photographed.  After plaintiff damaged his automobile by  driving his truck off the road and crashing it into a telephone pole his claim was denied because his coverage had been cancelled for failure to have the truck photographed.

FACTS

In Garcia v. USAA Cas. Ins. Co., Not Reported in A.3d, 2015 WL 6629771 (N.J.Super.A.D., 11/02/2015) Charles J. Garcia appealed from an order granting defendant, USAA Casualty Insurance Company, summary judgment and dismissing his complaint with prejudice. On appeal, he argued there were several issues of fact which precluded summary judgment relative to a notice of cancellation sent by defendant to plaintiff, and the court improperly allowed e-mail as notice of the insurance cancellation required under N.J.A.C. 11:2–36.7(b).

The parties do not dispute that when plaintiff purchased the truck in August 2010, he borrowed money from a lender, Americredit Financial Services, Inc., and obtained insurance for the vehicle, including collision coverage, from defendant. They also do not dispute that plaintiff failed to have the truck produced for a photo inspection, as required by defendant, pursuant to N.J.A.C. 11:3–36.3.  There is also no dispute defendant denied coverage because the photo inspection was not completed and that the New Jersey Department of Banking and Insurance investigated a complaint filed by plaintiff and determined that defendant’s actions were “in accordance with the policy contract provisions, applicable statutes and regulations.”

Their material dispute focused only on whether defendant sent plaintiff notice of cancellation of the collision coverage in accordance with the applicable insurance regulations, based on his failure to have the photo inspection completed.

In support, defendant filed numerous documents relative to a notice it sent to plaintiff about the need for the photo inspection, a notice that his policy’s collision coverage would be cancelled if he failed to produce the vehicle, and a “Notice of Suspension of Physical Damage Coverage,” dated September 23, 2010.

A proof of mailing also produced by defendant consisted of a copy the notice of suspension with a certification confirming mailing on September 27, 2010, with the name “T. Copeland” stamped on the signature line. In addition, defendant produced a U.S. Postal Service Form 3877 indicating the post office’s receipt of letters for mailing from defendant addressed to various people, including plaintiff and Americredit, with a copy of a postmark bearing the same date as Copeland’s certification.

In addition, defendant produced a copy of its amended declaration, dated November 10, 2010, indicating a substantial reduction in plaintiff’s premium as a result of the loss of coverage. That document, addressed to plaintiff, expressly stated that there was no longer any collision coverage. There was no evidence that plaintiff took any action as a result of receiving the declaration statement with the reduced premium, other than apparently paying the amount billed.

Plaintiff filed certifications in opposition to defendant’s motion in which he denied ever receiving the notice of suspension. He did not deny receiving any other document defendant sent to him at the same address.

Plaintiff also alleged that, contrary to defendant’s cancellation notice, Americredit never received the notice of cancellation either. However, in a certification filed by plaintiff’s attorney, counsel supplied a copy of a letter from Americredit confirming it received an e-mail—but not “an actual letter forwarded to you”—notifying it of the cancellation of plaintiff’s coverage on September 23, 2010, and that it notified plaintiff in its October 5, 2010 billing statement that he no longer met “the minimum coverage requirements for [his] motor vehicle.”

ANALYSIS

The judge recognized that there is one “critical” factual dispute that he identified as being “whether the insurance cancellation notices were in fact sent to Plaintiff … or Americredit.” He identified plaintiff’s challenges to the record evidence produced in support of the motion and concluded plaintiff’s assertions were incorrect.

First, the judge was satisfied Americredit received notice of the cancellation and advised plaintiff through its October 2010 billing of his lack of coverage. Second, the court rejected plaintiff’s argument the postal service representative’s certification created a material fact. The judge found the arguments were “not sufficient to” defeat summary judgment. The judge reviewed how each and every document confirmed defendant warned plaintiff that he had to have the truck inspected, if he did not do so his policy would be cancelled, and when it was not accomplished, the coverage was cancelled.

Importantly, plaintiff received an amended declaration page which clearly indicated he no longer had the coverage and his premium was substantially reduced. The judge noted: “On page two of the declaration sheet, the policy states, ‘The following coverages defined in this policy were not provided for comprehensive, collision, rental reimbursement, towing and labor.’ Furthermore, Plaintiff was advised that his annual premium was revised and there was a significant annual decrease of $2158.69. Plaintiff acknowledges receipt of the declaration sheet. These exhibits, especially when combined, demonstrate that [defendant] provided sufficient notice to Plaintiff. Plaintiff admits he knew he needed to obtain a photo inspection to retain coverage, but that he did not obtain one. It is clear that Plaintiff understood the basic conditions of his insurance coverage, even if he did not read the ‘fine print.’”

