Do You Want to be an Insurance Claims Professional?

How to Be an Insurance Claims Professional


New Books from Full Court Press

Full Court Press continues to publish expert secondary content. This time it’s a new collection of insurance law treatises from consultant, expert witness, arbitrator, and mediator Barry Zalma.

Barry Zalma practiced law in California for more than 44 years as an insurance coverage and claims-handling lawyer, and has spent more than 51 years in the insurance business. Full Court Press welcomes his deskbooks as the first published under our Full Court Press imprint. Four titles are available in ePub and MOBI format, as well as on the Fastcase legal research platform.

Zalma on Property and Casualty Insurance:

The earnings of almost every civil lawyer in the United States are funded by the insurance industry. Insurance can best be described as the mother’s milk of the law profession. The civil defense lawyer is paid by an insurer for each hour he or she works. The civil plaintiffs’ lawyer is usually paid by taking a percentage of any judgment entered in favor of the plaintiff, which judgment is usually paid by the defendant’s insurer.

In almost every situation in which a civil lawyer practices law the funds for that work come, either directly or indirectly, from insurance. Consequently, lawyers must use their wits and energies to avoid or to pursue litigation to the benefit of the client. Both sides understand that an insurer will eventually pay one or both sides in the dispute. Insurance is important to every civil dispute and even some that fall within the criminal courts.

Every lawyer retained to prosecute or defend a civil suit should begin the representation with a serious effort to find insurance coverage for the benefit of the client or the defendant the client is suing. Without that knowledge, the lawyer will find he or she is litigating with duct tape firmly self-placed across his or her mouth.

Insurance Law Deskbook Zalma

Learn the insurance basics that are essential to every civil practitioner.

CalifCal Lawornia Insurance Law Deskbook

California has long led the way when it comes to insurance jurisprudence in the United States, and few know more about California insurance law than Barry Zalma.

 

Insurance Bad Faith and Punitive Damages Deskbook

Understand the relationship between insurance, the tort of bad faith, and why punitive damages are awarded to punish insurers.

An annual subscription to secondary content on the Fastcase BadFaithplatform includes new editions and updates published by the author as they are rolled out, so you can rest assured that your research is up to date. Go to fastcase.com for more detail and how to use the material on-line as part of your legal or insurance research or as stand-alone e-books.

All available at fastcase.com.


Books from ClaimSchool, Inc.

“Insurance Law”

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

Insurance Law is the most comprehensive, and yet practical, insurance law authority available today.

This book is ideal for any professional who works in or frequently interacts with the insurance industry. Claims professionals, risk managers, producers, underwriters, attorneys (both plaintiff and defense), business owners, and students will benefit greatly from this all-inclusive reference. It is also the perfect resource for educators and trainers whose role requires an understanding of insurance law.

In addition to case law, the author has provided countless citations to relevant statutory, regulatory, and judicial sources which are guaranteed to kickstart your research.

Price Reduced from $196- Send Check for $75.00 to ClaimSchool, Inc., 4441 Sepulveda Blvd., Culver City, Ca 90230 and the book will be mailed to you.

Mold Claims Coverage Guide

Today, mold claims are common, but they continue to grow in complexity, involving not only property damage but bodily injury as well. Mold-related lawsuits have dramatically increased over the past few years, and tProduct Detailshe numbers continue to rise. Coverage requirements—and related issues—can be complicated and confusing.  This resource will remove the complexity and allow the insurer, insured, property owner or developer and their counsel to deal with mold quickly and effectively and, if possible, avoid unnecessary litigation.

Price Reduced – Send Check for $50.00 to ClaimSchool, Inc., 4441 Sepulveda Blvd., Culver City, Ca 90230 and the book will be mailed to you.

Construction Defects Coverage Guide

This insightful and practical two volume resource was envisioned anProduct Detailsd written by nationally renowned expert Barry Zalma, and it thoroughly explains how to identify construction defects and how to insure, investigate, prosecute, and defend cases that result from construction defect claims.

Construction Defects Coverage Guide was designed to help 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.

Price Reduced from $196 – Send Check for $75.00 to ClaimSchool, Inc., 4441 Sepulveda Blvd., Culver City, Ca 90230 and the book will be mailed to you.

Insurance Claims: A Comprehensive Guide

Insurance contracts and clauses are specific in nature—but the manner in which insurance claims are pursued and resolved can be remarkably different.  Mistakes in handling a claim can undermine the outcome—and ultimate value—of the claim itself.

Insurance Claims: A Product DetailsComprehensive Guide is the one resource that enables insurance professionals, producers, underwriters, attorneys, risk managers, and business owners to successfully handle insurance claims from start to finish—employing proven, practical techniques and best practices every step of the way.

Price Reduced from $196 – Send Check for $75.00 to ClaimSchool, Inc., 4441 Sepulveda Blvd., Culver City, Ca 90230 and the book will be mailed to you.


Books from the American Bar Association

The Commercial Property Insurance Policy Deskbook

How to Acquire a Commercial Property Policy and Present and Collect a First-Party Property Insurance Claim

By Barry Zalma

The Commercial Property Insurance Policy Deskbook is a comprehensive resource on acquiring a commercial property policy and presenting and collecting first-party property insurance claims. The book looks at the fundamentals of insurance and a wealth of topics including rules of construction of a policy of commercial property insurance, the commercial first party property insurance policy, different types of property losses, conditions and limitations,specific and blanket coverages, mortgage clauses, the need for a prompt notice of claim, the commercial property claim, adjusting the commercial property loss, the sworn statement in proof of loss, the adjustment of the commercial property loss, subrogation and salvage, and common law bad faith.

Also included are five appendixes of forms, letters, and other documents.

Available from the American Bar Association at: http://shop.americanbar.org/eBus/Default.aspx?TabID=251&productId=214624; or  orders@americanbar.org, or 800-285-2221.

The Insurance Fraud Deskbook

Author: Barry Zalma

Sponsor(s):  Tort Trial and Insurance Practice Section, Publisher(s):   ABA Book Publishing

ISBN: 978-1-62722-676-9
Product Code: 5190506
2014, 638 pages, 7 x 10

Product DetailsThis book is written for individuals who are focused on the effort to reduce expensive and pervasive occurrences of insurance fraud. Lawyers who represent insurers, claims personnel, prosecutors and their investigators can all benefit from this exhaustive resource.

The Insurance Fraud Deskbook is a valuable resource for those who are engaged in the effort to reduce expensive and pervasive occurrences of insurance fraud. It explains the elements of the crime and the tort to claims personnel, and it provides information for lawyers who represent insurers, so they can adequately advise their clients. Prosecutors and their investigators can use this book to determine what is required to prove the crime and win their case.

The full text of decisions from courts of appeal and supreme courts across the country are provided so the reader can understand what happens after the investigation is completed and can apply that information to undertake their own thorough investigations. It allows claims personnel and their lawyers to understand what errors would cause a defeat or a not-guilty verdict.

The effort to reduce insurance fraud requires the assistance of both civil and criminal courts. The Insurance Fraud Deskbook can help the prudent fraud investigator, insurance adjuster, insurance attorney, insurance Special Investigation Unit, and insurance company management to attain the information needed to deal with state investigators and prosecutors.

Available from the American Bar Association at: http://shop.americanbar.org/eBus/Default.aspx?TabID=251&productId=214624; or  orders@americanbar.org, or 800-285-2221.

Diminution in Value Damages: How to Determine the Proper Measure of Damage to Real and Personal Property

ISBN: 978-1-63425-295-8
Product Code: 5190524
2015, 235 pages, 7 x 10, Paperback

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.


Co-Author(s):Property Investigation Checklists: Uncovering Insurance Fraud, 12th Michael H Boyer  &  Barry Zalma

Property Investigation Checklists: Uncovering Insurance Fraud provides detailed guidance and practical information on the four primary areas of any investigation of suspicious claims:
• Recognizing suspicious claims
• Proper investigation procedures
• Analysis of laws concerning fraudulent personal and real property claims
• Evaluating and settling claims.
The book also examines recent developments in areas such as arson investigation procedures, bad faith, and extracontractual damages. The appendix includes the NAIC Insurance Information and Privacy Protection Model Act.

ZALMA ON INSURANCE:  A BLOG

Go to Home Page

Write to Barry Zalma

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

After more than 50 years acting as a claims person and insurance coverage lawyer I enjoy reading court decisions concerning insurance. The idea of this blog is to find new cases that are interesting to me and then write a summary. Some of the cases reviewed will be important. Some may be of first impression. Others will be totally unimportant. All will be interesting.

Zalma on Insurance, a Blog is published five days a week.


COIL Commentary on Insurance Law Volume 1 through volume 6.

A Journal providing information about insurance, insurance claims handling and insurance law as it changes with new decisions.

All six issues available here.

(c) 2019, Barry Zalma and ClaimSchool, Inc.

Read about these and other insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/

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Liability Policies Can’t Be Stacked in Montana

Clear & Unambiguous Anti-Stacking Language Allowed by Statute

When a person insured carries modest limits of liability on an auto liability policy but the insured causes severe injuries too small to cover the losses the insured and the injured persons will work together to attempt to find more insurance money by seeking to allow multiple insurance policies on multiple vehicles to stack and create limits not purchased.

In Kenneth & Kari Cross, Henley & Nicola Brady, and Roland & Lana Redfield, Plaintiffs v. Robert and Sherle Warren; Grass Chopper, LLC; Taylor Warren and Progressive Ins. Co., DA 17-0599, Supreme Court of the State of Montana (March 5, 2019) the plaintiffs appealed a denial of Plaintiffs’ claim that the four separate motor vehicle liability insurance coverages purchased by Robert and Sherle Warren (Warrens) from Progressive Direct Insurance Company (Progressive), should be “stacked” for application toward Plaintiffs’ injury claims.

FACTUAL BACKGROUND

While driving a 2000 GMC Sierra pick-up truck owned by his parents, Robert and Sherle Warren, eighteen-year-old Taylor Warren caused an accident resulting in injuries to Kenneth Cross, Henley Brady, and Roland Redfield.

At the time of the accident, Taylor Warren was an insured driver, and the truck he was driving was an insured vehicle, under a Progressive motor vehicle insurance policy purchased by the Warrens. The policy covered all four members of the Warren family and included separate liability coverages for each of the Warrens’ four vehicles. Each vehicle’s coverage provided identical bodily injury liability coverage limits of $100,000 for each person or $300,000 for each accident, although the premiums charged to the Warrens were different for each vehicle.

Following the accident, Progressive paid the limit of liability coverage, $100,000 to each of the three Plaintiffs injured in the accident (or, $300,000 total for the accident), under the Warrens’ coverage on the GMC Sierra pick-up truck involved in the accident. However, Plaintiffs claimed, as set forth in their March 2016 Amended Complaint, that they were entitled to recover based upon the combined, or stacked, liability coverage limits for all four of the Warrens’ vehicles, thus totaling $400,000 per person or $1,200,000 for the accident.

Noting that the Supreme Court had not ruled that third-party liability coverages were stackable, the District Court cited the rulings of federal courts applying Montana law to the issue, which had denied stacking. The court reasoned that Montana cases requiring stacking of first-party coverages were inapplicable because first-party and third-party coverages were fundamentally different, that only named insureds could stack their coverages, that third-party liability coverage was not personal and portable like first-party coverage, and that prohibition upon the stacking of third-party liability coverage did not render the Warrens’ policy’s coverage illusory.

DISCUSSION

Plaintiffs argued the District Court erred by failing to apply § 33-23-203, MCA, to the question of stacking the third-party liability coverage claimed here. Plaintiffs characterize the statute as having been changed by 2007 amendments from “an anti-stacking statute into a pro-stacking statute,” which now requires coverages to be stacked unless the insurer takes affirmative action otherwise.

Plaintiffs argued the statute applies to all automobile insurance coverages, including liability coverages and that the District Court erred because a Montana court may not properly reject, as somehow ill-suited, application of this controlling Montana statute. Progressive responded that Plaintiffs’ characterization of § 33-23-203, MCA, as a re-made, “pro-stacking” statute, is “overreaching,” and argues the statute has always been an anti-stacking statute, and remains so.

The Warrens’ policy, which provided automobile liability coverage in a section entitled “Liability to Others,” is encompassed within this definition and, therefore, the application of § 33-23-203, MCA, to motor vehicle liability policies necessarily includes application to their policy as well.

The statute’s initial clause prefaces the statute with the condition, “[u]nless a motor vehicle liability policy specifically provides otherwise, the limits of insurance coverage available under each part of the policy must be determined as follows . . . “. Section 33-23-203(1), MCA (emphasis added). The first question to be considered when applying the statute, which defers to the provisions of the  policy, is whether the policy specifically determines whether the coverage limits can be stacked.

The Warrens’ policy contained a Declarations Page explaining the different coverages under the policy. On the Declarations Page, the bodily injury liability coverage limits, which would provide coverage for third-party claims such as Plaintiffs’ here, were listed for each vehicle as “$100,000 each person/$300,000 each accident.” The Declarations Page also set forth a general statement prohibiting stacking, stating, “[t]he policy limits shown for a vehicle may not be combined with the limits for the same coverage on another vehicle unless the policy contract or endorsements indicate otherwise.” (emphasis added) Progressive’s policy specifically and unambiguously provided that stacking of coverages would not be permitted.

The Supreme Court found property coverage to be “personal and portable” when it applies in “all circumstances,” or, in other words, is applicable without regard to the ownership or use of a motor vehicle. Liability coverage is not, like property coverages, portable and applicable in “all circumstances.” As Progressive’s policy here provides, liability coverage is applicable only “with respect to an accident arising out of the ownership, maintenance, or use of an auto or trailer.”

Because liability coverage is tied to the use or involvement of a motor vehicle, each additional insured vehicle presents a separate and additional risk: that by using it, another driver could cause an additional liability-incurring accident. While an individual could not personally operate multiple insured vehicles at once, it is entirely possible for vehicles driven by multiple permissive drivers to be involved in different liability-creating accidents at the same time, or later within the policy period. Nonetheless, each vehicle’s use triggers liability coverage for damages incurred in each separate accident, pursuant to the premium paid for that vehicle, securing a full coverage limit in the amount purchased and identified by the policy. Progressive paid the liability coverage limit for the Warrens’ GMC Sierra pickup involved in the accident, in the full amount stated on the Declarations Page, but also continued to assume the risk that full coverage limits on the Warrens’ second, third, and fourth vehicles would be payable for claims as well, and thus, the separate premiums secured protection for the Warrens that was not illusory.

Given that liability coverage is tied to a particular vehicle’s use and is not personal and portable, the policy provided liability coverage that was not illusory, the policy unambiguously and repeatedly stated that coverages on separate vehicles could not be stacked, as authorized by § 33-23-203(1), MCA, and that Progressive paid out the coverage limit for the Warrens’ GMC Sierra as set forth on the Declaration Page.  The Supreme Court found it was unreasonable to expect the policy would pay more.

Public policy considerations do not allow a court to rewrite an insurance policy to provide coverage not purchased. There was no basis in law to require judicial voiding of the anti-stacking provisions of Progressive’s policy as applied to liability coverage.

The primary reason stacking is prohibited is the important distinction between optional first-party coverage (UM, UIM, and Med Pay) and legally-mandated third-party coverage (bodily injury and property damage).

ZALMA OPINION

Since dissents were filed by members of the court we can only say the plaintiffs made a good try but failed because the language of the statute allowed the insurer to include within the policy wording anti-stacking language. Since Progressive inserted – in accordance with the language of the statute – anti-stacking wording there was no right to stack the liability coverages. Although hindsight is always 20/20 and it would have been best if the insured’s purchased higher limits no court should change the wording of a policy of insurance to provide coverages when such coverage was not purchased.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Ten Volumes Comprising A Comprehensive Group of Materials on Property & Casualty Insurance Claims

Insurance claims professional and expert witness Kevin Quinley said about the following ten volumes: “Zalma’s series of books is a terrific blend of both the legal underpinnings and the practical implications for the claim practitioner.

Insurance Maven Bill Willson said: “Zalma On Insurance Claims” is a tour de force, an indispensable tool that should be a part of every claims training program in America and in the library of every claims professional for quick and frequent reference. This comprehensive guide belongs in the library of every insurance defense AND policyholder law firm. It should be a part of every claims training program of carriers, independent adjusting firms, and public adjusters. Many of these parts should be part of the training or reference programs for non-claims personnel, from agents to underwriters to risk managers.”

Zalma on Insurance Claims Volume 101

 

 

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True Crime Stories of Insurance Fraud

Fictionalized True Insurance Crime Books

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals. The following are based on true stories from my career as an insurance fraud expert consultant.

“HEADS I WIN, TAILS YOU LOSE”

Product DetailsA collection of columns originally published in the magazines “Insurance Journal,” “Insurance Week,” and “The John Cooke Insurance Fraud Report” insurance trade publications serving the insurance community in the United States that have been updated and revised.

The title, “Heads I Win, Tails You Lose” is meant to describe insurance fraud as it works in the Unites States. It means that whenever a person succeeds in perpetrating an insurance fraud everyone who buys insurance is the loser.

Available as a Kindle Book.

Available as a paperback.

“Candy and Abel: Murder for Insurance Money”

How a young lawyer and wise old investigator defeated an attempt at life insurance fraud.

Product DetailsAvailable as a Kindle Book.

Available as a paperback.

 

 

“Murder And Insurance Fraud Don’t Mix”

My name is Marion Orpheus Montague. My friends, and some enemies, call me “MOM.” It is not a designation of my ability to nurture my clients. I have never been, nor will I Product Detailsever be, maternal. I accept the play on my initials because it causes adversaries to underestimate me.

I am 66-years-old. My grayish blond hair is thin and my full beard is a bit scraggly. My face is round and often tinged with red. My nose is full, my eyes green and my cheeks bulge out to the sides trying to emulate the belly that precedes every other part of my body as I walk. People see me and do not believe that I am a private investigator. Seeing me they often think that I am on leave from my winter work as a Macy’s Santa Claus.

I like being underestimated. It makes my job as an investigator easier.

See how a fake robbery at a jewelry store led to murder and prison.

Available as a Kindle book.

Available as a paperback

“Murder & Old Lace: Solving Murders Performed for Insurance Money”

Product Details

When the women first met – 20 years ago at a Santa Monica health spa – Magogassasanian appeared taken with Gogolivesky. The women moved Alvarado into an apartment, then started applying for life insurance policies on him. They jointly took out four policies, each as 50% beneficiaries in addition to the individual policies they bought from my client. Gogolivesky also took out three more policies on her own while Magogassasanian only took out a single individual policy on Earnest. The two women pocketed nearly $6,000,000 in insurance benefits on Alvarado alone and $4,000,000 in insurance benefits on Earnest. They also recovered a total of $5,000,000 on the other six old men they killed.

Available as a Kindle book.

Available as a paperback.

“Arson for Profit: How an Attempt to use Arson & Fraud to Fund Terrorism Failed”

This story is based on a real case involving a member of Russian/Armenian organized crime, real insurers, investigators, lawyers, fire fighters, and insurance brokers. The names, descriptions, and identities of the people involved have been changed to protect both the guilty and the innocent. The report to the US Senate, after this case was decided by the California Courts, reveal that the threats made on MOM and lawyer Hazan were real and they are lucky that the threats were never fulfilled. The person identified in this story as Levonyan was described to the US Senate as the leader of a Russian/Armenian organized crime ring. It is important to take seriously threats from criminals. Insurance fraud and arson-for-profit are not victimless crimes. They are crimes of violence that cost everyone who lives in the U.S.]

Available as paperback.

Available as a Kindle Book.

“M.O.M. & The Taipei Fraud: How an Experienced Adjuster Defeated a $7 Million Fake Burglary Claim

 

The problem is that each option the insurers have available have a down side and Feng is represented by a lawyer who has proved highly successful in suing insurers and collecting large compensatory and punitive damage awards. Since the claims exceed $6 million dollars, he can expect, applying the law set out by the U.S. Supreme Court in State Farm Mut. Automobile Ins. Co. v. Campbell and BMW of North America, Inc. v. Gore as much as $60 million in punitive damages. So I need to explain to the insurers that they face an exposure anywhere from their policy limits to ten times the policy limit. They need the courage of their convictions to reject this major claim.

Available as a paperback.

Available as a Kindle book.

Posted in Zalma on Insurance | 1 Comment

She who Sits on Her Rights Loses Them

Arbitration Award by Default Upheld Against Tardy Appeal

People like to sue insurance companies. They believe, often correctly, that it is easy because jurors dislike insurance companies and even if the case has no merit they will enter a judgment in favor of the insured. To do so, however, it is important that the person suing the insurance company, acts promptly and effectively.

In State Farm Insurance Company v. Dawn Mcateer, J-A27040-18, No. 576 EDA 2018, Superior Court of Pennsylvania (March 5, 2019) Dawn McAteer appealed from the Order dismissing her “Petition to Strike, Set Aside and Open Judgment, Award, and All Actions of Arbitrators.” She maintains that she was denied a full and fair arbitration hearing and that the judgment entered on the resultant award is therefore void.

FACTS

The trial court aptly summarized the procedural history and facts of this case as follows:

“On July 31, 2001, [McAteer] was involved in a vehicle accident resulting in personal injury. [State Farm] insured [McAteer] at the time of the accident. On December 2, 2002, [McAteer] sued the alleged tortfeasor in The Philadelphia Court of Common Pleas resulting in settlement on or about October of 2003. ¶ On April 23, 2004, [McAteer] filed a Petition to Appoint Arbitrator and Compel Arbitration in the Philadelphia Court of Common Pleas. [McAteer] challenged the policy coverage provided by [State Farm] for uninsured motorists. … The Philadelphia Court of Common Pleas again transferred the second Petition to Bucks County. [McAteer] appeals the court’s decision and the Superior Court held, inter alia: ¶ [McAteer] develops no argument related to the trial court’s determinations that it was bound by the 2004 ruling transferring venue to Bucks County and that she failed to assert a specific contractual basis that permitted venue in any county in which she resided at the time of filing her petition.”

State Farm filed a Petition to Appoint Arbitrator(s). After repeated attempts to serve this third Petition on McAteer at various addresses, the court entered an Order granting alternative service by means of publication, or regular and certified U.S. Mail, and by serving McAteer’s last known attorney of record. McAteer claimed that at no time was an arbitration scheduled and held by the arbitration panel or was any notice of anything provided to Dawn McAteer relating to or regarding the third petition. In fact, notice was issued by several means.

Due to McAteer’s inaction and that McAteer’s arbitrator did not participate in the proceedings and the panel decided in favor of State Farm on November 3, 2014. A Judgment on the Award of the Arbitrators in favor of State Farm was entered on December 10, 2014. Notice of the Judgment was mailed in accordance with Pennsylvania law.

Nearly two years later, McAteer filed a Petition to Strike, Set Aside and Open Judgment, Award, and All Actions of the Arbitrators on December 6, 2016. State Farm sought a Protective Order from the Court on January 25, 2017. The parties sought a ruling on McAteer’s Petition to Strike/Open and State Farm’s Protective Order. On January 18, 2018, this Court entered an Order granting State Farm’s Protective Order and denying McAteer’s Petition to Strike, Set Aside, and Open the Judgment.

McAteer thus waived all issues on appeal.

DISCUSSION

The 58-paragraph Rule 1925(b) statement she attached to her brief – even assuming it is the same as what she delivered to the trial judge – preserved no issues due to its incoherence. What is more, none of the many issues she catalogues in her statement correspond to the one issue McAteer lists in her Statement of Questions Presented. As such, the appellate court concluded that McAteer waived all issues on appeal.

Regardless, the trial court properly dismissed her petition. Despite the broad title she gave to her petition, the only relief she sought was to set aside the arbitration award. However, McAteer filed her petition nearly two years after receiving the arbitration award, when she ought to have filed it within 30 days.

The fact that McAteer’s insurance policy provides for arbitration under the now-repealed Pennsylvania Arbitration Act of 1927 (“1927 Act”) does not change the outcome. Even the 1927 Act’s provision of 90 days in which to seek relief in court from an arbitration award would not help McAteer.

In any event, although parties to a contract may elect to arbitrate disputes under the 1927 Act’s substantive standards, they cannot choose that act’s procedural provisions, such as the 90-day period for petitions to court. Failure to act promptly resulted in a dismissal.

ZALMA OPINION

A waste of court time. A waste of the time of the arbitrators and State Farm. A total waste of time, money and effort by a litigant who did everything wrong, waited over two years to complain and then did so improperly and incoherently. This type of specious conduct requires punishment as a frivolous action.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Ten Volumes Comprising A Comprehensive Group of Materials on Property & Casualty Insurance Claims

Insurance claims professional and expert witness Kevin Quinley said about the following ten volumes: “Zalma’s series of books is a terrific blend of both the legal underpinnings and the practical implications for the claim practitioner.

Insurance Maven Bill Willson said: “Zalma On Insurance Claims” is a tour de force, an indispensable tool that should be a part of every claims training program in America and in the library of every claims professional for quick and frequent reference. This comprehensive guide belongs in the library of every insurance defense AND policyholder law firm. It should be a part of every claims training program of carriers, independent adjusting firms, and public adjusters. Many of these parts should be part of the training or reference programs for non-claims personnel, from agents to underwriters to risk managers.”

Zalma on Insurance Claims Volume 101

 

 

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Be an Insurance Professional!

How to Become an Insurance Claims Professional

The insurance claim professional must be able to recognize and defeat attempts at insurance fraud while dealing ethically and in good faith with all insureds and claimants with whom the insurance professional comes in contact. For those who serve the insurance industry and its policyholders (whether as lawyers, adjusters, claims management, or public insurance adjusters) perform their duties appropriately it is absolutely necessary that they maintain insurance professionalism.

The following books need a home in each law office, each insurance company and independent adjuster claims office and in the offices of every public insurance adjusting firm. Barry Zalma’s Insurance Claims Library will provide essential resources and will go a long way to create a staff of insurance claims professionals.  The books listed below are a small taste of the insurance and insurance claims books written by Barry Zalma and available on amazon.com and at http://zalma.com/blog/insurance-claims-library/

Some of the books available to create or maintain insurance professionalism include:

California Fair Claims Settlement Practices Regulations

A Guide to Insureds, Public Insurance Adjusters, and Lawyers to Properly Investigate and Adjust Insurance Claims

This book was designed to assist insurance personnel who do business in the state of California. It will assist all insurance claims personnel, claims professionals, independent insurance adjusters, special fraud investigators, private investigators who work for the insurance industry, the management in the industry, the attorneys who serve the industry, public insurance adjusters, policyholders and counsel for policyholders working with insurers doing business in California. All insurers doing business in California must comply with the requirements of the Regulations or face the ire of, and attempts at financial punishment from, the CDOI. That punishment is now questionable and limited because some courageous insurers fought the CDOI and succeeded before an administrative law judge who limited the right to punish. Regardless of difficulties in assessing punishment the state of California requires all who are involved in the claims process — even if only tangentially — to be trained with regard claims handling in compliance with the Regulations and attest to completion of such training under oath. To avoid the annual training the claims person can submit a sworn document that avers that he or she has read and understood the Regulations. Reviewing this book and the Regulations set forth below should be sufficient to comply with the training requirements of the Regulations. It is necessary that insurance personnel who are engaged in any way in the presentation, processing, or negotiation of insurance claims in California be familiar with the Regulations. Counsel for insurers and policyholders should also be familiar with the Regulations since they set a minimum standard for claims handling in the state.

Available as a Kindle book.

Available as a paperback.

California SIU Regulations

The State of California Imposes Control on the Investigation of Insurance Fraud

California SIU Regulations: The State of California Imposes Control on the Investigation of Insurance FraudCalifornia SIU Regulations is designed to assist California insurance claims personnel, claims professionals, independent insurance adjusters, special fraud investigators, private investigators who work for the insurance industry, the management in the industry, the attorneys who serve the industry, and all integral anti-fraud personnel working with California admitted insurers to comply with the requirements of California SIU Claims Regulations.

The state of California, by statute, requires all admitted insurers to maintain a Special Investigative Unit (an “SIU”) that complies with the requirements set forth in the Special Investigative Unit Regulations (the “SIU Regulations”) and train all integral anti-fraud personnel to recognize indicators of insurance fraud.

Available as a Kindle Book.

Available as a paperback.

Ethics for the Insurance Professional

Methods for Insurers and their Personnel to Act with the Utmost Good FaithProduct Details

Ethics is a process of systematically applying, using, defending and recommending concepts of right and wrong behavior. Ethical behavior is required of both parties to a contract of insurance for the system to work. Ethics is the essence of insurance. Ethical behavior is required of both parties to a contract of insurance for the system to work. If any party to the insurance contract acts unethically the ability of insurance to work effectively and profitably will fail. Ethics is the essence of insurance. Since insurance was first created it has been a business of utmost good faith. As a result, the insured and the insurer are expected to treat each other ethically.

Available as a paperback.

Rescission of Insurance

Product DetailsRescission is an equitable remedy as ancient as the common law of Britain. When the United States was conceived in 1776 the founders were concerned with protecting their rights under British common law. They adopted it as the law of the new United States of America modified only by the limitations placed on the central government by the U.S. Constitution approved in 1789. The viability and ability to enforce contracts was recognized as essential to commerce. Courts of law were charged with enforcing legitimate contracts. Courts of equity were charged with protecting contracting parties from mistake, fraud, misrepresentation and concealment since enforcing a contract based on mistake, fraud, misrepresentation or concealment would not be fair. The common law developed rules that courts could follow to refuse to enforce the terms of a contract that was entered into because of mutual mistake of material fact, a unilateral mistake of material fact, the breach of warranty (a presumptively material promise to do or not do something), a material concealment, or a material misrepresentation. The remedy – called rescission – created a method to apply fairness to the insurance contract and allow an insurer to void a contract and allowed courts to refuse to enforce such a contract entered into by misrepresentation or concealment of material facts.

Available as a paperback.

Available as a Kindle book.

“The Insurance Examination Under Oath”

Product DetailsThe insurance Examination Under Oath (“EUO”) is a formal type of interview authorized by an insurance contract. It is taken under the authority provided by a condition of the insurance contract that compels the insured to appear and give sworn testimony on the demand of the insurer or find his, her or it claim rejected for breach of a condition. A notary and a certified shorthand reporter are always present to give the oath to the person interviewed and record the entire conversation.

Available as a Kindle book.

Available as a paperback.

“Random Thoughts on Insurance”

Product DetailsAfter more than 50 years acting as a claims person and insurance coverage lawyer I enjoy reading court decisions concerning insurance. The idea of this blog is to find new cases that are interesting to me and then write a summary. Some of the cases reviewed will be important. Some may be of first impression. Others will be totally unimportant. All will be interesting.

The case digests and articles from 2010 to the present, in the six volumes summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Read about these and other insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/

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Clear and Unambiguous Policy Language Must be Applied

Every Insured Must Read and Understand the Policy before Buying

I have argued for the last 51 years that insurance disputes can be avoided by the people insured actually reading and understanding the policy before buying it. Very few people have listened.

In Allegis Investment Services, LLC, Allegis Investment Advisors, LLC v. Arthur J. Gallagher & Co; Indian Harbor Insurance Company; and Paige Nabavian, Case No. 2:17CV515DAK, United States District Court for the District of Utah Central Division (March 1, 2019) a failure to read and understand an insurance policy before it was purchased resulted in federal litigation that should have been avoided.

BACKGROUND

Allegis Investment Services, LLC, (“AIS”) is a broker-dealer investment company and Allegis Investment Advisors, LLC (“AIA”), is a registered investment advisor company (collectively, “Allegis”). Allegis seeks insurance coverage for claims against AIS and AIA relating to a “Net Credit Spread” investment strategy that Allegis employed in 2015. Allegis, with full discretionary authority for its clients, executed a “put credit spread” based on the Russell 2000 index on a total of 39,200 put options on each side of the spread. This trade had a maximum potential profit of $313,600, and a maximum potential loss of $38,886,400. Allegis’ investor accounts suffered the maximum potential losses from the trade, and many of the investors initiated arbitrations against Allegis to recover their losses.

