Zalma’s Insurance Fraud Letter – July 1, 2022

ZIFL Volume 26 Number 13

ZIFL-07-01-2022.

See the video explaining what is in the July 1, 2022 issue at https://rumble.com/v1al2t7-zalmas-insurance-fraud-letter-july-1-2022.html?mref=6zof&mrefc=3  and at https://youtu.be/-8orMv2GuSU

In the July 1, 2022 issue of Zalma’s Insurance Fraud Letter you will be able to read the full text of articles including:

Bases for Rescission

Rescission Is an Equitable Remedy First Created in The Ecclesiastical Courts of Elizabethan England.

When the United States was conceived in 1776 the founders were concerned with protecting their rights under British common law.

Common Law is a form of law developed by judges through tribunals and decisions of courts rather than executive branch action and legislative statutes.

Following the common law tradition, legal principles were referred to courts of equity to “mitigate the rigor” of the common law.

The new United States of America adopted British common law as the law once the U.S. Constitution was adopted in 1789. British common law was only modified by the limitations placed on the central government by the Constitution.

The viability and ability to enforce contracts was recognized as essential to commerce. Courts of law, following the British Common Law, were charged with enforcing legitimate contracts and rendering money judgments against the party who breached the contract.

Another Florida Insurer Goes Broke

Southern Fidelity Insurance Company has entered into receivership and is being liquidated, according to the Florida Office of Insurance Regulations (FLOIR).

Insurance fraud is rampant in Florida.

Lawyer Admits to Insurance Fraud & Theft from Clients

Convicted of Fraud & Theft Enough for Disbarment

On September 7, 2021, the Office of Disciplinary Counsel (ODC) requested this Court place Respondent Richard Alexander Murdaugh on interim suspension based upon information indicating Respondent had stolen funds from the law firm that employed him. Respondent consented to the relief and on September 8, 2021, the Supreme Court issued an order suspending Respondent from the practice of law. In re Murdaugh, 434 S.C. 233, 863 S.E.2d 335 (2021) and, in In the Matter of Richard Alexander Murdaugh, Supreme Court of South Carolina, June 16, 2022 the Supreme Court was faced with the obligation to render a final order re Murdaugh’s license to practice law.

Chutzpah: Murder for Insurance Money Life Sentences Affirmed

INSURANCE FRAUD IS A VIOLENT CRIME

When convicted of murder in the first degree and conspiracy to commit murder for life insurance money, the defendants require a great deal of chutzpah (unmitigated gall) to file multiple appeals to reduce or eliminate the life without parole sentences. In the latest effort, The People v. Leny Peterson Galafate, F081563, California Court of Appeals, Fifth District (June 9, 2022) the Court of Appeal wrote a detailed opinion discussing all of the arguments filed by the murderer expending more time and paper than a convicted murder who had already appealed unsuccessfully to different courts that was not deserved.

Good News From the

Health Insurance Fraud Convictions

Molina Healthcare Agrees to Pay Over $4.5 Million To Resolve False Claims Act Violations

Molina Healthcare, Inc. (Molina) and its previously owned subsidiary, Pathways of Massachusetts (Pathways), have agreed to pay $4.625 million to resolve allegations that it violated the False Claims Act by submitting reimbursement claims while violating several regulations related to the licensure and supervision of staff.

Molina is a managed care health services company that provides health care plans to various state and federal health care programs including MassHealth, the joint federal and state Medicaid program. Between November 2015 and March 2018, Molina owned and operated Pathways, a group of mental health centers located in Springfield and Worcester. During that period, the government contends that Molina and Pathways improperly submitted claims for reimbursement to MassHealth and care entities managed by MassHealth while failing to properly license and supervise mental health center staff, including social workers and psychological associates, and failing to provide and timely document the provision of adequate clinical supervision to clinicians requiring supervision.

Excellence in Claims Handling

FREE SAMPLE

Follow the link https://youtu.be/bQNNvLVqIzs to view the first video of the Excellence in Claims Handling Program. All future videos will only be available to those who subscribe to my locals.com community where you can subscribe here.

Become a Professional Claims Handler

In search of profit, insurers have decimated their professional claims staff. They laid off experienced personnel and replaced them with young, untrained, unprepared people. A virtual clerk replaced the old professional claims handler. Process and computers replaced hands-on human skill, empathy and judgment. Money was saved by paying lower salaries. Within three months of firing the experienced claims people gross profit increased.

Other Insurance Fraud Convictions

Ex-Surrey Banker Faked Cancer as Part Of £1.8m Fraud

Rajesh Ghedia, 42, said he would be dead in a year in a £1.2m insurance scam, Southwark Crown Court heard. He also swindled seven people – including a relative – out of huge sums of money by encouraging them to invest in non-existent financial products.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

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See the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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An Umbrella Policy’s UM Cover is not Auto Insurance

Umbrella Insurance is Only Obligated After Underlying Insurance is Exhausted

See the full video at https://rumble.com/v1ag99d-an-umbrella-policys-um-cover-is-not-auto-insurance.html?mref=6zof&mrefc=2  and at https://youtu.be/gCXGTPD1_os

Anthony DeSmet appealed from the summary judgment granted to  Scottsdale Insurance Company on his claim alleging that Scottsdale had acted in bad faith in refusing to fulfill its responsibilities under the excess uninsured-motorist coverage in its umbrella policy.

In Anthony Clarence Desmet v. Scottsdale Insurance Company, No. 21-6143, (D.C. No. 5:20-CV-00330-J) (W.D. Okla.), United States Court of Appeals, Tenth Circuit (June 24, 2022) the Tenth Circuit was called Upon to Determine if an Umbrella Policy that provided excess uninsured motorist coverage was auto insurance.

Scottsdale, in its motion for summary judgment, invoked a provision in its policy that excused it from liability until DeSmet exhausted his uninsured-motorist coverage under his primary motor-vehicle liability policies. The USDC for the Western District of Oklahoma held that the exhaustion provision in Scottsdale’s policy was valid and enforceable and that even if it was not, Scottsdale’s reliance on the provision was not in bad faith.

BACKGROUND

On March 5, 2018, DeSmet suffered severe bodily injuries when his vehicle was rear-ended by a vehicle driven by William Akehurst. Akehurst’s only automobile-liability coverage was a policy issued by State Farm Mutual Automobile Insurance Company, which promptly paid its $50,000 policy limit. This was insufficient to fully cover DeSmet’s damages.

If the liability limits of a motor vehicle are less than the amount of the injured insured’s claim, that vehicle is classified as uninsured. Such tortfeasor drivers are commonly referred to as underinsured motorists.

At the time of the accident, DeSmet had three separate motor-vehicle liability policies covering several motor vehicles. Each policy provided $500,000 in uninsured/underinsured motorist coverage.

In addition, DeSmet had an umbrella policy with Scottsdale. An umbrella policy is a type of “excess insurance policy.” Excess coverage is provided when, under the terms of the policy, the insurer is liable for a loss only after any primary coverage-other insurance-has been exhausted. The Scottsdale policy provided $2 million in excess liability coverage to supplement coverage provided in DeSmet’s automobile-liability and home-owner’s policies. An endorsement in the policy stated:

It is expressly agreed that liability shall attach to [Scottsdale] only after the insurers of the “underlying insurance” have paid or have been held liable to pay (whether collectible or not) the full amount of their respective uninsured motorists and/or underinsured motorists liability[.]

The term underlying insurance referred to existing motor vehicle liability policies carried by DeSmet that were listed in the Scottsdale policy’s Declarations.

Unhappy with the handling of his claim by one of his motor-vehicle liability insurers, DeSmet requested that Scottsdale “step down” and pay the claim itself. Scottsdale responded that per the terms of the policy, Scottsdale would pay only after the underlying insurance limits were exhausted.