The court correctly entered summary judgment and dismissed the complaint, substantially for the reasons stated in Judge Isman’s well-reasoned decision. Plaintiff’s view of the insignificance of the photo inspection was misplaced from the time he was notified by mail of his obligation to have it completed, a notification which he never denied receiving. The requirement serves an important state policy. Specifically, N.J.S.A. 17:33B–34(a) states “[a] newly issued policy shall not provide coverage for automobile physical damage perils prior to an inspection of the automobile by the insurer.” This provision was “designed to locate and penalize uninsured drivers and cut down on fraud and other unnecessary costs to the automobile insurance system.” Assembly Appropriations Committee Statement A. 1. (L. 1990 c. 8 § 1).

For that reason, regulations make the inspection mandatory for coverage to be valid. “If the inspection is not conducted … the insurer shall suspend automobile physical damage coverage on the automobile….” N.J.A.C. 11:3–36.7(a) (emphasis added).

The court concluded that the documents produced by defendant that it complied with each of the regulation’s requirements and it was entitled to the presumption of receipt, especially in light of plaintiff never challenging the correctness of the address to which the required notification was sent or explaining why, of all the numerous documents sent to his home, there was only one notice he did not receive. Plaintiff’s reliance upon the postal service’s representative’s statement to create a question of material fact was unpersuasive because it did not refute the notice’s proof of mailing and, under the totality of the circumstances, failed to create a question of fact of a substantial nature warranting the denial of summary judgment.

ZALMA OPINION

Claiming that he did not receive the notice was obviously a ploy to avoid reality since the plaintiff had no trouble with the decreased coverage and lower premium until he drove his truck into a pole. That is why proof of mailing is always sufficient because people will invariably claim – faced with a loss after cancellation – that they did not receive the notice. The court, thankfully, did not fall for the ploy.

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.

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.

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 Mailing Sufficient to Establish Cancellation

What Is Needed to Prove Rescission in New York

Court Explains Proof Required to Rescind Policy

The District Court for the Western District of Pennsylvania was faced with a major lawsuit between a large and sophisticated corporation and an experienced and powerful insurer over whether a misrepresentation – whether intentional or innocent – is sufficient to allow the insurer to rescind the policy from its inception and a declaration that the policy never existed.

In H.J. Heinz Co. v. Starr Surplus Lines Ins. Co., Slip Copy, 2015 WL 6643674 (W.D.Pa., 10/30/2015) the court did not decide the issues but did set forth the legal issues that control the upcoming trial that clearly explains the law of rescission in New York which follows the Marine Rule first stated in 1766 in the House of Lords in a case called Carter v. Boehm.

THE ISSUES

This case involves an insurance coverage dispute between H.J. Heinz Company (“Heinz”) and Starr Surplus Lines Insurance Company (“Starr”). Starr’s Counterclaim for Rescission of the insurance policy will be decided as “Phase One” of this matter.

After thorough briefing by the Parties, the Court ruled that the law of New York applies to this matter. In light of that decision, the Court sought further briefing from the Parties regarding New York’s applicable laws on rescission and the appropriate standards of law and burdens of proof that will be presented to the factfinder.

Secondly, and currently, the Parties and the Court have been focused on the next level of decisions through the filing of the Parties’ proposed Verdict Slips and proposed Jury Instructions. The Court’s analysis of these, in conjunction with the Parties’ briefs on the applicable laws and standards reveal the following legal issues to be resolved by the Court at this time:

(1) whether an insurance policy may be rescinded for an intentional or unintentional misrepresentation under New York law;

(2) the burden of proof for a party seeking rescission of an insurance policy; and

(3) the burden of proof for Heinz’s affirmative defenses.

DISCUSSION

Section 3105 of New York’s Insurance Law sets forth the basic framework for rescission. It states in relevant part that: “No misrepresentation shall avoid any contract of insurance or defeat recovery thereunder unless such misrepresentation was material.”

The Parties dispute whether rescission is available to an insurer where an insured has made an unintentional or mistaken representation. New York caselaw instructs that both intentional and unintentional misrepresentations will void a contract of insurance if the misrepresentation is material. See Matter of Liquidation of Union Indem. Ins. Co. of New York, 89 N.Y.2d 94, 651 N.Y.S.2d 383, 674 N.E.2d 313, 320 (N.Y.1996) and Mutual Ben. Life Ins. Co. v. JMR Electronics Corp., 848 F.2d 30, 32 (2d Cir.1988) that held that even an innocent misrepresentation will allow rescission.