Gallagher, after receing an application, proposed a policy to Allegis through Indian Harbor Insurance Company. The broker warned that it would seek to bind those coverages based upon Allegis’ authorization; however, it reported that it could make no warranties in respect to policy limits or coverage considerations of the carrier. Actual coverage, it warned, is determined by policy language and implored Allegis to read all policies carefully.

Allegis admited that it received a copy of the 2014 E&O Policy. The Policy contains the following exclusion: “This insurance does not apply to any Claim or Defense Expenses: . . . Arising out of the actual or alleged purchase, sale, attempted sale, solicitation or servicing of any of the following: . . . . Commodities, any type of futures contracts, any type of option contract or derivative. However, this exclusion shall not apply to fully covered put or call options.”  (emphasis added) The 2014 policy was renewed and Allegis received a copy of the 2015 E&O Policy that contained the same terms and exclusions as the 2014 policy.

FINRA Rule 2360 addresses “options” and defines the term “covered” in connection with put options. AIA placed a block trade for all of its options investors employing a bull put/net credit spread, with the cost and losses distributed pro rata among the investors. AIA received a premium from each contract of $0.5272.

Indian Harbor alleges that the trade was not “covered” as that term is defined by FINRA Rule 2360 and Cboe Rule 1.1(y) because instead of buying puts at the same or higher strike price than the puts AIA sold, AIA bought puts at a lower strike price, which was solely a play for premium.

With all of Allegis’ options investors losing half of their accounts on one trade, between September and mid-November 2015, AIA investors began to complain and threaten lawsuits and arbitrations. For example, one investor lost $50,000 for a potential gain of only $381.

Following assessment of the submitted claim materials, Indian Harbor determined that the Policy did not provide coverage for the options investors’ claims. Indian Harbor declined coverage for the eight noticed claims.

Until suit was filed June 5, 2017 no one associated with Allegis ever disputed Indian Harbor’s coverage determination or provided Indian Harbor with any additional information for it to consider.

DISCUSSION

Allegis seeks insurance coverage from Indian Harbor under the E&O Policy in relation to its investors’ arbitrations against it, claiming that Indian Harbor had a duty to defend and indemnify it for the investors’ actions under the terms of the Policy. Indian Harbor contends that the Options Exclusion in the E&O Policy barred coverage for the investors’ actions against Allegis because Allegis’ August 2015 trade did not involve fully covered put options.

Under Utah law, an insurance policy is merely a contract between the insured and the insurer and is construed pursuant to the same rules applied to ordinary contracts. Like other contracts, an insurance policy is interpreted to give effect to the intent of the parties as expressed by the plain language of the instrument itself.

If the policy language is clear and unambiguous, the court must construe it according to its plain and ordinary meaning. The proposed interpretation must be plausible and reasonable in light of the language used.

The insured bears the initial burden of showing that there is coverage for a particular claim under the policy. The insurer then bears the burden of proving by a preponderance of the evidence that an exclusion to coverage applies.

Duty to Defend

Utah courts generally apply the “eight-corners rule” to determine potential liability for an insurer’s duty to defend. The eight-corners rule compares the language of the insurance policy with the allegations of the complaint. The duty to defend arises when the allegations in the underlying complaint, if proved, could result in liability under the policy. Where the allegations, if proved, show there is no potential liability under the policy, there is no duty to defend.

In this case, Indian Harbor has the burden to demonstrate that none of the allegations of the underlying claims are potentially covered (or that a policy exclusion conclusively applies to exclude all potential for such coverage).

The Policy’s Options Exclusion bars coverage for the August 2015 options trade.

None of the underlying claimants refer to other types of trading or investments, such as mutual funds or annuities. The claimants refer only to their options trading accounts and what occurred in those accounts. The complaints are that funds were used instead for options trading.

The Policy exclusion Indian Harbor relies on applies to any claim arising out of options trading. The term is “very broad, general and comprehensive,” and means originating from, growing out of or flowing from. The exclusion applies irrespective of the legal theory of recovery as long as it is arises out of options trading.

Each of the underlying claimant’s complaints arises out of, grows out of, or flows from the actual or alleged purchase, sale, attempted sale, solicitation, or servicing of option contracts. The language of the exclusion is plain, unambiguous, and broadly applies to all claims arising out of options trading. The court concluded, therefore, that no claim falls outside of the Policy’s Options Exclusion.

In this case, both the allegations in the underlying claims and the undisputed facts demonstrate that there is no coverage afforded for the options investor claims.

Duty to Indemnify

Allegis did a single-day trade solely for the purpose of collecting a one-time premium. Allegis did not have cash or treasury bills to buy the underlying instrument. Allegis was a naked put writer. Allegis’ options investors suffered permanent losses from the August 2015 trade.

Bad Faith Claim & Punitive Damages Claims

Because the Policy does not cover the underlying investor claims against Allegis, Allegis’ bad faith claim and request for punitive damages necessarily fail.

Claims Against Brokers

Allegis has not demonstrated any contractual obligation Gallagher had to Allegis other than to procure an E&O insurance policy. Gallagher procured a policy, proposed the policy to Allegis, and Allegis authorized Gallagher to bind coverage. Allegis had ample time to review the E&O Policies and never rejected the insurance Gallagher proposed.

Negligent Failure to Procure Claim

It is undisputed in this case that Allegis obtained insurance in the amount it requested from Gallagher. Allegis never made a specific request that Gallagher obtain coverage for claims that may arise out of Allegis’ net credit spread strategy. The undisputed facts establish that Allegis and Gallagher had nothing more than a standard broker/insured relationship.

Plaintiffs Allegis Investment Services, LLC, and Allegis Investment Advisors, LLC’s Motions for Summary Judgment was denied while defendant Indian Harbor Insurance Company’s Motion for Summary Judgment and the motions of the brokers were granted.

ZALMA OPINION

Had Allegis read and understood the policy provided to them while knowing that they were advising clients to invest in options, they would have rejected the proposed policy since it excluded, clearly and unambiguously, liability as a result of option trading. They apparently did not read or understand the policy and tried to convince a judge that their mistake was the fault of the insurer and the broker.By refusing to accept their own negligence Allegis spent a great deal of money for lawyers only to have the attempt fail.  Much money in legal fees, on both sides and the time of an appellate court was wasted.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Ten Volumes Comprising A Comprehensive Group of Materials on Property & Casualty Insurance Claims

Insurance claims professional and expert witness Kevin Quinley said about the following ten volumes: “Zalma’s series of books is a terrific blend of both the legal underpinnings and the practical implications for the claim practitioner.

Insurance Maven Bill Willson said: “Zalma On Insurance Claims” is a tour de force, an indispensable tool that should be a part of every claims training program in America and in the library of every claims professional for quick and frequent reference. This comprehensive guide belongs in the library of every insurance defense AND policyholder law firm. It should be a part of every claims training program of carriers, independent adjusting firms, and public adjusters. Many of these parts should be part of the training or reference programs for non-claims personnel, from agents to underwriters to risk managers.”

Zalma on Insurance Claims Volume 101

 

 

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Do You Want to Be an Insurance Professional? Here’s How.

A Method to Create Insurance Claims Professionals

The insurance claim professional must be able to recognize and defeat attempts at insurance fraud while dealing ethically and in good faith with all insureds and claimants with whom the insurance professional comes in contact. For those who serve the insurance industry and its policyholders (whether as lawyers, adjusters, claims management, or public insurance adjusters) perform their duties appropriately it is absolutely necessary that they maintain insurance professionalism.

The following books need a home in each insurance law office, in each insurance company and independent adjuster claims office and in the offices of every public insurance adjusting firm will provide essential resources and will go a long way to create a staff of insurance claims professionals.  The books listed here are a small taste of the insurance and insurance claims books written by Barry Zalma and available on amazon.com and at http://zalma.com/blog/insurance-claims-library/

Some of the books available to create or maintain insurance professionalism include:

California Fair Claims Settlement Practices Regulations

A Guide to Insureds, Public Insurance Adjusters, and Lawyers to Properly Investigate and Adjust Insurance Claims

This book was designed to assist insurance personnel who do business in the state of California. It will assist all insurance claims personnel, claims professionals, independent insurance adjusters, special fraud investigators, private investigators who work for the insurance industry, the management in the industry, the attorneys who serve the industry, public insurance adjusters, policyholders and counsel for policyholders working with insurers doing business in California. All insurers doing business in California must comply with the requirements of the Regulations or face the ire of, and attempts at financial punishment from, the CDOI. That punishment is now questionable and limited because some courageous insurers fought the CDOI and succeeded before an administrative law judge who limited the right to punish. Regardless of difficulties in assessing punishment the state of California requires all who are involved in the claims process — even if only tangentially — to be trained with regard claims handling in compliance with the Regulations and attest to completion of such training under oath. To avoid the annual training the claims person can submit a sworn document that avers that he or she has read and understood the Regulations. Reviewing this book and the Regulations set forth below should be sufficient to comply with the training requirements of the Regulations. It is necessary that insurance personnel who are engaged in any way in the presentation, processing, or negotiation of insurance claims in California be familiar with the Regulations. Counsel for insurers and policyholders should also be familiar with the Regulations since they set a minimum standard for claims handling in the state.

Available as a Kindle book.

Available as a paperback.

California SIU Regulations

The State of California Imposes Control on the Investigation of Insurance Fraud

California SIU Regulations: The State of California Imposes Control on the Investigation of Insurance FraudCalifornia SIU Regulations is designed to assist California insurance claims personnel, claims professionals, independent insurance adjusters, special fraud investigators, private investigators who work for the insurance industry, the management in the industry, the attorneys who serve the industry, and all integral anti-fraud personnel working with California admitted insurers to comply with the requirements of California SIU Claims Regulations.

The state of California, by statute, requires all admitted insurers to maintain a Special Investigative Unit (an “SIU”) that complies with the requirements set forth in the Special Investigative Unit Regulations (the “SIU Regulations”) and train all integral anti-fraud personnel to recognize indicators of insurance fraud.

Available as a Kindle Book.

Available as a paperback.

Ethics for the Insurance Professional

Methods for Insurers and their Personnel to Act with the Utmost Good FaithProduct Details

Ethics is a process of systematically applying, using, defending and recommending concepts of right and wrong behavior. Ethical behavior is required of both parties to a contract of insurance for the system to work. Ethics is the essence of insurance. Ethical behavior is required of both parties to a contract of insurance for the system to work. If any party to the insurance contract acts unethically the ability of insurance to work effectively and profitably will fail. Ethics is the essence of insurance. Since insurance was first created it has been a business of utmost good faith. As a result, the insured and the insurer are expected to treat each other ethically.

Available as a paperback.

Rescission of Insurance

Product DetailsRescission is an equitable remedy as ancient as the common law of Britain. When the United States was conceived in 1776 the founders were concerned with protecting their rights under British common law. They adopted it as the law of the new United States of America modified only by the limitations placed on the central government by the U.S. Constitution approved in 1789. The viability and ability to enforce contracts was recognized as essential to commerce. Courts of law were charged with enforcing legitimate contracts. Courts of equity were charged with protecting contracting parties from mistake, fraud, misrepresentation and concealment since enforcing a contract based on mistake, fraud, misrepresentation or concealment would not be fair. The common law developed rules that courts could follow to refuse to enforce the terms of a contract that was entered into because of mutual mistake of material fact, a unilateral mistake of material fact, the breach of warranty (a presumptively material promise to do or not do something), a material concealment, or a material misrepresentation. The remedy – called rescission – created a method to apply fairness to the insurance contract and allow an insurer to void a contract and allowed courts to refuse to enforce such a contract entered into by misrepresentation or concealment of material facts.

Available as a paperback.

Available as a Kindle book.

“The Insurance Examination Under Oath”

Product DetailsThe insurance Examination Under Oath (“EUO”) is a formal type of interview authorized by an insurance contract. It is taken under the authority provided by a condition of the insurance contract that compels the insured to appear and give sworn testimony on the demand of the insurer or find his, her or it claim rejected for breach of a condition. A notary and a certified shorthand reporter are always present to give the oath to the person interviewed and record the entire conversation.

Available as a Kindle book.

Available as a paperback.

“Random Thoughts on Insurance”

Product DetailsAfter more than 50 years acting as a claims person and insurance coverage lawyer I enjoy reading court decisions concerning insurance. The idea of this blog is to find new cases that are interesting to me and then write a summary. Some of the cases reviewed will be important. Some may be of first impression. Others will be totally unimportant. All will be interesting.

The case digests and articles from 2010 to the present, in the six volumes summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Read about these and other insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/


 

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The Four Corners Rule Strikes Again

Duty to Defend Exists if there is a Potential for Coverage of one Allegation

The duty to defend is always broader than the duty to indemnify. In states like Wisconsin the law requires the court to consider only the allegations of the complaint and the wording of the insurance policy when making a decision to compel an insurer to defend or not defend. This rule places the issue of coverage or no coverage in the hands of the drafter of the lawsuit.

In West Bend Mutual Insurance Company v. Ixthus Medical Supply, Inc. and Karl Kunstman, Abbott Laboratories, Abbott Diabetes Care Inc. and Abbott Diabetes Care Sales Corp., No. 2017AP909, State Of Wisconsin In Supreme Court (February 28, 2019) the Supreme Court of Wisconsin applied the four corners test in reaching a decision on the need for the insurer to defend its insured.

West Bend Mutual Insurance Company asked the Supreme Court to reverse the court of appeals’ decision holding that the allegations in Abbott Laboratories’ complaint against Ixthus Medical Supply, Inc. alleged a potentially covered advertising injury, and as a result, triggered West Bend’s duty to defend under the commercial general liability policy West Bend issued to Ixthus. West Bend argued the court of appeals erred .

BACKGROUND

Ixthus is a medical supply company operating in Wisconsin. At all times relevant to this action, Ixthus was insured under a commercial general liability insurance (“CGL”) policy with West Bend, which provided coverage for “personal and advertising injury.”

Abbott is a health care company that manufactures and sells blood glucose test strips in both the domestic and international markets. Abbott’s strips are trademarked under the name “FreeStyle.” The test strips are functionally identical regardless of the intended market, but the labeling and instructional inserts as well as price and available rebates are substantially different between the domestic and international packaged boxes. For a variety of reasons, Abbott sells test strips for use in international markets at a much lower cost.

Abbott filed a lawsuit in New York federal court against Ixthus and over 100 other defendants asserting thirteen federal statutory and common law claims for relief based on its belief that the defendants were “import[ing], advertis[ing] and subsequent[ly] distribut[ing]” boxes of Abbott’s international test strips in the United States.

Upon being served, Ixthus tendered its defense to West Bend. West Bend denied Ixthus’s tender. In August 2016, West Bend filed a complaint in the circuit court seeking a declaratory judgment that West Bend had no duty to defend or indemnify Ixthus in Abbott’s lawsuit. The circuit court granted West Bend’s motion, concluding that although the allegations in Abbott’s complaint fell within the initial grant of coverage, the knowing violation exclusion applied, thereby eliminating any duty West Bend had to defend Ixthus.

Both Ixthus and Abbott appealed to the court of appeals, which reversed the circuit court’s decision.

ANALYSIS

The sole issue presented to the Supreme Court was whether West Bend has the duty to defend its insured, Ixthus, under the terms of the CGL policy—specifically the “Personal and Advertising Injury Liability” provision.

The purpose of the analysis is to determine whether the allegations in the complaint contain any claims, which if proven true, would be covered by the policy. If there are any potentially covered claims—any allegations in the complaint that “give rise to the possibility of coverage”— the insurer has a duty to defend.

The court uses a three-step process in duty-to-defend cases:

  1. “First, a reviewing court determines whether the policy language grants initial coverage for the allegations set forth in the complaint. If the allegations set forth in the complaint do not fall within an initial grant of coverage, the inquiry ends.”
  2. Second, “if the allegations fall within an initial grant of coverage, the court next considers whether any coverage exclusions in the policy apply.”
  3. Third, “[i]f any exclusion applies, the court next considers whether an exception to the exclusion applies to restore coverage.” Water Well Sols. Serv. Grp., 369 Wis. 2d 607, ¶16 (internal citations omitted).

Additionally, when an insured seeks coverage under the advertising provision of a CGL policy, the court asks three questions to determine whether the allegations in the complaint fall under the initial grant of coverage.

The three questions are:

  • Does the complaint allege a covered offense under the advertising injury provision?
  • Does the complaint allege that the insured engaged in advertising activity? and
  • Does the complaint allege a causal connection between the plaintiff’s alleged injury and the insured’s advertising activity?

Answering yes to all three questions completes the first step in the duty-to-defend analysis, the policy provides an initial grant of coverage, and the court proceeds to the second and third steps in the process.

The second part of the duty-to-defend analysis involves determining whether any of the insurance policy’s exclusions apply. Exclusions are narrowly or strictly construed against the insurer if their effect is uncertain. Only if a policy exclusion removes coverage does the court proceed to the third step of the duty-to-defend analysis, which entails consideration of whether an exception to the exclusion restores coverage.

If the policy, considered in its entirety, provides coverage for at least one of the claims in the underlying suit, the insurer has a duty to defend its insured on all the claims alleged in the entire suit.

Application

West Bend asserts the complaint lacks any allegations suggesting a causal connection between Abbott’s injury and Ixthus’s actions. Specifically, West Bend argues the complaint does not allege any advertising activity by Ixthus that caused injury to Abbott. Instead, West Bend insists that the allegations in the complaint against Ixthus focused on importation and distribution, not advertising. The test for whether a causal connection has been sufficiently alleged focuses not on whether the injury could have taken place without the advertising, but whether the allegations sufficiently assert that the advertising did in fact contribute materially to the injury.

The underlying suit alleged  unauthorized importation, advertisement and subsequent distribution that caused or could cause consumer confusion, mistake, and deception to the detriment of Abbott.

The Supreme Court concluded that the allegations in Abbott’s complaint very plainly allege that Ixthus, as a “Defendant,” engaged in advertising that caused substantial injury to Abbott. Fleshing out the factual allegations at trial may affect indemnification under the policy, but at the duty-to-defend stage, the court liberally construes the allegations in the complaint, and make all reasonable inferences from the allegations.

Knowing Violation

Applying the rule that even one covered offense is alleged in the underlying complaint, the insurance company has a duty to defend the court of appeals held the exclusion did not preclude coverage. The knowing violation exclusion will preclude coverage at the duty-to-defend stage only when every claim alleged in the complaint requires the plaintiff to prove the insured acted with knowledge that its actions would violate the rights of another and would inflict personal and advertising injury. If the complaint alleges any claims that can be proven without such a showing, the insurer will be required to provide a defense.

Even though the complaint generally asserts Ixthus acted wrongfully and with knowledge that it was defrauding Abbott, West Bend is not relieved of its duty to defend because this complaint alleges at least one potentially covered advertising-injury claim, which does not depend on whether Ixthus acted with knowledge that it was violating Abbott’s rights or with knowledge that it was inflicting advertising injury. Because Abbott could prevail on several covered advertising injury claims without establishing that Ixthus knowingly violated Abbott’s rights, it is possible coverage that triggers West Bend’s duty to defend.

While a finder of fact could determine Ixthus acted knowingly, thereby relieving West Bend of its indemnification obligation under the knowing violation exclusion, the duty to defend is broader than the duty to indemnify because the duty to defend is triggered by arguable, as opposed to actual, coverage.

CONCLUSION

The Supreme Court, therefore, concluded that the allegations in Abbott’s complaint fall within the initial grant of coverage under the personal and advertising injury liability provision of the commercial general liability insurance policy West Bend issued to Ixthus. The claims in the complaint are sufficient to allege a causal connection between Ixthus’s advertising activity and Abbott’s injuries.

West Bend was required to defend.

ZALMA OPINION

Because the court was limited to a reading of the complaint and compelled to ignore the actual, or extrinsic, facts it had no choice but to find coverage for a defense because of the possibility of proof of a claim where all exclusions did not apply. I have opined often that the four corners rule is unfair since any competent drafter can allege a suit that requires an insurer to defend, as did the allegations in the complaint, or refuse defense if the drafter wishes to punish the defendant. As a result, an insured who intentionally violated the rights of Abbot Labs must be defended because of the potential for coverage and deprived the insurer of the right to allege extrinsic evidence that established no coverage.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Ten Volumes Comprising A Comprehensive Group of Materials on Property & Casualty Insurance Claims

Insurance claims professional and expert witness Kevin Quinley said about the following ten volumes: “Zalma’s series of books is a terrific blend of both the legal underpinnings and the practical implications for the claim practitioner.

Insurance Maven Bill Willson said: “Zalma On Insurance Claims” is a tour de force, an indispensable tool that should be a part of every claims training program in America and in the library of every claims professional for quick and frequent reference. This comprehensive guide belongs in the library of every insurance defense AND policyholder law firm. It should be a part of every claims training program of carriers, independent adjusting firms, and public adjusters. Many of these parts should be part of the training or reference programs for non-claims personnel, from agents to underwriters to risk managers.”

Zalma on Insurance Claims Volume 101

 

 

 

Posted in Zalma on Insurance | 4 Comments

The Need for Truly Professional Insurance People

A Method to Create Insurance Claims Professionals

For those who serve the insurance industry and its policyholders (whether as lawyers, adjusters, claims management, or public insurance adjusters) perform their duties appropriately it is absolutely necessary that they maintain insurance professionalism. A staff of insurance claims professionals who can read, understand and apply the terms and conditions of the insurance policy, treat all insureds, insurers, and claimants fairly and in good faith, and make sure the insurer and policyholder keep all of the promises made by the insurance policy, is essential. The insurance claim professional must be able to recognize and defeat attempts at insurance fraud while dealing ethically and in good faith with all insureds and claimants with whom the insurance professional comes in contact.

The following books provide a method to create insurance claims professionals. The books listed here are a small taste of the insurance and insurance claims books written by Barry Zalma and available on amazon.com and at http://zalma.com/blog/insurance-claims-library/

A copy in each insurance law office, in each insurance company and independent adjuster claims office and in the offices of every public insurance adjusting firm will provide essential resources and will go a long way to create a staff of insurance claims professionals.

Some of the books available to create or maintain insurance professionalism include:

Mold Claims

This series of books is the latest addition to Barry Zalma’s insurance claims series of books and articles that will form the most thorough, up-to-date, expert-authored insurance claims guide available today.

Mold Claims Volume One: Understanding insurance claims and litigation concerning mold, fungi, and bacteria infestations.Written by nationally-renowned insurance coverage expert Barry Zalma, a semi-retired insurance coverage attorney, consultant, expert witness and blogger, Mold Claims provides in-depth explanations, analysis, examples, and detailed discussion of:

•Mold;
•FungMold Claims Volume Two: Understanding insurance claims and litigation concerning mold, fungi, and bacteria infestations.i;
•Bacteria;

•Mold, fungi and bacteria claims; and
•Mold, Fungi, Bacteria litigation.

Thorough, yet practical, this series of books form the ideal gMold Claims Volume Three: Understanding insurance claims and litigation concerning mold, fungi, and bacteria infestations.uide for any professional who works in or frequently interacts with the insurance industry or is involved in litigation. Claims professionals, risk managers, producers, underwriters, attorneys (both plaintiff and defense), and business owners will benefit greatly from the mold volumes. It is also the perfect resource for insurance educators, trainers, and students whose role requires an understanding of insurance law as it relates to mold, fungi and bacterial infestations.

TMold Claims Volume Four: Understanding insurance claims and litigation concerning mold, fungi, and bacteria infestations.he author has provided checklists, sample procedures, form letters, tables and information and references to model statutes, state statutes, administrative regulations, and requirements of insurance departments nationwide.


Time to Rescind the Tort of Bad Faith

Insurance and the Law of Unintended Consequences Paperback 

Insurance is, and always will be, a business of the utmost good faith. Time to Rescind the Tort of Bad Faith: Insurance and the Law of Unintended ConsequencesAll parties to the insurance contract agree, in good faith and fair dealing, to do nothing to deprive the other the benefits of the contract. Insurance is, and always be, nothing more than a contract.

The insurer makes a promise to the insured that if a contingent or unknown loss occurs caused by a peril or risk insured against and not excluded, to pay the insured indemnity as promised by the contract up to the limits provided.

The insured promises to truthfully disclose the risks of loss faced by the insured, property owned by the insured, the business of the insured and/or the insured’s liability exposures. The insured also promises to honestly present a claim, prove the claim, and cooperate with the insurer in its investigation. If the parties to the insurance contract deal with each other fairly and in good faith the policy remains viable, claims are paid promptly and to the satisfaction of the insurer and the insured.

Only if a true tort occurs can the insured waive the contract action and sue in tort. Breach of contract, by centuries old tradition, is not a tort and cannot and should not be considered a tort. The Tort of Bad Faith has served its purpose and is now causing more problems than it solves. It is time the courts and state legislatures rescind the tort and return to common law contract damages.


“Insurance Fraud & Weapons to Defeat Insurance Fraud”

In Two Volumes

Product DetailsInsurance fraud continually takes more money each year than it did the last from the insurance buying public. No one knows the actual amount with any certainty because most attempts at insurance fraud succeed. Estimates of the extent of insurance fraud in the United States range from $87 billion to more than $300 billion every year.

Insurers and government backed pseudo-insurers can only estimate the extent they lose to fraudulent claims. Lack of sufficient investigation and prosecution of insurance criminals is endemic. Most insurance fraud criminals are not detected. Those that are detected do

so because they became greedy, sloppy and unprofessional so that the attempted fraud becomes so obvious it cannot be ignored.

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

When insurers and governments put on a serious effort to reduce the amount of insurance fraud the number of claims presented to insurers and the pseudo-government-based or funded insurers drops logarithmically. Since the appointment of Attorney General Sessions, the effort to stop insurance fraud against Medicare and Medicaid has increased.

Insurance Fraud & Weapons to Defeat Fraud - Volume Two: A Manual for Those Working to Defeat Insurance Fraud by [Zalma, Barry]This book contains appellate decisions regarding insurance fraud from federal and state appellate courts across the country and full text of many insurance fraud statutes.

It is available as both a legal research tool and a product to assist insurers, insurance company personnel, independent insurance adjusters, special investigation unit investigators, state fraud investigators and insurance lawyers to become effective persons involved in the attempt to defeat or reduce the effect of insurance fraud.

Volume One available as a Kindle book and a paperback.

Volume Two Available as a Kindle book and a paperback

The Compact Book of Adjusting Property Insurance Claims”

A Manual for the First Party Property Insurance Adjuster

The insurance adjuster is not mentioned in a policy of insurance. The The Compact Book of Adjusting Property Insurance Claims: A Manual for the First Party Property Insurance Adjusterobligation to investigate and prove a claim falls on the insured. Standard first party property insurance policies, based upon the New York Standard Fire Insurance policy, contain conditions that require the insured to, within sixty days of the loss, submit a sworn proof of loss to prove to the insurer the facts and amount of loss.

The policy allows the insurer to then, and only then, respond to the insured’s proof of loss. The insurer can then either accept or reject the proof submitted by the insured.

Technically, if the wording of the policy was followed literally the insurer could sit back, do nothing, and wait for the proof. If the insured was late in submitting the proof the insurer could reject the claim. If the insured submits a timely proof of loss the insurer could either accept or reject the proof of loss. If the insurer rejected the proof of loss the insured could either send a new one or give up and gain nothing from the claim. Suit on the policy would be difficult because the policy contract limited the right to sue to times when the proof of loss condition had been met.

Insureds and insurers were not happy with that system. It made it too difficult for a lay person to successfully present a claim. The system, as written into the standard fire policy seemed to run counter to the covenant of good faith and fair dealing that had been the basis of the insurance contract for centuries. Most insurers understood that their insureds were mostly incapable of complying with the strict enforcement of the policy conditions. To fulfill the covenant of good faith and fair dealing insurers created the insurance adjuster to fulfill its obligation to deal fairly and in good faith with the insured.

Available as a Kindle book.

Available as a paperback.

“The Compact Book on Adjusting Liability Claims”

A Handbook for the Liability Claims Adjuster

This Compact Book of Adjusting Liability Claims is designed to Product Detailsprovide the new adjuster with a basic grounding in what is needed to become a competent and effective insurance adjuster. It is also available as a refresher for the experienced adjuster.

The liability claims adjuster quickly learns that there is little difficulty with a claimant (the person alleging bodily injury or property damage against a person insured) if the claim is paid as demanded. The insured may be unhappy if the claimant’s claim is paid as presented since most do not believe they did anything wrong or fear an increase in premiums charged for subsequent policies.

The adjuster must be prepared to salve the insured’s emotions, explain why in the law and the policy it was appropriate to pay the claimant and that the settlement is in the best interest of both the insured and the insurer the adjuster represents.
The adjuster knows, and must be prepared to explain to an insured, that if a claim is resisted or denied the claimant will be unhappy, will probably file suit. If not promptly settled the claimant’s lawyers will rake the insured over the coals to prove that the insured is liable for the claimant’s injuries. The litigation will take time, effort, and money to establish the extent of the injuries and who is responsible for the injuries. Failure to settle promptly can cost the insured his or her reputation and will certainly cost the insurer much more than the claim could have been resolved for had it been resolved before the claimant retained a lawyer.

Available as a Kindle book

Available as a paperback.

Read about these and other insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/

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If you don’t Like the Contract Terms – Don’t Sign It

Farmers Agents Must Fulfill Their Contracts with the Insurer

Insurance contracts are adhesive. You take the terms offered. The Farmers Group of insurance companies use captive agents who are required to sign an adhesive agency agreement to have the right to sell policies issued by the various Farmers Group policies. The Farmers agents were unhappy with their contract and sued to have it interpreted more favorably to the agents.

In United Farmers Agents Association, Inc. v. Farmers Group, Inc. et al., B282541, Court of Appeal of the State of California Second Appellate District Division Eight (February 22, 2019) the plaintiff United Farmers Agents Association, Inc. (UFAA), a trade association whose members are insurance agents who signed contracts with Farmers Insurance Exchange, Truck Insurance Exchange, Fire Insurance Exchange, Mid-Century Insurance Company, and Farmers New World Life Insurance Company (the Companies) as well as Farmers Group, Inc. (FGI) sued the Companies and FGI.

FACTUAL BACKGROUND

The Companies are a group of insurers that mutually contract to sell insurance products through independent-contractor insurance agents. FGI provides the Companies non-claim related administrative and management services. It is the attorney-in-fact of Farmers Insurance Exchange, and the parent company of the attorneys-in-fact of Fire Insurance Exchange and Truck Insurance Exchange.

UFAA is a nonprofit professional trade association whose members are insurance agents that sell the Companies’ insurance products. It has approximately 1,900 members, 600 of whom are located in California.

In order to sell the Companies’ insurance products, an agent must enter into a form “Agent Appointment Agreement,” which defines the terms and conditions of the agent’s relationship to the Companies.

Under the Agreements, agents must extend the right of first refusal to the Companies to bind insurance coverage on behalf of applicants solicited and procured by the agents. In exchange, the Companies pay commissions and provide agents advertising assistance, educational and training programs, and necessary manuals, forms, and policyholder records.

The Agreements require agents “provide the facilities necessary to furnish insurance services to all policyholders of the Companies including . . . servicing all policyholders of the Companies in such a manner as to advance the interests of the policyholders, the Agent, and the Companies.”  The Agreements allow any party to terminate the contract by giving three months’ written notice (the no-cause termination provision).

UFAA sued the Companies and FGI (collectively, Farmers) because it claimed Farmers engaged in numerous practices that violate the terms of the Agreements.