DeSmet filed a petition in Oklahoma state court on March 3, 2020, alleging that Scottsdale’s conduct surrounding its refusal to pay amounted to a breach of its implied duty of good faith and fair dealing. The suit DeSmet filed included the following statement:

Plaintiff is not bringing an independent or separate cause of action for breach of contract, only the tort cause of action [for the breach of the implied duty of good faith and fair dealing]

At the time he sued DeSmet had received no payment on the uninsured/underinsured-motorist provisions of any of its three automobile-liability policies.

The district court ruled that Oklahoma caselaw was clear that the requirements of the uninsured-motorist statute did not apply to umbrella policies like the one issued by Scottsdale. It further held that because the underlying claims had not yet been paid at the time of the suit, there was no basis for DeSmet’s allegation that Scottsdale had been acting in bad faith and it granted Scottsdale’s motion for summary judgment.

DISCUSSION

To show bad faith it is not enough that an insurer resists or litigates a claim.  There must be a clear showing that the insurer was acting unreasonably and in bad faith by withholding payment. Thus, DeSmet would need to show that Scottsdale had clearly violated its responsibilities under the umbrella policy; this is a standard he could not meet.

The Oklahoma Supreme Court has held that an insurer that provides uninsured-motorist coverage as required and governed by § 3636 cannot rely on a provision in its policy that permits withholding payment under the coverage until the insured has exhausted all other uninsured/underinsured-motorist coverage. See Mustain v. U.S. Fid. &Guar. Co., 925 P.2d 533, 534 (Okla. 1996). It ruled that “as between the insurer and its insured[, uninsured-motorist] insurance is primary coverage,” that is, “the insurer is liable without regard to any other insurance coverage available,” Equity Mut. Ins. Co., 747 P.2d at 954.

Unfortunately for DeSmet, § 3636 does not apply to the Scottsdale umbrella policy. The Oklahoma Supreme Court has repeatedly said that umbrella policies are not “motor vehicle liability policies” of the type governed by § 3636. The leading case is Moser v. Liberty Mutual Insurance Co., 731 P.2d 406 (Okla. 1986). The court responded that “[t]he uninsured motorist provisions [of § 3636] apply [only] to . . . automobile liability insurance policies . . . but not to ‘umbrella’ policies ….Id. at 409 (emphasis added).

DeSmet does not contest that his policy with Scottsdale was an “umbrella” policy. Scottsdale was entitled to rely upon the Moser line of cases and was not acting in bad faith when it assumed the legitimacy of the uninsured-motorist provisions of its umbrella policy. As a result, the court affirmed the USDC’s grant of Scottsdale’s summary judgment.

ZALMA OPINION

I can understand Mr. DeSmet’s impatience with his auto insurer’s delay in paying his claim but that does allow him to sue his Umbrella insurer asking that it ignore the clear and unambiguous conditions of its policy rather than suing the auto insurers who have failed to pay his claim. Rather than act reasonably he sued Scottsdale and failed to sue those insurers who owed him and who had failed to pay. His actions were illogical and in light of Oklahoma Supreme Court precedent he wasted the court’s time.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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Do You Need a Claims Staff Ready to Provide Excellence in Claims Handling?

A Sample of What Will Be Available to Subscribers zalmaoninsurance.locals.com

If you, or your staff of insurance claims people, need to understand insurance, insurance law, and how to professionally handle first or third party insurance claims, sign them up for this program where they can, every day listen to a 5 to 15 minute video on an important insurance and insurance claims issues adapted from Barry Zalma’s treatise, Zalma on Insurance Claims – Third Edition.

Listening to a video every morning with the claims person’s first cup of coffee can, for only $5 a month, turn an adjuster into a knowledgeable and professional claims handler.

I will try to prodice a new video for subscribers every working day. This program will be the easiest and least expensive programs to train a staff of claims people who can provide excellence in claims handling to people presenting claims on insurance policies.

The first video of the Excellence in Claims Handling program is available now to subscribers to the Zalma on Insurance Community at locals.com and here and as an example what you and your claims staff will get when they subscribe. The first video is in this blog post.

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The first video is available FREE as an example of what will be provided each day below.

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(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

 

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An Assignment of Claim Against Insurer After Insured Signed a Release is Worthless

Insured’s Release of Insurer Defeats Claim of Third Party

When a CT Scanner was destroyed as a result of two fires at the storage facility claims were presented and suits filed against the warehouse, Blocker Storage. Blocker was insured by Associated Indemnity, a Fireman’s Fund Company and part of the Allianz group of insurers. Associated paid its limit of liability and received a release from the insured for Associated and all of the related companies.

In Diagnostic Leasing, Inc., et al v. Associated Indemnity Corporation, a California Corporation, No. 19-13535, United States Court of Appeals, Eleventh Circuit (June 24, 2022) the Eleventh Circuit affirmed the district court’s grant of summary judgment for Associated Indemnity Corp. on Diagnostic Leasing, Inc.’s bad faith claims.

FACTUAL BACKGROUND

Blocker Transfer &Storage Co. “operated various warehouse storage facilities” that it owned or leased “as part of its business as a moving and storage company.” Diagnostic Leasing was an equipment rental and leasing company. In 1995, Blocker Storage stored Diagnostic Leasing’s computerized tomography (CT) scanner. Associated Indemnity insured Blocker Storage under the trade name “Fireman’s Fund Insurance Company.”

That same year, two fires at Blocker Storage’s warehouses damaged Diagnostic Leasing’s CT scanner. Fireman’s Fund informed Blocker Storage that the coverage limit for Diagnostic Leasing’s insurance claim was $100,000 and that “Fireman’s Fund [] decided to make available to Blocker [Storage]” the full $100,000 to use at Blocker Storage’s discretion. Fireman’s Fund advised Blocker Storage that any settlement in excess of $100,000 would have to be paid by Blocker Storage. Blocker Storage maintained that its liability was limited to $25,000 based on a contractual provision in the bill of lading from when the CT scanner was first moved into storage.

After the second fire, Diagnostic Leasing sent a second demand letter, this time to Fireman’s Fund directly, asserting a higher replacement cost for the CT scanner-$427,515. Fireman’s Fund advised Blocker Storage that it could not respond to Diagnostic Leasing on Blocker Storage’s behalf because of Blocker Storage’s uninsured exposure in excess of $100,000. Blocker Storage “specifically instructed” Fireman’s Fund that “it d[id] not want any of its insurance coverage tendered” to Diagnostic Leasing because “its maximum liability . . . [wa]s $25,000” and “[a] tendering of any amount by the Fireman’s Fund directly to [Diagnostic Leasing] m[ight] prejudice Blocker [Storage] in enforcing its limitation of liability.”

The Two Lawsuits

Eventually Diagnostic Leasing sued Blocker Storage in Florida state court for breach of contract, negligent bailment, and spoliation of evidence. Fireman’s Fund provided counsel to represent Blocker Storage alongside Blocker Storage’s independent counsel.

While litigation against Blocker Storage was pending, Blocker Storage sued Fireman’s Fund seeking a declaratory judgment regarding Blocker Storage’s claims under the insurance policy.

In 2001, Blocker Storage and Fireman’s Fund executed a “Release of All Claims” to resolve the declaratory judgment lawsuit. Blocker Storage and Fireman’s Fund “agree[d] that the limit of liability coverage available, pursuant to the terms and conditions of the [p]olicy, for the [first] fire [wa]s $100,000.” In exchange, Blocker Storage released “Fireman’s Fund, its employees, adjusters, agents[,] and attorneys” from: all liabilities identified in Blocker [Storage]’s complaint including, but not limited to, the matter of number of occurrences, the matter of the limits of insurance available and the alleged breach of contract. This [r]elease includes, but is not limited to, all claims for contractual damages, extra-contractual damages, “bad[]faith” damages, whether statutory or common law, consequential damages, tort damages, attorney fees, expert costs, expenses and interest, arising out of or related to the allegations in Blocker [Storage]’s complaint.