There is no substantive difference in the Parties’ recitation of the applicable legal standards regarding the materiality of a misrepresentation in a claim for rescission, which is codified in the statute as: “No misrepresentation shall be deemed material unless knowledge by the insurer of the facts misrepresented would have led to a refusal by the insurer to make such contract.” N.Y. Ins. Law § 3105(b)

Burden to Prove Material Misrepresentation Generally

Starr has cited to the New York pattern jury instructions regarding insurance contracts and misrepresentation-which state that a preponderance of the evidence standard should be used.

Accordingly, the Court finds that, at the trial of Phase One of this matter, Starr must prove by a preponderance of evidence that Heinz made a material misrepresentation (intentional or unintentional) in order to void the insurance policy.

Misrepresentation Due to Omission or Silence

On the other hand, there is some indication from the preliminary submissions by the Parties that this case may involve a potential misrepresentation due to the omission of information or silence. If this issue becomes relevant in this matter, then intent may also be at issue. An insured has no duty under New York law to volunteer information which has not been requested and nondisclosure of such information will only void an insurance policy in instances where the insured sought to defraud the insurer by failing to disclose the information.

The Parties seem to also raise the sub-issue of misrepresentations made by brokers. Because the law is unambiguous that any misrepresentation made by a broker is imputed to an insured, the Court will not address this issue in detail.

Burden to Prove Misrepresentation by Omission or Silence

The caselaw concerning the burden to prove a misrepresentation due to omission or silence, where the scienter of the insured is a requirement, is less clear. Here, the Court finds Heinz’s argument for use of the clear and convincing standard applied in insurance fraud cases in New York to be persuasive.

Affirmative Defenses of Waiver of Right to Seek Rescission

Heinz asserts that Starr’s (1) failure to perform a reasonable investigation into the information provided in Heinz’s application for insurance; (2) unreasonable delay in pursuing rescission after learning of a material misrepresentation; or (3) accepting a benefit from the policy (such as a premium payment) after learning of a material misrepresentation results in waiver of Starr’s right to seek rescission of the policy and that Heinz must prove these affirmative defenses by a preponderance of the evidence.

The Court will apply the preponderance of the evidence standard to Heinz’s affirmative defenses.

CONCLUSION

In summary, with respect to its Counterclaim for rescission, Starr must prove by a preponderance of the evidence that Heinz made a material misrepresentation (whether intentional or unintentional) in its application for insurance. However, if Heinz allegedly made a material misrepresentation by silence or omission, Starr must prove fraudulent intent by clear and convincing evidence. Regarding its Affirmative Defenses, Heinz must prove waiver of Starr’s right to rescission by a preponderance of the evidence.

ZALMA OPINION

Rescission is an equitable remedy that has been part of the common law since before the United States was formed and has been part of our legal system since the first U.S. judge was appointed and sat to hear a legal dispute. It is applied differently in different jurisdictions. For example New York requires that the insurer prove it would not have issued the policy to prove materiality while California only requires that the insurer react differently to prove materiality so that just a higher premium or a different deductible would be sufficient to prove materiality. This will be an interesting trial and I look forward to learning what the final decision the court reaches.

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.

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.

Legal Disclaimer:

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

Posted in Zalma on Insurance | Comments Off on What Is Needed to Prove Rescission in New York

First Party “All Risk” Policies Can be Stacked

Ambiguity Costs Insurer More Than $25 Million

Insurance companies and their lawyers work very hard to write insurance policies that are clear and unambiguous. It is a difficult task since courts interpret policies based upon a set of facts that was not anticipated by the insurer or its insured at the time the policy contract was acquired. As a result, when there is a major loss, litigation goes forward and courts must interpret the policy as it relates to the facts of the case.

When courts point out problems in policy wording prudent insurers and those that serve them by writing policies amend the policy wording to more closely fulfill their intent.

In Lion Oil Company v. National Union Fire Insurance Company of Pittsburgh, PA, Slip Copy, 2015 WL 6680899 (W.D.Ark., 11/2/2015) the District Court for the Western District of Arkansas was faced with an insured who had incurred a loss in excess of $50 million and who sought coverage under two different insuring agreements to obtain indemnity for its loss claiming the two coverages both applied and could be stacked to combine two $25 million limits to a single loss. Its decision should cause insurers and the ISO to reword first party policies.