In relief, UFAA sought four declarations from the court:

  1. the Agreements’ no-cause termination provisions are unconscionable;
  2. the Agreements preclude Farmers’s use of performance programs and imposition of discipline based on an agent’s failure to meet performance standards;
  3. the Agreements preclude Farmers from taking adverse action against agents based on the “location, nature, hours, and types of offices maintained” by the agents; and
  4. the Agreements preclude Farmers from sharing customer information acquired by agents with competitors, such as 21st Century Insurance (21st Century).

The court conducted a bench trial over the course of three weeks. On the issues   the court heard testimony from numerous Farmers representatives.

Farmers’s expert testified that it is normal for exclusive agency insurance carriers, like Farmers, to require their agents conform to good business practices. In the expert’s opinion, it is not a good business practice, and it is not in the best interests of the customers or the insurance companies, for a customer to have to go into a personal residence to do business with the agent.

The court heard testimony that 21st Century is owned by some of the Companies and managed by FGI. Unlike the Companies, 21st Century is a direct writer of insurance, meaning it markets directly to consumers for the acquisition of new business. As a result, it is able to offer lower premiums than insurance companies that sell through agents.

Statement of Decision and Judgment

After trial, the court issued a detailed statement of decision, in which it found in Farmers’s favor on each claim. At the outset the court determined that UFAA lacked standing to pursue its claims. Although this finding was sufficient to warrant dismissal, the court nonetheless considered the merits of UFAA’s claims and found them wanting.

DISCUSSION

A litigant’s standing to sue is a threshold issue to be resolved before the matter can be reached on its merits. Standing goes to the existence of a cause of action and the lack of standing may be raised at any time in the proceedings.

The trial court determined that UFAA lacked standing . The only issue before the appellate court was whether the Agreements permit Farmers to terminate agencies for any reason. To decide that issue, the court needed only interpret and construe the terms of the Agreements; it did not need to consider evidence related to individual agents or the specific circumstances under which their agencies were terminated. On that issue there could be standing.

The UFAA claimed they had standing because of their claims of unconscionability in the application of the agency agreements. Unconscionability claims typically cannot be resolved simply by examining the face of the contract. This is because unconscionability is a flexible standard in which the court looks not only at the complained-of term but also at the process by which the contractual parties arrived at the agreement and the larger context surrounding the contract, including its commercial setting, purpose, and effect.

Although UFAA provided multiple reasons why the no-cause termination provisions are unconscionable — among them, that agents lacked bargaining power, the provisions are contained in contracts of adhesion, and the provisions are “extremely one-sided” — the focus of its claim was an allegation that Farmers had a uniform practice of informing its agents, prior to signing the Agreements, that it terminates contracts only for cause. According to UFAA, this practice rendered every no-cause termination provision unconscionable because Farmers’s representations constituted “substantive procedural deception,” “negate[d] the reasonable expectations of the agent,” and caused “unfair surprise.”

After weighing conflicting evidence, the trial court concluded UFAA failed to establish that Farmers had a uniform practice of informing agents that it terminates Agreements only for cause, a finding UFAA does not challenge on appeal. This factual finding was fatal to UFAA’s claimed associational standing. Given the need for individualized proof and participation of each agent, UFAA failed to satisfy the requirement for standing to pursue its claim.

Because of the need for individualized proof and extensive participation from each agent, the court properly determined that UFAA lacked associational standing to pursue the claim for improper sharing of information.

DISPOSITION

UFAA filed suit seeking declaratory relief against the Companies and FGI .  The Court of Appeal held that UFAA had associational standing to pursue its claims related to performance and office standards, but did not have standing to pursue its other claims. However, on the merits, UFAA was not entitled to declaratory relief on its claims related to office locations and performance standards.

ZALMA OPINION

It has been said that what is good for the goose is good for the gander. Here, the UFAA members sell adhesive contracts to their customers and earn a living doing so. They asked the court to change the adhesive nature of their contracts with Farmers that have been accepted and operated under by thousands of Farmers Agents. They failed to prove there was anything unfair or unconscionable about the agency contract. They must, therefore, continue to live within the terms and conditions of the agency agreement they all voluntarily signed. They could always have become an independent broker or agent of multiple insurers without the benefits provided by Farmers.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Ten Volumes Comprising A Comprehensive Group of Materials on Property & Casualty Insurance Claims

Insurance claims professional and expert witness Kevin Quinley said about the following ten volumes: “Zalma’s series of books is a terrific blend of both the legal underpinnings and the practical implications for the claim practitioner.

Insurance Maven Bill Willson said: “Zalma On Insurance Claims” is a tour de force, an indispensable tool that should be a part of every claims training program in America and in the library of every claims professional for quick and frequent reference. This comprehensive guide belongs in the library of every insurance defense AND policyholder law firm. It should be a part of every claims training program of carriers, independent adjusting firms, and public adjusters. Many of these parts should be part of the training or reference programs for non-claims personnel, from agents to underwriters to risk managers.”

Zalma on Insurance Claims Volume 101

 

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Make Your Claims Staff Professional

The Need for Truly Professional Insurance Claims People

For those who serve the insurance industry and its policyholders (whether as lawyers, adjusters, claims management, or public insurance adjusters) perform their duties appropriately it is absolutely necessary that they maintain insurance professionalism. A staff of insurance claims professionals who can read, understand and apply the terms and conditions of the insurance policy, treat all insureds, insurers, and claimants fairly and in good faith, and make sure the insurer and policyholder keep all of the promises made by the insurance policy, is essential. The insurance claim professional must be able to recognize and defeat attempts at insurance fraud while dealing ethically and in good faith with all insureds and claimants with whom the insurance professional comes in contact.

The following books are a small taste of the insurance and insurance claims books written by Barry Zalma and available on amazon.com and at http://zalma.com/blog/insurance-claims-library/ A copy in each insurance law office, in each insurance company and independent adjuster claims office and in the offices of every public insurance adjusting firm will provide essential resources and will go a long way to create a staff of insurance claims professionals.

Some of the books available to create or maintain insurance professionalism include:

THE HOMEOWNERS INSURANCE POLICY

HOW TO BUY AN APPROPRIATE HOMEOWNERS POLICY AND SUCCESSFULLY MAKE A CLAIM TO THE INSURER

Insurance is a contract between a person seeking insurance and an insurer. It is obtained by making contact with the insurer as a prospective insured seeking insurance. The homeowners policy is a specialized policy of insurance that protects the homeowner from certain risks of loss to the real and personal property at the home, the exposure the insured faces for injury to a household employee, and the exposure the insured faces to liability for bodily injury or property damage caused to third parties. The book explains how to buy a homeowners policy and how to collect on any claim made to the homeowners insurer.

Paperback Book    Kindle Book

Ten Volumes Comprising A Comprehensive Group of Materials on Property & Casualty Insurance Claims

Insurance claims professional and expert witness Kevin Quinley said about the following ten volumes: “Zalma’s series of books is a terrific blend of both the legal underpinnings and the practical implications for the claim practitioner.

Insurance Maven Bill Willson said: “Zalma On Insurance Claims” is a tour de force, an indispensable tool that should be a part of every claims training program in America and in the library of every claims professional for quick and frequent reference. This comprehensive guide belongs in the library of every insurance defense AND policyholder law firm. It should be a part of every claims training program of carriers, independent adjusting firms, and public adjusters. Many of these parts should be part of the training or reference programs for non-claims personnel, from agents to underwriters to risk managers.”

Zalma on Insurance Claims Volume 101

A Comprehensive Review of the law and Practicalities of Property, Casualty and Liability Insurance Claims

This series of ten books is the latest addition to Barry Zalma’s insurance claims series of books and articles that will form the most thorough, up-to-date, expert-authored insurance claims guide available today.

Written by nationally-renowned insurance coverage expert Barry Zalma, a semi-retired insurance coverage attorney, consultant, expert witness and blogger, Zalma on Insurance Claims provides in-depth explanations, analysis, examples, and detailed discussion of:

  • Property insurance claims;
  • Third-party liability claims;
  • Casualty claims; and
  • Insurance Fraud

Thorough, yet practical, this series of books form the ideal guide for any professional who works in or frequently interacts with the insurance industry. Claims professionals, risk managers, producers, underwriters, attorneys (both plaintiff and defense), and business owners will benefit greatly from the ten volume guide. It is also the perfect resource for insurance educators, trainers, and students whose role requires an understanding of insurance law. As you read through the various volumes of Zalma on Insurance Claims, you will find comprehensive—yet comprehensible—coverage of key topics, including:

  • What is Insurance?
  • The History of Insurance
  • The covenant of good faith and fair dealing.
  • The tort of Bad faith
  • Conditions,
  • Warranties,
  • Exclusions
  • Declaring a policy void
  • Duties of insured and insurer
  • Evaluation and settlement
  • Identifying insurance fraud
  • Investigation
  • Kinds of insurance policies
  • Other insurance clauses
  • Preparing a case for trial
  • Processing a claim
  • Responses to fraud
  • Subrogation and salvage
  • Underwriting and
  • Many more property and casualty insurance matters.

Zalma on Insurance Claims Part 102

This, the second part of Zalma on Insurance Claims and includes materials concerning:

  • Other Insurance Clauses
  • Underwriting
  • Conditions, Warranties and Exclusions

Zalma on Insurance Claims Part 103

This is part 103 of Zalma on Insurance Claims and will deal with:

1.Duties of the Insured and the Insurer
2.Declaring a Policy Void
3.Processing a Claim

When read with Part 101 and Part 102, this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 104

This, the fourth volume of Zalma on Insurance Claims and includes materials concerning:

  1. Investigation of First Party Property Claims
  2. Rescission
  3. The Mortgage Clause
  4. Fortuity & Other Issues
  5. Determine the Amount of the Loss
  6. The Claim File

When read with Part 101, Part 102, and Part 103, this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 105

This, the fifth volume of Zalma on Insurance Claims and includes materials concerning:

  1. Investigation – Liability
  2. Claims Made and Reported Policies
  3. The Notice Prejudice Rule.
  4. Types of Torts
  5. The Liability Claims File
  6. Discovery of the Insurance Claims File
  7. Tests for Determining Duty to Defend
  8. Appendices – forms for the claims person

When read with Insurance 101, Insurance 102, Insurance 103 and 104, this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 106

This is the sixth part of “Zalma on Insurance Claims” and will deal with:

Chapter 1 Property Insurance & the Tort of Bad Faith
Chapter 2 Grounds for Finding Bad Faith
Chapter 3 Avoiding Charges of Bad Faith
Chapter 4. Punitive Damages
Chapter 5.Bad Faith & Liability Insurance
Chapter 6.Defenses to the Tort of Bad Faith
Appendix 1 – California Civil Code Section 3294

When read with Part 101, Part 102, and Part 103, Part 104 and Part 105 this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 107:

This is the seventh part of “Zalma on Insurance Claims” and will deal with:

1.Evaluation and Settlement – Property
2.Evaluation and Settlement – Liability
3.Subrogation
4.Salvage

When read with Part 101, Part 102, Part 103, Part 104, Part 105 and Part 106 this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 108

This, the eighth part of Zalma on Insurance Claims, includes materials concerning:

1.Preparing a case for trial
2.Interviewing Techniques
3.The art of the Interview
4.Interview General Principles
5.The Interviewer
6.Preparing for the Interview
7.Beginning the Interview
8.Control Of The Interview
9.Dealing with Witness Types
10.Approaches the Work
11.Dealing with the Nervous Person
12.Bluffs
13.The Mutability Of Memory
14.The Examination Under Oath

When read with Part 101, Part 102, Part 103, Part 104, Part 105, Part 106 and Part 107 this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 109 

This, the ninth part of Zalma on Insurance Claims, includes materials concerning:

•Identifying Insurance Fraud
•Professional Conspiracies
•Multiple Types of Insurance Fraud
•How to Join the Fraud Fight
•Case Studies of Successful Fraud Investigations
•Checklist 1 – Types of Insurance Fraud
•Checklist 2 – Training Adjusters
•Checklist 3 – Red Flags of Fraud – Property Insurance
•Checklist 4 – Red Flags of Fraud – Liability Insurance
•Appendix A – Commonly Used Medical Acronyms and Abbreviations
•Appendix B – Glossary of Medical Terms

When read with Part 101, Part 102, Part 103, Part 104, Part 105, Part 106, Part 107 and Part 108 this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 110

This, the tenth part of Zalma on Insurance Claims, includes materials concerning:

•Responses to Fraud
•Grounds for Rescission.
•The Fight Against Fraud
•Checklist 1—Responses to Fraud
•Checklist 2 – The Fight Against Fraud

When read with Part 101, Part 102, Part 103, Part 104, Part 105, Part 106, Part 107, Part 108 and Part 109 this volume works to take the reader to a complete understanding of insurance and insurance claims.


Construction Defects and Insurance

Construction Defects and Insurance Volume One: The Structure, The Construction Contract, and Construction Defect InsuranceBarry Zalma has updated and re-edited his seminal work Construction Defects Coverage Guide into is the latest addition to Barry Zalma’s insurance claims series of books and articles that will form the most thorough, up-to-date, expert-authored insurance claims guide available today eight Kindle or Paperback Volumes at reasonable prices.

Thorough, yet practical, this series of books form the ideal guide for any professional who works in or frequently interacts with the insurance industry.

Claims professionals, risk managers, producers, underwriters, attorneys (both plaintiff and defense), and business owners will benefit greatly from the ten volume guide. It is also the perfect resource for insurance educators, trainers, and students whose role requires an understanding of insurance law.

The Eight volumes include:

Read about these and more insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/

Posted in Zalma on Insurance | Comments Off on Make Your Claims Staff Professional

Insurance Policies Must Be Read as they are Written

“Arise out of ” or “Relate in Any Way”

People who write contracts with conditions requiring that one party provides insurance protection for another must be able to read and understand all of the terms, conditions and limitations of a policy of insurance. Failure to do so will usually result in litigation that is, more often than not, unsuccessful.

In International Marine, L.L.C.; et al., Tesla Offshore, L.L.C. v. Atlantic Specialty Insurance Company; New York Marine & General Insurance Company, Tesla Offshore, L.L.C. v. Atlantic Specialty Insurance Company; One Beacon Insurance Company; New York Marine and General Insurance Company, No. 18-30392, United States Court of Appeals for the Fifth Circuit (February 12, 2019) the Fifth Circuit resolved an insurance coverage dispute stemming from an allision (the running of one ship upon another ship that is stationary) during a sonar survey by Tesla Offshore, L.L.C. (“Tesla”). Tesla seeks insurance coverage for its liability from the allision under two policies taken out on a vessel it chartered. The district court granted the insurers’ motions for summary judgment and dismissed Tesla’s claims with prejudice. Tesla appealed.

Previously, in International Marine, L.L.C. v. Integrity Fisheries, Inc., 860 F.3d 754 (5th Cir. 2017) the Fifth Circuit noted that Tesla was conducting an archaeological sonar survey using two chartered vessels. The first—the “tow vessel”—was the M/V International Thunder (“Thunder”) owned by International Marine, L.L.C., and International Offshore Services, L.L.C. (jointly, “International”). The second—the “chase vessel”—was the F/V Lady Joanna (“Joanna”) owned by Sea Eagle, Inc. (“Sea Eagle”).

FACTS

To perform the survey, the Thunder traveled along a grid pulling a “towfish” attached to a lengthy cable. The Joanna followed to track the towfish and receive sonar signals it emitted. At one point, the Thunder reeled in the towfish to make some repairs. After the towfish was redeployed, its cable allided with the mooring line of a mobile offshore drilling unit (“MODU”) used by Shell Offshore, Inc. (“Shell”). The allision severely damaged the MODU, and Shell sued Tesla and International for negligence. A jury awarded Shell over $9 million in damages and determined that Tesla was 75% at fault, International 25%.

Following that verdict, Tesla and International sought indemnity from Sea Eagle, owner of the Joanna. Tesla and International also sued two of Sea Eagle’s insurers, claiming that they had been “added as additional insureds” on two policies taken out on the Joanna. The first policy, a marine comprehensive liability (“MCL”) policy, was issued by Atlantic Specialty Insurance Company/OneBeacon Insurance Company (“OneBeacon”). The second, a bumbershoot policy, was issued by New York Marine and General Insurance Company (“NYMAGIC”).

The district court held that Tesla and International were not entitled to indemnity because the allision did not “aris[e] out of or relate[] in any way” to the operation of the Joanna, as the indemnity portions of the Master Service Agreement (“MSA”) between Tesla and Sea Eagle required. The court also denied Tesla’s insurance claims against Sea Eagle’s insurers, holding that those claims fell with the indemnity claim.

The Fifth Circuit affirmed the denial of indemnity but vacated the denial of the insurance claims. Noting that the scope of insurance coverage should be based on the language of the policies and not the availability of indemnity, the court vacated and remanded for further proceedings on the insurance claims. Importantly, the panel affirmed the district court’s finding that “the Joanna’s operation made no contribution to the negligent act causing the [Shell MODU’s] damages.” The court repeatedly emphasized that Tesla’s “negligence, as well as the resulting damage to [Shell’s MODU], was independent of the operation of the Joanna.”

AFTER REMAND

On remand, after presenting the relevant policy language, the insurers moved for summary judgment on whether Tesla and International were insureds on the MCL and bumbershoot policies and, if so, whether they were entitled to coverage for their negligence liability. The district court granted the insurers’ motions, denied Tesla’s, and dismissed Tesla’s and International’s claims with prejudice. Tesla—but not International—appeals.

ANALYSIS

The interpretation of a contract of marine insurance is — in the absence of a specific and controlling federal rule — to be determined by reference to appropriate state law. When the words of a contract are clear and explicit and lead to no absurd consequences, no further interpretation may be made in search of the parties’ intent. Under Louisiana law, the party seeking coverage has the burden of proving that the incident falls within the policy’s terms. The insurer has the burden of proving an exclusory clause applies. Ambiguities in a policy are construed in favor of coverage.

Sea Eagle was not obligated by an “insured contract to include” Tesla as an additional insured. The parties agree that the relevant “insured contract” is the MSA. Section 11(a) of the MSA obligated Sea Eagle to acquire insurance to “protect [Tesla] from third party claims arising out of or connected with the performance of Service hereunder.” The MSA defines

Under that definition, the only “Service” Sea Eagle performed was providing Tesla with the Joanna and its crew. Sea Eagle was thus obligated to obtain insurance to cover Tesla’s liability only for third-party property damage that arose from or was connected with the provision of the Joanna and its crew. But the third-party claim for which Tesla seeks coverage did not “aris[e] out of” nor was “connected with” that Service. Consequently, Sea Eagle was not obligated by a “written contract” to obtain insurance coverage to cover Tesla’s liability for third-party property damage based on the allision.

Sea Eagle was not obligated to obtain coverage for Tesla’s liability for the allision. Tesla is not entitled to coverage because the contract required Sea Eagle to obtain insurance to protect Tesla only “from third party claims arising out of or connected with the performance of Service.”

Notwithstanding the conclusion that Sea Eagle was not obligated to name Tesla as an additional insured, the liability for which Tesla seeks coverage did not arise out of Sea Eagle’s “work.” Thus, it is not covered by the MCL policy.

Tesla’s negligence liability is not covered by the MCL policy because its liability did not arise out of Sea Eagle’s work.

The NYMAGIC bumbershoot policy provides no coverage for Tesla. Although Tesla is not listed as a Named Assured or Additional Assured, the policy’s blanket “assured” provision covers any organization to whom the Named Assured is obligated by virtue of a written contract or agreement to provide insurance such as is afforded by this policy, but only in respect of operations by or on behalf of the Named Assured. There are thus two criteria for Tesla to qualify as an additional assured under the bumbershoot policy. First, Integrity (Sea Eagle’s sister company that obtained the bumbershoot policy) must have been obligated by the MSA (the “written contract”) to provide Tesla with the type of coverage the bumbershoot policy affords. Second, if that obligation existed, Tesla is covered only in respect of operations by or on behalf of the Named Assured [Integrity].

To reiterate, the MSA obligated Sea Eagle to obtain insurance protecting Tesla from third-party claims stemming from the “Service” Integrity provided — the use and operation of the Joanna. The claim for which Tesla seeks coverage did not stem from that “Service.”

Even if the MSA obligated Integrity to cover that claim, the second criterion for Tesla to qualify as an additional assured is not satisfied. Tesla maintains — without citing any controlling precedent — that whether the relevant operation was by or on behalf of Integrity depends on whether there was a causal connection or relation between the entire operation in which the Lady Joanna was essential and the underlying incident. The correct understanding of “by or on behalf of,” Tesla claimed, is that “Tesla would have been unable to perform the survey work and towage ongoing at the time of the incident” without the use of the Joanna as “the ‘eyes’ of the tow.”

That language of the policy covers only incidents that arose “in respect of operations by or on behalf” of Integrity. The entire operation was not on behalf of Sea Eagle; to the contrary, Integrity (via its sister company) was working on behalf of Tesla. Tesla is not entitled to coverage under the OneBeacon MCL policy or the NYMAGIC bumbershoot policy. The judgment was, therefore, affirmed.

ZALMA OPINION

Had the insurance contracts and the Master Service Agreement been read and understood along with the insurance policies these lawsuits would never have been filed because the proper insurance would have been obtained to pay for any liability due to the allision. The key to this case is that contracting parties dealing with insurance should use insurance professionals and not steal language from someone else’s standard contract language.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Ten Volumes Comprising A Comprehensive Group of Materials on Property & Casualty Insurance Claims

Insurance claims professional and expert witness Kevin Quinley said about the following ten volumes: “Zalma’s series of books is a terrific blend of both the legal underpinnings and the practical implications for the claim practitioner.

Insurance Maven Bill Willson said: “Zalma On Insurance Claims” is a tour de force, an indispensable tool that should be a part of every claims training program in America and in the library of every claims professional for quick and frequent reference. This comprehensive guide belongs in the library of every insurance defense AND policyholder law firm. It should be a part of every claims training program of carriers, independent adjusting firms, and public adjusters. Many of these parts should be part of the training or reference programs for non-claims personnel, from agents to underwriters to risk managers.”

Zalma on Insurance Claims Volume 101

Posted in Zalma on Insurance | Comments Off on Insurance Policies Must Be Read as they are Written

How to Make Your Claims Staff Professional

The Need for Truly Professional Insurance Claims People

For those who serve the insurance industry and its policyholders (whether as lawyers, adjusters, claims management, or public insurance adjusters) perform their duties appropriately it is absolutely necessary that they maintain insurance professionalism. A staff of insurance claims professionals who can read, understand and apply the terms and conditions of the insurance policy, treat all insureds, insurers, and claimants fairly and in good faith, and make sure the insurer and policyholder keep all of the promises made by the insurance policy, is essential. The insurance claim professional must be able to recognize and defeat attempts at insurance fraud while dealing ethically and in good faith with all insureds and claimants with whom the insurance professional comes in contact.

The following books are a small taste of the insurance and insurance claims books written by Barry Zalma and available on amazon.com and at http://zalma.com/blog/insurance-claims-library/ A copy in each insurance law office, in each insurance company and independent adjuster claims office and in the offices of every public insurance adjusting firm will provide essential resources and will go a long way to create a staff of insurance claims professionals.

Some of the books available include:

New Books from Full Court Press

Zalma on Property and Casualty Insurance

The earnings of almost every civil lawyer in the United States are funded by the insurance industry. Insurance can best be described as the mother’s milk of the law profession. The civil defense lawyer is paid by an insurer for each hour he or she works. The civil plaintiffs’ lawyer is usually paid by taking a percentage of any judgment entered in favor of the plaintiff, which judgment is usually paid by the defendant’s insurer.

In almost every situation in which a civil lawyer practices law the funds for that work come, either directly or indirectly, from insurance. Consequently, lawyers must use their wits and energies to avoid or to pursue litigation to the benefit of the client. Both sides understand that an insurer will eventually pay one or both sides in the dispute. Insurance is important to every civil dispute and even some that fall within the criminal courts.

Every lawyer retained to prosecute or defend a civil suit should begin the representation with a serious effort to find insurance coverage for the benefit of the client or the defendant the client is suing. Without that knowledge, the lawyer will find he or she is litigating with duct tape firmly self-placed across his or her mouth.

Insurance Law Deskbook Zalma

Learn the insurance basics that are essential to every civil practitioner.

CalifCal Lawornia Insurance Law Deskbook

California has long led the way when it comes to insurance jurisprudence in the United States, and few know more about California insurance law than Barry Zalma.

 

Insurance Bad Faith and Punitive Damages Deskbook

Understand the relationship between insurance, the tort of bad faith, and why punitive damages are awarded to punish insurers.

An annual subscription to secondary content on the Fastcase BadFaithplatform includes new editions and updates published by the author as they are rolled out, so you can rest assured that your research is up to date. Go to fastcase.com for more detail and how to use the material on-line as part of your legal or insurance research or as stand-alone e-books.

All available at fastcase.com.


Books from ClaimSchool, Inc.

“Insurance Law”

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

Insurance Law is the most comprehensive, and yet practical, insurance law authority available today.

This book is ideal for any professional who works in or frequently interacts with the insurance industry. Claims professionals, risk managers, producers, underwriters, attorneys (both plaintiff and defense), business owners, and students will benefit greatly from this all-inclusive reference. It is also the perfect resource for educators and trainers whose role requires an understanding of insurance law.

In addition to case law, the author has provided countless citations to relevant statutory, regulatory, and judicial sources which are guaranteed to kickstart your research.

Price Reduced from $196- Send Check for $75.00 to ClaimSchool, Inc., 4441 Sepulveda Blvd., Culver City, Ca 90230 and the book will be mailed to you.

Mold Claims Coverage Guide

Today, mold claims are common, but they continue to grow in complexity, involving not only property damage but bodily injury as well. Mold-related lawsuits have dramatically increased over the past few years, and tProduct Detailshe numbers continue to rise. Coverage requirements—and related issues—can be complicated and confusing.  This resource will remove the complexity and allow the insurer, insured, property owner or developer and their counsel to deal with mold quickly and effectively and, if possible, avoid unnecessary litigation.

Price Reduced – Send Check for $50.00 to ClaimSchool, Inc., 4441 Sepulveda Blvd., Culver City, Ca 90230 and the book will be mailed to you.

Construction Defects Coverage Guide

This insightful and practical two volume resource was envisioned anProduct Detailsd written by nationally renowned expert Barry Zalma, and it thoroughly explains how to identify construction defects and how to insure, investigate, prosecute, and defend cases that result from construction defect claims.

Construction Defects Coverage Guide was designed to help 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.

Price Reduced from $196 – Send Check for $75.00 to ClaimSchool, Inc., 4441 Sepulveda Blvd., Culver City, Ca 90230 and the book will be mailed to you.

Insurance Claims: A Comprehensive Guide

Insurance contracts and clauses are specific in nature—but the manner in which insurance claims are pursued and resolved can be remarkably different.  Mistakes in handling a claim can undermine the outcome—and ultimate value—of the claim itself.

Insurance Claims: A Product DetailsComprehensive Guide is the one resource that enables insurance professionals, producers, underwriters, attorneys, risk managers, and business owners to successfully handle insurance claims from start to finish—employing proven, practical techniques and best practices every step of the way.

Price Reduced from $196 – Send Check for $75.00 to ClaimSchool, Inc., 4441 Sepulveda Blvd., Culver City, Ca 90230 and the book will be mailed to you.


Books from the American Bar Association

The Commercial Property Insurance Policy Deskbook

How to Acquire a Commercial Property Policy and Present and Collect a First-Party Property Insurance Claim

By Barry Zalma

The Commercial Property Insurance Policy Deskbook is a comprehensive resource on acquiring a commercial property policy and presenting and collecting first-party property insurance claims. The book looks at the fundamentals of insurance and a wealth of topics including rules of construction of a policy of commercial property insurance, the commercial first party property insurance policy, different types of property losses, conditions and limitations,specific and blanket coverages, mortgage clauses, the need for a prompt notice of claim, the commercial property claim, adjusting the commercial property loss, the sworn statement in proof of loss, the adjustment of the commercial property loss, subrogation and salvage, and common law bad faith.

Also included are five appendixes of forms, letters, and other documents.

Available from the American Bar Association at: http://shop.americanbar.org/eBus/Default.aspx?TabID=251&productId=214624; or  orders@americanbar.org, or 800-285-2221.

The Insurance Fraud Deskbook

Product DetailsThis book is written for individuals who are focused on the effort to reduce expensive and pervasive occurrences of insurance fraud. Lawyers who represent insurers, claims personnel, prosecutors and their investigators can all benefit from this exhaustive resource.

The Insurance Fraud Deskbook is a valuable resource for those who are engaged in the effort to reduce expensive and pervasive occurrences of insurance fraud. It explains the elements of the crime and the tort to claims personnel, and it provides information for lawyers who represent insurers, so they can adequately advise their clients. Prosecutors and their investigators can use this book to determine what is required to prove the crime and win their case.

The full text of decisions from courts of appeal and supreme courts across the country are provided so the reader can understand what happens after the investigation is completed and can apply that information to undertake their own thorough investigations. It allows claims personnel and their lawyers to understand what errors would cause a defeat or a not-guilty verdict.

The effort to reduce insurance fraud requires the assistance of both civil and criminal courts. The Insurance Fraud Deskbook can help the prudent fraud investigator, insurance adjuster, insurance attorney, insurance Special Investigation Unit, and insurance company management to attain the information needed to deal with state investigators and prosecutors.

Available from the American Bar Association at: http://shop.americanbar.org/eBus/Default.aspx?TabID=251&productId=214624; or  orders@americanbar.org, or 800-285-2221.

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.


Co-Author(s):Property Investigation Checklists: Uncovering Insurance Fraud, 12th Michael H Boyer  &  Barry Zalma

Property Investigation Checklists: Uncovering Insurance Fraud provides detailed guidance and practical information on the four primary areas of any investigation of suspicious claims:
• Recognizing suspicious claims
• Proper investigation procedures
• Analysis of laws concerning fraudulent personal and real property claims
• Evaluating and settling claims.
The book also examines recent developments in areas such as arson investigation procedures, bad faith, and extracontractual damages. The appendix includes the NAIC Insurance Information and Privacy Protection Model Act.
Read about these and other insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/
Posted in Zalma on Insurance | Comments Off on How to Make Your Claims Staff Professional

Zalma’s Insurance Fraud Letter – March 1, 2019

Beware! California Wants to Add to SIU Regulations

If You Write Insurance in California You Need to Present Arguments to California DOI

The California Department of Insurance (CDOI) has organized a discussion on proposed changes to the SIU Regulations that must be followed and complied with by almost every insurer writing insurance in the state of California. In so doing the CDOI ignores the fact that insurers are the only victims of a crime – insurance fraud – that are required by law and regulation to investigate the crime and provide the evidence necessary to prosecute the crime to the CDOI Fraud Division or a local prosecutor.

The CDOI states that the purpose of these discussions is to provide interested and affected persons an opportunity to present statements or comments regarding the contemplated regulation changes.

Date: March 20, 2019
Time: 1:30 p.m. to 3:30 p.m., or as soon after 1:30 p.m. as all those wishing to speak have spoken, whichever is earlier.
Location: California Department of Insurance
Enforcement Branch Headquarters
2400 Del Paso Road, Suite 190
Sacramento, California 95834

The Interview is How a Fraud Investigator Proves Fraud

Prejudice Blocks the Truth

The SIU investigator, the claims person who suspects insurance fraud is being attempted, can obtain the information to prove or disprove the suspicion, needs to be a skillful interviewer.

The foremost aim of the interview is to learn the truth, the whole truth, and nothing but the truth. Truth can only be obtained by an accurate classification of facts obtained through a methodical and detailed investigation and interview. In this regard, the greatest danger any interviewer faces is that resulting from entering into an interview with preconceived opinions.