After ten years of litigation the state court granted judgment for Diagnostic Leasing against Blocker Storage after a bench trial, finding that Blocker Storage’s alleged $25,000 liability limitation was unenforceable and that Blocker Storage owed Diagnostic Leasing $451,431.82 plus prejudgment interest ($229,431.82 in lost revenue and $222,000 to replace the CT scanner).

Diagnostic Leasing moved to include Fireman’s Fund and Associated Indemnity as parties to the final judgment, and Fireman’s Fund, Associated Indemnity, and Diagnostic Leasing negotiated an agreed order to include Associated Indemnity as a party to the final judgment and deny Diagnostic Leasing’s motion to include Fireman’s Fund. The state court entered the agreed order, granting the motion with respect to Associated Indemnity, finding Associated Indemnity liable to the extent of its $100,000 coverage limit under the insurance policy, and denying the motion with regard to Fireman’s Fund. The state court entered final judgment against Blocker Storage for $994,638.37; $100,000 of that amount was recoverable from Associated Indemnity per the agreed order.

DISCUSSION

Diagnostic Leasing argued that the district court erred in granting summary judgment for Associated Indemnity on its bad faith claims but the Eleventh Circuit disagreed.

Agency

Because (1) the policy was issued by Associated Indemnity on behalf of Fireman’s Fund; (2) Fireman’s Fund directed Associated Indemnity to defend Blocker Storage and offer Blocker Storage the policy limits to settle Diagnostic Leasing’s insurance claim; and (3) Fireman’s Fund negotiated the 2001 release to release Blocker Storage’s claims arising from the policy; and because Diagnostic Leasing did not rebut the evidence of an agency relationship, the district court did not err in granting summary judgment for Associated Indemnity on the agency issue.

Effect of the 2001 Release

Under Florida law, once the insured releases the insurer from liability, the insured no longer has a cause of action against the insurer and neither does an injured third party.

The 2001 release was not limited to only those claims that existed at the time of the release; it released “all claims for . . . ‘bad[]faith’ damages, . . . arising out of or related to” Blocker Storage’s insurance claims under the policy. Any bad faith claims against Associated Indemnity related to Blocker Storage’s insurance claims under the policy.

Once Blocker Storage released Associated Indemnity from liability “arising out of or related to” Blocker Storage’s insurance claims under the policy, including liability for any bad faith, “no such [bad faith] action [could] be maintained” by Diagnostic Leasing against Associated Indemnity. Associated Indemnity owed no independent duty of good faith to Diagnostic Leasing who was not an insured under its policy.

Because the 2001 release preceded the assignment of Blocker Storage’s claims under the insurance policy and released Associated Indemnity of “all claims . . . for ‘bad[]faith’ damages” arising out of or related to” Blocker Storage’s insurance claims under the policy, the release extinguished Diagnostic Leasing’s claims for bad faith, which existed only by virtue of Blocker Storage’s insurance relationship with Associated Indemnity.

Mutual Mistake

The 2001 release settled the amount of Associated Indemnity’s liability under its insurance policy issued to Blocker Storage and referenced the underlying litigation between Blocker Storage and Diagnostic Leasing where Associated Indemnity was the insurer and funded Blocker Storage’s defense.

IT DOESN’T PAY TO TAKE AN ASSIGNMENT OF A BAD FAITH CASE IF THE CASE WAS RELEASED

Diagnostic Leasing won a judgment against Blocker Storage for almost one million dollars only to give up trying to collect from the responsible defendant by taking an assignment against Blocker Storage’s insurer who had, before the assignment, released the insurer. Greed and hope of getting the full judgment plus punitive damages from an insurer Diagnostic and its lawyers failed to do their due diligence to deal with the release and tried to avoid the release by going after a sister insurer of the named insurer. A waste of time and effort.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

 

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The Problem With Blindly Changing Insurers

Coverage Gap Created by Inept Changes in Insurers and Policy Wording

Often insureds will change insurers to save premium or obtain promised additional coverages. However, switching insurance providers can be tricky and dangerous to the insured. The separate insurance policies-drafted by, and entered into with, different providers-may not necessarily align. Gaps in coverage may appear that can leave even the best intentioned policyholders entirely exposed. A “Claims Made” policy provides different coverages than an “occurrence” based policy.

In Derek Slaughter, Gabriel Campana, And City Of Williamsport v. The Charter Oak Fire Insurance Company, State National Insurance Company, Inc., and Steven Helm, No. 4:21-CV-01284, United States District Court, M.D. Pennsylvania (June 17, 2022) the USDC explains why changing insurers and policy types needs the assistance of a professional risk manager and insurance coverage expert.

The City of Williamsport found itself in a problem of coverage created by its changes of coverage without first determining that the coverages do not conflict.

The City switched providers for its public entity liability insurance in January 2019. It was then sued in 2021 by a police officer who claimed retaliation based on prior suits he filed against the City in 2017 and 2018. After an officer filed two suits during the coverage period of the City’s former insurer, State National Insurance Company, Inc. he then filed a 2021 suit during the coverage period of the City’s current insurer, The Charter Oak Fire Insurance Co.

The current insurer disclaims coverage for claims in any way factually connected to prior suits filed outside its coverage period. The former insurer does not follow this same practice, and, critical here, disclaims any obligation to defend or indemnify the City for any future claims arising out of pending or prior litigation. The City placed itself squarely upon the horns of a dilemma and a place where no insurance applies.

BACKGROUND

Specifically, Officer Helm sued Williamsport and its Police Chief in April 2017 for violating his First Amendment freedom of association rights by allegedly retaliating against him for his activities as the president of the police officer’s union. Helm then filed a second, one-count suit in November 2018, raising the same claim based on similar conduct. Ultimately, Helm and Williamsport resolved these suits by settlement agreement.

The Insurance Policies

To safeguard the City’s finances from employee lawsuits like those filed by Helm, Williamsport maintains public entity liability insurance that covers, among other things, losses resulting from “wrongful employment practice[s].” From January 1, 2016, to December 31, 2018, the City contracted with State National for this coverage. Under its public entity liability insurance policy, State National committed to “pay on behalf of [Williamsport] all ‘loss’ resulting from ‘employment practices wrongful act(s)’ but only with respect to ‘claims’ first made against [Williamsport] during the ‘policy period.’”  That said, State National disclaimed any “obligat[ion] to make any payment [or] to defend any ‘suit’ in connection with . . . future ‘claims’ arising out of any pending or prior litigation or hearing.”

After its agreement with State National expired in December 2018, Williamsport switched insurers. The City contracted with Charter Oak for public entity liability insurance, with coverage beginning on January 1, 2019, and continuing through the present. Charter Oak’s basic agreements were the same as those by State National.

However, Charter Oak’s coverage extends only to suits “first made or brought against [the City] . . . during the policy period.” And the Charter Oak policy contains an important qualifier regarding the concept “first made or brought” and that was it excluded similar prior acts.

ANALYSIS

In its motion for judgment on the pleadings, Williamsport asks the Court to declare that both Charter Oak and State National possess two distinct but related duties: (a) the duty to defend the City in the lawsuit Helm initiated in April 2021; and (b) the duty to indemnify the City for any losses stemming from the April 2021 suit.

Duty to Defend

Under Pennsylvania law, determining whether an insurer has a duty to defend its insured involves the court to endeavor to ascertain the intent of the parties as manifested by the language of the written instrument, which requires reading the policy as a whole and construing the contract in accordance with the plain meaning of terms. The court must enforce language that is clear and unambiguous; if language is ambiguous, it must be construed against the insurer and in favor of the insured.

Charter Oak

Charter Oak contended that Helm’s 2021 claims do not trigger coverage because they fall within an enumerated exception.