FACTS

After four days of trial, outside of the presence of the jury, both parties orally moved for judgment as a matter of law on the same two issues: the applicability of the insurance policies’ service interruption provision and whether “stacking” of coverages is allowed under the policies.

The parties agree that interpretation of the insurance policies in this diversity case is governed by Arkansas substantive law. If the language is unambiguous, its construction and legal effect are questions of law for the court to decide and the court will give effect to the plain language of the policy without resorting to the rules of construction. However, when ambiguous language is used in the contract, other rules apply.

ANALYSIS

Service Interruption Provision

The policies at issue here include multiple time element extensions. One such extension relates to Service Interruption, which states: “(5) Time Element Extensions ¶ (a) This policy, subject to all provisions and without increasing the limits of this policy, also insures against loss resulting from damage to or destruction by causes of loss insured against, to: ¶ (i) Service Interruption: electrical, steam, gas, water, sewer, incoming or outgoing voice, data, or video, or any other utility or service, transmission lines and related plants, substations and equipment situated on or outside of the premises; ….” (emphasis added)

Both parties argue that the service interruption provision is unambiguous and that the Court should give effect to the plain language of the policy. Plaintiff argues that the ordinary meaning of the terms in the service interruption provision require coverage. Defendants, however, argue that the application of two certain rules of construction lead to only one reasonable interpretation of the service interruption provision—that is, by its plain language, the provision does not apply to a crude oil pipeline.

Both parties agree that, to trigger the service interruption coverage, the property damaged must be “transmission lines and related plants, substations and equipment situated on or outside of the premises” that carry “electrical, steam, gas, water, sewer, incoming or outgoing voice, data, or video, or any other utility or service” to Plaintiff’s refinery. None of the terms found in the service interruption provision are defined within the policies. Plaintiff argues that the ordinary meaning of the term “transmission line” includes a crude oil pipeline and that the ordinary meaning of the term “service” includes the delivery of oil. Thus, according to Plaintiff, applying the plain and ordinary meaning of the policies’ terms leaves little doubt that the Northline rupture triggered the service interruption provision because its losses resulted from the interruption of EMPCo’s crude oil delivery service via the transmission line. Defendants, on the other hand, argue that the plain meaning of “transmission line” does not include a crude oil pipeline and that the phrase “any other utility or service” does not include the delivery of oil.

A crude oil pipeline transmits oil from one place to another. Thus, the plain and ordinary meaning of “transmission line” includes a crude oil pipeline. Because the term “service” is susceptible to more than one reasonable interpretation, the Court finds that the service interruption provision’s language is ambiguous.

In construing an ambiguous statute, court have turned in the past to the doctrine of ejusdem generis (of the same kind). Here, because the Court has determined that an ambiguity exists, the use of these rules presents a reasonable interpretation of the policy. However, because this is an insurance case, the Court is required to apply the interpretation that favors the insured, which is Plaintiff in this case.

“Stacking” Coverages

In addition to the time element extension that covers service interruption, the policies at issue provide an extension that covers contingent business interruption. The issue before the Court is whether these insurance policies, which provide service interruption coverage of $25 million and contingent business interruption coverage of $25 million, provide an aggregate coverage of $50 million or a coverage limited solely to $25 million. In other words, the dispute is whether Plaintiff may recover under both the service interruption and contingent business interruption coverages. Courts sometimes refer to this practice as “stacking.”  In Arkansas, stacking is not prohibited by statute and may be precluded by an applicable anti-stacking clause.

The policies at issue here do not contain an anti-stacking provision. There is no language that restricts the number of coverage grants or sub-limits that apply to a given occurrence. Defendants argue that the amount of recovery under the policy is limited to $25 million because stacking the contingent business interruption coverage and the service interruption coverage would allow a double recovery for the same damages. Plaintiff, however, suffered a net margin loss that is more than $50 million. Thus, stacking the two coverages would not allow double recovery because Plaintiff is not seeking to recover an amount that is greater than its actual loss.

Neither Arkansas nor another state has addressed the propriety of stacking coverages in an all-risk insurance policy. There is no case or statute in Arkansas that would prevent Plaintiff from stacking coverages in an all-risk policy. Defendants could have prevented the stacking of coverages by including an anti-stacking provision in the policies.