As the philosopher William James said, “A great many people think they are thinking when they are merely rearranging their prejudices.”

No professional can conduct an effective interview if he or she is convinced, prior to the start of the interview, that the witness will be truthful (or untruthful). A hallmark of the professional is that he or she remains vigilant in this regard, trained to avoid all preconceived opinions and prejudices that could endanger the success of an interview.

Read these and other insurance fraud articles at http://zalma.com/zalmas-insurance-fraud-letter-2/

The Current Issue Contains the Following   

  •  Beware! California Wants to Add to SIU Regulations
  •  The Interview is How a Fraud Investigator Proves    Fraud
  •  Guilty Government Employee
  •  Developer Must Pay $39 Million To Insurance Company
  •  Use of an Insurance Claims or Coverage Expert
  •  Good News from the Coalition Against Insurance Fraud
  •  Insurance Services Companies Failed to Pay $24 Million in     Provider Claims
  • Health Insurance Fraud Convictions
  • Other Insurance Fraud Convictions
  • You Can’t Trust a Leftist
  • Good News from the Coalition Against Insurance Fraud
  • Heath Insurance Fraud Convictions.
  • Other insurance fraud convictions

Books

Barry Zalma, Inc. 
4441 Sepulveda Boulevard
CULVER CITY CA 90230-4847
310-390-4455
Fax: 310-391-5614
Insurance claims consultant and Expert Witness
Posted in Zalma on Insurance | Comments Off on Zalma’s Insurance Fraud Letter – March 1, 2019

Do You Find it Difficult to Find or Maintain a Staff of Insurance Claims Professionals?

Train the New Ones and Maintain the Experienced Insurance Claims Professionals

For those who serve the insurance industry and its policyholders (whether as lawyers, adjusters, claims management, or public insurance adjusters) perform their duties appropriately it is absolutely necessary that they maintain insurance professionalism. A staff of insurance claims professionals who can read, understand and apply the terms and conditions of the insurance policy, treat all insureds, insurers, and claimants fairly and in good faith, and make sure the insurer and policyholder keep all of the promises made by the insurance policy, is essential. The insurance claim professional must be able to recognize and defeat attempts at insurance fraud while dealing ethically and in good faith with all insureds and claimants with whom the insurance professional comes in contact.

The following books are a small taste of the insurance and insurance claims books written by Barry Zalma and available on amazon.com and at http://zalma.com/blog/insurance-claims-library/ A copy in each insurance law office, in each insurance company and independent adjuster claims office and in the offices of every public insurance adjusting firm, will provide essential resources and will go a long way to create a staff of insurance claims professionals.

Fictionalized True Insurance Crime Books

“HEADS I WIN, TAILS YOU LOSE”

Product DetailsA collection of columns originally published in the magazines “Insurance Journal,” “Insurance Week,” and “The John Cooke Insurance Fraud Report” insurance trade publications serving the insurance community in the United States that have been updated and revised.

The title, “Heads I Win, Tails You Lose” is meant to describe insurance fraud as it works in the Unites States. It means that whenever a person succeeds in perpetrating an insurance fraud everyone who buys insurance is the loser.

Available as a Kindle Book.

Available as a paperback.

“Candy and Abel: Murder for Insurance Money

How a young lawyer and wise old investigator defeated an attempt at life insurance fraud.

Product DetailsAvailable as a Kindle Book.

Available as a paperback.

 

 

“Murder And Insurance Fraud Don’t Mix”

My name is Marion Orpheus Montague. My friends, and some enemies, call me “MOM.” It is not a designation of my ability to nurture my clients. I have never been, nor will I Product Detailsever be, maternal. I accept the play on my initials because it causes adversaries to underestimate me.

I am 66-years-old. My grayish blond hair is thin and my full beard is a bit scraggly. My face is round and often tinged with red. My nose is full, my eyes green and my cheeks bulge out to the sides trying to emulate the belly that precedes every other part of my body as I walk. People see me and do not believe that I am a private investigator. Seeing me they often think that I am on leave from my winter work as a Macy’s Santa Claus.

I like being underestimated. It makes my job as an investigator easier.

See how a fake robbery at a jewelry store led to murder and prison.

Available as a Kindle book.

Available as a paperback

“Murder & Old Lace: Solving Murders Performed for Insurance Money”

 

Product Details

When the women first met – 20 years ago at a Santa Monica health spa – Magogassasanian appeared taken with Gogolivesky. The women moved Alvarado into an apartment, then started applying for life insurance policies on him. They jointly took out four policies, each as 50% beneficiaries in addition to the individual policies they bought from my client. Gogolivesky also took out three more policies on her own while Magogassasanian only took out a single individual policy on Earnest. The two women pocketed nearly $6,000,000 in insurance benefits on Alvarado alone and $4,000,000 in insurance benefits on Earnest. They also recovered a total of $5,000,000 on the other six old men they killed.

Available as a Kindle book.

Available as a paperback.

“Arson for Profit: How an Attempt to use Arson & Fraud to Fund Terrorism Failed”

This story is based on a real case involving a member of Russian/Armenian organized crime, real insurers, investigators, lawyers, fire fighters, and insurance brokers. The names, descriptions, and identities of the people involved have been changed to protect both the guilty and the innocent. The report to the US Senate, after this case was decided by the California Courts, reveal that the threats made on MOM and lawyer Hazan were real and they are lucky that the threats were never fulfilled. The person identified in this story as Levonyan was described to the US Senate as the leader of a Russian/Armenian organized crime ring. It is important to take seriously threats from criminals. Insurance fraud and arson-for-profit are not victimless crimes. They are crimes of violence that cost everyone who lives in the U.S.]

Available as paperback.

Available as a Kindle Book.

M.O.M. & The Taipei Fraud: How an Experienced Adjuster Defeated a $7 Million Fake Burglary Claim

 

The problem is that each option the insurers have available have a down side and Feng is represented by a lawyer who has proved highly successful in suing insurers and collecting large compensatory and punitive damage awards. Since the claims exceed $6 million dollars, he can expect, applying the law set out by the U.S. Supreme Court in State Farm Mut. Automobile Ins. Co. v. Campbell and BMW of North America, Inc. v. Gore as much as $60 million in punitive damages. So I need to explain to the insurers that they face an exposure anywhere from their policy limits to ten times the policy limit. They need the courage of their convictions to reject this major claim.

Available as a paperback.

Available as a Kindle book.

Read about these and other insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/

Posted in Zalma on Insurance | Comments Off on Do You Find it Difficult to Find or Maintain a Staff of Insurance Claims Professionals?

Ignoring an Administrative Order is Expensive

1011 Fake Claims Results in more than $500,000 Penalty

When a chiropractor is caught billing insurers for services not performed he should never fail to appear to defend himself at an administrative hearing. Of course, if he or she has no defense delay is possible but dangerous.

In the Matter of Proceedings by the Commissioner of Banking and Insurance, State of New Jersey To Fine Charles Boas Pursuant to the New Jersey Insurance Fraud Prevention Act, N.J.S.A. 17:33A-1 to -30, Docket No. A-2223-17T2, Superior Court of New Jersey Appellate Division (February 22, 2019) Charles Boas appealed from New Jersey Department of Banking and Insurance (Department) orders directing that he pay $500,000 in civil and administrative penalties for his submission of 1011 fraudulent insurance claims, a $1000 statutory insurance fraud surcharge, $53,384.52 in restitution and $3459 in attorneys’ fees, and denying his motion for reconsideration.

Boas is a licensed chiropractor in the State of New Jersey.  In April 2014, Boas pleaded guilty to third-degree health care claims fraud and was sentenced in July 2014 to a two-year term of probation.

The Order To Show Cause

The order to show cause alleged that from 2003 to 2007 Boas submitted claims for insurance payments to Horizon for chiropractic services he did not provide.

The Department served, and Boas received, the order to show cause in September 2014. The Department again served Boas with the order to show cause in December 2014, and at that time informed Boas that if he did not respond within seven days, his right to a hearing would be deemed waived and the Commissioner would dispose of the matter.

Boas failed to respond to the order to show cause.

Boas’s Motion To Vacate The Final Order

Four months later, in March 2016, Boas filed a motion to vacate the final order. In support of the motion, Boas submitted a certification asserting that upon his receipt of the order to show cause on September 26, 2014, he called the attorney who represented him in the criminal proceeding, forwarded the order to show cause to the attorney by telefax, and was assured by the attorney that he “would handle the matter.” Boas also certified that he received the December 2014 “second notice” concerning the order to show cause and forwarded it by telefax to the attorney.

Boas’s certification offered the conclusory assertion that he “had a clear defense to this case.” He did not identify the putative defense or provide any facts supporting a defense to the allegations contained in the order to show cause.

In a detailed and comprehensive November 7, 2016 written order, the Commissioner denied Boas’s motion to vacate the final order.

The Commissioner determined that a default judgment will not be disturbed unless the failure to answer or otherwise appear and defend was excusable under the circumstances and unless the defendant has a meritorious defense, either to the cause of action itself, or to the quantum of damages. The Commissioner noted that in his motion to vacate the final order, Boas did not challenge the penalties imposed and failed to present any evidence establishing a meritorious defense to the charges in the order to show cause. The Commissioner further determined Boas did not establish excusable neglect for his failure to timely respond to the order to show cause because he did not indicate when his purported conversations with the attorney occurred or what “assurances” the attorney provided, the $2000 check to the attorney is dated eight months after Boas received the December 2014 second notice concerning the order to show cause.

Analysis

An appellate court may not upset an agency’s final quasi-judicial decision absent a clear showing that it is arbitrary, capricious, or unreasonable, or that it lacks fair support in the record.

The appellate court will only review discipline to determine whether the punishment is so disproportionate to the offense, in the light of all of the circumstances, as to be shocking to one’s sense of fairness. Courts are required to take care not to substitute their own views of whether a particular penalty is correct for those of the body charged with making that decision.

Boas did not provide any facts supporting a meritorious defense to the allegations in the order to show cause other than a conclusory assertion that he had a “clear defense.”

Boas argued the Commissioner’s denial of his motion to vacate the final judgment was arbitrary, capricious and unreasonable and lacks support in the record.

Generally, a defendant seeking to reopen a default judgment must show that the neglect to answer was excusable under the circumstances and that he has a meritorious defense. There is an abuse of discretion when a decision is made without a rational explanation, inexplicably departed from established policies, or rested on an impermissible basis.

To prevail on a motion to vacate a judgment a party is compelled to prove the existence of a meritorious defense because it would create a rather anomalous situation if a judgment were to be vacated on the ground of excusable neglect, only to discover later that the defendant had no meritorious defense. A court is required to examine defendant’s proposed defense to determine its merit.

The record presented to the Commissioner on Boas’s motion to vacate the final order was bereft of any evidence supporting a meritorious defense to the allegations in the order to show cause.

Indeed, Boas’s certification demonstrates his putative attorney’s alleged assurances could not be reasonably relied upon to ensure that a response to the order to show cause was, or would be, filed. Boas certified that he sent the September 2014 order to show cause to the attorney and received assurances the attorney would “handle” the matter, but in December 2014 Boas was served with the order to show cause again with a notice that if he did not respond in seven days, the Commissioner would dispose of the matter. Thus, Boas knew in December 2014 that his putative attorney’s alleged assurances were not true, but his certification offered no explanation why he thereafter assumed the same attorney would actually file a response to the order to show cause or why he took no steps to ensure the attorney did so.

The Commissioner’s findings support his determination that Boas failed to demonstrate excusable neglect for his failure to respond to the order to show cause. Mere carelessness or lack of proper diligence on the part on an attorney is ordinarily not sufficient to entitle his clients to relief from an adverse judgment in a civil action.

Here, Boas’s supporting certification did not demonstrate any meritorious defenses to the order to show cause and, as the Commissioner found, Boas failed to provide sufficient details concerning his actions, and those of his putative attorney, to demonstrate a mistake compatible with due diligence.

Boas failed to demonstrate the Commissioner’s findings and decision denying the motion to vacate were made without a rational explanation, inexplicably departed from established policies, or rested on an impermissible basis.

Given the substantial deference the court must afford an agency’s choice of remedy or sanction and all of the circumstances found by the Commissioner in the final order. The penalty imposed for Boas’s 1011 violations of the Act occurring over a four-year period, was not so disproportionate to the offense as to be shocking to one’s sense of fairness. The order was affirmed.

ZALMA OPINION

Boas, a convicted felon, who pleaded guilty to having billed insurers for 1011 services never performed only to be given probation failed to deal with the administrative proceeding. As a result of his sloth, perhaps encouraged by a charitable sentence after his conviction, finds himself obligated to pay the state more than $500,000, an almost adequate punishment for such a major fraud, who should have spent time in prison.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Ten Volumes Comprising A Comprehensive Group of Materials on Property & Casualty Insurance Claims

Insurance claims professional and expert witness Kevin Quinley said about the following ten volumes: “Zalma’s series of books is a terrific blend of both the legal underpinnings and the practical implications for the claim practitioner.

Insurance Maven Bill Willson said: “Zalma On Insurance Claims” is a tour de force, an indispensable tool that should be a part of every claims training program in America and in the library of every claims professional for quick and frequent reference. This comprehensive guide belongs in the library of every insurance defense AND policyholder law firm. It should be a part of every claims training program of carriers, independent adjusting firms, and public adjusters. Many of these parts should be part of the training or reference programs for non-claims personnel, from agents to underwriters to risk managers.”

Zalma on Insurance Claims Volume 101

Posted in Zalma on Insurance | Comments Off on Ignoring an Administrative Order is Expensive

Beware! California Wants to Add to SIU Regulations

If You Write Insurance in California You Need to Present Arguments to California DOI

The California Department of Insurance (CDOI) has organized a discussion on proposed changes to the SIU Regulations that must be followed and complied with by almost every insurer writing insurance in the state of California. In so doing the CDOI ignores the fact that insurers are the only victims of a crime – insurance fraud – that are required by law and regulation to investigate the crime and provide the evidence necessary to prosecute the crime to the CDOI Fraud Division or a local prosecutor.

The CDOI states that the purpose of these discussions is to provide interested and affected persons an opportunity to present statements or comments regarding the contemplated regulation changes.

Date: March 20, 2019
Time: 1:30 p.m. to 3:30 p.m., or as soon after 1:30 p.m. as all those wishing to speak
have spoken, whichever is earlier.
Location: California Department of Insurance
Enforcement Branch Headquarters
2400 Del Paso Road, Suite 190
Sacramento, California 95834

Some of the Proposed Changes

The changes proposed seem to add more regulations, more busy work for members of the SIU.

If the insurer contracts with a third party to provide SIU services the new Regulation will provide, unless it is changed, that the contracted entity include provisions in any agreement the contracted entity may enter into with any subcontractor to perform SIU or integral anti-fraud personnel duties or functions for the contracted entity on behalf of the insurer.

Reporting to the CDOI will, if adopted, include a complete synopsis of all the facts on which the reasonable belief of the insurance fraud is based. The synopsis shall include the following information, if known:(A) When the reporting party became suspicious.
(B) The facts that caused the reporting party to believe insurance fraud occurred or may have occurred. (C) The suspected misrepresentations and who it was that allegedly made them. (D) How the alleged misrepresentations are material and how they affect the claim or insurance transaction. (E) Identification of pertinent witnesses to the alleged misrepresentation. (F) What documentation there is of the alleged misrepresentation.

In addition the regulations will require, if adopted, (3) The SIU personnel shall receive at least five (5) hours of continuing anti-fraud training per calendar year. The proposed regulation specifies the type of training required.

In addition the CDOI requires that the insurer provide a description of the insurer’s methods and copies of written procedures used by the insurer or its contracted entities for detecting, investigating and reporting suspected insurance fraud.  In addition the CDOI requires a description of, and copies of, the insurer’s plan, and the plans of any contracted entities that have SIU or integral anti-fraud personnel responsibilities, for initial and ongoing fraud education and training for integral anti-fraud personnel pursuant to this article, including identification of the topics covered, a description of the process used in order to ensure the training is received, and proof that the training occurred.

It will also require that each insurer report how the SIU is adequately staffed including the total number of SIU staff employed by the insurer nationally and in California, Total hours of time spent working on fraud investigations both nationally and in California and total hours of contracted SIU personnel time.  In addition the insurer must report the number of claims processded by the inmsurer, the number referred to the SIU and the number of referred claims that resulted in the SIU’S opening an investigation both nationally and in California. The insurer must also report the number of suspected fraud reported to the CDOI, the number of arrests that were the result of referrals to the CDOI and the number of convictions and the number and type of civil actions initiated in California, with details of each case.

The current regulations, with my commentary, can be acquired as a paperback or Kindle book here Available as a Kindle Book and Available as a paperback.

California SIU Regulations

California SIU Regulations: The State of California Imposes Control on the Investigation of Insurance FraudCalifornia SIU Regulations is designed to assist California insurance claims personnel, claims professionals, independent insurance adjusters, special fraud investigators, private investigators who work for the insurance industry, the management in the industry, the attorneys who serve the industry, and all integral anti-fraud personnel working with California admitted insurers to comply with the requirements of California SIU Claims Regulations.

The state of California, by statute, requires all admitted insurers to maintain a Special Investigative Unit (an “SIU”) that complies with the requirements set forth in the Special Investigative Unit Regulations (the “SIU Regulations”) and train all integral anti-fraud personnel to recognize indicators of insurance fraud.

 

 

 

 

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Do You Find it Difficult to Find or Maintain a Staff of Insurance Claims Professionals?

Train the New Ones and Maintain the Experienced Insurance Claims Professionals

For those who serve the insurance industry and its policyholders (whether as lawyers, adjusters, claims management, or public insurance adjusters) to survive and perform their duties appropriately it is absolutely necessary that they maintain insurance professionalism. A staff of insurance claims professionals who can read, understand and apply the terms and conditions of the insurance policy, treat all insureds, insurers, and claimants fairly and in good faith, and make sure the insurer keeps all of the promises made by the insurance policy, is essential. The insurance claim professional must be able to recognize and defeat attempts at insurance fraud while dealing ethically and in good faith with all insureds and claimants with whom the insurance professional comes in contact.

The following books are a small taste of the insurance and insurance claims books written by Barry Zalma and available on amazon.com and at http://zalma.com/blog/insurance-claims-library/ A copy in each insurance law office, in each insurance company and independent adjuster claims office and in the offices of every public insurance adjusting firm, will provide essential resources and will go a long way to create a staff of insurance claims professionals.

Ethics for the Insurance Professional

Methods for Insurers and their Personnel to Act with the Utmost Good FaithProduct Details

Ethics is a process of systematically applying, using, defending and recommending concepts of right and wrong behavior. Ethical behavior is required of both parties to a contract of insurance for the system to work. Ethics is the essence of insurance. Ethical behavior is required of both parties to a contract of insurance for the system to work. If any party to the insurance contract acts unethically the ability of insurance to work effectively and profitably will fail. Ethics is the essence of insurance. Since insurance was first created it has been a business of utmost good faith. As a result, the insured and the insurer are expected to treat each other ethically.

Available as a paperback.

Rescission of Insurance

Product DetailsRescission is an equitable remedy as ancient as the common law of Britain. When the United States was conceived in 1776 the founders were concerned with protecting their rights under British common law. They adopted it as the law of the new United States of America modified only by the limitations placed on the central government by the U.S. Constitution approved in 1789. The viability and ability to enforce contracts was recognized as essential to commerce. Courts of law were charged with enforcing legitimate contracts. Courts of equity were charged with protecting contracting parties from mistake, fraud, misrepresentation and concealment since enforcing a contract based on mistake, fraud, misrepresentation or concealment would not be fair. The common law developed rules that courts could follow to refuse to enforce the terms of a contract that was entered into because of mutual mistake of material fact, a unilateral mistake of material fact, the breach of warranty (a presumptively material promise to do or not do something), a material concealment, or a material misrepresentation. The remedy – called rescission – created a method to apply fairness to the insurance contract and allow an insurer to void a contract and allowed courts to refuse to enforce such a contract entered into by misrepresentation or concealment of material facts.

Available as a paperback.

Available as a Kindle book.

“The Insurance Examination Under Oath”

Product DetailsThe insurance Examination Under Oath (“EUO”) is a formal type of interview authorized by an insurance contract. It is taken under the authority provided by a condition of the insurance contract that compels the insured to appear and give sworn testimony on the demand of the insurer or find his, her or it claim rejected for breach of a condition. A notary and a certified shorthand reporter are always present to give the oath to the person interviewed and record the entire conversation.

Available as a Kindle book.

Available as a paperback.

“Random Thoughts on Insurance”

Product DetailsAfter more than 50 years acting as a claims person and insurance coverage lawyer I enjoy reading court decisions concerning insurance. The idea of this blog is to find new cases that are interesting to me and then write a summary. Some of the cases reviewed will be important. Some may be of first impression. Others will be totally unimportant. All will be interesting.

The case digests and articles from 2010 to the present, in the six volumes summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Read about these and other insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/

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Arbitration Awards Need Abuse to be Overturned

Abitrators have Substantial Discretion to Determine the Scope of Their Contractual Authority to Fashion Remedies

Arbitration is controlled by strong public policies favoring arbitration as a speedy and relatively inexpensive means of dispute resolution. For that reason arbitration awards are almost never overturned unless the aggrieved party can prove the arbitrators exceeded their powers, acted as a result of conflict of interest,  or acted wrongfully.

In QBE Insurance Corporation v. American Claims Management, Inc., D073345, Court of Appeal, Fourth Appellate District Division One State of California (February 4, 2019) Appellant American Claims Management, Inc. (ACM), a third party claims service administrator, entered into a contract to handle insurance claims on behalf of respondent QBE Insurance Corporation (QBE). ACM appeals a judgment entered after the superior court confirmed an arbitration award in QBE’s favor. The arbitration panel (the Panel)1 concluded that ACM violated the parties’ contract in handling a claim by a QBE auto insurance policy holder, Galdino Cortes, who was involved in a vehicular accident that injured three members of the Cardona family. The Panel awarded QBE total damages of $18,450,855.73, which included interest, attorney fees and costs.

ACM contends the Panel exceeded its powers because it

  1. “ignored California law” as shown by its failing to cite “a single California case or statute in discussing whether ACM breached the contract or must indemnify QBE”;
  2. “created new California law in violation of California statutes and public policy;
  3. held ACM liable for the entire $15 million settlement although, at most, ACM is assertedly only liable to indemnify QBE for the $1,250,000 that QBE paid to Cortes under the settlement agreement, and not the $13,750,00 settlement with the Cardonas
  4. manifestly disregarded the law under the Federal Arbitration Act (FAA); and
  5. “miscalculated amounts owed to QBE.”

ACM specifically contends the Panel improperly included in its award “damages relating to attorneys’ fees in the Cardona[ ] litigation”; “fees and interest, for obligations incurred before the Panel determined the duty to indemnify arose”; and attorney fees in the arbitration.

FACTUAL BACKGROUND

The parties stipulated to the following facts during arbitration: In February 2011, Cortes was involved in a traffic collision with the Cardonas. Cortes’s insurance policy had a $30,000 liability limit per accident. That month, the Cardonas mailed a policy limits demand to ACM, giving it 15 days to respond. After a late attempt to accept the offer, the case went to trial and the Cardonas obtained a judgment against Cortes in the amount of $20,974,903.

ACM did not timely communicate to QBE its receipt of the demand letter. The Panel wrote in its final award:

“In what would become a disturbing pattern, ACM also neglected to inform QBE that [] Cardona had called ACM . . . to follow up on his demand letter, that the demand letter expired . . . , and that [an ACM employee who was subsequently fired] failed to contact Cardona until [after the demand letter’s deadline]. In other words, ACM apparently chose to withhold from QBE evidence of its own negligent performance under the Agreement that . . . had potentially exposed ACM to hundreds of thousands, if not millions of dollars for bad faith.”

ACM and QBE later stipulated that $15 million was a reasonable amount to settle the Cardona lawsuit against QBE, and it was a good faith settlement.  QBE subsequently paid the Cardonas that amount.

QBE sued ACM to recover the $15 million settlement plus more than $1 million in legal fees that QBE incurred in the related action.

Arbitration Ruling

The Panel ruled on QBE’s breach of contract claim that QBE had proven its prima facie case and “ACM was deficient in its performance of its responsibilities to QBE under the [Claims Management Agreement (CMA)].”

The Panel ruled:

“The starting point for the Panel’s analysis of contract damages is with ACM’s failure to timely review the letter demand, timely respond thereto and ultimately pay policy limits on behalf of Cortes. Had it done so, QBE would have only incurred an expenditure of $30,000[ ], [Cortes’s] full policy limits. . . . [¶] QBE ultimately paid $15 [million] to resolve the Cortes and Cardonas claims. All but $30,000[ ] of this payment was required because of ACM’s breach.”

Trial Court Proceedings

ACM is contesting the Panel’s decision and findings because it does not agree with the award. All of ACM’s arguments were unavailing. ACM was trying to re-litigate the merits of the award regarding whether QBE is entitled to indemnity. That is an issue squarely within the CMA for the Panel to decide.

DISCUSSION

Considering the strong public policies favoring arbitration as a speedy and relatively inexpensive means of dispute resolution, the scope of judicial review of private, binding arbitration awards is extremely narrow. Even an error of law apparent on the face of the award that causes substantial injustice does not provide grounds for judicial review. With respect to contractual remedies, arbitrators, unless expressly restricted by the agreement or the submission to arbitration, have substantial discretion to determine the scope of their contractual authority to fashion remedies. Judicial review of their awards must be  narrow and deferential.

Although a court may correct an arbitration award when the arbitrators exceeded their powers or may correct an award if the correction can be made without affecting the merits of the decision upon the controversy submitted.

The appellate court must, when asked to review an arbitration award, narrowly and deferentially review the arbitrators’ award. Following the rule dealing with arbitration awards the appellate court concluded that ACM’s contention the Panel’s final award is in excess of its powers failed because the recovery or non-recovery of fees is one of the contested issues of law and fact submitted to the arbitrator for decision and, therefore, the arbitrator’s decision was final and could not be judicially reviewed for error.

In addition the court concluded that on their face, ACM’s several claims amount to nothing more than assertions of legal error whose conclusion was provided by the agreement to the arbitrators.

When parties contract to resolve their disputes by private arbitration, their agreement ordinarily contemplates that the arbitrator will have the power to decide any question of contract interpretation, historical fact or general law necessary, in the arbitrator’s understanding of the case, to reach a decision. Inherent in that power is the possibility the arbitrator may err in deciding some aspect of the case.

Arbitrators do not ordinarily exceed their contractually created powers simply by reaching an erroneous conclusion on a contested issue of law or fact, and arbitral awards may not ordinarily be vacated because of such error, for the arbitrator’s resolution of these issues is what the parties bargained for in the arbitration agreement.

The judgment was affirmed and QBE Insurance Company was awarded its costs on appeal.

ZALMA OPINION

The court followed the standard rule with regard to arbitration awards – it affirmed the finding because there was no proof of collusion, undisclosed conflict of interest or evidence that the arbitrators exceeded the powers provided to them by the contract authorizing arbitration. Professional liability claims people understand the hazards of short time limit policy demands and the failure to respond or advise the insurer placed QBE in a situation where it was required to pay $15 million on its $30,000 policy because of the error of the adjusters. The only issue not touched by the appellate court is whether ACM had sufficient errors and omissions insurance to pay the $15 million judgment or if ACM has sufficient assets to pay the judgment.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Ten Volumes Comprising A Comprehensive Group of Materials on Property & Casualty Insurance Claims

Insurance claims professional and expert witness Kevin Quinley said about the following ten volumes: “Zalma’s series of books is a terrific blend of both the legal underpinnings and the practical implications for the claim practitioner.

Insurance Maven Bill Willson said: “Zalma On Insurance Claims” is a tour de force, an indispensable tool that should be a part of every claims training program in America and in the library of every claims professional for quick and frequent reference. This comprehensive guide belongs in the library of every insurance defense AND policyholder law firm. It should be a part of every claims training program of carriers, independent adjusting firms, and public adjusters. Many of these parts should be part of the training or reference programs for non-claims personnel, from agents to underwriters to risk managers.”

Zalma on Insurance Claims Volume 101

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Experienced People are Unavailable – Train Up a Staff of Insurance Professionals

Information Needed by Every Insurance Lawyer, Claims Person or Claims Management Personnel

For those who serve the insurance industry and its policyholders (whether as lawyers, adjusters, claims management, or public insurance adjusters) to survive and perform their duties appropriately it is absolutely necessary that they maintain insurance professionalism. A staff of insurance claims professionals who can read, understand and apply the terms and conditions of the insurance policy, treat all insureds and claimants fairly and in good faith, and make sure the insurer keeps all of the promises made by the insurance policy is essential. In addition the insurance claim professional must be able to recognize and defeat attempts at insurance fraud while dealing ethically and in good faith with all insureds and claimants with whom the insurance professional comes in contact.

The following books are a small taste of the insurance and insurance claims books written by Barry Zalma and available on amazon.com and at http://zalma.com/blog/insurance-claims-library/ A copy in each insurance law office, in each insurance company and independent adjuster claims office and in the offices of every public insurance adjusting firm, will provide essential resources and will go a long way to create a staff of insurance claims professionals.

Books to Create a Professional Insurance Claims Staff

The Compact Book of Adjusting Property Insurance Claims”

A Manual for the First Party Property Insurance Adjuster

The insurance adjuster is not mentioned in a policy of insurance. The The Compact Book of Adjusting Property Insurance Claims: A Manual for the First Party Property Insurance Adjusterobligation to investigate and prove a claim falls on the insured. Standard first party property insurance policies, based upon the New York Standard Fire Insurance policy, contain conditions that require the insured to, within sixty days of the loss, submit a sworn proof of loss to prove to the insurer the facts and amount of loss.

The policy allows the insurer to then, and only then, respond to the insured’s proof of loss. The insurer can then either accept or reject the proof submitted by the insured.

Technically, if the wording of the policy was followed literally the insurer could sit back, do nothing, and wait for the proof. If the insured was late in submitting the proof the insurer could reject the claim. If the insured submits a timely proof of loss the insurer could either accept or reject the proof of loss. If the insurer rejected the proof of loss the insured could either send a new one or give up and gain nothing from the claim. Suit on the policy would be difficult because the policy contract limited the right to sue to times when the proof of loss condition had been met.

Insureds and insurers were not happy with that system. It made it too difficult for a lay person to successfully present a claim. The system, as written into the standard fire policy seemed to run counter to the covenant of good faith and fair dealing that had been the basis of the insurance contract for centuries. Most insurers understood that their insureds were mostly incapable of complying with the strict enforcement of the policy conditions. To fulfill the covenant of good faith and fair dealing insurers created the insurance adjuster to fulfill its obligation to deal fairly and in good faith with the insured.

Available as a Kindle book.

Available as a paperback.

“The Compact Book on Adjusting Liability Claims”

A Handbook for the Liability Claims Adjuster

This Compact Book of Adjusting Liability Claims is designed to Product Detailsprovide the new adjuster with a basic grounding in what is needed to become a competent and effective insurance adjuster. It is also available as a refresher for the experienced adjuster.

The liability claims adjuster quickly learns that there is little difficulty with a claimant (the person alleging bodily injury or property damage against a person insured) if the claim is paid as demanded. The insured may be unhappy if the claimant’s claim is paid as presented since most do not believe they did anything wrong or fear an increase in premiums charged for subsequent policies.