Charter Oak’s policy establishes a duty to defend claims or suits seeking damages for wrongful employment practice offenses-such as discrimination, retaliatory action, and wrongful failure to promote-that were “first made or brought” during the policy period (i.e., starting January 1, 2021). The 2017 and 2018 lawsuits were indisputably “first made or brought” prior to the Charter Oak coverage period. The court next determined if the 2017 and 2018 lawsuits involve wrongful employment practice offenses “related” to those in the 2021 action.

The Court concluded that Helm “connects the retaliatory actions occurring between 2018 and 2020 [i.e., the basis of his 2021 claims] to the retaliatory actions against him referenced in [the 2017 and 2018 lawsuits], ” thereby establishing “a common connection and link of related causes, facts and circumstances.” Therefore, the Charter Oak policy was faced with lawsuits that involve “related wrongful employment practice offenses.”

Although the city properly notified the insurer of the claim within the policy period, which began in July 2005, the policy clearly and unambiguously excluded any claim “alleging, based upon, arising out of or attributable to any prior or pending litigation . . . filed on or before the effective date of the [insurance] policy” or the “same or substantially the same wrongful act, fact, circumstance or situation underlying or alleged therein.”

The Charter Oak policy does not cover claims or suits filed within the coverage period if a separate suit involving “related” wrongful employment practice offenses was “first made or brought” prior to the coverage period. Since the 2017 and 2018 suits were “first brought or made” prior to the Charter Oak coverage period, Helm’s 2021 suit does not trigger coverage.

State National

The City probably thought that because Helm’s 2017 and 2018 suits were considered “related” to his 2021 claims, thereby absolving Charter Oak of its duty to defend Williamsport, the prior suits would necessarily compel coverage by State National, Williamsport’s public entity liability insurance provider from January 2016 through December 2018. But that was not the case.

State National’s public entity liability insurance policy contains several exclusions, explaining that State National “will not be obligated to make any payment nor defend any . . . future ‘claims’ arising out of any pending or prior litigation or hearing.”

This language is clear and unambiguous: State National’s coverage obligations extend only to claims first made against Williamsport during the policy period; claims brought after the coverage period-even those that arise out of pending or prior litigation first brought during the coverage period-do not trigger coverage.

Duty to Indemnify

The duty to defend is broader than the duty to indemnify, and, therefore, if an insurer has no duty to defend, it likewise has no duty to indemnify. Because the Court found that neither Charter Oak nor State National must defend Williamsport from Helm’s April 2021 claims, neither Defendant must indemnify Williamsport for these claims.

CONCLUSION

Read together, the Charter Oak and State National insurance policies leave the City without coverage. Despite maintaining public entity liability insurance without interruption, the City has no coverage for the officer’s 2021 suit.

ZALMA OPINION

Individuals, businesses, corporations, and governmental entities must never assume that a new policy will protect them in the same way as an earlier policy. It is essential that the insured, the city in this case, read both policies and if they don’t understand – as most people insured do not – employ an expert in insurance coverage and risk management before agreeing to replace one policy with another that may have different terms and conditions. In this obligation the City of Williamsport failed and must defend itself to the claims of the officer and, if it loses, pay the judgment out of city funds.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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The Insured is Presumed to Know What His Policy Insures

Undisclosed Intent Does Not Change the Wording of a Policy

Insurance policies are contracts that are interpreted by their plain meaning. An insured is bound by the terms and conditions of the insurance policy. In Progressive Mountain Insurance Company v. Mobile Maintenance On The Go, LLLP, Helene Julien And Jesse Espinoza, Civil Action No. 1:20-CV-1665-JPB, United States District Court, N.D. Georgia, Atlanta Division (June 17, 2022) an insured cannot claim that the policy provides a coverage that was not agreed to by the parties to the contract of insurance.

The parties disputed whether an insurance policy, issued by Petitioner to Mobile Maintenance on the Go, LLLP (“Mobile Maintenance”), provided coverage for injuries sustained by Helene Julien (“Julien”) following a 2018 car accident involving an uninsured motorist. Petitioner, the insurer, sued seeking a Declaratory Judgment against Mobile Maintenance, Julien and Jesse Espinoza that it did not owe Uninsured Motorist, Underinsured Motorist or Med Pay Coverage. The insurer filed a motion for summary judgment. Jesse Espinoza and Julien (together, “Respondents”) then filed a motion to withdraw admissions- some of which formed the basis of Petitioner’s summary judgment motion.

FACTUAL HISTORY

Mobile Maintenance is a family cleaning business operated by Julien, Jesse Espinoza (Julien’s daughter) and Javier Espinoza (Jesse Espinoza’s husband). In March 2015, United Services Automobile Association (“USAA”) issued an automobile insurance policy to Jesse Espinoza that covered two vehicles.

Later, in 2016, Jesse Espinoza completed a vendor agreement for Mobile Maintenance to clean apartments owned by AMLI, listing Mobile Maintenance as the vendor. That agreement required Mobile Maintenance to obtain at least $1,000,000 in automobile liability insurance. Jesse Espinoza thus asked USAA to increase the coverage limits on the policy that was issued in 2015. USAA was unable to increase the policy limits and referred Jesse Espinoza to Petitioner, who issued a commercial automobile policy with the necessary coverage.

On October 15, 2018 a Honda Civic-driven by Brandon Donald, an uninsured motorist-struck Julien when she was walking from the grocery store to her daughter’s house. Julien sustained severe injuries in the accident. On October 2, 2020, Julien filed suit against Brandon Donald in the State Court of Gwinnett County and served Petitioner as the purported underinsured motorist carrier.

The Policy named Mobile Maintenance as the insured, and premium payments for the Policy were made via electronic transfers from Mobile Maintenance’s bank account. When applying for the Policy, Jesse Espinoza represented that the vehicle to be insured was used only for business purposes.

ANALYSIS

The insurer argued that it is entitled to summary judgment because Julien is not an “insured” under the terms of the Policy and is thus not eligible for coverage under either the Uninsured Motorist Coverage Endorsement or the Medical Payments Coverage Endorsement. Respondents concede that Mobile Maintenance is the named insured on the Policy. However, they contend that this was an error and that they intended to procure a personal policy in the name of Javier Espinoza (who is not a party to this action) or Jesse Espinoza-in which case Julien, as a relative of the insured, would receive coverage-rather than a commercial automobile policy insuring Mobile Maintenance.

Under Georgia law, “insurance is a matter of contract, and the parties to an insurance policy are bound by its plain and unambiguous terms.” [Richards v. Hanover Ins. Co., 299 S.E.2d 561, 563 (Ga. 1983).]

The parties in this case do not dispute that Mobile Maintenance is the named insured on the Policy, nor do they dispute that only an “insured” party is eligible for uninsured motorist coverage and medical payments coverage. The parties also do not contest the language that appears in the Policy: to qualify as an “insured” for the purposes of the Endorsements when the named insured is a partnership (like Mobile Maintenance), a claimant must have been “occupying an insured auto or temporary substitute auto” at the time of injury.

Julien was indisputably a pedestrian when she was struck by an uninsured motorist and thus falls outside the applicable definition of “insured.” The plain terms of the Policy, then – by which the Court is bound – precludes her from recovering any benefits under the Endorsements. Since the policy language is clear and unambiguous the contract must be enforced according to its plain terms. It is well settled that where no ambiguity in a policy of insurance exists, the courts must adhere to the contract made by the parties even if it is beneficial to the insurer and detrimental to the insured. The Policy’s language clearly and unambiguously dictates that Julien is not an “insured” and is thus ineligible for coverage.

Although Respondents admit that the Policy exists, that it was issued to Mobile Maintenance and that it contains the language above, they nonetheless argue that they intended to procure a personal insurance policy in the name of Jesse Espinoza or Javier Espinoza. Had they done so, Respondents contend, Julien would be covered under the Policy as a “relative” of the “named insured.”