As a general rule, a claimant may recover under all available coverages provided that there is no double recovery. For these reasons, the Court found that the service interruption coverage and contingent business interruption coverage in the policies at issue can be “stacked” to provide an aggregate coverage of $50 million.

ZALMA OPINION

This is a case of first impression – no one has ever tried to stack multiple first party coverage on a policy of all risk or direct risk of physical loss policies. It seems odd that an insurer that insured a refinery argued that an oil pipeline was not a transmission line since that is how its insured received product to refine. This case should instruct the insurers and the ISO to define terms more carefully and to include anti-stacking provisions in similar policies if they don’t want the coverages stacked.

After the court allowed the stacking, on November 4, 2015, an Arkansas jury awarded an oil company $71.7 million in a lawsuit filed against insurers in connection with lost income and expenses stemming from a 2012 oil pipeline breach. The U.S. District Court in El Dorado, Arkansas, awarded Brentwood, Tennessee-based Lion Oil Co. $60.4 million in income loss and $11.3 million in expenses in connection with the incident, in litigation filed by the company against 16 insurers, according to court papers in Lion Oil Co. v. National Union Fire Insurance Co. of Pittsburgh, Pa., et al.

Lion Oil owns and operates a refinery in El Dorado that was supplied crude oil primarily by a pipeline owned and operated by ExxonMobil Pipeline Co., a unit of Irving, Texas-based Exxon Mobile Corp., according to the original complaint, filed Oct. 8, 2013.

A rupture on April 28, 2012, resulted in the pipeline’s immediate shutdown, according to the complaint. The company began receiving shipments of crude oil through the pipeline again on March 18, 2013.

Lion Oil contended in its lawsuit that it suffered losses of more than $80 million as a result of the incident and that it was a covered loss under an “all risk” policy issued by the defendant insurers.

The insurers denied coverage, according to the complaint, contending the claim fell into two policy exclusions: one that states the policy did not insure against the cost of making good defective design or specifications, and a second that applies to “ordinary wear and tear.”

The jury verdict in Lion Oil’s favor came after a six-day trial. Plaintiff attorney Geoffrey J. Greeves, a partner with Pillsbury Winthrop Shaw Pittman L.L.P. in Washington, said in a statement that he was not surprised “the El Dorado jury concluded that Lion Oil’s insurers breached their obligations by failing to live up to their all-risk insurance contracts.”

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.

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.

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 First Party “All Risk” Policies Can be Stacked

Insurer Can’t Exclude Cover for No-Fault Limits

Insurers Dispute Who Needs to Defend and Indemnify the Insured

Insurance companies have the right to include any language in an insurance policy that the person insured is willing to accept unless the language included violates the local law. In this case two insurance companies could not resolve among themselves which was required to defend and indemnify an insured sued as a result of an automobile accident so they filed suit.

In William Lee Maher and Selective Insurance Company of South Carolina v. Federated Service Insurance Company, Aon Automotive Group, Inc. d/b/a Brooklyn Ford and Melissa Strang, Slip Copy, 2015 WL 6449379 (E.D.Mich., 10/26/15), the District Court for the Eastern District of Michigan was called upon to resolve the dispute between the  insurance companies.

Plaintiffs William Lee Maher (“Maher”) and Selective Insurance Company of South Caroline (“Selective”) asked the court to rule that Defendant Federated Service Insurance Company (“Federated”) owed a duty to defend and indemnify Maher up to the limits of the insurance policy it issued to Aon Automotive Group, Inc. d/b/a Brooklyn Ford (“Brooklyn Ford”) in an automobile accident case pending in the Jackson County Circuit Court, Melissa Strang v. William Lee Maher and Aon Automotive Group, Inc. d/b/a Brooklyn Ford (“the underlying case”).

BACKGROUND

At the time of the underlying case, Maher was an employee of West Michigan Auto Auction (“West Michigan Auto”). Brooklyn Ford has a contract with West Michigan Auto to auction vehicles Brooklyn Ford owns. Before an auction, West Michigan Auto sends an employee to pick up the vehicles from Brooklyn Ford and takes them to the auction site. West Michigan Auto provides its own license plates for the vehicles which its employee attaches prior to taking a vehicle from Brooklyn Ford to the site.

On August 1, 2013, Melissa Strang (“Strang”) sustained injuries as a result of an automobile accident involving Maher while he was driving a Brooklyn Ford vehicle to an auction. Maher was acting within the course and scope of his employment with West Michigan Auto. He had changed the plate on the Brooklyn Ford vehicle to the plate provided by West Michigan Auto. Maher was driving the Brooklyn Ford vehicle with Brooklyn Ford’s permission at the time of the accident.