The adjuster must be prepared to salve the insured’s emotions, explain why in the law and the policy it was appropriate to pay the claimant and that the settlement is in the best interest of both the insured and the insurer the adjuster represents.
The adjuster knows, and must be prepared to explain to an insured, that if a claim is resisted or denied the claimant will be unhappy, will probably file suit. If not promptly settled the claimant’s lawyers will rake the insured over the coals to prove that the insured is liable for the claimant’s injuries. The litigation will take time, effort, and money to establish the extent of the injuries and who is responsible for the injuries. Failure to settle promptly can cost the insured his or her reputation and will certainly cost the insurer much more than the claim could have been resolved for had it been resolved before the claimant retained a lawyer.

Available as a Kindle book

Available as a paperback.

California Fair Claims Settlement Practices Regulations

A Guide to Insureds, Public Insurance Adjusters, and Lawyers to Properly Investigate and Adjust Insurance Claims

This book was designed to assist insurance personnel who do business in the state of California. It will assist all insurance claims personnel, claims professionals, independent insurance adjusters, special fraud investigators, private investigators who work for the insurance industry, the management in the industry, the attorneys who serve the industry, public insurance adjusters, policyholders and counsel for policyholders working with insurers doing business in California. All insurers doing business in California must comply with the requirements of the Regulations or face the ire of, and attempts at financial punishment from, the CDOI. That punishment is now questionable and limited because some courageous insurers fought the CDOI and succeeded before an administrative law judge who limited the right to punish. Regardless of difficulties in assessing punishment the state of California requires all who are involved in the claims process — even if only tangentially — to be trained with regard claims handling in compliance with the Regulations and attest to completion of such training under oath. To avoid the annual training the claims person can submit a sworn document that avers that he or she has read and understood the Regulations. Reviewing this book and the Regulations set forth below should be sufficient to comply with the training requirements of the Regulations. It is necessary that insurance personnel who are engaged in any way in the presentation, processing, or negotiation of insurance claims in California be familiar with the Regulations. Counsel for insurers and policyholders should also be familiar with the Regulations since they set a minimum standard for claims handling in the state.

Available as a Kindle book.

Available as a paperback.

California SIU Regulations

The State of California Imposes Control on the Investigation of Insurance Fraud

California SIU Regulations: The State of California Imposes Control on the Investigation of Insurance FraudCalifornia SIU Regulations is designed to assist California insurance claims personnel, claims professionals, independent insurance adjusters, special fraud investigators, private investigators who work for the insurance industry, the management in the industry, the attorneys who serve the industry, and all integral anti-fraud personnel working with California admitted insurers to comply with the requirements of California SIU Claims Regulations.

The state of California, by statute, requires all admitted insurers to maintain a Special Investigative Unit (an “SIU”) that complies with the requirements set forth in the Special Investigative Unit Regulations (the “SIU Regulations”) and train all integral anti-fraud personnel to recognize indicators of insurance fraud.

Available as a Kindle Book.

Available as a paperback.

Read about these and other insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/

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Joint Ventures Change Risk and Must Be Disclosed to the Insurer for Coverage to Exist

Failure to Disclose Joint Venture Avoids Coverage

Many construction contracts are completed by multiple construction specialties entering into a joint venture. A Joint Venture is a cooperative enterprise entered into by two or more business entities for the purpose of a specific project or other business activity.  Joint ventures can be informal or formal, and they can be short term or long term. Often the joint venture creates a separate business entity, to which the owners contribute assets, have equity, and agree on how this entity may be managed.  As a result, the existence of a joint venture presents a different risk than that faced by the insurer of a single construction entity. For that reason insurers will always require, as a condition precedent to coverage that it be advised of the existence of a joint venture and the right to underwrite the risks posed by the joint venture.

In Reno Contracting, Inc. v. Crum & Forster Specialty Insurance Company, Case No.: 18-CV-0450 W (JLB), United States District Court Southern District of California (February 21, 2019) an insurer refused defense and indemnity to a joint venture and to a member of the joint venture seeking coverage under a policy in which it was not named as an insured.

BACKGROUND

The Coyle/Reno Joint Venture

Plaintiff Reno Contracting entered into a joint venture agreement with Coyle Residential, Inc. for the purpose of engaging in a construction project in San Jose, California (“the Riverview Project”).

The Coyle/Reno joint venture (“Coyle/Reno”) was to serve as the general contractor for the Riverview Project, with Silverline Construction, Inc. (“Silverline”) serving as a subcontractor. According to Plaintiff, the terms of the joint venture agreement were such that Coyle Residential was responsible for on-site supervision of construction activities of the Riverview Project (including subcontractors), while Reno Contracting handled off-site administrative duties.

Silverline was not paid what it believed it was entitled to receive and executed a stop payment notice on the Riverview Project.  Coyle Residential effectively abandoned the joint venture, leaving Reno Contracting solely responsible for the on-site supervision of the construction activities at the Riverview Project moving forward.

Silverline, the subcontractor, asserted in correspondence with the Coyle/Reno joint venture during the months of June and July 2013 that Coyle/Reno was improperly refusing to pay it for “extra work” that it had directed Silverline to do during the course of the project. It accused Coyle/Reno of negligence and bad faith with respect to its management of changes to the MSA and its payments to Silverline.  Silverline demanded mediation of its claims, and it threatened to sue Coyle/Reno if the disputes could not be resolved informally.

The Insurance Policies at Issue

The second policy was issued by Crum & Forster to Reno Contracting (“the Reno Contracting Policy”). It required that claims be made and reported during the policy period. As relevant here, it covered “damages” resulting from “wrongful act[s].” Damages were defined as follows: “’Damages’ means the monetary amount of any judgment, award or settlement that an insured becomes legally obligated to pay as a result of a ‘claim’ or ‘suit.’ ‘Damages’ does not include ‘cleanup costs,’ equitable or nonpecuniary relief, disgorgement of profits, sanctions, fines or penalties.”

“Wrongful act” was defined as follows: “Wrongful act” means an act, error or omission in the rendering or failure to render “professional services” by any insured covered under the Insuring Agreement of the Errors and Omissions Liability Coverage Part[.]”

In addition the policy provided: “No person or organization is an insured with respect to the conduct of any current or past partnership, joint venture or limited liability company that is not shown as a Named Insured in the Declarations.” The Coyle/Reno joint venture was not a named insured on this policy.

The Underlying Litigation

Coyle/Reno sued Silverline in San Diego Superior Court, alleging, inter alia, breach of the MSA.  Silverline filed a cross-complaint against Coyle/Reno alleging that the joint venture had failed to pay for services rendered pursuant to the MSA. Silverline alleged that Coyle/Reno had modified the construction plans for the Riverview Project by directing Silverline to perform extra work without confirming the changes in writing, as the MSA would require. It further alleged that Coyle/Reno falsely denied that it had directed the extra work be performed and denied the request for payment for the work.

The facts behind Riverview’s suit against Reno Contracting were related to those in the Silverline action. Riverview alleged that Coyle/Reno breached its contract with Riverview.

DISCUSSION

There is No Genuine Dispute that Reno Contracting is Not an Insured under the Reno Contracting Policy as to the Underlying Litigation

The Reno Contracting Policy specifies: “No person or organization is an insured with respect to the conduct of any current or past partnership, joint venture or limited liability company that is not shown as a Named Insured in the Declarations.” The Coyle/Reno joint venture was not a named insured on this policy.

There is no genuine dispute that all claims in the underlying litigation arose from the Riverview Project, the general contractor for which was the Coyle/Reno joint venture. Reno Contracting was not an insured under the Reno Contracting Policy with respect to Coyle/Reno’s conduct—even if it was a defendant in subsequent litigation resulting from Coyle/Reno’s project.

The addition of the joint venture partner into the business posed an additional risk for which the insurance company was not compensated by the policy.

Reno Contracting went into business with Coyle Residential, forming Coyle/Reno. By the terms of the MSA, Coyle Residential would handle on-site supervision of the construction activities of the Riverview Project while Reno Contracting handled off-site administrative duties. Only, Coyle Residential did not “competently provide supervision of the construction activities at the Riverview Project[.]” This prompted “significant problems on the construction site” and, ultimately, a stop payment notice to issue from a subcontractor. That entity’s insurance company would have been entitled to calculate the additional risks of the joint venture into the premiums of a policy. This particular policy required that any joint venture be named so as to allow for the calculation of an appropriate premium. No joint venture was named. No coverage existed with respect to a joint venture’s conduct, or risks arising therefrom.

The Reno Contracting Policy provided no coverage for the underlying litigation, all of which arose from Coyle/Reno’s involvement in the Riverview Project as general contractor

Specifically the partial motion for summary judgment is denied as to the claims in Plaintiff’s Complaint that have no relationship to the insurance issues but there is no genuine dispute that the Reno Contracting Policy provided no insurance coverage for the underlying litigation.

ZALMA OPINION

Insurance is a personal contract. Reno Contracting was the insured. It had no right to a defense or indemnity from a suit against the Coyle/Reno joint venture because the joint venture was not named as an insured and because the insurer made clear it would not insure a joint venture unless it had the right to underwrite the risks faced by the joint venture and charge an appropriate premium for those risks.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Ten Volumes Comprising A Comprehensive Group of Materials on Property & Casualty Insurance Claims

Insurance claims professional and expert witness Kevin Quinley said about the following ten volumes: “Zalma’s series of books is a terrific blend of both the legal underpinnings and the practical implications for the claim practitioner.

Insurance Maven Bill Willson said: “Zalma On Insurance Claims” is a tour de force, an indispensable tool that should be a part of every claims training program in America and in the library of every claims professional for quick and frequent reference. This comprehensive guide belongs in the library of every insurance defense AND policyholder law firm. It should be a part of every claims training program of carriers, independent adjusting firms, and public adjusters. Many of these parts should be part of the training or reference programs for non-claims personnel, from agents to underwriters to risk managers.”

Zalma on Insurance Claims Volume 101

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Having Trouble Staffing Your Insurance Claims Staff – Train Them!

Information Needed by Every Insurance Lawyer, Claims Person or Claims Management Personnel

For those who serve the insurance industry and its policyholders (whether as lawyers, adjusters, claims management, or public insurance adjusters) to survive and perform their duties appropriately it is absolutely necessary that they maintain insurance professionalism. A staff of insurance claims professionals who can read, understand and apply the terms and conditions of the insurance policy, treat all insureds and claimants fairly and in good faith, and make sure the insurer keeps all of the promises made by the insurance policy is essential. In addition the insurance claim professional must be able to recognize and defeat attempts at insurance fraud while dealing ethically and in good faith with all insureds and claimants with whom the insurance professional comes in contact.

The following books are a small taste of the insurance and insurance claims books written by Barry Zalma and available on amazon.com and at http://zalma.com/blog/insurance-claims-library/ A copy in each insurance law office, in each insurance company and independent adjuster claims office and in the offices of every public insurance adjusting firm, will provide essential resources and will go a long way to create a staff of insurance claims professionals.

Books to Create a Professional Insurance Claims Staff


Construction Defects and Insurance

Construction Defects and Insurance Volume One: The Structure, The Construction Contract, and Construction Defect InsuranceBarry Zalma has updated and re-edited his seminal work Construction Defects Coverage Guide into is the latest addition to Barry Zalma’s insurance claims series of books and articles that will form the most thorough, up-to-date, expert-authored insurance claims guide available today eight Kindle or Paperback Volumes at reasonable prices.

Thorough, yet practical, this series of books form the ideal guide for any professional who works in or frequently interacts with the insurance industry.

Claims professionals, risk managers, producers, underwriters, attorneys (both plaintiff and defense), and business owners will benefit greatly from the ten volume guide. It is also the perfect resource for insurance educators, trainers, and students whose role requires an understanding of insurance law.

The Eight volumes include:


Mold ClaimsMold Claims Volume One: Understanding insurance claims and litigation concerning mold, fungi, and bacteria infestations.

This series of books is the latest addition to Barry Zalma’s insurance claims series of books and articles that will form the most thorough, up-to-date, expert-authored insurance claims guide available today.

Written by nationally-renowned insurance coverage expert Barry Zalma, a semi-retired insurance coverage attorney, consultant, expert witness and blogger, Mold Claims provides in-depth explanations, analysis, examples, and detailed discussion of:

•Mold;
•FungMold Claims Volume Two: Understanding insurance claims and litigation concerning mold, fungi, and bacteria infestations.i;
•Bacteria;

•Mold, fungi and bacteria claims; and
•Mold, Fungi, Bacteria litigation.

Thorough, yet practical, this series of books form the ideal gMold Claims Volume Three: Understanding insurance claims and litigation concerning mold, fungi, and bacteria infestations.uide for any professional who works in or frequently interacts with the insurance industry or is involved in litigation. Claims professionals, risk managers, producers, underwriters, attorneys (both plaintiff and defense), and business owners will benefit greatly from the mold volumes. It is also the perfect resource for insurance educators, trainers, and students whose role requires an understanding of insurance law as it relates to mold, fungi and bacterial infestations.

TMold Claims Volume Four: Understanding insurance claims and litigation concerning mold, fungi, and bacteria infestations.he author has provided checklists, sample procedures, form letters, tables and information and references to model statutes, state statutes, administrative regulations, and requirements of insurance departments nationwide.


Time to Rescind the Tort of Bad Faith

Insurance and the Law of Unintended Consequences Paperback 

Insurance is, and always will be, a business of the utmost good faith. Time to Rescind the Tort of Bad Faith: Insurance and the Law of Unintended ConsequencesAll parties to the insurance contract agree, in good faith and fair dealing, to do nothing to deprive the other the benefits of the contract. Insurance is, and always be, nothing more than a contract.

The insurer makes a promise to the insured that if a contingent or unknown loss occurs caused by a peril or risk insured against and not excluded, to pay the insured indemnity as promised by the contract up to the limits provided.

The insured promises to truthfully disclose the risks of loss faced by the insured, property owned by the insured, the business of the insured and/or the insured’s liability exposures. The insured also promises to honestly present a claim, prove the claim, and cooperate with the insurer in its investigation. If the parties to the insurance contract deal with each other fairly and in good faith the policy remains viable, claims are paid promptly and to the satisfaction of the insurer and the insured.

Only if a true tort occurs can the insured waive the contract action and sue in tort. Breach of contract, by centuries old tradition, is not a tort and cannot and should not be considered a tort. The Tort of Bad Faith has served its purpose and is now causing more problems than it solves. It is time the courts and state legislatures rescind the tort and return to common law contract damages.


“Insurance Fraud & Weapons to Defeat Insurance Fraud”

In Two Volumes

Product DetailsInsurance fraud continually takes more money each year than it did the last from the insurance buying public. No one knows the actual amount with any certainty because most attempts at insurance fraud succeed. Estimates of the extent of insurance fraud in the United States range from $87 billion to more than $300 billion every year.

Insurers and government backed pseudo-insurers can only estimate the extent they lose to fraudulent claims. Lack of sufficient investigation and prosecution of insurance criminals is endemic. Most insurance fraud criminals are not detected. Those that are detected do

so because they became greedy, sloppy and unprofessional so that the attempted fraud becomes so obvious it cannot be ignored.

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

When insurers and governments put on a serious effort to reduce the amount of insurance fraud the number of claims presented to insurers and the pseudo-government-based or funded insurers drops logarithmically. Since the appointment of Attorney General Sessions, the effort to stop insurance fraud against Medicare and Medicaid has increased.

Insurance Fraud & Weapons to Defeat Fraud - Volume Two: A Manual for Those Working to Defeat Insurance Fraud by [Zalma, Barry]This book contains appellate decisions regarding insurance fraud from federal and state appellate courts across the country and full text of many insurance fraud statutes.

It is available as both a legal research tool and a product to assist insurers, insurance company personnel, independent insurance adjusters, special investigation unit investigators, state fraud investigators and insurance lawyers to become effective persons involved in the attempt to defeat or reduce the effect of insurance fraud.

Volume One available as a Kindle book and a paperback.

Volume Two Available as a Kindle book and a paperback

Read and buy these and other insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/

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Government is not a Client of a Bank Accused of Violating False Claims Act

No Coverage for Qui Tam Action for Defrauding HUD

It is not nice to defraud the U.S. Government. When caught defrauding the government as a result of a whistleblower – a Qui Tam action – the fraud perpetrator will try to obtain insurance coverage to pay for its debts to the government. However, since insurance, by definition can only respond to a contingent or unknown event, and since fraud is never contingent or unknown, obtaining coverage for such a loss is difficult.

In Iberiabank Corporation v. Illinois Union Insurance Company and Travelers Casualty and Surety Company of America, Civil Action No. 18-1090 SECTION M (4), United States District Court Eastern District of Louisiana (February 13, 2019) the bank asked the USDC to provide it insurance benefits to reimburse a multi-million dollar settlement it reached with the government to resolve a False Claim Action suit.

BACKGROUND

This case involves a dispute regarding coverage under bankers’ professional liability insurance policies. For the policy period of September 30, 2015 to September 30, 2016, Iberiabank purchased primary and excess bankers’ professional liability insurance from Chubb and Travelers, respectively.

The Federal Housing Administration (“FHA”), an agency within the Department of Housing and Urban Development (“HUD”), insures approved lenders against losses on mortgage loans made to buyers of single-family homes. The Direct Endorsement program (“DE program”) is one such mortgage insurance program operated by the FHA. Under the DE program, HUD relies on approved mortgage lenders to apply HUD’s requirements in determining whether a borrower represents an acceptable credit risk for HUD to certify loans for FHA mortgage insurance without prior review or approval by HUD. Iberiabank has participated in the DE program since 1984.

On July 8, 2015, a former Iberiabank employee and a then-current Iberiabank employee (collectively “Relators”) brought a whistleblower qui tam action on behalf of the United States government against Iberiabank alleging violations of the False Claims Act (“FCA”) arising from Iberiabank’s participation in the DE program. In the Iberiabank qui tam action, the Relators alleged that Iberiabank submitted false and fraudulent claims and records to HUD regarding mortgage loans Iberiabank made to its borrower clients. Specifically, the Relators alleged that Iberiabank violated the FCA by:

  1. falsely certifying to the FHA that loans submitted to be insured complied with HUD regulations and therefore were eligible for FHA insurance;
  2. making false and fraudulent claims for approval in connection with its acquisition of FHA insurance for mortgages and fraudulently causing the government to pay insurance claims on these mortgages;
  3. paying mortgage underwriters commissions in violation of HUD regulations; and
  4. refusing to self-report known defective and fraudulent loans.

On April 18, 2017, representatives of the Department of Justice (“DOJ”) met with Iberiabank representatives and informed them of Iberiabank’s potential liability under the FCA. The DOJ made a settlement demand to Iberiabank asking it to pay $17,263,982 to settle the government’s claims against it in connection with its participation in the DE program. Iberiabank offered to settle with the government for $11,692,149; the government accepted the offer, and the Relators consented.

Iberiabank made a claim on the Chubb and Travelers bankers’ professional liability insurance policies for the DOJ investigation and settlement. Chubb and Travelers both denied the claim. As a result, Iberiabank sued Chubb and Travelers alleging that they breached the insurance contracts by failing to pay the claim.

Chubb and Travelers moved to dismiss arguing that Iberiabank cannot state breach-of-contract claims against them because the DOJ settlement is not a loss covered by the policies. Travelers also argues that Iberiabank cannot state a claim against it as an excess insurer because the primary insurer has not yet paid the limits of its policy.

Insurance Policy Interpretation under Louisiana Law

Under Louisiana law, an insurance policy, like any other contract, is construed according to the general rules of contract interpretation set forth in the Louisiana Civil Code. Ambiguous provisions and equivocal provisions seeking to narrow an insurer’s obligation, on the other hand, are strictly construed against the insurer and in favor of coverage. However, the strict construction principle applies only if the ambiguous policy provision is susceptible of more than one reasonable interpretation.

Coverage of the Settlement

In determining whether insurance coverage exists here for the settlement of the Iberiabank qui tam action, the Court refered to the bankers’ professional liability policy (the Chubb policy), the complaint in the qui tam action, and all facts known to the insurer.

The Chubb bankers’ professional liability insurance policy provides coverage for “Professional Services” to mean “services performed by or on behalf of the Company [Iberiabank] for a policyholder or third party client of the Company.”

The insurers argued that the government was not a customer or client of Iberiabank for whom Iberiabank performed professional services as defined in the policy. The government did not seek advice from Iberiabank or pay it for services in issuing mortgages. Instead, Iberiabank’s clients were the borrowers to whom it issued mortgages, as a part of the underwriting that constituted its professional services, and Iberiabank was a client of the government (not vice versa) from whom Iberiabank obtained the mortgage insurance.

The policy clearly states that it provides coverage for a loss incurred by Iberiabank on a claim made against it by a third-party client of Iberiabank for wrongful acts in performing professional services pursuant to a written contract. Because the term “client” is not defined in the policy, it is construed according to its plain and ordinary meaning.

It is clear that the policy covers “wrongful acts” performed in rendering “professional services” to a “client” and that the wronged “client” must be the one to make the claim. In the Iberiabank qui tam action, Iberiabank was accused of committing wrongful acts against HUD by submitting false and fraudulent information to the agency in connection with the bank’s participation in the DE program. The structure of the transactions shows that HUD was not Iberiabank’s client. Thus, Iberiabank’s clients, its borrowers, did not make the False Claims Act claims that were settled and for which Iberiabank now seeks coverage.

Iberiabank Did Not Provide “Professional Services” to the Government

Every federal circuit faced with the issue has held that coverage under a professional liability insurance policy is not triggered by claims asserted under the False Claims Act because such claims are not predicated on the insured’s professional services that are covered by such a policy.

The FCA imposes liability on persons or corporations who knowingly submit false claims to the government in return for a government-provided benefit – whether reimbursement or something else. The FCA injury does not “result from” Horizon West’s failure to provide professional services, but from its submission of allegedly fraudulent bills and its alleged misrepresentation of care standards.

The crux of the FCA claims in the qui tam action against Iberiabank is that the bank promised to provide a certain level of underwriting in connection with its participation in the DE program; and the bank certified to the government that it provided the agreed level of underwriting when it had not, resulting in the issuance of FHA insurance on ineligible loans, the payment of insurance claims on ineligible loans, and the payment of mortgage commissions in violation of HUD regulations.

The Chubb policy does not extend coverage to the settlement of the FCA qui tam suit against Iberiabank. While Iberiabank’s underwriting services provided to its borrowers might well fall within the “professional services” contemplated by the Chubb policy, the false certifications the bank made to the government – the crux of the FCA qui tam action – do not.

Iberiabank could not sustain a breach-of-contract claims against Chubb and Travelers and its claims were dismissed.

ZALMA OPINION

There should never be a way for damages because of an insured’s fraudulent activities to be risks of loss insured by a liability policy. The conduct of Iberiabank were alleged by HUD and the whistleblowers to be fraudulent, the bank paid $11,692,149 to resolve the suit and then tried to pass their alleged fraud on to their insurers. Since the government is not a client of the bank there was no potential for coverage. If the government had sufficient evidence to obtain a settlement for more than $11 million I only question why the bank was not prosecuted for what appeared to be criminal conduct.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Ten Volumes Comprising A Comprehensive Group of Materials on Property & Casualty Insurance Claims

Insurance claims professional and expert witness Kevin Quinley said about the following ten volumes: “Zalma’s series of books is a terrific blend of both the legal underpinnings and the practical implications for the claim practitioner.

Insurance Maven Bill Willson said: “Zalma On Insurance Claims” is a tour de force, an indispensable tool that should be a part of every claims training program in America and in the library of every claims professional for quick and frequent reference. This comprehensive guide belongs in the library of every insurance defense AND policyholder law firm. It should be a part of every claims training program of carriers, independent adjusting firms, and public adjusters. Many of these parts should be part of the training or reference programs for non-claims personnel, from agents to underwriters to risk managers.”

Zalma on Insurance Claims Volume 101

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Books for Every Insurance Claims Professional 

Information Needed by Every Insurance Lawyer, Claims Person or Claims Management Perssonel

For those who serve the insurance industry and its policyholders (whether as lawyers, adjusters, claims management, or public insurance adjusters) to survive and perform their duties appropriately it is absolutely necessary that they maintain insurance professionalism. A staff of insurance claims professionals who can read, understand and apply the terms and conditions of the insurance policy, treat all insureds and claimants fairly and in good faith, and make sure the insurer keeps all of the promises made by the insurance policy is essential. In addition the insurance claim professional must be able to recognize and defeat attempts at insurance fraud while dealing ethically and in good faith with all insureds and claimants with whom the insurance professional comes in contact.

The following books are a small taste of the insurance and insurance claims books written by Barry Zalma and available on amazon.com and at http://zalma.com/blog/insurance-claims-library/ A copy in each insurance law office, in each insurance company and independent adjuster claims office and in the offices of every public insurance adjusting firm, will provide essential resources and will go a long way to create a staff of insurance claims professionals.

THE HOMEOWNERS INSURANCE POLICY

HOW TO BUY AN APPROPRIATE HOMEOWNERS POLICY AND SUCCESSFULLY MAKE A CLAIM TO THE INSURER

Insurance is a contract between a person seeking insurance and an insurer. It is obtained by making contact with the insurer as a prospective insured seeking insurance. The homeowners policy is a specialized policy of insurance that protects the homeowner from certain risks of loss to the real and personal property at the home, the exposure the insured faces for injury to a household employee, and the exposure the insured faces to liability for bodily injury or property damage caused to third parties. The book explains how to buy a homeowners policy and how to collect on any claim made to the homeowners insurer.

Paperback Book    Kindle Book

Ten Volumes Comprising A Comprehensive Group of Materials on Property & Casualty Insurance Claims

Insurance claims professional and expert witness Kevin Quinley said about the following ten volumes: “Zalma’s series of books is a terrific blend of both the legal underpinnings and the practical implications for the claim practitioner.

Insurance Maven Bill Willson said: “Zalma On Insurance Claims” is a tour de force, an indispensable tool that should be a part of every claims training program in America and in the library of every claims professional for quick and frequent reference. This comprehensive guide belongs in the library of every insurance defense AND policyholder law firm. It should be a part of every claims training program of carriers, independent adjusting firms, and public adjusters. Many of these parts should be part of the training or reference programs for non-claims personnel, from agents to underwriters to risk managers.”

Zalma on Insurance Claims Volume 101

A Comprehensive Review of the law and Practicalities of Property, Casualty and Liability Insurance Claims

This series of ten books is the latest addition to Barry Zalma’s insurance claims series of books and articles that will form the most thorough, up-to-date, expert-authored insurance claims guide available today.

Written by nationally-renowned insurance coverage expert Barry Zalma, a semi-retired insurance coverage attorney, consultant, expert witness and blogger, Zalma on Insurance Claims provides in-depth explanations, analysis, examples, and detailed discussion of:

  • Property insurance claims;
  • Third-party liability claims;
  • Casualty claims; and
  • Insurance Fraud

Thorough, yet practical, this series of books form the ideal guide for any professional who works in or frequently interacts with the insurance industry. Claims professionals, risk managers, producers, underwriters, attorneys (both plaintiff and defense), and business owners will benefit greatly from the ten volume guide. It is also the perfect resource for insurance educators, trainers, and students whose role requires an understanding of insurance law. As you read through the various volumes of Zalma on Insurance Claims, you will find comprehensive—yet comprehensible—coverage of key topics, including:

  • What is Insurance?
  • The History of Insurance
  • The covenant of good faith and fair dealing.
  • The tort of Bad faith
  • Conditions,
  • Warranties,
  • Exclusions
  • Declaring a policy void
  • Duties of insured and insurer
  • Evaluation and settlement
  • Identifying insurance fraud
  • Investigation
  • Kinds of insurance policies
  • Other insurance clauses
  • Preparing a case for trial
  • Processing a claim
  • Responses to fraud
  • Subrogation and salvage
  • Underwriting and
  • Many more property and casualty insurance matters.

Zalma on Insurance Claims Part 102

This, the second part of Zalma on Insurance Claims and includes materials concerning:

  • Other Insurance Clauses
  • Underwriting
  • Conditions, Warranties and Exclusions

Zalma on Insurance Claims Part 103

This is part 103 of Zalma on Insurance Claims and will deal with:

1.Duties of the Insured and the Insurer
2.Declaring a Policy Void
3.Processing a Claim

When read with Part 101 and Part 102, this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 104

This, the fourth volume of Zalma on Insurance Claims and includes materials concerning:

  1. Investigation of First Party Property Claims
  2. Rescission
  3. The Mortgage Clause
  4. Fortuity & Other Issues
  5. Determine the Amount of the Loss
  6. The Claim File

When read with Part 101, Part 102, and Part 103, this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 105

This, the fifth volume of Zalma on Insurance Claims and includes materials concerning:

  1. Investigation – Liability
  2. Claims Made and Reported Policies
  3. The Notice Prejudice Rule.
  4. Types of Torts
  5. The Liability Claims File
  6. Discovery of the Insurance Claims File
  7. Tests for Determining Duty to Defend
  8. Appendices – forms for the claims person

When read with Insurance 101, Insurance 102, Insurance 103 and 104, this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 106

This is the sixth part of “Zalma on Insurance Claims” and will deal with:

Chapter 1 Property Insurance & the Tort of Bad Faith
Chapter 2 Grounds for Finding Bad Faith
Chapter 3 Avoiding Charges of Bad Faith
Chapter 4. Punitive Damages
Chapter 5.Bad Faith & Liability Insurance
Chapter 6.Defenses to the Tort of Bad Faith
Appendix 1 – California Civil Code Section 3294

When read with Part 101, Part 102, and Part 103, Part 104 and Part 105 this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 107:

This is the seventh part of “Zalma on Insurance Claims” and will deal with:

1.Evaluation and Settlement – Property
2.Evaluation and Settlement – Liability
3.Subrogation
4.Salvage

When read with Part 101, Part 102, Part 103, Part 104, Part 105 and Part 106 this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 108

This, the eighth part of Zalma on Insurance Claims, includes materials concerning:

1.Preparing a case for trial
2.Interviewing Techniques
3.The art of the Interview
4.Interview General Principles
5.The Interviewer
6.Preparing for the Interview
7.Beginning the Interview
8.Control Of The Interview
9.Dealing with Witness Types
10.Approaches the Work
11.Dealing with the Nervous Person
12.Bluffs
13.The Mutability Of Memory
14.The Examination Under Oath

When read with Part 101, Part 102, Part 103, Part 104, Part 105, Part 106 and Part 107 this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 109 

This, the ninth part of Zalma on Insurance Claims, includes materials concerning:

•Identifying Insurance Fraud
•Professional Conspiracies
•Multiple Types of Insurance Fraud
•How to Join the Fraud Fight
•Case Studies of Successful Fraud Investigations
•Checklist 1 – Types of Insurance Fraud
•Checklist 2 – Training Adjusters
•Checklist 3 – Red Flags of Fraud – Property Insurance
•Checklist 4 – Red Flags of Fraud – Liability Insurance
•Appendix A – Commonly Used Medical Acronyms and Abbreviations
•Appendix B – Glossary of Medical Terms

When read with Part 101, Part 102, Part 103, Part 104, Part 105, Part 106, Part 107 and Part 108 this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 110

This, the tenth part of Zalma on Insurance Claims, includes materials concerning:

•Responses to Fraud
•Grounds for Rescission.
•The Fight Against Fraud
•Checklist 1—Responses to Fraud
•Checklist 2 – The Fight Against Fraud

When read with Part 101, Part 102, Part 103, Part 104, Part 105, Part 106, Part 107, Part 108 and Part 109 this volume works to take the reader to a complete understanding of insurance and insurance claims.

Read about these and more insurance law books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/

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No Fault Claim Must Cooperate with Investigation

Can’t Penalize Insurer for Requesting Medical Evidence

No fault insurance programs, like that in force in Kentucky, provides little or no ability of an insurer to deal with a potentially fraudulent claim and even punishes the insurer if it demands cooperation from the insured. Sometimes, a court will protect an insurer from excessive penalties.