Respondents’ arguments on this point are unavailing. As the facts show, the Policy was issued to Mobile Maintenance, premiums were paid from Mobile Maintenance’s account and Jesse Espinoza represented that the vehicle (a 2007 Dodge Ram) under the Policy would be used only for business purposes. The law weighs against Respondents’ position about their supposed intent. The general rule is that insureds are chargeable with knowledge of the contents of their policies.

Jesse Espinoza was presumed to know the Policy’s terms, including who qualifies as an “insured” under its provisions. The plain language of the Policy dictates that Julien is not eligible for coverage under the Uninsured Motorist Coverage Endorsement or the Medical Payments Coverage Endorsement.

As a result, the insurer does not owe Respondents any coverage obligation with respect to any claim arising from the October 21, 2018 accident because Helene Julien is not an “insured” under the terms of the Policy. Accordingly, Petitioner’s Motion for Summary Judgment was granted.

ZALMA OPINION

Equity allows an insured to reform the wording of a policy if it was issued in error because of a mistake of fact or fraud. In this case the alleged mistake was unilateral on the part of the insured who bought a commercial policy that only insured those operating the described vehicle. Since the person injured was a pedestrian she was not an insured and the belated “intent” was not able to convince the court that the error was not discovered in hindsight.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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Intentional Act Exclusion Defeats Claim for Defense & Indemnity

Customer Complaint Coverage Doesn’t Apply to Claim of Consumer Fraud

Plaintiff, Owners Insurance Co. (insurer), appealed from the judgment of the circuit court of Du Page County ruling that an intentional-acts exclusion in an insurance policy did not exclude coverage for the expenses incurred by defendant, Don McCue Chevrolet, Inc. (insured) in defending an underlying consumer-fraud complaint brought by a former customer, Julio Salas. In Owners Insurance Company v. DonMcCue Chevrolet, Inc., 2022 IL App (2d) 210634-U, No. 2-21-0634, Court of Appeals of Illinois, Second District (June 17, 2022) the Court of Appeals resolved the dispute.

BACKGROUND

Salas’s one-count complaint against the insured in the underlying lawsuit alleged a violation of the Consumer Fraud and Deceptive Business Practices Act (Act) (815 ILCS 505/1 et seq. (West 2020)). Salas alleged as follows:

The parties entered into a written retail installment contract for Salas to purchase a new 2020 Chevrolet truck from the insured. Per the sales contract, Salas provided $5000 cash and his 2018 Chevrolet vehicle as a down payment. The parties agreed that the sales contract would be assigned to a finance company or bank. If the insured was unable to assign the contract, the transaction would not be completed, Salas would return the new truck, and the insured would return to Salas the $5000 and the 2018 vehicle. The insured was unable to obtain financing for the purchase. Per the insured’s demand, Salas returned the new truck. However, the insured “refused and continues to refuse” to return either the $5000 or the 2018 vehicle.

The insured submitted a claim under the policy for expenses incurred in the defense of the underlying lawsuit. The insured based its claim on a policy provision entitled “Customer Complaint Defense Reimbursement Coverage” (defense-reimbursement provision). That provision stated in relevant part that the insurer would reimburse the insured for reasonable costs and expenses incurred in defending a “customer complaint suit.” Coverage was excluded for any suit resulting from “[a]ctual or alleged criminal, malicious or intentional acts” committed by the insured (intentional-acts exclusion).

The insurer declined the insured’s claim for coverage of defense expenses relying on the intentional-acts exclusion.

The insurer alleged that it was not responsible for reimbursing the insured for any expenses related to the insured’s defense of Salas’s lawsuit. The insurer alleged that there was no coverage because “[t]he decisions by [the insured] to not refund Salas the $5000 down payment or to return the 2018 Chevrolet Traverse [were] intentional acts” that fell within the intentional-acts exclusion.

The trial court denied the insurer’s motion and granted the insured’s motion, ruling that the insurer had a duty under the defense-reimbursement provision to provide coverage for the insured’s expenses in defending the underlying suit.

ANALYSIS

Where cross-motions for summary judgment are filed in an insurance coverage case, the parties acknowledge that there exist no questions of material fact but only questions of law regarding the construction of the policy.

The insurer may refuse to defend only if it is clear from the face of the complaint that the allegations fail to state facts that bring the cause within, or potentially within, coverage. If an insurer relies on an exclusionary clause to deny coverage, it must be free and clear from doubt that the clause applies. An exclusion for intentional acts is construed to exclude coverage when the insured has:

  1. intended to act and
  2. specifically intended to harm a third party.

The burden is on the insurer to prove that an exclusionary clause applies. An exclusionary clause for intentional conduct will not apply when a claim arises, or could potentially arise, from a merely negligent act or omission. Phrases in the underlying complaint such as “mislead,” “conceal,” “scheme,” “deceive,” “intentionally,” or “willfully” are the “paradigm of intentional conduct and the antithesis of negligent actions.” [Leighton Legal Group, LLC, 2018 IL App (4th) 170548, ¶ 38.]

Since a “customer complaint” is defined as a customer’s claim that he sustained loss or damage resulting from the insured’s “[a]cts” or “[failures to act” relative to the sale of a vehicle. However, the parties disagree as to whether the intentional-acts exclusion applies to any intentional acts or strictly to intentional misconduct.

The word “intent” for purposes of an exclusionary clause in an insurance policy denotes that the actor desires to cause the consequences of his action or believes that the consequences are substantially certain to result. The allegations of the underlying complaint fell within the policy exclusion. The underlying complaint alleged exclusively intentional misconduct, not negligence. When read as a whole, the underlying complaint exclusively alleged an intentional violation of the Act, as opposed to a negligent one.

CONCLUSION

The trial court erred in granting summary judgment for the car dealership on the question of whether its conduct as alleged in a former customer’s consumer-fraud suit fell within the scope of insurance coverage for expenses incurred in defending lawsuits based on customer complaints. Because the underlying suit alleged strictly intentional misconduct by the dealership, the policy’s exclusion for intentional acts applied.

The appellate court, therefore, remanded the case to the trial court with directions to enter summary judgment in the insurer’s favor on the complaint.

ZALMA OPINION

The facts alleging an intentional breach of the consumer protection act, breaching the agreement between the customer and the dealership, were obviously intentional – they kept the down payment and refused to return it and the trade-in vehicle. How the trial court found the action was not intentional is amazing and the Court of Appeal brought reason to the dispute.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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Chutzpah: Murder for Insurance Money Life Sentences Affirmed

Killers Try Again to Reduce Sentence & Fail Again

INSURANCE FRAUD IS A VIOLENT CRIME

When convicted of murder in the first degree and conspiracy to commit murder for life insurance money, the defendants require a great deal of chutzpah (unmitigated gall) to file multiple appeals to reduce or eliminate the life without parole sentences. In the latest effort, The People v. Leny Peterson Galafate, F081563, California Court of Appeals, Fifth District (June 9, 2022) the Court of Appeal wrote a detailed opinion discussing all of the arguments filed by the murderer expending more time and paper than a convicted murder who had already appealed unsuccessfully to different courts that was not deserved.

FACTS

In 1989, appellant Leny Peterson Galafate and her then-husband, codefendant Roman Galafate III, were convicted after a joint jury trial of count 1, first degree premeditated murder, with the special circumstance that the murder was intentional and carried out for financial gain; and count 2, conspiracy to commit murder for financial gain.

In 1991, the Court of Appeal affirmed defendants’ convictions and sentences on appeal and the Supreme Court refused to hear their case. Not convinced they appealed again involving Leny’s petition for resentencing pursuant to Penal Code section 1170.95, filed in 2019. Her petition alleged she was entitled to relief because she was not the actual killer, and her murder conviction was based on the felony-murder rule and/or the natural and probable consequences doctrine. The court summarily denied the petition without holding a hearing.

Leny asserts the superior court improperly relied on this court’s prior opinion to summarily deny her petition without a hearing, this court’s prior opinion is likely unreliable, and she made a prima facie case for relief because the instructions allowed the jury to convict of murder her based on an imputed malice theory.