Federated initially denied Maher’s request citing a specific provision referred to as the Auto Sales Exception within the “Who Is An Insured” provision in the Garage Coverage section of the Federated Policy. The Auto Sales Exception provides no coverage for “Someone using a covered ‘auto’ while he or she is working in a business of selling, servicing or repairing ‘autos’ unless that business is your ‘garage operations.’”

Maher disputed Federated’s denial. Federated later agreed to defend Maher with respect to the underlying case subject to a full reservation of rights. Plaintiffs filed a motion for judgment on the pleadings seeking a declaration that Federated has the sole and primary duty to defend and indemnify Maher in the underlying case up to the limits of any insurance policy it insured Brooklyn Ford.

Plaintiffs further seek a declaration that Federated is obligated and has a duty to reimburse Selective for any defense costs that have been incurred in connection with the defense of Maher in the underlying case.

DISCUSSION

The Plaintiffs’ argued that Federated’s Auto Sales Exception provision is void as a matter of law because Federated is attempting to exclude from coverage an entire class of permissive users, i.e. those permissive users of vehicles owned by Brooklyn Ford separate from Brooklyn Ford’s “garage operations.”

To support its argument, Plaintiffs cite multiple cases which reiterate the rule that Auto Sales Exception provisions that preclude coverage for permissive users of insured vehicles are invalid under Michigan law. Federated attempted to deny liability coverage by operation of an Auto Sales Exception provision to a certain class of permissive users, namely permissive users except those that were uninsured or underinsured. The Michigan Supreme Court held that this was not something that Federated could lawfully do because it violated the No-Fault Act.

The District Court concluded that the Auto Sales Exception provision is unenforceable. Federated admits that the provision, if enforced, would preclude coverage to an entire class of permissive users but argues that its provision is materially different than any other void Auto Sales Exception provision. Federated argued that because the purpose of the Auto Sales Exception provision is to shift liability to West Michigan Auto and not Maher personally, there is a distinction between the case law Plaintiffs cite and the case law it cites.

The case law interpreting the No-Fault Act draws no such distinction. Michigan courts have held similar provisions to the Auto Sales Exception provision in question to be void. In both Citizens Ins. Co. of America v. Chrysler Ins. Co., 2001 WL 1135298 (Mich. App.) and Flint Auto Auction, Inc. v. Universal Underwriters Ins. Co., 2013 WL 6409984 (E.D. Mich. 2013), the court voided the exclusionary provision in dispute between an owner’s carrier and a driver’s employer’s carrier.

Michigan courts are clear in their holdings that the key question to determine coverage is whether the language of the policy, if enforced, would preclude coverage to a certain class of permissive users. (The “no-fault act unambiguously requires that a policy of automobile insurance, sold to a vehicle owner pursuant to the act, must provide coverage for residual liability arising from use of the vehicle so insured.”

Here, there is no dispute that Maher was a permissive user of the Brooklyn Ford owned vehicle.

Therefore, the District Court concluded that because Federated is relying on an invalid exclusion in its policy, the Auto Sales Exception provision is void and Federated is responsible for Maher’s defense and indemnity up to the limits of the policy it issued to Brooklyn Ford that was in effect at the time of the accident.

Duty to Defend

Plaintiffs also seek declaration that Federated is obligated and has a duty to reimburse Selective for the defense costs it incurred in the defense of the claims asserted against Maher in the underlying case. Since the no-fault act unambiguously requires that a policy of automobile insurance must provide coverage for residual liability rising from use of the vehicle so insured.

Federated has the primary duty to defend and indemnify Maher up to its policy limits.

  1. Federated is obligated to provide Maher’s primary defense in the underlying case;
  2. Federated has the primary duty to indemnify Maher up to the limits of the policy issued to Brooklyn Ford that was in effect at the time of the underlying accident;
  3. Federated is obligated and has a duty to reimburse Selective for the defense costs it incurred in the defense of the claim asserted against Maher in the underlying case.

ZALMA OPINION

Although insurance companies are, by common law, allowed to include any language they wish they cannot do so in violation of the law. Since Michigan requires all permissive drivers to be insured under its no fault insurance scheme, an insurer who tries to limit the coverage for permissive drivers is in violation of local law and public 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.

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.