In Grange Property & Casualty Insurance Company v. Tomira Chappel, No. 2017-CA-001418-MR, Commonwealth of Kentucky Court of Appeals (February 15, 2019) Grange Property & Casualty Insurance Company, appeals from an order granting Tomira Chappell’s motion for summary judgment and ordering Grange to pay her 18% interest on medical expenses that it delayed payment of, as well as Chappell’s attorney fees.

FACTS

Chappell was involved in an automobile accident wherein her vehicle was rear-ended. The police report documented that both vehicles sustained “very minor” damage and both drivers reported “no injuries.” Photographs show that neither vehicle received more than scratches in the collision. At the time of the accident, Chappell was insured by a policy issued by Grange that provided, among other things, $10,000 in personal injury protection (“PIP”) coverage. Chappell subsequently sought chiropractic treatment for injuries she alleged she sustained in the accident. She thereafter made a claim for benefits under the Kentucky Motor Vehicle Reparations Act (“MVRA”) which entitles a claimant to receive basic reparation benefits (BRB) for motor vehicle accident related losses.

Grange advised Chappell’s counsel that her bills were pending until it completed its investigation as to whether her medical treatment was reasonable, medically necessary, and related to the automobile accident. Grange then arranged to take Chappell’s recorded statement. Chappell failed to show for the appointment and her counsel thereafter withdrew from representation citing “non-compliance.”

Later, Grange responded to Chappell’s new lawyer, again requesting a recorded statement from Chappell regarding the facts of the accident, injuries incurred, treatment obtained, and whether or not your client was working within the scope of his/her employment at the time of the accident. Grange also advised that there was a question regarding the causal relationship between the injury claimed by Chappel and the impact from the other vehicle.

Rather than cooperate, Chappell sued Grange before submitting to a recorded statement claiming that Grange’s refusal to pay the reparations benefits was a breach of the insurance contract and a violation of statutes for which she was entitled to 18% interest, as well as attorney fees. During discovery, Grange obtained sufficient information regarding Chappell’s claim to resolve the outstanding bills with her medical provider.

The statutes provide for recovery of attorneys fees and 18% interest only when the insurance obligor’s denial or delay of payment was “without reasonable foundation.”

The trial court entered an order granting summary judgment in favor of Chappell and awarding her 18% interest and attorney’s fees.

ANALYSIS

The trial court must view the record in a light most favorable to the party opposing the motion for summary judgment and all doubts are to be resolved in his favor. Summary judgment is proper only where the movant shows that the adverse party could not prevail under any circumstances.

Grange argued that summary judgment was inappropriate because there exists a material issue of fact as to whether it delayed payment was without reasonable foundation as is required by the statute.

Kentucky’s MVRA requires automobile insurers in Kentucky to provide coverage for reasonable and necessary medical expenses arising from a covered automobile accident without regard to fault. These insurance benefits are referred to as basic reparations benefits (“BRB”) but are also commonly referred to as personal injury protection (“PIP”) benefits or “no-fault” benefits.

Kentucky’s MVRA is required to be liberally interpreted in favor of the accident victim. The no-fault legislation was intended to provide a remedy to automobile accident victims that could not be impinged upon by any means whatsoever. This was the victim’s reward for sacrificing traditional tort rights.

Kentucky’s MVRA requires an insurer to pay a medical expense within 30 days of receiving reasonable proof of the fact and amount of loss realized. Significantly, there is a presumption that any medical bill submitted is reasonable. Recovery of interest of 18% and recovery of attorney’s fees are predicated on two things – the benefits must be overdue because of failure to pay within 30 days after receipt of reasonable proof of the fact and amount of loss realized, and the delay or denial must have been without reasonable foundation.

In State Farm Mutual Automobile Insurance Company v. Adams, 526 S.W.3d 63 (Ky. 2017), the Kentucky Supreme Court addressed a similar factual scenario. Following an automobile accident, three passengers in one of the vehicles made claims with State Farm seeking PIP and uninsured motorists’ benefits. After making initial payments, State Farm perceived inconsistencies between the claimants’ versions as to what had happened on the day in question, as well as inconsistencies between their statements and the police report. Two of the claimants refused to submit to questioning and State Farm declined payment of additional benefits to both. The two claimants then filed suit against State Farm, which filed a counterclaim seeking a declaratory judgment that it did not have to provide coverage because the claimants failed to cooperate with its investigation.

The Kentucky Supreme Court reversed the Court of Appeals decision. The Supreme Court noted that a claimant is only entitled to receive BRB for motor vehicle accident-related losses and that reparation obligors are entitled to conduct a reasonable investigation to determine if such relationship exists.

Because the MVRA specifically provides for the sharing of documentation regarding a claimant’s medical condition and methods for resolving disputes regarding failure to provide that documentation as well as for resolving disputes regarding a claimant’s mental or physical condition, a reparation obligor must avail itself of the provisions of the MVRA to resolve such issues. The Supreme Court further observed that the MVRA does not specifically provide for the disclosure of information regarding the underlying motor vehicle accident.

The Court of Appeal concluded that the trial court erred in concluding that Grange was required to seek a court order to discover any of the information it sought. The Court of Appeal concluded that Chappell’s refusal to cooperate was relevant to whether Grange unreasonably delayed payment.

It also found that an insurance obligor is entitled to assert a legal defense to a claim and that such defense, even if eventually unsuccessful, does not trigger the penalties of 18% interest and attorney’s fees, as it does not necessarily amount to an unreasonable delay. The assertion of a legitimate and bona fide defense by the reparation obligor constitutes reasonable foundation for delay under the statute. This is not changed by the fact that the case is ultimately decided against the obligor. As a result the trial court decision was reversed.

ZALMA OPINION

No fault insurance was designed to defeat the perceived lack of good faith of insurers by giving them almost no defense to a potentially fraudulent claim. Grange was compelled to pay Chappell’s chiropractic bills although the evidence indicates the accident probably had no relationship to the medical treatment. Only after discovery did Grange conclude it needed to pay her bills and then had insult added to the injury by the trial court adding the penalties. The injury was resolved because the Court of Appeal had been reversed in a similar case by the Supreme Court.

 


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Ten Volumes Comprising A Comprehensive Group of Materials on Property & Casualty Insurance Claims

Insurance claims professional and expert witness Kevin Quinley said about the following ten volumes: “Zalma’s series of books is a terrific blend of both the legal underpinnings and the practical implications for the claim practitioner.

Insurance Maven Bill Willson said: “Zalma On Insurance Claims” is a tour de force, an indispensable tool that should be a part of every claims training program in America and in the library of every claims professional for quick and frequent reference. This comprehensive guide belongs in the library of every insurance defense AND policyholder law firm. It should be a part of every claims training program of carriers, independent adjusting firms, and public adjusters. Many of these parts should be part of the training or reference programs for non-claims personnel, from agents to underwriters to risk managers.”

Zalma on Insurance Claims Volume 101

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Lies About Criminal Convictions on Application Voids Coverage

Policy Void From Its Inception – No Duty to Defend

The implied covenant of good faith and fair dealing applies equally on the person insured as it applies to an insurer. When a person applies for insurance and misrepresents material facts the covenant is breached and the insurer has the right to seek a court order that the policy is rescinded from its inception and that any duty to defend on the policy does not exist since rescission establishes that the policy never existed.

In Philadelphia Indemnity Insurance Company v. William Asperi, Civil Action No. 18-cv-02372-CMA-NRN, United States District Court for the District of Colorado (February 13, 2019) Philadelphia Indemnity Insurance Company’s asked the USDC for Default Judgment as Against William Asperi and an declaration that its policy was void from its inception.

BACKGROUND

On November 14, 2014, Defendant completed a Professional Liability Insurance Application and submitted it to Plaintiff. As part of the application, Plaintiff made a number of false representations, including that he had never been convicted of a misdemeanor or a felony. Based on the information in the application, Plaintiff issued an Allied Healthcare Providers Professional and Supplemental Liability Insurance Policy (the “Policy”), which was effective from November 14, 2014, to November 14, 2015. The terms of the Policy provides: “We will pay on your behalf those sums that you become legally obligated to pay as damages because of a professional incident that takes place in the coverage territory and occurs during the policy period. The professional incident must result from the practice of the profession shown in the Declarations.”

FACTS

On June 20, 2017, Tabatha Goodrich filed a complaint against Defendant in Denver County District Court, case number 2017CV32255 (the “underlying lawsuit”). In the underlying lawsuit, Ms. Goodrich indicated that beginning in January 2015, she had been treated by Defendant, who claimed to be a “Registered Psychotherapist in the State of Colorado [and] held himself out as having knowledge and skill in the field of neuropsychology and psychology.”  She also alleged that Defendant’s registration was based on Defendant’s submission of “false, misleading, incomplete and fraudulent information in his Application for Registration with the Colorado State Board.” Specifically, he lied to the Board, with regard to his physical and mental condition and his criminal record.  Defendant was suspended from the practice of psychotherapy on September 22, 2015.

Defendant’s fraudulently obtained credentials allowed him to provide mental health services to Ms. Goodrich.  Defendant spent substantial time psychoanalyzing Ms. Goodrich, “telling her that he was trying to find out what was wrong with her,” and he eventually diagnosed Ms. Goodrich with Borderline Personality Disorder. Ms. Goodrich subsequently became pregnant as a result of her relationship with Defendant. Defendant’s conduct gave rise to the underlying lawsuit in which Ms. Goodrich sued Defendant for multiple claims including negligence.

Plaintiff was provided notice of the underlying lawsuit on August 11, 2017, and Plaintiff is currently providing a defense to Defendant pursuant to a reservation of rights. Plaintiff sued seeking declaratory relief with respect to the validity of the Policy and argues that the Policy should be declared void because Defendant made material misrepresentations in the application on which the Policy was based.

DEFENDANT HAS DEFAULTED

Plaintiff served Defendant via personal service on November 16, 2018. Defendant has nevertheless failed to answer the Complaint or otherwise respond, and the time to do so has long since expired.

DECLARATORY JUDGMENT

Under Colorado law, when a policyholder misrepresents material facts to obtain insurance, the provisions obtained under those circumstances are void from their inception. Materiality is established if a false or concealed fact materially affected either the risk accepted or the hazard insured against such that the insurer would not have included the coverage provision had it been truthfully informed.

In the instant case, Plaintiff has shown that it may void the Policy. Defendant explicitly represented that he had never been convicted of a misdemeanor or a felony. Moreover, by executing the agreement, Defendant acknowledged that he understood “that incorrect information could void the insurance coverage.”

In fact, Defendant had a lengthy criminal record that spanned more than two decades, and included more than two dozen criminal cases and a felony conviction before he applied for insurance with Plaintiff in 2014. Therefore, Defendant misrepresented facts in his insurance application.

Plaintiff’s decision to issue coverage was made in reliance on Defendant’s misrepresentations and Plaintiff would not have issued the coverage if it had truthful information. Therefore, the Policy was void ab initio, which is to say void from its inception.

Where, as here, a contract is void ab initio, the party penalized has no rights thereunder. Accordingly, this void Policy does not impose on Plaintiff any duty to defend or indemnify Defendant for any claim related to the underlying law suit. Therefore, Plaintiff does not owe Defendant a duty of defense or indemnification with respect to the underlying lawsuit.

ZALMA OPINION

Insurers are compelled, by the covenant of good faith and fair dealing, to believe the facts represented by a prospective insured at the time of the application since the cost of investigating each fact represented would be prohibitive and since almost 100% of prospective insureds are honest and forthright. Misrepresentations are usually discovered when a claim is presented. In this case it was obvious since the underlying suit alleged that the insured lied to the licensing board with lies that were also material to the insurer.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Ten Volumes Comprising A Comprehensive Group of Materials on Property & Casualty Insurance Claims

Insurance claims professional and expert witness Kevin Quinley said about the following ten volumes: “Zalma’s series of books is a terrific blend of both the legal underpinnings and the practical implications for the claim practitioner.

Insurance Maven Bill Willson said: “Zalma On Insurance Claims” is a tour de force, an indispensable tool that should be a part of every claims training program in America and in the library of every claims professional for quick and frequent reference. This comprehensive guide belongs in the library of every insurance defense AND policyholder law firm. It should be a part of every claims training program of carriers, independent adjusting firms, and public adjusters. Many of these parts should be part of the training or reference programs for non-claims personnel, from agents to underwriters to risk managers.”

Zalma on Insurance Claims Volume 101

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Information Needed by Every Lawyer, Claims Person or Insurance Management

Books for Every Insurance Claims Professional 

For those who serve the insurance industry and its policyholders (whether as lawyers, adjusters, claims management, public insurance adjusters) to survive and perform their duties appropriately it is absolutely necessary that they maintain insurance professionalism. A staff of insurance claims professionals who can read, understand and apply the terms and conditions of the insurance policy, treat all insureds and claimants fairly and in good faith, and make sure the insurer keeps all of the promises made by the insurance policy. In addition the insurance claim professional must be able to recognize and defeat attempts at insurance fraud while dealing ethically and in good faith with all insureds and claimants with whom the insurance professional comes in contact.

The following books are a small taste of the insurance and insurance claims books written by Barry Zalma and available on amazon.com and at http://zalma.com/blog/insurance-claims-library/  A copy in each insurance law office, in each insurance company and independent adjuster claims office and in the offices of every public insurance adjusting firm, will provide an essential resource and will go a long way to create a staff of insurance claims professionals.

Barry Zalma, Esq., CFE has created a library of insurance claims books and other materials to make it possible to become an insurance claims professional. He has, over the last 51 years dedicated his life to insurance, insurance claims, insurance coverage and the need to defeat insurance fraud.

Books from the American Bar Association

The Commercial Property Insurance Policy Deskbook

How to Acquire a Commercial Property Policy and Present and Collect a First-Party Property Insurance Claim

By Barry Zalma

The Commercial Property Insurance Policy Deskbook is a comprehensive resource on acquiring a commercial property policy and presenting and collecting first-party property insurance claims. The book looks at the fundamentals of insurance and a wealth of topics including rules of construction of a policy of commercial property insurance, the commercial first party property insurance policy, different types of property losses, conditions and limitations,specific and blanket coverages, mortgage clauses, the need for a prompt notice of claim, the commercial property claim, adjusting the commercial property loss, the sworn statement in proof of loss, the adjustment of the commercial property loss, subrogation and salvage, and common law bad faith.

Also included are five appendixes of forms, letters, and other documents.

ABOUT THE AUTHOR

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith, and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and has worked more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Mr. Zalma’s books are available as Kindle books or paperbacks at Amazon .com and from other publishers, reached at http://zalma.com/zalma-books/ Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/bzalma on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma.

Available from the American Bar Association at: http://shop.americanbar.org/eBus/Default.aspx?TabID=251&productId=214624; or  orders@americanbar.org, or 800-285-2221.

The Insurance Fraud Deskbook

Author: Barry Zalma

Sponsor(s):  Tort Trial and Insurance Practice Section, Publisher(s):   ABA Book Publishing

ISBN: 978-1-62722-676-9
Product Code: 5190506
2014, 638 pages, 7 x 10

Product DetailsThis book is written for individuals who are focused on the effort to reduce expensive and pervasive occurrences of insurance fraud. Lawyers who represent insurers, claims personnel, prosecutors and their investigators can all benefit from this exhaustive resource.

The Insurance Fraud Deskbook is a valuable resource for those who are engaged in the effort to reduce expensive and pervasive occurrences of insurance fraud. It explains the elements of the crime and the tort to claims personnel, and it provides information for lawyers who represent insurers, so they can adequately advise their clients. Prosecutors and their investigators can use this book to determine what is required to prove the crime and win their case.

The full text of decisions from courts of appeal and supreme courts across the country are provided so the reader can understand what happens after the investigation is completed and can apply that information to undertake their own thorough investigations. It allows claims personnel and their lawyers to understand what errors would cause a defeat or a not-guilty verdict.

The effort to reduce insurance fraud requires the assistance of both civil and criminal courts. The Insurance Fraud Deskbook can help the prudent fraud investigator, insurance adjuster, insurance attorney, insurance Special Investigation Unit, and insurance company management to attain the information needed to deal with state investigators and prosecutors.

Available from the American Bar Association at: http://shop.americanbar.org/eBus/Default.aspx?TabID=251&productId=214624; or  orders@americanbar.org, or 800-285-2221.

Diminution in Value Damages: How to Determine the Proper Measure of Damage to Real and Personal Property

ISBN: 978-1-63425-295-8
Product Code: 5190524
2015, 235 pages, 7 x 10, Paperback

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.


Co-Author(s):Property Investigation Checklists: Uncovering Insurance Fraud, 12th Michael H Boyer  &  Barry Zalma

Property Investigation Checklists: Uncovering Insurance Fraud provides detailed guidance and practical information on the four primary areas of any investigation of suspicious claims:
• Recognizing suspicious claims
• Proper investigation procedures
• Analysis of laws concerning fraudulent personal and real property claims
• Evaluating and settling claims.
The book also examines recent developments in areas such as arson investigation procedures, bad faith, and extracontractual damages. The appendix includes the NAIC Insurance Information and Privacy Protection Model Act.

Books from ClaimSchool, Inc.

“Insurance Law”

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

Insurance Law is the most comprehensive, and yet practical, insurance law authority available today.

This book is ideal for any professional who works in or frequently interacts with the insurance industry. Claims professionals, risk managers, producers, underwriters, attorneys (both plaintiff and defense), business owners, and students will benefit greatly from this all-inclusive reference. It is also the perfect resource for educators and trainers whose role requires an understanding of insurance law.

In addition to case law, the author has provided countless citations to relevant statutory, regulatory, and judicial sources which are guaranteed to kickstart your research.

Price Reduced from $196- Send Check for $75.00 to ClaimSchool, Inc., 4441 Sepulveda Blvd., Culver City, Ca 90230 and the book will be mailed to you.

Mold Claims Coverage Guide

Today, mold claims are common, but they continue to grow in complexity, involving not only property damage but bodily injury as well. Mold-related lawsuits have dramatically increased over the past few years, and tProduct Detailshe numbers continue to rise. Coverage requirements—and related issues—can be complicated and confusing.  This resource will remove the complexity and allow the insurer, insured, property owner or developer and their counsel to deal with mold quickly and effectively and, if possible, avoid unnecessary litigation.

Price Reduced – Send Check for $50.00 to ClaimSchool, Inc., 4441 Sepulveda Blvd., Culver City, Ca 90230 and the book will be mailed to you.

Construction Defects Coverage Guide

This insightful and practical two volume resource was envisioned anProduct Detailsd written by nationally renowned expert Barry Zalma, and it thoroughly explains how to identify construction defects and how to insure, investigate, prosecute, and defend cases that result from construction defect claims.

Construction Defects Coverage Guide was designed to help 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.

Price Reduced from $196 – Send Check for $75.00 to ClaimSchool, Inc., 4441 Sepulveda Blvd., Culver City, Ca 90230 and the book will be mailed to you.

Insurance Claims: A Comprehensive Guide

Insurance contracts and clauses are specific in nature—but the manner in which insurance claims are pursued and resolved can be remarkably different.  Mistakes in handling a claim can undermine the outcome—and ultimate value—of the claim itself.

Insurance Claims: A Product DetailsComprehensive Guide is the one resource that enables insurance professionals, producers, underwriters, attorneys, risk managers, and business owners to successfully handle insurance claims from start to finish—employing proven, practical techniques and best practices every step of the way.

Price Reduced from $196 – Send Check for $75.00 to ClaimSchool, Inc., 4441 Sepulveda Blvd., Culver City, Ca 90230 and the book will be mailed to you.

ZALMA ON INSURANCE:  A BLOG

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After more than 50 years acting as a claims person and insurance coverage lawyer I enjoy reading court decisions concerning insurance. The idea of this blog is to find new cases that are interesting to me and then write a summary. Some of the cases reviewed will be important. Some may be of first impression. Others will be totally unimportant. All will be interesting.

Zalma on Insurance, a Blog is published five days a week.

Read about these and other insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/

Posted in Zalma on Insurance | Comments Off on Information Needed by Every Lawyer, Claims Person or Insurance Management

Mutually Repugnant Clauses Cannot Be Enforced

Other Insurance Clauses that are Mutually Repugnant Require Pro Rata Sharing

Plaintiff Vermont Mutual Insurance Company sued Defendant Cincinnati Underwriters Specialty Insurance Company seeking a declaratory judgment as to which party is contractually obligated to provide primary coverage for a claim against Marcie and Scott Hawkins (the “Insureds”) arising out of the death of a foster child at their East Montpelier, Vermont home. The USDC, faced with two insurers litigating against each other had a difficult time since they cannot apply the unwritten rule that the insurance company is always wrong. Both couldn’t be wrong – or could they?

In Vermont Mutual Insurance Company v. Cincinnati Specialty Underwriters Insurance Company, Case No. 2:18-cv-76, United States District Court for the District of Vermont (February 13, 2019) plaintiff asked the court for a declaratory judgment compelling the parties to pay a pro rata share of the claim based on their policy limits. Defendant sought a declaratory judgment declaring Plaintiff’s insurance policy primary coverage and its own policy excess coverage. On this basis, Defendant seeks a further declaration that it has no duty to defend the Insureds.

THE UNDISPUTED FACTS

Plaintiff issued Homeowners Insurance Policy #HO17011903 (the “VMIC Policy”) effective from July 31, 2016 through July 31, 2017 to the Insureds. The VMIC Policy contains an excess insurance clause entitled “Other Insurance – Coverage E – Personal Liability” which states: “This insurance is excess over other valid and collectible insurance except insurance written specifically to cover as excess over the limits of liability that apply in this policy.”

Defendant issued “specialty lines” insurance policy #CSU0078301 (the “Cincinnati Policy”) to the State of Vermont’s Department for Children and Families, Family Services Division, (“DCF”) effective from December 31, 2016 through December 31, 2017. The Cincinnati Policy identified the named insured as “Licensed Foster Parents of Department for Children & Families, Family Services Division.” The Cincinnati Policy also contains an excess insurance clause entitled “Other Insurance” that provides: “If all of the other insurance permits contribution by equal shares, we will follow this method also. Under this approach, each insurer contributes equal amounts until it has paid its applicable limit of insurance or none of the loss remains, whichever comes first.”

A child placed by DCF in the Insureds’ care died while at their home. Counsel for the child’s mother and sister placed Plaintiff and Defendant on notice of a claim arising from the death of the minor foster child.

CONCLUSIONS OF LAW AND ANALYSIS

Whether the VMIC Policy and the Cincinnati Policy Contain Mutually Repugnant Excess Insurance Clauses

It was undisputed that both the VMIC Policy and the Cincinnati Policy contain coincidental excess clauses. At oral argument, the parties also agreed that neither policy was a “true excess policy” requiring the policyholder to obtain primary insurance. Plaintiff contends that because the VMIC Policy and the Cincinnati Policy contain substantially similar coincidental excess insurance clauses, these clauses are mutually repugnant. On this basis, Plaintiff argues that it is entitled to judgment as a matter of law granting a declaratory judgment obligating Plaintiff and Defendant to pay a pro rata share of the claim based on their respective policy limits.

Defendant argues that the excess insurance clauses set forth in the two policies are not mutually repugnant and that under the terms of the policies Plaintiff is the primary insurer and Defendant is the excess insurer.

Courts must interpret insurance contracts according to their terms and the intent of the parties as expressed by the policies’ language. Other insurance clauses are used by insurers to limit an insurer’s liability where other insurance may cover the same loss.

Because Defendant’s policy does not disclaim any and all liability if other insurance is available, but instead provides that it will be “excess” of any other valid policy, it is properly characterized as an excess clause. Because Plaintiff’s policy contains fundamentally equivalent language, it requires the same conclusion. As the excess clauses in the two policies cannot be reconciled, they are “mutually repugnant” and thus the result is that neither is effective and each insurer shares primary coverage. Under Vermont law, a pro rata contribution by both insurers is therefore required.

For the reasons stated above, the court granted Plaintiff’s motion for summary judgment and denied Defendant’s cross-motion for summary judgment. The court hereby declares that Plaintiff and Defendant are each obligated to pay a pro rata share based on their policy limits of the claims arising from the death of the minor child in the Insureds’ care.

ZALMA OPINION

Other insurance clauses are seldom effective to prevent two “primary” insurers to convince a court that one is primary and the other is excess when they have similar other insurance clauses. This case provides a Solomon-like decision by requiring each insurer to share in the defense and indemnity of the insured foster parents in equally until both limits are exhausted. The court, therefore, concluded that both insurers were wrong and they needed to share equally the cost of defending and indemnifying the insured.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

THE HOMEOWNERS INSURANCE POLICY

HOW TO BUY AN APPROPRIATE HOMEOWNERS POLICY AND SUCCESSFULLY MAKE A CLAIM TO THE INSURER

Read about this and other insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/

Insurance is a contract between a person seeking insurance and an insurer. It is obtained by making contact with the insurer as a prospective insured seeking insurance. The homeowners policy is a specialized policy of insurance that protects the homeowner from certain risks of loss to the real and personal property at the home, the exposure the insured faces for injury to a household employee, and the exposure the insured faces to liability for bodily injury or property damage caused to third parties. The book explains how to buy a homeowners policy and how to collect on any claim made to the homeowners insurer.

Paperback Book    Kindle Book

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A Copy in Each Law Office is Needed

Resources for the Claims Professional

For the insurance industry to survive and profit it is absolutely necessary that it maintains a staff of insurance claims professionals who can read, understand and apply the terms and conditions of the insurance policy, treat all insureds and claimants fairly and in good faith, and keep all of the promises made by the insurance policy. In addition the insurance claim professional must be able to recognize and defeat attempts at insurance fraud while dealing ethically and in good faith with all insureds and claimants with whom the insurance professional comes in contact.

The following books are a small taste of the insurance and insurance claims books written by Barry Zalma and available on amazon.com and http://zalma.com/blog/insurance-claims-library/ A copy in each claims office will provide an essential resource for each member of a claims staff and will go a long way to create a staff of insurance claims professionals.

Barry Zalma, Esq., CFE has created a library of insurance claims books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals. Over the last 51 years he has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud.

New Books from Full Court Press

Full Court Press continues to publish expert secondary content. This time it’s a new collection of insurance law treatises from consultant, expert witness, arbitrator, and mediator Barry Zalma.

Barry Zalma practiced law in California for more than 44 years as an insurance coverage and claims-handling lawyer, and has spent more than 51 years in the insurance business. Full Court Press welcomes his deskbooks as the first published under our Full Court Press imprint. Four titles are available in ePub and MOBI format, as well as on the Fastcase legal research platform.

Zalma on Property and Casualty Insurance:

The earnings of almost every civil lawyer in the United States are funded by the insurance industry. Insurance can best be described as the mother’s milk of the law profession. The civil defense lawyer is paid by an insurer for each hour he or she works. The civil plaintiffs’ lawyer is usually paid by taking a percentage of any judgment entered in favor of the plaintiff, which judgment is usually paid by the defendant’s insurer.

In almost every situation in which a civil lawyer practices law the funds for that work come, either directly or indirectly, from insurance. Consequently, lawyers must use their wits and energies to avoid or to pursue litigation to the benefit of the client. Both sides understand that an insurer will eventually pay one or both sides in the dispute. Insurance is important to every civil dispute and even some that fall within the criminal courts.

Every lawyer retained to prosecute or defend a civil suit should begin the representation with a serious effort to find insurance coverage for the benefit of the client or the defendant the client is suing. Without that knowledge, the lawyer will find he or she is litigating with duct tape firmly self-placed across his or her mouth.

Insurance Law Deskbook:Zalma

Learn the insurance basics that are essential to every civil practitioner.

CalifCal Lawornia Insurance Law Deskbook:

California has long led the way when it comes to insurance jurisprudence in the United States, and few know more about California insurance law than Barry Zalma.

Insurance Bad Faith and Punitive Damages Deskbook:

Understand the relationship between insurance, the tort of bad faith, and why punitive damages are awarded to punish insurers.

An annual subscription to secondary content on the Fastcase BadFaithplatform includes new editions and updates published by the author as they are rolled out, so you can rest assured that your research is up to date. Go to fastcase.com for more detail and how to use the material on-line as part of your legal or insurance research or as stand-alone e-books.

All available at fastcase.com.

 

Read about these and other insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/


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Court Required to Give Deferential Review to ERISA Claim

No Policy in Effect No Coverage

Employer provided life insurance under the Employee Retirement Income Security Act (“ERISA”) usually requires that the employee actually work for the employer before the employer provided life insurance benefit comes into effect. If you die before it comes into effect there is no policy and no coverage regardless of the hardship the lack of coverage places on the beneficiary.

In Pamela M. Morgan-Lapp v. Reliance Standard Life Insurance Co., Civil Action No. 18-1085, United States District Court for the Eastern District of Pennsylvania (February 14, 2019) Ms. Morgan-Lapp attempted to have the court compel coverage after the insurer refused to provide benefits because the deceased employee did not actually work before he died.

RELEVANT FACTUAL HISTORY

The Parties filed cross-motions for summary judgment requesting that the Court decide whether Plaintiff’s husband, Mr. Lapp, was covered by his employer-provided, ERISA-governed group life insurance policy (“Policy”) when he died. If Mr. Lapp was covered at the time he died, then Plaintiff is entitled to life insurance proceeds as the beneficiary of the Policy.

Thomas Jefferson University Hires Mr. Lapp; The Group Life Insurance Policy

On May 15, 2017, Thomas Jefferson University (“TJU”) hired Mr. Lapp. As a TJU employee, Mr. Lapp could receive certain employee benefits, including life insurance under a group life insurance policy issued by Defendant Reliance Standard Life Insurance Company.

Mr. Lapp’s Last Day In The Office; His Hospitalization and Death

On May 28, 2017, less than two weeks after TJU hired Mr. Lapp, Mr. Lapp fell ill and was admitted to Kennedy Hospital in New Jersey. Mr. Lapp remained at Kennedy Hospital and Thomas Jefferson Hospital until he died on July 13, 2017.

Plaintiff Mrs. Lapp Submits A Claim For Death Benefits Under The Policy; Defendant Denies Benefits; Defendant Affirms Decision On Appeal

After Mr. Lapp’s death, Plaintiff Mrs. Lapp filed a claim seeking death benefits under the Policy. Defendant denied Plaintiff’s claim. In denying Plaintiff’s claim, Defendant reasoned that Mr. Lapp was not covered by the Policy when he died on July 13, 2017 because he was not “actively at work” at any time after May 26, 2017, when Mr. Lapp was hospitalized.  As Mr. Lapp was not performing the material duties of his job in the place where and manner in which it would normally be performed, Mr. Lapp was not actively at work when he died and, therefore, was not a member of an eligible class.

DISCUSSION

In short, the Court concluded that while Mr. Lapp may have met the eligibility requirements under the Policy, the Policy did not take effect on June 1, 2017 because Mr. Lapp was not actively at work that day or any day thereafter.

Mr. Lapp Was Not Actively At Work On The Day His Coverage Was To Begin; Therefore, Mr. Lapp’s Coverage Did Not Take Effect

Setting aside the question of whether Mr. Lapp’s failure to report to the office at any time after his hospitalization on May 28, 2017 rendered Mr. Lapp not “actively at work” in connection with his eligibility for benefits, the Court concluded that the Policy did not take effect for Mr. Lapp at any time before his death because not only was he not “actively at work” — that is, actually performing work on the day his coverage was scheduled to begin in the place and manner that such work normally is performed — Mr. Lapp also never returned to active work at any time before he died on July 13, 2017.

TJU hired Mr. Lapp on May 15, 2017 as an eligible Class 3 full-time TJU employee. As Mr. Lapp was hired in the middle of May, his coverage under the Policy was set to begin on June 1, 2017, as the “first of the month . . . next following the date the person becomes eligible” for benefits.