In the mid-1980’s, defendants Roman Galafate (Roman) and his then-wife, Leny Petersen Galafate (Leny), resided with family members in Delano, California. Roman was an agent for Midland National Life Insurance Company (Midland National) and had an office in the MGM Professional Building in Delano.

Roman processed an application for a $250,000 insurance policy on the life of Violeta Petersen. The application was dated February 18, 1986, and named “Leny Petersen” as beneficiary of the proceeds. Leny Petersen was Leny’s maiden name.

Roman transmitted the completed application and money order to Midland National in Sioux Falls, South Dakota. Midland National received the documents sometime between 6:15 a.m. on Friday, February 21, 1986, and 6:15 a.m. on Monday, February 24, 1986.

On February 24, 1986, Dr. Armand L. Dollinger, a forensic pathologist, performed an autopsy on the five-foot three-inch, 102-pound body of Violeta Petersen. Dr. Dollinger concluded Violeta died by asphyxiation caused by ligature strangulation sometime prior to 2:00 p.m. on February 22, 1986. The ligature could have been a rope or cord. Dr. Dollinger testified death by ligature strangulation would have taken several minutes.

On June 11, 1986, Midland National mailed Reny Petersen a check for $76,362.50, representing the proceeds from Violeta’s 1985 policy plus interest.

Convictions

On January 23, 1989, after a joint jury trial, both Roman and Leny were convicted of count 1, first degree premeditated murder, with the special circumstance found true; and count 2, conspiracy to commit murder for financial gain, with two overt acts found true.

The court sentenced both Roman and Leny to life without the possibility of parole for count 1, first degree murder with the special circumstance, and stayed the term of 25 years to life for count 2, conspiracy to commit murder.

A review of the entire record reveals substantial evidence of defendant Leny Galafate’s status as both an aider and abettor and a conspirator. Leny Galafate forged Violeta Petersen’s signature on a $250,000 insurance policy application. The application named defendant, under her maiden name of Leny Petersen, as the policy beneficiary. Someone murdered Violeta Petersen within a week of the execution of the application. Defendant submitted a $250,000 claim, dated April 4, 1986, to Midland National.  Midland National received the claim and questioned both the use of defendant’s maiden name and her signature on the application.

Defendant accompanied Reny Peterson to the bank on two separate occasions. On June 25, 1986, defendant extracted $10,000 in cash from Reny Peterson. On July 8, defendant took Reny Peterson to the Presideo Savings and Loan and obtained a cashier’s check for $66,000. That check was deposited to defendant Roman Galafate’s bank account the same day. The People properly note Leny’s actions fully supported the jury’s determination she conspired to commit murder for financial gain.

Writ Petitions

Both defendants filed numerous post-judgment writ petitions challenging their convictions. In 1987 and 1989, defendants filed writ petitions with the Court of Appeal and were denied. In 1997, defendants filed a joint petition for writ of habeas corpus in superior court; the petition was denied because defendants reasserted issues already raised and rejected in their direct appeal.

DISCUSSION

In this case, the jury found true the financial gain special circumstance based on instructions that required the jury to find either that Leny was the actual killer, or she intentionally aided and abetted the actual killer in the commission of the murder.

The true finding on the special circumstance therefore established the jury made the findings necessary to show an intent to kill for her conviction of first degree premeditated murder under the law. Leny is thus ineligible for resentencing as a matter of law, and she was not prejudiced by the court’s summary denial of her petition.

Moreover, under the special circumstance instructions and finding, it is clear the jury convicted Leny of first degree premeditated murder by finding she had the intent to kill. She therefore is ineligible for resentencing as a matter of law.

Leny asserted that the jury at her 1989 trial could have convicted her of murder based on an “uncharged” conspiracy theory based on insurance fraud as the target offense and murder as the nontarget offense. Leny argued the aiding and abetting and conspiracy instructions, combined with the prosecution’s insurance fraud motive theory, allowed jurors to impute malice to Leny from her participation in the insurance fraud.

The Court of Appeal concluded that Leny’s claim that she was convicted of murder based on an uncharged conspiracy theory is specious and refuted by the record that may be considered in making the prima facie determination.

CONCLUSION

While the superior court failed to comply with section 1170.95 by summarily denying Leny’s petition for resentencing without conducting a hearing or giving a statement of reasons why it was not issuing an order to show cause, the court’s statutory violations are not prejudicial because Leny is ineligible for resentencing as a matter of law and her arguments to the contrary are meritless.

ZALMA OPINION

People who commit insurance fraud are, by definition, immoral. Those who commit premeditated murder to collect on a life insurance policy are evil and have no morality. Leny proved the lack of morality to file multiple, detailed appeals of her sentence only to have the California Court of Appeal write a lengthy opinion pointing out her criminal conduct and she will serve the rest of her life in gray bar hotel, the California State Prison. Hopefully no court will even consider another appeal. She proves that insurance fraud is a violent crime.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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A Policy Rescinded Never Existed

Monies Paid on a Claim Before Rescission Ordered Must be Returned to the Insurer

Liberty Mutual Personal Insurance Company (“Liberty Mutual”) moves for summary judgment on its counterclaim for unjust enrichment and return of funds paid on a policy that was, after the payments were made, declared rescinded from its inception. In    Tanesha Taybron v. Liberty Mutual Personal Insurance Company, No. 20-10925, United States District Court, E.D. Michigan, Southern Division (May 19, 2022) the USDC resolved claims by the Plaintiff that she need not return payments made by Liberty to her before the policy was effectively rescinded.

LAW AND ANALYSIS

The parties do not dispute the existence of an express contract: the insurance policy issued by Liberty Mutual. When there is no dispute regarding the existence of an express contract covering the subject matter at issue, courts regularly dismiss unjust enrichment claims as a matter of law. Liberty Mutual may not recover on an unjust enrichment theory.

This does not end the inquiry, however, as the relief Liberty Mutual seeks – restitution – is inherent in the equitable remedy of rescission.

“Rescission is the common, shorthand name for a composite remedy (more fully, ‘rescission and restitution’) that combines the avoidance of a transaction and the mutual restoration of performance thereunder.” [Restatement (Third) Of Restitution And Unjust Enrichment § 54 cmt. a (2011)].

Liberty Mutual was entitled to rescind the insurance policy based upon Taybron’s material misrepresentation in her application. An insurance policy procured by fraud may be declared void ab initio at the option of the insurer. Rescission abrogates a contract and restores the parties to the relative positions that they would have occupied if the contract had never been made. To rescind a contract is not merely to terminate it, but to undo it from the beginning, and the effect of rescission is not merely to release the parties from further obligation to each other in respect to the subject of the contract, but to annul the contract and restore the parties to the relative positions which they would have occupied if no such contract had ever been made.

Rescission Involves a Restoration of the Status Quo.

In this case, the status quo has been partially restored, in that Liberty Mutual returned the premium paid by Taybron for the policy. Unlike cancellation of a policy, which permits the insurer to keep that portion of the premiums corresponding to the period of coverage preceding cancellation, rescission requires a full refund of the premiums paid.

In order to restore the status quo, as if the contract had never been made, so too must Taybron return the amounts paid to her or on her behalf under the policy. An insurer entitled to rescind an insurance policy because of fraud is not obligated to pay benefits under that policy. Requiring Liberty Mutual to return the premium without considering the benefits already paid restores Taybron to her precontract position, but not Liberty Mutual.

An insurer who has an “arguable duty to pay” under a policy is protecting its own interests and not acting as a volunteer and Liberty had the arguable duty until the court affirmed its claim for rescission. Assuming that Liberty Mutual knew the basis for rescission early in its investigation of the claim, it nonetheless had a strong incentive for paying Taybron’s claim promptly and sorting out its liability later.