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 Insurer Can’t Exclude Cover for No-Fault Limits

It’s Not Nice To Lie to Your Insurance Company

A Lie About a 15-Year-Old Living in the House Voids Coverage

Insurance,  as I have said often, is a business of the utmost good faith and neither party should do anything to deprive the other of the benefit of the contract. Lay people believe only the insurance company must treat the insured in good faith and that they can lie and cheat their insurer with impunity. They are wrong. Therefore, when filling out an application a prospective insured must carefully answer all questions posed honestly and fully or find that the insurance policy is voidable at the option of the insurer.

For more than one hundred and thirty years, this Mississippi Supreme Court has held that an insurance company may void a policy when the insured made material misrepresentations during the application process. When Safeway Insurance Company learned that Michelle Busby had made a material misrepresentation when she applied for the motor-vehicle-liability policy at issue here, it had the policy declared void and litigation followed trying to get the benefits promised for parties injured by Busby’s son.

FACTS

While driving his mother’s 2003 Chevy Silverado in Rankin County, sixteen-year-old William Busby crashed into Kenneth Tarlton’s car, which in turn collided with a car driven by Katrice Jones–Smith.

When William’s mother, Michelle, applied to Safeway Insurance Company for an insurance policy on the Silverado, the application required her to warrant that she had provided the names of all regular frequent drivers of the covered vehicles, as well as all residents of her household fourteen years old or older. Michelle failed to disclose that fifteen-year-old William resided in her home, and Safeway issued her a policy on the Silverado at a premium that was lower by over 200% than the premium would have been had Safeway known about William.

So after William’s accident, Safeway sought a declaratory ruling that Michelle’s failure to identify William was a material misrepresentation, rendering the policy voidable. In response, Katrice—along with her mother Nancy Jones, who owned the car Katrice was driving—filed an answer and counterclaim asserting that William was at fault in the accident and that he was covered by the Safeway policy. The parties filed competing motions for summary judgment, and the circuit judge—finding Michelle’s failure to disclose William was a material misrepresentation—granted summary judgment to Safeway.

ANALYSIS

The question in this case is not whether the terms of Michelle’s policy with Safeway covered the accident, but whether the policy itself was voidable.

In 1876, the Mississippi Supreme Court held that “Nothing is better settled, both in regard to insurance contracts and contracts of all sorts, than that an untrue statement by either party, as to a matter vital to the agreement, will avoid it, though there be no intentional fraud in the misrepresentation.”  Coop. Life Ass’n of Miss., 53 Miss. at 12.

An immense amount of labor and learning is displayed in the books in the consideration of what are, and what are not, material matters in contracts of insurance, a false statement in relation to which will avoid the policy; and it is impossible to resist the conclusion, in perusing the cases, that the courts, in order to avoid supposed hardships in this class of suits, have been disposed to adopt other rules than those applicable to ordinary contracts. Contracts of insurance are neither prohibited because they are evil or prohibited because of their existence. Where a contract is entered into by capable persons are to be regulated and determined by the same rules that govern ordinary agreements, with neither more nor less favor than is shown in other cases.

If the insurance companies, conforming their policies to the requirements of each successive decision, have protected themselves against all possible loss by any misrepresentation, no matter how insignificant or unintentional, it would be most unseemly in the courts to seek, by new exactions, to nullify these advantages. It is neither the duty nor the right of courts to protect adults against the consequences of their agreements incautiously entered into. In other words, jurists had been reluctant to invalidate insurance policies based on the misrepresentations of the insured when the invalidation would deny innocent beneficiaries the right to recover, giving rise to the idea that insurance policies should not be treated equally with other contracts.

Applying this century-old precedent on insurance contracts to the facts before us today, there can be no doubt that the circuit judge properly voided the policy issued by Safeway.

The application required Michelle to warrant that she had provided the names of all residents of her home over the age of fourteen. She admittedly failed to do so by failing to disclose fifteen-year-old William, to whom she even gifted a car covered by the policy. Because the parties to the contract characterized this assertion as a warranty, its materiality need not be questioned, and the circuit judge properly voided the contract because the statement was not literally true.

And we would reach the same result even if we characterized Michelle’s failure to disclose William as a misrepresentation, because it was both material and not substantially true.

The representation was entirely false because the application required Michelle to disclose all household residents over age fourteen and she did not provide all of the names she was required to provide. The representation was material because, without a 209 percent increase in Michelle’s rate, Safeway would not have issued the policy.