On June 1, 2017, the day on which his life insurance coverage was scheduled to begin, Mr. Lapp was unable to report for work, having been hospitalized just days earlier. Even the evidence extrinsic to the administrative record submitted by Plaintiff supports the conclusion that Mr. Lapp was not actively at work on June 1, 2017.

The Court rejected Plaintiff’s argument to the extent that it suggests that the term “actively at work” as defined in the Policy and as interpreted by Defendant — an ERISA plan administrator — is unreasonable because it is vague and ambiguous.

Having addressed the merits of Plaintiff’s ERISA claims by affirming Defendant’s administrative decision as reasonable, the Court had no choice but to dismiss Plaintiff’s claim for breach of contract because the claim was preempted.

It is well-established that in cases alleging the improper denial of benefits under an ERISA plan, claims such as “breach of contract” and “breach of the implied covenant of good faith and fair dealing” that “relate to the improper denial of benefits . . . . under the plan” are “expressly preempted.” Menkes v. Prudential Ins. Co. of Am., 762 F.3d 285, 296 (3d Cir. 2014).

In view of the deferential standard of review that the Court is obligated to apply in this ERISA case, the Court concluded — though not without distress over the unfortunate results — that Defendant’s interpretation of the Policy is reasonable and, therefore, Defendant’s decision to deny Plaintiff any life insurance benefits for the death of her husband is affirmed.

ZALMA OPINION

Federal Courts apply ERISA type policy disputes, as they apply disputes over National Flood Insurance Program policies, strictly. Unless the plan administrator violates the terms and conditions of the policy wording or acts improperly, the decision of the administrator will be upheld. In this case the court applied the clear language of the policy that Mr. Lapp was hospitalized and died before the policy vested and therefore his beneficiary is entitled, unfortunately, to recover nothing.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

THE HOMEOWNERS INSURANCE POLICY

HOW TO BUY AN APPROPRIATE HOMEOWNERS POLICY AND SUCCESSFULLY MAKE A CLAIM TO THE INSURER

Read about this and other insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/

Insurance is a contract between a person seeking insurance and an insurer. It is obtained by making contact with the insurer as a prospective insured seeking insurance. The homeowners policy is a specialized policy of insurance that protects the homeowner from certain risks of loss to the real and personal property at the home, the exposure the insured faces for injury to a household employee, and the exposure the insured faces to liability for bodily injury or property damage caused to third parties. The book explains how to buy a homeowners policy and how to collect on any claim made to the homeowners insurer.

Paperback Book    Kindle Book

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Needed in Every Claims Office

Resources for the Claims Professional

For the insurance industry to survive and profit it is absolutely necessary that it maintains a staff of insurance claims professionals who can read, understand and apply the terms and conditions of the insurance policy, treat all insureds and claimants fairly and in good faith, and keep all of the promises made by the insurance policy. In addition the insurance claim professional must be able to recognize and defeat attempts at insurance fraud while dealing ethically and in good faith with all insureds and claimants with whom the insurance professional comes in contact.

The following books are a small taste of the insurance and insurance claims books written by Barry Zalma and available on amazon.com and http://zalma.com/blog/insurance-claims-library/ A copy in each claims office and intranet will provide an essential resource for each member of a claims staff and will go a long way to create a staff of insurance claims professionals.

Barry Zalma, Esq., CFE has created a library of insurance claims books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals. Over the last 51 years he has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud.

“Random Thoughts on Insurance”

Product DetailsAfter more than 50 years acting as a claims person and insurance coverage lawyer I enjoy reading court decisions concerning insurance. The idea of this blog is to find new cases that are interesting to me and then write a summary. Some of the cases reviewed will be important. Some may be of first impression. Others will be totally unimportant. All will be interesting.

The case digests and articles from 2010 to the present, in the six volumes summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.


Fictionalized True Insurance Crime Books

“HEADS I WIN, TAILS YOU LOSE”

Product DetailsA collection of columns originally published in the magazines “Insurance Journal,” “Insurance Week,” and “The John Cooke Insurance Fraud Report” insurance trade publications serving the insurance community in the United States that have been updated and revised.

The title, “Heads I Win, Tails You Lose” is meant to describe insurance fraud as it works in the Unites States. It means that whenever a person succeeds in perpetrating an insurance fraud everyone who buys insurance is the loser.

Available as a Kindle Book.

Available as a paperback.

“Candy and Abel: Murder for Insurance Money

How a young lawyer and wise old investigator defeated an attempt at life insurance fraud.

Product DetailsAvailable as a Kindle Book.

Available as a paperback.

 

 

“Murder And Insurance Fraud Don’t Mix”

My name is Marion Orpheus Montague. My friends, and some enemies, call me “MOM.” It is not a designation of my ability to nurture my clients. I have never been, nor will I Product Detailsever be, maternal. I accept the play on my initials because it causes adversaries to underestimate me.

I am 66-years-old. My grayish blond hair is thin and my full beard is a bit scraggly. My face is round and often tinged with red. My nose is full, my eyes green and my cheeks bulge out to the sides trying to emulate the belly that precedes every other part of my body as I walk. People see me and do not believe that I am a private investigator. Seeing me they often think that I am on leave from my winter work as a Macy’s Santa Claus.

I like being underestimated. It makes my job as an investigator easier.

See how a fake robbery at a jewelry store led to murder and prison.

Available as a Kindle book.

Available as a paperback

“Murder & Old Lace: Solving Murders Performed for Insurance Money”

 

Product Details

When the women first met – 20 years ago at a Santa Monica health spa – Magogassasanian appeared taken with Gogolivesky. The women moved Alvarado into an apartment, then started applying for life insurance policies on him. They jointly took out four policies, each as 50% beneficiaries in addition to the individual policies they bought from my client. Gogolivesky also took out three more policies on her own while Magogassasanian only took out a single individual policy on Earnest. The two women pocketed nearly $6,000,000 in insurance benefits on Alvarado alone and $4,000,000 in insurance benefits on Earnest. They also recovered a total of $5,000,000 on the other six old men they killed.

Available as a Kindle book.

Available as a paperback.

“Arson for Profit: How an Attempt to use Arson & Fraud to Fund Terrorism Failed”

This story is based on a real case involving a member of Russian/Armenian organized crime, real insurers, investigators, lawyers, fire fighters, and insurance brokers. The names, descriptions, and identities of the people involved have been changed to protect both the guilty and the innocent. The report to the US Senate, after this case was decided by the California Courts, reveal that the threats made on MOM and lawyer Hazan were real and they are lucky that the threats were never fulfilled. The person identified in this story as Levonyan was described to the US Senate as the leader of a Russian/Armenian organized crime ring. It is important to take seriously threats from criminals. Insurance fraud and arson-for-profit are not victimless crimes. They are crimes of violence that cost everyone who lives in the U.S.]

Available as paperback.

Available as a Kindle Book.

“M.O.M. & The Taipei Fraud: How an Experienced Adjuster Defeated a $7 Million Fake Burglary Claim”

 

The problem is that each option the insurers have available have a down side and Feng is represented by a lawyer who has proved highly successful in suing insurers and collecting large compensatory and punitive damage awards. Since the claims exceed $6 million dollars, he can expect, applying the law set out by the U.S. Supreme Court in State Farm Mut. Automobile Ins. Co. v. Campbell and BMW of North America, Inc. v. Gore as much as $60 million in punitive damages. So I need to explain to the insurers that they face an exposure anywhere from their policy limits to ten times the policy limit. They need the courage of their convictions to reject this major claim.

Available as a paperback.

Available as a Kindle book.

Read about these and other insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/

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Broker has no Obligation to Advise on Limits Without Special Relationship

Bad Faith Requires More than a Failure to Pay What the Insured Wants

People who select policy limits and insurance coverages based upon the premium offered then, after a loss, sue to get the coverages they should have bought rather than the coverage they actually bought.

In Purvi, LLC v. National Fire & Marine Insurance Company And KK Insurance Agency, Civil Action No. 18-822, United States District Court For The Eastern District Of Pennsylvania (February 12, 2019) following a fire that damaged Plaintiff Purvi LLC’s motel, Plaintiff filed suit against Defendants National Fire & Marine Insurance Company (“National”) and KK Insurance Agency (“KK”). Plaintiff alleged that National (1) breached its contract with Plaintiff, and (2) acted in bad faith toward Plaintiff. Separately, Plaintiff alleged that KK negligently failed to procure proper and adequate insurance coverage for Plaintiff.

BACKGROUND

Panwala is Plaintiff’s managing partner, is responsible for doing “almost everything to run the business,” and “was the sole and final decision maker with regard to insurance purchases for Purvi.”

In 2010 Plaintiff first used KK as its insurance broker. Each year, Panwala would receive insurance applications from KK, which she understood “would serve as the basis of the insurance.” She returned to KK the application for insurance for the 2016-17 policy term, just as she had done in years past. KK then provided Plaintiff several insurances quotes with varying policy limits for the 2016-17 term. Plaintiff selected the quote provided by National.

The Policy included the following language with respect to loss coverage: In the event of loss or damage, National would “not pay more for loss or damage on a replacement cost basis than the least of” (1) the applicable insurance limit; (2) the cost to replace with property “[o]f comparable material and quality” and “used for the same purpose;” or, (3) “[t]he amount actually spent that is necessary to repair or replace the lost or damaged property.”

In May 2016, while covered by National’s Policy, a fire damaged the motel. National ultimately paid Plaintiff on various claims related to the fire, including as relevant here $1,583,818.56 on the building claim and $4,160.09 on the office contents claim. Plaintiff, however, claims losses far beyond those sums in that it contracted with various firms to repair the motel for a cost that exceeded the Policy’s $2,250,000 building limit.

ANALYSIS

Claim Against National

Under Pennsylvania law, an insured can recover damages from an insurer in an action arising under an insurance policy if the court finds that the insurer has acted in bad faith toward the insured. To prevail in a bad faith insurance claim a plaintiff must demonstrate:

  • that the insurer did not have a reasonable basis for denying benefits under the policy and
  • that the insurer knew or recklessly disregarded its lack of a reasonable basis in denying the claim.

Pennsylvania courts interpret the term “bad faith” in the insurance context to mean:

“[A]ny frivolous or unfounded refusal to pay proceeds of a policy; it is not necessary that such refusal be fraudulent. For purposes of an action against an insurer for failure to pay a claim, such conduct imports a dishonest purpose and means a breach of a known duty (i.e., good faith and fair dealing), through some motive of self-interest or ill will; mere negligence or bad judgment is not bad faith.” [Terletsky v. Prudential Prop. & Cas. Ins. Co., 649 A.2d 680, 688 (Pa. Super. 1994) (quoting Black’s Law Dictionary 139 (6th ed. 1990)).]

Plaintiff’s argument is that, in essence, the Policy required National to compensate Plaintiff for any claimed losses covered by the Policy, and that because the Policy is so clear, a failure to do so could only be in bad faith. Plaintiff contends that because the fire loss was undisputedly covered by the policy, National’s failure to fully compensate Plaintiff demonstrates bad faith.

The Policy allows room for disagreement between the parties as to whether the invoices Plaintiff submitted were more than the “cost to replace” with property of “comparable material and quality” — and as a result National’s failure to fully compensate the claimed loss is not evidence of bad faith. Indeed, National points to estimates completed by third-party consultants and contractors that indicate the building could have been repaired and replaced for significantly less than the amount Plaintiff claimed.

Claim Against KK

Plaintiff argues that KK — Plaintiff’s insurance broker — negligently failed to procure adequate insurance for Plaintiff because Plaintiff’s losses in the fire exceeded the coverage limits on its Policy.

In Pennsylvania, insurance brokers are primarily in the business of acting as an intermediary between insurance companies and clients. Although brokers owe their clients a duty of good faith and fair dealing they have no obligation to advise the insured as to the type or amount of available coverage, or to obtain total/full coverage, or explain the policy and its coverages and/or exclusions, absent a special relationship.

KK also contends that the Policy was not “materially defective,” arguing that although Pennsylvania courts have not offered a practical definition of the term, by its plain meaning a materially defective policy would be faulty in some important way. KK notes that, at worst, the Policy covered nearly the entire cost of replacing a building that was completely destroyed, which should not rise to the level of materially defective.

Plaintiff has failed to raise a genuine dispute of material fact as to whether KK violated any duty — whether a duty to advise, or otherwise — and, thus, KK’s motion was granted.

ZALMA OPINION

Just because the insured did not get what it wanted is not evidence of bad faith. Paying a contractor is not evidence of replacing a structure with material of like kind and quality, it is nothing more than evidence of a payment. It is the obligation of the insured to prove to the insurer that it has complied with the policy. It failed in that duty. Similarly, the plaintiff failed to prove a special relationship with the broker or that the broker breached a non-existent duty to advise appropriate coverage. In fact the insured admitted that she “was the sole and final decision maker with regard to insurance purchases” not the broker, KK.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

THE HOMEOWNERS INSURANCE POLICY

HOW TO BUY AN APPROPRIATE HOMEOWNERS POLICY AND SUCCESSFULLY MAKE A CLAIM TO THE INSURER

Read about this and other insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/

Insurance is a contract between a person seeking insurance and an insurer. It is obtained by making contact with the insurer as a prospective insured seeking insurance. The homeowners policy is a specialized policy of insurance that protects the homeowner from certain risks of loss to the real and personal property at the home, the exposure the insured faces for injury to a household employee, and the exposure the insured faces to liability for bodily injury or property damage caused to third parties. The book explains how to buy a homeowners policy and how to collect on any claim made to the homeowners insurer.

Paperback Book    Kindle Book

 

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How to Train Up Adjusters to Claims Professionals

Do You Want a Staff of Insurance Claims Professionals?

For the insurance industry to survive and profit it is absolutely necessary that it maintains a staff of insurance claims professionals who can read, understand and apply the terms and conditions of the insurance policy, treat all insureds and claimants fairly and in good faith, and keep all of the promises made by the insurance policy. In addition the insurance claim professional must be able to recognize and defeat attempts at insurance fraud while dealing ethically and in good faith with all insureds and claimants with whom the insurance professional comes in contact.

The following books are a small taste of the insurance and insurance claims books written by Barry Zalma and available on amazon.com and http://zalma.com/blog/insurance-claims-library/ A copy for each member of a claims staff or each claims office will go a long way to create a staff of insurance claims professionals.

Barry Zalma, Esq., CFE has created a library of insurance claims books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals. Over the last 51 years he has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud.

California Fair Claims Settlement Practices Regulations

A Guide to Insureds, Public Insurance Adjusters, and Lawyers to Properly Investigate and Adjust Insurance Claims

This book was designed to assist insurance personnel who do business in the state of California. It will assist all insurance claims personnel, claims professionals, independent insurance adjusters, special fraud investigators, private investigators who work for the insurance industry, the management in the industry, the attorneys who serve the industry, public insurance adjusters, policyholders and counsel for policyholders working with insurers doing business in California. All insurers doing business in California must comply with the requirements of the Regulations or face the ire of, and attempts at financial punishment from, the CDOI. That punishment is now questionable and limited because some courageous insurers fought the CDOI and succeeded before an administrative law judge who limited the right to punish. Regardless of difficulties in assessing punishment the state of California requires all who are involved in the claims process — even if only tangentially — to be trained with regard claims handling in compliance with the Regulations and attest to completion of such training under oath. To avoid the annual training the claims person can submit a sworn document that avers that he or she has read and understood the Regulations. Reviewing this book and the Regulations set forth below should be sufficient to comply with the training requirements of the Regulations. It is necessary that insurance personnel who are engaged in any way in the presentation, processing, or negotiation of insurance claims in California be familiar with the Regulations. Counsel for insurers and policyholders should also be familiar with the Regulations since they set a minimum standard for claims handling in the state.

Available as a Kindle book.

Available as a paperback.

California SIU Regulations

The State of California Imposes Control on the Investigation of Insurance Fraud

California SIU Regulations: The State of California Imposes Control on the Investigation of Insurance FraudCalifornia SIU Regulations is designed to assist California insurance claims personnel, claims professionals, independent insurance adjusters, special fraud investigators, private investigators who work for the insurance industry, the management in the industry, the attorneys who serve the industry, and all integral anti-fraud personnel working with California admitted insurers to comply with the requirements of California SIU Claims Regulations.

The state of California, by statute, requires all admitted insurers to maintain a Special Investigative Unit (an “SIU”) that complies with the requirements set forth in the Special Investigative Unit Regulations (the “SIU Regulations”) and train all integral anti-fraud personnel to recognize indicators of insurance fraud.

Available as a Kindle Book.

Available as a paperback.

Ethics for the Insurance Professional

Methods for Insurers and their Personnel to Act with the Utmost Good FaithProduct Details

Ethics is a process of systematically applying, using, defending and recommending concepts of right and wrong behavior. Ethical behavior is required of both parties to a contract of insurance for the system to work. Ethics is the essence of insurance. Ethical behavior is required of both parties to a contract of insurance for the system to work. If any party to the insurance contract acts unethically the ability of insurance to work effectively and profitably will fail. Ethics is the essence of insurance. Since insurance was first created it has been a business of utmost good faith. As a result, the insured and the insurer are expected to treat each other ethically.

Available as a paperback.

Rescission of Insurance

Product DetailsRescission is an equitable remedy as ancient as the common law of Britain. When the United States was conceived in 1776 the founders were concerned with protecting their rights under British common law. They adopted it as the law of the new United States of America modified only by the limitations placed on the central government by the U.S. Constitution approved in 1789. The viability and ability to enforce contracts was recognized as essential to commerce. Courts of law were charged with enforcing legitimate contracts. Courts of equity were charged with protecting contracting parties from mistake, fraud, misrepresentation and concealment since enforcing a contract based on mistake, fraud, misrepresentation or concealment would not be fair. The common law developed rules that courts could follow to refuse to enforce the terms of a contract that was entered into because of mutual mistake of material fact, a unilateral mistake of material fact, the breach of warranty (a presumptively material promise to do or not do something), a material concealment, or a material misrepresentation. The remedy – called rescission – created a method to apply fairness to the insurance contract and allow an insurer to void a contract and allowed courts to refuse to enforce such a contract entered into by misrepresentation or concealment of material facts.

Available as a paperback.

Available as a Kindle book.

“The Insurance Examination Under Oath”

Product DetailsThe insurance Examination Under Oath (“EUO”) is a formal type of interview authorized by an insurance contract. It is taken under the authority provided by a condition of the insurance contract that compels the insured to appear and give sworn testimony on the demand of the insurer or find his, her or it claim rejected for breach of a condition. A notary and a certified shorthand reporter are always present to give the oath to the person interviewed and record the entire conversation.

Available as a Kindle book.

Available as a paperback.

Read about these and more insurance claims books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/

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Zalma’s Insurance Fraud Letter – February 15, 2019

Zalma’s Insurance Fraud Letter

 

Clear Insurance Policy Language Must Be Applied

Clear Insurance Policy Language Must Be Applied
The Need to be Able to Read and Understand the Wording of an Insurance Policy

Every Special Investigation Unit (SIU) investigator and claims adjuster, when dealing with a potentially fraudulent claim, must understand how to read, understand and apply the terms and conditions of the policy of insurance. Sometimes it is difficult and the insurer will seek the advice and assistance of a court in what is known as a declaratory judgment or declaratory relief action.

For example, an insurer sought a declaratory judgment that it was required to indemnify its insured for no more than 40 percent of a state court judgment because it had covered its insured for no more than 40 percent of the time in which the state court plaintiff was exposed to lead poisoning. The district court agreed that the insurer was responsible for only a portion of the judgment, notwithstanding the fact that its insured was held jointly and severally liable for the entire judgment in the underlying state proceeding. The state plaintiff (and the defendant in the federal declaratory action) appealed. The Fourth Circuit Court of Appeal was called upon to determine, in Pennsylvania National Mutual v. Lakia C. Roberts, 668 F.3d 106 (4th Cir. 02/03/2012) whether an insurance company can be held liable for periods of risk it never contracted to cover.

From her birth on January 17, 1991 until 1998, Lakia Roberts resided at a house on 1740 East Preston Street in Baltimore, Maryland. In September 1992, when she was 20 months old, Roberts was diagnosed with lead poisoning. A test indicated that she had an elevated blood lead level of 28 micrograms of lead per deciliter of blood (“mcg/dL”). She continued to exhibit elevated blood lead levels until August 1995.

On February 4, 2005, Roberts filed a complaint in Maryland state court against Attsgood Realty Company alleging that the injuries she sustained from the lead poisoning were the result of its negligent management of the East Preston Street property. Attsgood had owned, leased, and managed the property from Roberts’s birth until November 1, 1993, when it had sold the property to Gordon Gondrezick.

Attsgood then requested defense and indemnification from Pennsylvania National Mutual Casualty Insurance Company (“Penn National”) under the terms of its insurance contract. In 1992, Penn National had issued a liability insurance policy to Attsgood covering the period from January 13, 1992 to January 13, 1993. The policy was later renewed to extend coverage to January 13, 1994. According to the terms of the contract, Penn National promised Attsgood that it would provide liability insurance for “Premises You Own, Rent or Occupy,” including 1740 East Preston Street.

From Roberts’s birth in January 1991 until the coverage began in January 1992, Attsgood lacked liability insurance for the East Preston Street property. Under the contract, Penn National promised to “pay those sums that [Attsgood] becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies” as well as “defend any ‘suit’ seeking those damages.” This guarantee was in turn qualified by a provision stating that “this insurance applies to ‘bodily injury’ and ‘property damage’ only if . . . the ‘bodily injury’ or ‘property damage’ occurs during the policy period.”

The contract also made clear that Attsgood’s “rights and duties under this policy may not be transferred without [Penn National’s] written consent except in the case of death of an individual [n]amed [i]nsured.” In accordance with the policy, Penn National agreed to defend Attsgood subject to a reservation of its rights. Attsgood then filed a third party complaint against Gondrezick seeking contribution and indemnification in the event that Roberts prevailed. After Gondrezick failed to appear or otherwise defend himself, the Maryland court entered an order of default against him in favor of Attsgood.

Following discovery, the state case went to trial on May 4, 2009 on counts of negligence and unfair trade practices. To prove the property owners’ liability, Roberts’s mother and her expert witness provided testimony indicating that Roberts had been exposed to lead poisoning at the East Preston Street property since her infancy and that this exposure had resulted in permanent brain damage. Attsgood in turn challenged the contention that the presence of lead at its property was the actual source of Roberts’s injuries.

The jury returned a verdict in favor of Roberts for $2,000,000, which was reduced to $850,000 following an application of Maryland’s non-economic damages cap. It was undisputed that Attsgood and Gondrezick are jointly and severally liable for this amount.

Penn National filed a declaratory judgment action against Attsgood and Roberts in federal court on the basis of diversity jurisdiction. The insurer sought a determination that it was obligated to indemnify Attsgood for no more than 40 percent of the total judgment, or $340,000. Penn National filed a motion for default judgment against Attsgood after it failed to respond. Penn National also filed a motion for summary judgment against Roberts arguing that it should be liable for only 22 months of the entire period of Roberts’s exposure to the risk of lead poisoning. It calculated that while it had insured Attsgood for the 24 months from January 1992 to January 1994, Attsgood had sold the property to Gondrezick in November 1993, thereby resulting in a total of 22 months of coverage.

Roberts saw the matter differently. She argued that Penn National was responsible for paying the entire $850,000 judgment in light of the joint and several liability of its insured. She also contended that even if the district court decided to allocate liability, “virtually all” of her “lead exposure occurred during Penn National’s two policy periods,” beginning with the discovery of her elevated blood lead level in September 1992.

The district court largely agreed with Penn National. The trial court relied on “continuous trigger” cases such as that Maryland courts determine an insurer’s liability through a “pro-rata allocation by ‘time on the risk.'” The district court concluded that Roberts had been exposed to lead poisoning from January 17, 1991 to August 1995, for a total of 55 full months. The district court calculated Penn National’s period of coverage. It concluded that Penn National provided insurance to Attsgood from January 13, 1992 to January 13, 1994, for a total of 24 months. The court rejected Penn National’s argument that its period of coverage should be reduced to 22 months because Attsgood had sold the property to Gondrezick on November 1, 1993, concluding that while “under the terms of the insurance contract Penn National may be correct, the record is entirely barren of facts showing that Penn National’s coverage in fact was terminated.”

In its allocation of liability, the district court used the 24 months of coverage as the numerator and the 55 months of exposure to lead poisoning as the denominator to conclude that Penn National was responsible for 24/55, or approximately 43.6 percent, of the judgment. It then found that “Penn National is liable to Roberts for $370,600 (43.6% x $850,000), but no more.”

The plain language of the insurance contract limited coverage. Penn National did not contract to “pay those sums that [Attsgood] becomes legally obligated to pay as damages because of ‘bodily injury'” without qualification. Rather, it contracted to “pay those sums that [Attsgood] becomes legally obligated to pay as damages because of ‘bodily injury’ . . . to which this insurance applies.” The policy also clearly limited the insurer’s obligation to damage that “occurs during the policy period.”

The remainder of the article is available and can be Read along with the rest of ZIFL here.  

The Current Issue Contains the Following  

  • Clear Insurance Policy Language Must Be Applied
  • The Great Jewel Theft
  • Three Squares and a Cot – Arson Doesn’t Pay
  • Good News From the Coalition Against Insurance Fraud
  • Health Insurance Fraud Convictions
  • Other Insurance Fraud Convictions
  • Conviction for Auto Fraud Affirmed
  • The Insurance Claims Library

Books

Go to Zalma Books – Paperbacks and Kindle Books  by Barry Zalma at the Insurance Claims Library

The most recent posts to the daily blog, Zalma on Insurance, one of Feedspots top 50 insurance law blogs are available at http://zalma.com/blog.  Check in every day for a case summary at http://zalma.com/blog 

 

I have completed a video blog called Zalma’s Insurance 101 that consists of 1022 three to four minute videos starting with “What is Insurance” and moving forward to insurance fraud investigations explaining the basics of insurance and insurance claims handling in a painless fashion that can be viewed every morning with the first cup of coffee at  Zalma’s Insurance 101.

If you start at Volume 1 at the bottom of the blog’s first page and view one or two videos a day you will have approximately 12 to 24 hours of training a year until you get to the last video.

The videoblog is adapted from my book, Insurance Claims: A Comprehensive Guide available at the Zalma Insurance Claims Library


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Do You Want a Staff of Insurance Claims Professionals?

How to Train Up Adjusters to Claims Professionals

For the insurance industry to survive and profit it is absolutely necessary that it maintains a staff of insurance claims professionals who can read, understand and apply the terms and conditions of the insurance policy, treat all insureds and claimants fairly and in good faith, and keep all of the promises made by the insurance policy. In addition the insurance claim professional must be able to recognize and defeat attempts at insurance fraud while dealing ethically and in good faith with all insureds and claimants with whom the insurance professional comes in contact.

The following books are a small taste of the insurance and insurance claims books written by Barry Zalma and available on amazon.com and http://zalma.com/blog/insurance-claims-library/

Barry Zalma, Esq., CFE has created a library of insurance claims books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals. Over the last 51 years he has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud.

“Insurance Fraud & Weapons to Defeat Insurance Fraud”

In Two Volumes

Product DetailsInsurance fraud continually takes more money each year than it did the last from the insurance buying public. No one knows the actual amount with any certainty because most attempts at insurance fraud succeed. Estimates of the extent of insurance fraud in the United States range from $87 billion to more than $300 billion every year.

Insurers and government backed pseudo-insurers can only estimate the extent they lose to fraudulent claims. Lack of sufficient investigation and prosecution of insurance criminals is endemic. Most insurance fraud criminals are not detected. Those that are detected do

so because they became greedy, sloppy and unprofessional so that the attempted fraud becomes so obvious it cannot be ignored.

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

When insurers and governments put on a serious effort to reduce the amount of insurance fraud the number of claims presented to insurers and the pseudo-government-based or funded insurers drops logarithmically. Since the appointment of Attorney General Sessions, the effort to stop insurance fraud against Medicare and Medicaid has increased.

Insurance Fraud & Weapons to Defeat Fraud - Volume Two: A Manual for Those Working to Defeat Insurance Fraud by [Zalma, Barry]This book contains appellate decisions regarding insurance fraud from federal and state appellate courts across the country and full text of many insurance fraud statutes.

It is available as both a legal research tool and a product to assist insurers, insurance company personnel, independent insurance adjusters, special investigation unit investigators, state fraud investigators and insurance lawyers to become effective persons involved in the attempt to defeat or reduce the effect of insurance fraud.

Volume One available as a Kindle book and a paperback.

Volume Two Available as a Kindle book and a paperback

“The Compact Book of Adjusting Property Insurance Claims”

A Manual for the First Party Property Insurance Adjuster

The insurance adjuster is not mentioned in a policy of insurance. The The Compact Book of Adjusting Property Insurance Claims: A Manual for the First Party Property Insurance Adjusterobligation to investigate and prove a claim falls on the insured. Standard first party property insurance policies, based upon the New York Standard Fire Insurance policy, contain conditions that require the insured to, within sixty days of the loss, submit a sworn proof of loss to prove to the insurer the facts and amount of loss.

The policy allows the insurer to then, and only then, respond to the insured’s proof of loss. The insurer can then either accept or reject the proof submitted by the insured.

Technically, if the wording of the policy was followed literally the insurer could sit back, do nothing, and wait for the proof. If the insured was late in submitting the proof the insurer could reject the claim. If the insured submits a timely proof of loss the insurer could either accept or reject the proof of loss. If the insurer rejected the proof of loss the insured could either send a new one or give up and gain nothing from the claim. Suit on the policy would be difficult because the policy contract limited the right to sue to times when the proof of loss condition had been met.

Insureds and insurers were not happy with that system. It made it too difficult for a lay person to successfully present a claim. The system, as written into the standard fire policy seemed to run counter to the covenant of good faith and fair dealing that had been the basis of the insurance contract for centuries. Most insurers understood that their insureds were mostly incapable of complying with the strict enforcement of the policy conditions. To fulfill the covenant of good faith and fair dealing insurers created the insurance adjuster to fulfill its obligation to deal fairly and in good faith with the insured.

Available as a Kindle book.

Available as a paperback.

“The Compact Book on Adjusting Liability Claims”

A Handbook for the Liability Claims Adjuster

This Compact Book of Adjusting Liability Claims is designed to Product Detailsprovide the new adjuster with a basic grounding in what is needed to become a competent and effective insurance adjuster. It is also available as a refresher for the experienced adjuster.

The liability claims adjuster quickly learns that there is little difficulty with a claimant (the person alleging bodily injury or property damage against a person insured) if the claim is paid as demanded. The insured may be unhappy if the claimant’s claim is paid as presented since most do not believe they did anything wrong or fear an increase in premiums charged for subsequent policies.

The adjuster must be prepared to salve the insured’s emotions, explain why in the law and the policy it was appropriate to pay the claimant and that the settlement is in the best interest of both the insured and the insurer the adjuster represents.
The adjuster knows, and must be prepared to explain to an insured, that if a claim is resisted or denied the claimant will be unhappy, will probably file suit. If not promptly settled the claimant’s lawyers will rake the insured over the coals to prove that the insured is liable for the claimant’s injuries. The litigation will take time, effort, and money to establish the extent of the injuries and who is responsible for the injuries. Failure to settle promptly can cost the insured his or her reputation and will certainly cost the insurer much more than the claim could have been resolved for had it been resolved before the claimant retained a lawyer.

Available as a Kindle book

Available as a paperback.

Read about these and other insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/

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Unjust Enrichment Requires Repayment of Life Insurance Benefit

Beneficiary Must Repay Overpayment as of Date of Notice

When a beneficiary makes a claim to a life insurer controlled by the U.S. Government he can usually assume that payments received are appropriate and the money is available to be spent as the beneficiary desires. However, after the beneficiary is told that he was paid in error it is necessary to preserve the assets available until the question of improper payment is resolved. Every person must recognize there is no such thing as a free lunch.