Taybron obtained benefits as a result of a misrepresentation in her insurance application. In this regard, she is primarily responsible for her own unjust enrichment.

The measure of unjust enrichment or restitution may be calculated in different ways, depending on the circumstances. In this case, Taybron received a direct money payment and Liberty Mutual paid housing costs on her behalf. Enrichment from a money payment is measured by the amount of the payment or the resulting increase in the defendant’s net assets, whichever is less. Enrichment from the receipt of nonreturnable benefits may be measured in various ways, including the value to the defendant, the market value, or the cost to the claimant of conferring the benefit.

In light of the circumstances, which involve rescission and a return to the status quo, the cost to Liberty Mutual of conferring the benefits is the appropriate measure of value. Restoring the parties to the status quo, as if no contract had been made, must involve restitution of the amount Liberty Mutual paid under the policy, rather than calculation of the subjective benefit experienced by Taybron. Enrichment from benefits wrongfully obtained is not discounted to reflect some lesser value actually realized in advancing the purposes of the defendant.

Liberty Mutual paid $21,921.05 to or on behalf Taybron under a policy that was properly rescinded. Restitution in that amount to Liberty Mutual returns the parties to the status quo and avoids the retention of a benefit that was wrongfully obtained.

Liberty Mutual’s motion for summary judgment was granted in part.

ZALMA OPINION

Liberty Mutual determined, after a claim was presented, that it appeared its insured had lied on the application for insurance about material facts that entitled Liberty Mutual to rescind. While obtaining a judgment confirming rescission Liberty Mutual protected itself by paying the claim under a reservation of rights. It rightfully required return of the money paid since the policy – by law – never existed and the court agreed it was entitled to restitution.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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Insurance Videos to Help Provide Excellence in Claims Handling: Only on Locals.com

Zalma on Insurance & Excellence in Claims Handling

Videos Explaining the Excellence in Claims Handling Video Program for Subscribers to Locals.com.

Starting on July 1, 2022 the Excellence in Claims handling videos will only be available to subscribers at Locals.com although the blog posts will be available to all, at no cost, at my blog, Locals.com.

If you wish to subscribe for only $5 a month go to locals.com at https://zalmaoninsurance.locals.com/subscribe

The Locals.com community will publish the new videos. You can see a sample below.

Excellence in Claims Handling is a community created by Barry Zalma, Esq., CFE and ClaimSchool, Inc. to help create a community of insurance professionals dedicated to provide excellence in claims handling to all people insured who present a claim to their insurer.

Zalma on Insurance will continue to provide materials on insurance, insurance claims, insurance law and insurance fraud. Material from the blog digesting new insurance law cases will presented free and there will be special Excellence in Claims Handling videos only for subscribers.

Excellence in Claims Handling will be a source for the insurance claims person to become an insurance claims professional who can provide excellence in claims handling to the insurance buying public.

The Professional Claims Handler

In search of profit, insurers have decimated their professional claims staff. They laid off experienced personnel and replaced them with young, untrained, unprepared people. A virtual clerk replaced the old professional claims handler. Process and computers replaced hands-on human skill and judgment. Money was saved by paying lower salaries. Within three months of firing the experienced claims people gross profit increased.The promises made by an insurance policy are kept by the professional claims person.

Keeping a professional claims staff dedicated to excellence in claims handling is cost-effective over long periods of time. A professional and experienced adjuster will save the insurer millions by resolving disputes, paying claims owed promptly and fairly, and by so doing avoiding litigation. Every insurer should provide a subscription to their claims staff.

The professional claims person is an important part of the insurer’s defense against litigation by insureds against insurers for breach of contract and the tort of bad faith. Claims professionals resolve more claims for less money without the need for either party to involve counsel. A happy insured or claimant satisfied with the results of his or her claim will never sue the insurer.

Incompetent or inadequate claims personnel force insureds and claimants to public insurance adjusters and lawyers. Every study performed on claims establishes that claims with an insured or claimant represented by counsel cost more to resolve than those where counsel is not involved because the claim is resolved quickly and fairly. Prompt, effective, professional claims handling saves money for both the insured and the insurer and fulfills the promises made when the insurer sold the policy.

Insurers who believe they can handle first or third party claims with young, inexpensive, inexperienced and untrained claims handlers should be accosted by angry stockholders whose dividends have plummeted or will plummet as a result. When an insurer compromises on staff, profits, thin as they may have been previously, will move rapidly into negative territory. Tort and punitive damages will deplete reserves. Insurers will quickly question why they are writing insurance. Those who stay in the business of insurance will either adopt a program requiring excellence in claims handling from every member of their claims staff, or they will fail.

Insurance is a business. It must change—this time for the better—if it is to survive. It must rethink the firing of experienced claims staff and reductions in training to save “expense.” Insurers should, if they wish to succeed, adopt a program to promote excellence in claims handling that can help insurers keep the promises made by the insurance policy and avoid charges of breach of contract and the tort bad faith in both first and third party claims.

Insurers must understand that they cannot adequately fulfill the promises they make to their insureds and their obligations under fair claims practices acts without a professional, well trained and experienced claims staff. An insurer must work vigorously and intelligently to create a professional claims department or recognize it will lose its market and any hope of profit.

Insurance claims professionals must be people who:

  • can read and understand the insurance policies issued by the insurer.
  • understand the promises made by the policy and their obligation, as an insurer’s claims staff, to fulfill the promises made.
  • are competent investigators.
  • have empathy, and recognize the difference between empathy and sympathy.
  • understand medicine relating to traumatic injuries and are sufficiently versed in tort law to deal with lawyers as equals.
  • understand how to repair damage to real and personal property and the value of the repairs or the property.

An insurer whose claims staff is made up of people who are less than professional will find itself the subject of multiple instances of expensive, counterproductive litigation.

If you wish to subscribe for only $5 a month go to locals.com at https://zalmaoninsurance.locals.com/subscribe

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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The Equitable Remedy of Rescission of Insurance:

An Effective Tool to Detect, Deter and Defeat Insurance Fraud

On Today, the Summer Solstice, The Equitable Remedy is Now Available at Amazon.com from Barry Zalma & the Insurance Claims Library

Rescission is an equitable remedy first created in the ecclesiastical courts of Elizabethan England.

When the United States was conceived in 1776 the founders were concerned with protecting their rights under British common law.

Common Law is a form of law developed by judges through tribunals and decisions of courts rather than executive branch action and legislative statutes.

Following the common law tradition, legal principles were referred to courts of equity to “mitigate the rigor” of the common law.

The new United States of America adopted British common law as the law once the U.S. Constitution was adopted in 1789. British common law was only modified by the limitations placed on the central government by the Constitution.

The viability and ability to enforce contracts was recognized as essential to commerce. Courts of law, following the British Common Law, were charged with enforcing legitimate contracts and rendering money judgments against the party who breached the contract.

It became clear, however, that some contract disputes cannot be resolved with a money judgment. Rather, it needed the assistance of the courts of equity whose judges, in the Elizabethan era were presided over by priests who were believed to be better able to render fair judgments.

The term “equity” is associated with notions of fairness, morality and justice. It is an ethical jurisdiction. On a more legalistic level, however, “equity” is the branch of law that was administered in the Court of Chancery prior to the Judicature Acts 1873 and 1875.

This was a jurisdiction evolved to achieve justice and to overcome the rigorous and deficiencies of the common-law. Although application of conscience pervades this aspect of the law, equity never bestowed an unfettered jurisdiction on the Court of Chancery to do what was fair in the settlement of a dispute. Embodying aspects of ecclesiastical law and Roman law, equity developed and gradually emerged as a distinct body of law.

It was not until 1875 that equity was practiced in the common law courts. The existence of a dual system entailed that, for example, when a defendant had an equitable defense to a common law action, he would have to go to the Court of Chancery to obtain an injunction to suspend the proceedings in common-law court. He would then begin a fresh action for relief in the Court of Chancery. Facing duality persisted until the Judicature Acts which created the Supreme Court of Judicature and allowed all courts to exercise both a common law and equitable jurisdiction.

