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.
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.
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.
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.
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.
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