The USDCA for the District of Massachusetts, in Metropolitan Life Insurance Company v. Eric A. Beard, Civil Action No. 16-11782-PBS, United States District Court District of Massachusetts (February 7, 2019) Plaintiff Metropolitan Life Insurance Company (“MetLife”) sued pro se Defendant Eric A. Beard (“Eric Beard”) to recover benefits mistakenly paid to him as the son and sole beneficiary of decedent Paul K. Beard, who maintained life insurance under the Federal Employees’ Group Life Insurance Act (FEGLIA), during his employment with the United States Postal Service (“USPS”).

FINDINGS OF FACT

United States Office of Personnel Management (“OPM”), which has the authority to administer and regulate the benefits under FEGLIA, purchases master policies from private life insurance companies such as MetLife. MetLife issued Group Policy No. 17000-G, known as the Federal Employees’ Group Life Insurance Policy (the “FEGLI Policy”) to OPM. The Office of Federal Employees’ Group Life Insurance (“OFEGLI”) is the administrative unit of MetLife charged with administering claims for FEGLI benefits.

MetLife’s Claims Process

MetLife does not maintain or have access to a federal employee’s paperwork until the employee, or former employee, deceases. At that point someone from the employee’s family usually contacts OPM to report the death and OPM begins the death claim process. As part of that process, OPM sends MetLife a certification indicating what level of coverage the federal employee had at his time of death, his designation of beneficiary, and a claim form usually completed by the person who reported the death. It is standard practice for MetLife to receive a death certificate from OPM before a claim can be processed.

MetLife must “rely on all certifications by OPM and other Government Agencies issued to verify an Insured Person’s eligibility, Insurance in Force, and Annual Rate of Basic Pay.” MetLife must also attempt to collect any erroneous payments made under the contract.

Decedent Paul K. Beard

Paul Beard was an employee of the USPS for 45 years. Paul Beard had life insurance coverage under the FEGLI program through his employment with the USPS. Immediately prior to his retirement on October 1, 2015, Paul Beard’s life insurance coverage included $62,000 in Basic insurance (i.e., his $59,294 salary rounded to the next higher thousand and adding $2,000), Option A insurance in the standard amount of $10,000, and Option B insurance in the amount of $300,000 (i.e., five multiples of his salary rounded to the next higher thousand).

On October 29, 2015, after retiring from the USPS, Paul Beard signed a “Designation of Beneficiary” form designating his son, Eric Beard, his sole beneficiary to the FEGLI benefits. Eric’s wife Samantha Beard, and Samantha’s sister, Sarah Mauro, witnessed the designation. He was competent and not intoxicated at the time he signed this form.

Paul Beard passed away from natural causes on November 12, 2015. He died more than 31 days after his retirement from the USPS on October 1, 2015. Thus, at his time of death he was insured for Basic life insurance of $62,000 and Option A life insurance of $10,000.

The Claim

Eric Beard, as Paul Beard’s sole beneficiary, filed a claim for FEGLI benefits with MetLife. In the November Certification, OPM incorrectly stated that Paul Beard’s date of death was November 1, 2015, instead of November 12, 2015. The form mistakenly certified that Paul Beard had “died within 31 days of retirement” and thus had Basic life insurance at 75% reduction, Option A, and Option B coverage. OPM did not attach Paul Beard’s death certificate to the November Certification.

Based on the November Certification, MetLife paid Eric Beard $362,123.99. MetLife overpaid Beard $300,000 in Option B coverage based on the inaccurate certification from OPM, and mistakenly failed to pay him an additional $10,000 he was entitled to in Option A coverage – accordingly, Beard was overpaid by $290,000. Beard had no knowledge at that time that he was overpaid.

MetLife began attempting to recover the overpayment. As of mid-March 2016, Eric Beard had approximately $217,000 available in his Middlesex Savings Bank accounts. By September 2016, he had approximately $7,000 left in those accounts. Beard spent most of that money on ongoing renovations and improvements to his family home. To date, Eric Beard has not repaid MetLife for any of the benefits he received on December 7, 2015.

CONCLUSIONS OF LAW

Eric Beard asserted that his father lacked the mental capacity to execute insurance forms because of chronic and severe alcoholism. MetLife contends it has a contractual right to rely on OPM’s certifications and has a duty to pay in accordance with those certifications. While MetLife is correct on this point, the contract between MetLife and OPM does not strip a beneficiary of defenses recognized under federal law.

Analysis

Beard has not proven that Paul Beard’s alcoholism incapacitated him at the time he signed the form. While Paul Beard drank heavily, and saw a psychiatrist, there is no evidence that he was ever disciplined for his alcohol use or that it interfered with his work.

Unjust Enrichment

MetLife overpaid Eric Beard approximately $290,000.  Generally, if an insurer pays a loss as a result of fraud or a mistake as to facts which would have been a sufficient defense in an action by the insured upon the policy, the money so paid may be recovered. In this case, MetLife seeks restitution under an unjust enrichment theory, arguing that Eric Beard has been unjustly enriched by receiving $290,000 more in benefits than he was due under his father’s insurance plan.

Applicable Law

A claim for unjust enrichment does not require consideration, but there must be unjust enrichment of one party and unjust detriment to another party. A determination of unjust enrichment is one in which considerations of equity and morality play a large part.

Restitution is an equitable remedy by which a person who has been unjustly enriched at the expense of another is required to repay the injured party. Restitution is appropriate only if the circumstances of its receipt or retention are such that, as between the two persons, it is unjust for him to retain it.

Analysis

MetLife has conferred a benefit on Eric Beard, namely $290,000 that he was not entitled to based on his father’s insurance coverage at his time of death. The remaining question is whether Beard’s retention of the overpayment would be unjust.

Considering that Eric Beard was not at fault in applying for death benefits as his claim form listed the correct date of death. OPM made a significant error in its November Certification which was based on the wrong date of death. The primary blame for the overpayment rested with OPM.

For a while, Eric Beard was an innocent recipient in that he had no knowledge of the overpayment until he was contacted by MetLife in March 2016. Considering the good relationship he had with his father, he had no reason to believe there was an overpayment. In reliance on the payment, he made extraordinary improvements to his home that he could not have otherwise afforded. However, despite being notified in March that the money was not rightfully his, Eric Beard continued to spend down the proceeds throughout the summer of 2016.

Because unjust enrichment is an equitable doctrine, the Court determined that judgment should enter for MetLife in the approximate amount Eric Beard had remaining at the time he was notified of the overpayment which, according to bank records, was $217,000.

The Court entered judgment in favor of MetLife in the amount of $217,000.

ZALMA OPINION

The hard lesson learned by Mr. Beard is that once an insurer advised him that an error was made in the payment of life insurance benefits he should have immediately stopped spending the money. As a result he now owes MetLife $217,000 and may have to sell the house to pay the judgment.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

THE HOMEOWNERS INSURANCE POLICY

HOW TO BUY AN APPROPRIATE HOMEOWNERS POLICY AND SUCCESSFULLY MAKE A CLAIM TO THE INSURER

Read about this and other insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/

Insurance is a contract between a person seeking insurance and an insurer. It is obtained by making contact with the insurer as a prospective insured seeking insurance. The homeowners policy is a specialized policy of insurance that protects the homeowner from certain risks of loss to the real and personal property at the home, the exposure the insured faces for injury to a household employee, and the exposure the insured faces to liability for bodily injury or property damage caused to third parties. The book explains how to buy a homeowners policy and how to collect on any claim made to the homeowners insurer.

Paperback Book    Kindle Book

 

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How to Create Insurance Claims Professionals

Everything Needed by the Insurance Claims Professional

For the insurance industry to survive and profit it is absolutely necessary that it maintains a staff of insurance claims professionals who can read, understand and apply the terms and conditions of the insurance policy, treat all insureds and claimants fairly and in good faith, and keep all of the promises made by the insurance policy. In addition the insurance claim professional must be able to recognize and defeat attempts at insurance fraud while dealing ethically and in good faith with all insureds and claimants with whom the insurance professional comes in contact.

The following books are a small taste of the insurance and insurance claims books written by Barry Zalma and available on amazon.com and http://zalma.com/blog/insurance-claims-library/

Barry Zalma, Esq., CFE has created a library of insurance claims books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals. Over the last 51 years he has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud.

Construction Defects and Insurance

Construction Defects and Insurance Volume One: The Structure, The Construction Contract, and Construction Defect InsuranceBarry Zalma has updated and re-edited his seminal work Construction Defects Coverage Guide into is the latest addition to Barry Zalma’s insurance claims series of books and articles that will form the most thorough, up-to-date, expert-authored insurance claims guide available today eight Kindle or Paperback Volumes at reasonable prices.

Thorough, yet practical, this series of books form the ideal guide for any professional who works in or frequently interacts with the insurance industry.

Claims professionals, risk managers, producers, underwriters, attorneys (both plaintiff and defense), and business owners will benefit greatly from the ten volume guide. It is also the perfect resource for insurance educators, trainers, and students whose role requires an understanding of insurance law.

The Eight volumes include:


Mold Claims

This series of books is the latest addition to Barry Zalma’s insurance claims series of books and articles that will form the most thorough, up-to-date, expert-authored insuranMold Claims Volume One: Understanding insurance claims and litigation concerning mold, fungi, and bacteria infestations.ce claims guide available today.

Written by nationally-renowned insurance coverage expert Barry Zalma, a semi-retired insurance coverage attorney, consultant, expert witness and blogger, Mold Claims provides in-depth explanations, analysis, examples, and detailed discussion of:

•Mold;
•FungMold Claims Volume Two: Understanding insurance claims and litigation concerning mold, fungi, and bacteria infestations.i;
•Bacteria;

•Mold, fungi and bacteria claims; and
•Mold, Fungi, Bacteria litigation.

Thorough, yet practical, this series of books form the ideal gMold Claims Volume Three: Understanding insurance claims and litigation concerning mold, fungi, and bacteria infestations.uide for any professional who works in or frequently interacts with the insurance industry or is involved in litigation. Claims professionals, risk managers, producers, underwriters, attorneys (both plaintiff and defense), and business owners will benefit greatly from the mold volumes. It is also the perfect resource for insurance educators, trainers, and students whose role requires an understanding of insurance law as it relates to mold, fungi and bacterial infestations.

TMold Claims Volume Four: Understanding insurance claims and litigation concerning mold, fungi, and bacteria infestations.he author has provided checklists, sample procedures, form letters, tables and information and references to model statutes, state statutes, administrative regulations, and requirements of insurance departments nationwide.


Time to Rescind the Tort of Bad Faith

Insurance and the Law of Unintended Consequences Paperback 

Insurance is, and always will be, a business of the utmost good faith. Time to Rescind the Tort of Bad Faith: Insurance and the Law of Unintended ConsequencesAll parties to the insurance contract agree, in good faith and fair dealing, to do nothing to deprive the other the benefits of the contract. Insurance is, and always be, nothing more than a contract.

The insurer makes a promise to the insured that if a contingent or unknown loss occurs caused by a peril or risk insured against and not excluded, to pay the insured indemnity as promised by the contract up to the limits provided.

The insured promises to truthfully disclose the risks of loss faced by the insured, property owned by the insured, the business of the insured and/or the insured’s liability exposures. The insured also promises to honestly present a claim, prove the claim, and cooperate with the insurer in its investigation. If the parties to the insurance contract deal with each other fairly and in good faith the policy remains viable, claims are paid promptly and to the satisfaction of the insurer and the insured.

Only if a true tort occurs can the insured waive the contract action and sue in tort. Breach of contract, by centuries old tradition, is not a tort and cannot and should not be considered a tort. The Tort of Bad Faith has served its purpose and is now causing more problems than it solves. It is time the courts and state legislatures rescind the tort and return to common law contract damages.

Read about these and other insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/

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Forum Shopping Fails

Presumption of Need for State Declaratory Relief Action Requires Federal Court to Refuse Jurisdiction

Like every lawyer who ever practiced law I would prefer the judge to be my favorite uncle and godfather, the jury to be made up of my wife, my mother, my brother, my sister and close friends. That is why some lawyers work hard to get litigation in a favorable jurisdiction with a judge whose proclivities and prejudices are known. The attempts work often. In that regard many lawyers and insurers believe federal courts are more favorable to insurers than policyholders.

In Penn Mutual Life Insurance Company v. Wells Fargo Bank, N.A., as Securities Intermediary, Civil Action No. 18-40, United States District Court For The Eastern District Of Pennsylvania (October 1, 2018) Penn Mutual Life Insurance Company sued in federal District Court seeking a determination that the life insurance policy it issued on the life of a Florida resident was void ab initio. Wells Fargo moved to dismiss the complaint, arguing that the Court should decline jurisdiction pursuant to the Declaratory Judgment Act (“DJA”) in favor of an action pending in Florida state court.

BACKGROUND

Penn Mutual sought a declaration regarding the validity of the $3 million life insurance policy (“the Policy”) it issued on the life of Sylvia Criden-Roebuck, a Florida resident. When the policy was issued in 2007, the original owner was the Sylvia Criden-Roebuck 2007 Insurance Trust. Shortly after the policy was issued and in force, Ms. Criden-Roebuck and the Family Trust that she formed sold the beneficial interest in the Insurance Trust that owned the Life Insurance Policy to the GIII Accumulation Trust. In 2015, GIII placed the Policy into a securities intermediary account with Wells Fargo. The Policy is presently owned by Wells Fargo as securities intermediary.

After Ms. Criden-Roebuck’s death on October 20, 2017, Wells Fargo and the insured’s son, Arthur Criden, both submitted a claim for the benefit payable under the Policy. During the claim review process, Penn Mutual “determined that the policy may have been an illegal wagering contract” procured by and paid for by investors through the GIII Accumulation Trust. Instead of formally denying the claim, Penn Mutual sued and requested a declaratory judgment that the Policy is void ab initio as “an illegal wagering contract” under Delaware law.

Wells Fargo filed an action in Florida state court against Penn Mutual, Arthur Criden as the personal representative of the Criden-Roebuck estate, and Penn Mutual’s Florida-based agent, Larry Schweiger. Wells Fargo asserts a claim for breach of contract against Penn Mutual for its failure to pay the death benefits as required under the policy. If Penn Mutual successfully avoids coverage under the Policy based on the allegation that Ms. Criden-Roebuck did not pay the initial premiums with her own funds, Wells Fargo seeks damages from Schweiger for fraud, negligent misrepresentation, and negligent procurement based on his actions in connection with the Policy.

DISCUSSION

Wells Fargo argued that the Court should decline to exercise jurisdiction pursuant to the DJA, which “authorizes district courts to ‘declare the rights and other legal relations of any interested party seeking such declaration'” but “does not itself create an independent basis for federal jurisdiction.” Instead, actions seeking only declaratory relief are discretionary and courts may therefore decline jurisdiction over such suits.

After determining whether there is a parallel state court proceeding, courts consider the following factors, to the extent they are relevant:

(1)               the likelihood that a federal court declaration will resolve the uncertainty of obligation which gave rise to the controversy;
(2)               the convenience of the parties;
(3)               the public interest in settlement of the uncertainty of obligation;
(4)               the availability and relative convenience of other remedies;
(5)               a general policy of restraint when the same issues are pending in a state court;
(6)               avoidance of duplicative litigation;
(7)               prevention of the use of the declaratory action as a method of procedural fencing or as a means to provide another forum in a race for res judicata; and
(8)               (in the insurance context), an inherent conflict of interest between an insurer’s duty to defend in a state court and its attempt to characterize that suit in federal court as falling within the scope of a policy exclusion.

The Existence of a State Parallel Proceeding

Penn Mutual purposefully availed itself of the Florida forum in such a way that it could reasonably foresee being haled into a Florida court; its contacts with the state can in no way be considered “random,” “fortuitous,” or “attenuated.” It was reasonably foreseeable that Penn Mutual’s refusal to pay benefits under the life insurance policy it issued in Florida, on the life of a Florida resident, was likely to lead to litigation in a Florida court. The solicitation of life insurance products to Florida residents through an insurance agent in Florida further reinforces Penn Mutual’s deliberate affiliation with the forum State and the reasonable foreseeability of possible litigation there.

Fair Play and Substantial Justice

The Florida court has personal jurisdiction over Penn Mutual for Wells Fargo’s claims, and all matters in controversy between the parties in this case can be fully adjudicated in the state action. Therefore, the state breach of contract action is a parallel proceeding to this federal case.

That Penn Mutual filed this declaratory judgment action before Wells Fargo could file suit in state court is not indicative of procedural fencing, because it is irrelevant whether the state declaratory judgment action was filed after its counterpart in federal court.

Considered together, all factors weigh against exercising jurisdiction over this case, and do not outweigh the strong presumption against exercising jurisdiction in light of the pending state action. Consequently, the Court declined to exercise jurisdiction.

ZALMA OPINION

Forum shopping is a tried and true exercise of legal analysis. In this case it failed because, unlike the District Court in Pennsylvania, everything to do with the issuance of the policy, the contracts surrounding the policy and the claim were set in Florida. The District Court, even though the suit in Pennsylvania was filed first, exercised its discretion and refused to take jurisdiction when Florida was a better forum.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

THE HOMEOWNERS INSURANCE POLICY

HOW TO BUY AN APPROPRIATE HOMEOWNERS POLICY AND SUCCESSFULLY MAKE A CLAIM TO THE INSURER

Read about this and other insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/

Insurance is a contract between a person seeking insurance and an insurer. It is obtained by making contact with the insurer as a prospective insured seeking insurance. The homeowners policy is a specialized policy of insurance that protects the homeowner from certain risks of loss to the real and personal property at the home, the exposure the insured faces for injury to a household employee, and the exposure the insured faces to liability for bodily injury or property damage caused to third parties. The book explains how to buy a homeowners policy and how to collect on any claim made to the homeowners insurer.

Paperback Book    Kindle Book

 

 

 

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Everything Needed by the Insurance Claims Professional

How to Create Insurance Claims Professionals

THE HOMEOWNERS INSURANCE POLICY

HOW TO BUY AN APPROPRIATE HOMEOWNERS POLICY AND SUCCESSFULLY MAKE A CLAIM TO THE INSURER

Insurance is a contract between a person seeking insurance and an insurer. It is obtained by making contact with the insurer as a prospective insured seeking insurance. The homeowners policy is a specialized policy of insurance that protects the homeowner from certain risks of loss to the real and personal property at the home, the exposure the insured faces for injury to a household employee, and the exposure the insured faces to liability for bodily injury or property damage caused to third parties. The book explains how to buy a homeowners policy and how to collect on any claim made to the homeowners insurer.

Paperback Book    Kindle Book

Ten Volumes Comprising A Comprehensive Group of Materials on Property & Casualty Insurance Claims

Insurance claims professional and expert witness Kevin Quinley said about the following ten volumes: “Zalma’s series of books is a terrific blend of both the legal underpinnings and the practical implications for the claim practitioner.

Insurance Maven Bill Willson said: “Zalma On Insurance Claims” is a tour de force, an indispensable tool that should be a part of every claims training program in America and in the library of every claims professional for quick and frequent reference. This comprehensive guide belongs in the library of every insurance defense AND policyholder law firm. It should be a part of every claims training program of carriers, independent adjusting firms, and public adjusters. Many of these parts should be part of the training or reference programs for non-claims personnel, from agents to underwriters to risk managers.”

Zalma on Insurance Claims Volume 101

A Comprehensive Review of the law and Practicalities of Property, Casualty and Liability Insurance Claims

This series of ten books is the latest addition to Barry Zalma’s insurance claims series of books and articles that will form the most thorough, up-to-date, expert-authored insurance claims guide available today.

Written by nationally-renowned insurance coverage expert Barry Zalma, a semi-retired insurance coverage attorney, consultant, expert witness and blogger, Zalma on Insurance Claims provides in-depth explanations, analysis, examples, and detailed discussion of:

  • Property insurance claims;
  • Third-party liability claims;
  • Casualty claims; and
  • Insurance Fraud

Thorough, yet practical, this series of books form the ideal guide for any professional who works in or frequently interacts with the insurance industry. Claims professionals, risk managers, producers, underwriters, attorneys (both plaintiff and defense), and business owners will benefit greatly from the ten volume guide. It is also the perfect resource for insurance educators, trainers, and students whose role requires an understanding of insurance law. As you read through the various volumes of Zalma on Insurance Claims, you will find comprehensive—yet comprehensible—coverage of key topics, including:

  • What is Insurance?
  • The History of Insurance
  • The covenant of good faith and fair dealing.
  • The tort of Bad faith
  • Conditions,
  • Warranties,
  • Exclusions
  • Declaring a policy void
  • Duties of insured and insurer
  • Evaluation and settlement
  • Identifying insurance fraud
  • Investigation
  • Kinds of insurance policies
  • Other insurance clauses
  • Preparing a case for trial
  • Processing a claim
  • Responses to fraud
  • Subrogation and salvage
  • Underwriting and
  • Many more property and casualty insurance matters.

Zalma on Insurance Claims Part 102

This, the second part of Zalma on Insurance Claims and includes materials concerning:

  • Other Insurance Clauses
  • Underwriting
  • Conditions, Warranties and Exclusions

Zalma on Insurance Claims Part 103

This is part 103 of Zalma on Insurance Claims and will deal with:

1.Duties of the Insured and the Insurer
2.Declaring a Policy Void
3.Processing a Claim

When read with Part 101 and Part 102, this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 104

This, the fourth volume of Zalma on Insurance Claims and includes materials concerning:

  1. Investigation of First Party Property Claims
  2. Rescission
  3. The Mortgage Clause
  4. Fortuity & Other Issues
  5. Determine the Amount of the Loss
  6. The Claim File

When read with Part 101, Part 102, and Part 103, this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 105

This, the fifth volume of Zalma on Insurance Claims and includes materials concerning:

  1. Investigation – Liability
  2. Claims Made and Reported Policies
  3. The Notice Prejudice Rule.
  4. Types of Torts
  5. The Liability Claims File
  6. Discovery of the Insurance Claims File
  7. Tests for Determining Duty to Defend
  8. Appendices – forms for the claims person

When read with Insurance 101, Insurance 102, Insurance 103 and 104, this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 106

This is the sixth part of “Zalma on Insurance Claims” and will deal with:

Chapter 1 Property Insurance & the Tort of Bad Faith
Chapter 2 Grounds for Finding Bad Faith
Chapter 3 Avoiding Charges of Bad Faith
Chapter 4. Punitive Damages
Chapter 5.Bad Faith & Liability Insurance
Chapter 6.Defenses to the Tort of Bad Faith
Appendix 1 – California Civil Code Section 3294

When read with Part 101, Part 102, and Part 103, Part 104 and Part 105 this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 107:

This is the seventh part of “Zalma on Insurance Claims” and will deal with:

1.Evaluation and Settlement – Property
2.Evaluation and Settlement – Liability
3.Subrogation
4.Salvage

When read with Part 101, Part 102, Part 103, Part 104, Part 105 and Part 106 this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 108

This, the eighth part of Zalma on Insurance Claims, includes materials concerning:

1.Preparing a case for trial
2.Interviewing Techniques
3.The art of the Interview
4.Interview General Principles
5.The Interviewer
6.Preparing for the Interview
7.Beginning the Interview
8.Control Of The Interview
9.Dealing with Witness Types
10.Approaches the Work
11.Dealing with the Nervous Person
12.Bluffs
13.The Mutability Of Memory
14.The Examination Under Oath

When read with Part 101, Part 102, Part 103, Part 104, Part 105, Part 106 and Part 107 this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 109 

This, the ninth part of Zalma on Insurance Claims, includes materials concerning:

•Identifying Insurance Fraud
•Professional Conspiracies
•Multiple Types of Insurance Fraud
•How to Join the Fraud Fight
•Case Studies of Successful Fraud Investigations
•Checklist 1 – Types of Insurance Fraud
•Checklist 2 – Training Adjusters
•Checklist 3 – Red Flags of Fraud – Property Insurance
•Checklist 4 – Red Flags of Fraud – Liability Insurance
•Appendix A – Commonly Used Medical Acronyms and Abbreviations
•Appendix B – Glossary of Medical Terms

When read with Part 101, Part 102, Part 103, Part 104, Part 105, Part 106, Part 107 and Part 108 this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 110

This, the tenth part of Zalma on Insurance Claims, includes materials concerning:

•Responses to Fraud
•Grounds for Rescission.
•The Fight Against Fraud
•Checklist 1—Responses to Fraud
•Checklist 2 – The Fight Against Fraud

When read with Part 101, Part 102, Part 103, Part 104, Part 105, Part 106, Part 107, Part 108 and Part 109 this volume works to take the reader to a complete understanding of insurance and insurance claims.

For more information about Barry Zalma and his insurance law books go to http://www.zalma.com.

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Don’t Demolish Damage Before Report to Insurer

Twelve Day Delay Sufficient to Eliminate Coverage

The key to every insurance policy and claims presented under a first party property insurance policy is to promptly report a loss to the insurer so it can investigate and evaluate the claim. When an insurance broker – who only represents the insured – detests insurers and hires, on behalf of his client, a public insurance adjuster to protect the insured against the insurer and then waits until the public adjuster and a repair company totally demolished the building, to only then, twelve days after the loss,  to report the claim to the insurer he prejudiced the rights of the insurer.

In South Fifth Towers, LLC v. Aspen Insurance UK, Ltd. and Tenco Services, Inc., No. 18-5440, United States Court of Appeals For The Sixth Circuit (February 8, 2019) South Fifth Towers, LLC owned an apartment building in Louisville, Kentucky. After the building suffered water damage in a rainstorm, South Fifth’s insurance carrier, Aspen Insurance UK, Ltd., declined to cover demolition and repair costs. South Fifth sued Aspen and Tenco Services, Inc., Aspen’s adjuster, for breach of contract (among other claims).

The District Court granted the insurer’s and adjuster’s summary judgment motions.   Thunderstorms caused 2.69 inches of rain in Louisville and during and after the storm there was about an inch of standing water in the second-floor hallways.

That same evening South Fifth contacted its New York insurance broker either that evening or the next day. The broker, Judah Perlstein, did not notify Aspen. Instead, Perlstein’s first move was to hire a public adjuster to inspect the damage and write a report. It was his practice to “put a PA on almost every loss.” He did this for several reasons: “to get our facts straight” and avoid reporting “erroneous information” to the insurer and “to protect” his “client,” as “insurance companies are always looking for a reason not to pay.” Finding a public adjuster in Louisville took Perlstein until June 28.

On July 2 or July 3, South Fifth hired a restoration contractor, The Drying Team. The Drying Team sent 18 people to Louisville. They arrived from Nashville on July 8 and began demolition the same day. They tore out “virtually all” of the second floor.

Perlstein finally told Aspen what had happened on July 8 — twelve days after the storm and the same day that The Drying Team began demolition. Aspen then sent its own adjusters (employed by co-defendant Tenco), and they arrived on July 10. By this time, almost all of the demolition was already done.

South Fifth eventually claimed a loss of $1,312,091.04. In September 2015, Aspen formally declined coverage.

ANALYSIS

The insurance policy required South Fifth to give Aspen “prompt notice of the loss or damage,” including, “[a]s soon as possible, . . . a description of how, when and where the loss or damage occurred.”  The Sixth Circuit concluded that there could be no genuine dispute that Aspen likely suffered substantial prejudice from this delay.

Aspen and Tenco are entitled to summary judgment if they can show that there is no genuine dispute as to any material fact and they are entitled to judgment as a matter of law. A material fact is one that might affect the outcome of the suit under the governing law. A factual dispute is genuine if the evidence is such that a reasonable jury could return a verdict for either party.

The policy does not define “prompt,” so the court gave the term its ordinary meaning. “Prompt” means “performed readily or immediately,” or “given without delay.” Webster’s Third New International Dictionary 1816 (2002). South Fifth could not give Aspen a description of the loss or damage until South Fifth had notified Aspen about the loss or damage in the first place. Thus, the policy required South Fifth to provide notice as soon as it could.

Here, South Fifth did not provide notice as soon as it could have — it notified Aspen eleven days after it notified its insurance broker, Perlstein. Indeed, when Perlstein was asked about this delay, he could not explain why Aspen had not been notified sooner. And on appeal, South Fifth fails to explain the delay. Given the undisputed facts of this case, the lapse of time was so long as to be obviously noncompliant with the policy. Hence South Fifth failed to give “prompt” notice.

Late notice of a loss lifts the insurer’s coverage obligations as long as it is reasonably probable that the insurance carrier suffered substantial prejudice from the delay in notice.

The late notice deprived Aspen of the chance to see the water damage before demolition began. This meant that Aspen had no way of assessing how much of the demolition was necessary or of objecting to needless or too-costly demolition before it happened. Had Aspen’s adjusters been present when the demolition contractor first arrived at Kentucky Towers, they could have watched and interjected as the contractor took moisture readings and mapped out which portions of the second floor to tear out.

Aspen had no chance to inspect the damage, view pre-demolition moisture readings (which the contractor did not retain), or ask the contractor to do anything different in such extensive — and expensive — demolition.

Even if all of the demolition was appropriate, the late notice made it impossible for Aspen to consult and coordinate with the demolition contractor and South Fifth.  The undisputed facts and the testimony of South Fifth’s own public adjuster and demolition contractor show a reasonable probability of substantial prejudice to Aspen.

As public adjuster Michelson put it, “the concern is that you get microbial growth, mold… The building doesn’t get any better while it’s sitting there wet, it only gets worse and degrades.” This was all the more reason not to wait twelve days before notifying Aspen. South Fifth knew that the damage was significant and would require extensive demolition. According to its insurance broker, Judah Perlstein, there was no downside to notifying Aspen the day of the rainfall. But South Fifth dawdled, presenting Aspen with a fait accompli.

South Fifth tries to get around this conclusion by claiming that it waited at most one day to notify Aspen, not twelve. Kentucky law and Perlstein’s testimony make clear that he was not Aspen’s agent. The general rule in Kentucky is that in the absence of statutory authority or some special indicia of authority, an insurance broker is the agent of the insured and not of the insurer.

Consequently, notice to this broker is not notice to the insurer.

Perlstein, in fact, boasted about his use of grandstanding and threats to get his clients better prices or better terms and conditions from insurance carriers. He admitted that he did not know why carriers ask or don’t ask for certain information in coverage applications, and he said that despite decades in the industry, carriers “surprise me every day.” These statements make clear that Perlstein was not Aspen’s agent.

The Sixth Circuit concluded that South Fifth breached the policy when it waited twelve days to give Aspen the required notice, and this undisputedly caused Aspen substantial prejudice. This relieved Aspen of liability under the policy, and Aspen and Tenco are entitled to summary judgment on this basis alone.

ZALMA OPINION

When a person insured or the insured’s representative incorrectly believes that “insurance companies are always looking for a reason not to pay” errors like those created by broker Perlstein cause a legitimate claim to be refused. South Fifth, of course, could have reported the loss directly rather than through a broker. It may not be without a remedy, it can always sue Perlstein who appears, because of his distrust of insurers, solely responsible for the late report and the denial of the claim.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

THE HOMEOWNERS INSURANCE POLICY

HOW TO BUY AN APPROPRIATE HOMEOWNERS POLICY AND SUCCESSFULLY MAKE A CLAIM TO THE INSURER

Read about this and other insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/

Insurance is a contract between a person seeking insurance and an insurer. It is obtained by making contact with the insurer as a prospective insured seeking insurance. The homeowners policy is a specialized policy of insurance that protects the homeowner from certain risks of loss to the real and personal property at the home, the exposure the insured faces for injury to a household employee, and the exposure the insured faces to liability for bodily injury or property damage caused to third parties. The book explains how to buy a homeowners policy and how to collect on any claim made to the homeowners insurer.

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