ZALMA OPINION

A warranty in a policy establishes, as a matter of law, materiality. In this case failing to advise the insurer of the existence of a 15-year-old resident concealed from the insurer that the risk it was asked to take was greater than it believed as a result of the statements and warranties in the application. Since the premium would have been 209% higher had it known the truth materiality was obvious and the Supreme Court found the policy void from its inception.

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.

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.

Legal Disclaimer:

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

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Zalma’s Insurance Fraud Letter – 11-1-2015

Insurance Fraud & Weapons to Defeat Fraud

Zalma’s Insurance Fraud Letter

November 1, 2015
Volume 19, No. 21

Welcome to the November 1, 2015

Click Here and Download ZIFL-11-01-2015

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

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:

  1. Is This Fraud? Failures of the Affordable Care Act
  2. Proformative Academy – Continuing Education materials by Barry Zalma by subscription.
  3. Lack of Evidence Reverses Insurance Fraud Conviction
  4. New Books by Barry Zalma
    1. Insurance Fraud & Weapons to Defeat Fraud
    2. Random Thoughts on Insurance – Volume III
    3. The Zalma Insurance Claims Library
    4. Insurance Law
    5. Insurance Claims: A Comprehensive Guide
    6. Mold Claims Coverage Guide
    7. Construction Defects Coverage Guide
  5. Seventeen Years in Prison for STOLI Fraud Conspiracy
  6. Good News From The Coalition Against Insurance Fraud
  7. Convictions for Health Insurance Fraud & P&C Insurance Fraud

ZIFL is published 24 times a year by ClaimSchool, Inc. It is provided free to clients and friends of the Law Offices of Barry Zalma, Inc., clients of Zalma Insurance Consultants and anyone who subscribes below.

Insurance Publications by Barry Zalma

Visit the Zalma Insurance Claims Library

Construction Defects Coverage Guide

URL:  www.nationalunderwriter.com/ConstructionDefects

Insurance Claims: A Comprehensive Guide
     For Readers of ZIFL a Special 25% Discount
URL:  www.nationalunderwriter.com/InsuranceClaims

Insurance Law

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

Mold Claims Coverage Guide

URL:  www.nationalunderwriter.com/Mold

In addition the standard FC&S Online published by The National Underwriter Company FC&S Online 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.

Subscribers of Zalma’s Insurance Fraud Letter SAVE 25% on Insurance Claims: A Comprehensive Guide!  To Save, Apply Coupon Code Zalma25.

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
Available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

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

Zalma on Insurance – A Blog

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

  • Fiduciary Who Must Obtain Insurance Ordered
  • Can an Insurer Be a Victim?
  • Prior Publication Defeats Coverage
  • Insurance 101 – Volume 24 – Mortgagee’s Rights When Insured’s Claim Is Denied
  • Insurance 101 – Volume 23 – The Rights of the Mortgagee
  • Again Court is Asked to Decide Who’s On First
  • Insurance 101 – Volume 22 – The Direct Risk of Physical Loss Policy
  • Definitions Make Policy Wording Clear & Unambiguous
  • Insurance 101 – Volume 21 – What is a Direct Physical Loss?
  • Insurance 101 – Volume 20 – What is an Application for Insurance?
  • Suing an Insurance Company Can be Expensive
  • Insurance 101 – Volume 19 – The Problem With Binders
  • Insurance 101 – Volume 18 – Reasonable Expectations
  • An Occurrence Is a Single Unified Event
  • Insurance 101 – Volume 17 – More on Interpreting Insurance Policies
  • Insurance 101 – Volume 16 – Interpreting Insurance Policies
  • Insurance 101 – Volume 15 – The Contract of Personal Indemnity
  • Public Adjuster With Contingent Fee Contract Cannot Testify as an Expert
  • More than Judgment Is More Than Enough.
  • Check in every day for a case summary and video.

Also Consider:

Barry Zalma’s Continuing Education Courses at WebCE.

Barry Zalma blogs now at LexisNexis Insurance Law Center at http://law.lexisnexis.com/blogs/Insurance

Follow Barry Zalma on Twitter at https://twitter.com/bzalma

Sign up for ZIFL at http://ui.constantcontact.com/d.jsp?m=1122537382212&p=oi

Spread the Word: http://ui.constantcontact.com/sa/fwtf.jsp?m=1122537382212&ea=zalma%40zalma.com&a=1122720049868

Posted in Zalma on Insurance | Comments Off on Zalma’s Insurance Fraud Letter – 11-1-2015