The courts of equity were charged with, among other things, protecting contracting parties from mistake, fraud, misrepresentation and concealment where no damages were involved. It was the obligation of the courts of equity to reach a result that was fair to all of the parties to the contract. The founders of the United States, and the British common law, concluded that equity required that enforcing a contract based on mistake, fraud, misrepresentation or concealment would not be fair.

A court of equity is a court which can apply equitable remedies to disputes. These courts operate within the legal system, but rather than focusing on the application of law, they look at cases and determine outcomes based on fairness. They can be found in many regions of the world. In modern usage in the United States trial courts are empowered to handle both legal and equitable remedies.

Available as a kindle book here. Available as a paperback here. 

Available as a hardcover here.

See more insurance law and claims books from the Insurance Claims Library here.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.locals.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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Lawyer Admits to Insurance Fraud & Theft from Clients

Convicted of Fraud & Theft Enough for Disbarment

On September 7, 2021, the Office of Disciplinary Counsel (ODC) requested this Court place Respondent Richard Alexander Murdaugh on interim suspension based upon information indicating Respondent had stolen funds from the law firm that employed him. Respondent consented to the relief and on September 8, 2021, the Supreme Court issued an order suspending Respondent from the practice of law. In re Murdaugh, 434 S.C. 233, 863 S.E.2d 335 (2021) and, inIn the Matter of Richard Alexander Murdaugh, Supreme Court of South Carolina, June 16, 2022 the Supreme Court was faced with the obligation to render a final order re Murdaugh’s license to practice law.

FACTS

On September 16, 2021, Respondent Murdaugh was arrested and charged with Attempted Insurance Fraud and Filing a False Police Report. The false report was related to an attempted assisted suicide that Respondent reported as an attempted murder because he believed his life insurance policy contained an enforceable suicide exclusion.

Respondent appeared at bond hearings and, through counsel, admitted in court that he had, in fact, engineered the events that supported the arrest. On November 22, 2021, Respondent filed an Emergency Motion for a Gag Order in Satterfield v. Murdaugh, Case No. 2021-CP-25-00298, in which Respondent admitted to misconduct related to the theft of money from the law firm that employed him.

Over the course of several months, Murdaugh was indicted and charged with over seventy criminal counts involving the theft of funds from various clients, including the Satterfield plaintiffs. On May 27, 2022, he signed a Confession of Judgment and Stipulation in the amount of $4,305,000.00, admitting liability for the theft of settlement funds in the Satterfield matter in which Respondent was the named defendant.

ANALYSIS

The South Carolina Constitution requires the Supreme Court to regulate the practice of law in South Carolina. The jurisdiction of this Court to discipline attorneys for acts of professional misconduct is exclusive. This constitutional duty includes the duty and the authority to remove unfit persons from the legal profession for the protection of the public and the administration of justice, and to do so through disbarment.

Disciplinary matters call into question whether a lawyer is no longer worthy to bear the Court’s imprimatur and continue to practice law.

Disciplinary proceedings ordinarily follow a course of investigation, pleading, limited discovery, and a contested hearing before the Commission on Lawyer Conduct. The Commission then submits a report to this Court with findings of fact, conclusions of law and recommendations for disposition.

Since Murdaugh admitted to conduct that amounts to clear and convincing evidence of dishonesty in violation of the Rules of Professional Conduct presenting testimony about his conduct would be redundant. His conduct involved dishonesty, fraud, deceit, or misrepresentation. The Supreme Court concluded that Respondent is bound by the admissions contained in the documents he filed in the Satterfield case.

Respondent is also bound by the statements his counsel made at the bond hearings in which counsel admitted Respondent staged a suicide attempt to appear as a murder so as to defraud the life insurance company and subsequently filed a false police report to that effect.

Based on these admissions, there is no factual dispute about whether Respondent engaged in dishonest conduct. Respondent’s admissions in the criminal proceedings that he engaged in conduct that violates the Rules of Professional Conduct satisfies the Disciplinary Counsel’s burden of proving that same misconduct in connection with the pending disciplinary proceedings. As a result it was obvious to the Supreme Court that an evidentiary hearing is unnecessary for disposition of the pending discipline, as the only remaining issue to be decided is the legal question of determining the appropriate sanction, a matter left to the discretion of the Supreme Court under the Constitution.

In this unique case, Respondent’s admissions in the public record lead to only one conclusion-that Respondent’s egregious ethical misconduct subjects him to the most significant sanction available- disbarment. Accordingly, there is no need to expend additional resources to proceed through the normal disciplinary process. Instead, the Supreme Court concluded that it may act under the Court’s constitutional authority to regulate the practice of law in South Carolina and may remove an unfit lawyer from the practice of law to ensure the public, and the administration of justice, are protected. Therefore, the Supreme Court dispensed with further proceedings before the Commission and ordered that Murdaugh  appear in the Supreme Court Courtroom at 11:00 a.m. on June 22, 2022, to present legal argument on the question of whether this Court should disbar Respondent from the practice of law.

ZALMA OPINION

The Supreme Court was technically required to allow Murdaugh to appear and explain why he believes he should not be disbarred. I hope he does not add to his egregious and unethical conduct by appearing and that the Supreme Court immediately disbars him.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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Failure to Ask for Defense Eliminates Coverage Until Insured Asks

No Right to Pre-Tender Defense Costs

HDI Global Insurance Company (“HDI”) sought an order eliminating its obligation to pay pre-tender defense costs of its insured.  HDI was sued by plaintiffs, Nucor Steel Louisiana, LLC (“Nucor”) and Dynamic Environmental Services, LLC (“DES”) seeking pre-tender defense costs and other damages. In Nucor Steel Louisiana, LLC et al. v. HDI Global Insurance Co., No. 21-1904, United States District Court, E.D. Louisiana June 1, 2022 the USDC resolved the dispute in favor of the insurer.

BACKGROUND

The facts, as alleged in the complaint, are as follows: HDI issued a commercial general liability policy (“the HDI Policy” or “the Policy”) to DES, providing coverage between November 1, 2016 and November 1, 2017.  Nucor was an additional insured under the HDI Policy.

On May 10, 2018, Bob Dale Comeaux II (“Comeaux”), a DES employee, filed a civil action (“the Comeaux litigation”) in the 23rd Judicial District Court for the Parish of St. James, alleging that he was exposed to hydrogen sulfide gas at Nucor’s plant facility on May 15, 2017. Comeaux named as defendants Nucor and DES.

On May 10, 2019, one year after Comeaux filed suit, attorneys representing Nucor tendered Nucor’s defense and indemnification to DES. On January 21, 2020, HDI sent correspondence to Nucor’s counsel, agreeing to defend Nucor, but reserving rights as to indemnity. On July 2, 2021, Comeaux’s claims as to all defendants were settled through payment by HDI and the insurer for a third defendant. On August 4, 2021, HDI offered to reimburse Nucor’s post-tender defense costs, totaling $37,067.47. Nucor rejected HDI’s offer, and requested that HDI reimburse all of Nucor’s defense costs, including those costs incurred pre-tender, totaling $135, 950.75.

Plaintiffs submit that they have two avenues supporting recovery of Nucor’s pre-tender defense costs. First, Nucor is named as an additional insured under the HDI Policy, and plaintiffs submit that HDI is obligated to reimburse its insured’s pre-and post-tender defense costs. Second, plaintiffs argue that HDI must reimburse DES for its voluntary settlement of Nucor’s pre- and post-tender defense costs because the HDI Policy’s contractual liability provision covers DES’s obligation to indemnify Nucor pursuant to the ICA.

LAW AND ANALYSIS

HDI recognizes that it is required to pay Nucor’s post-tender defense costs because Nucor is an additional insured under the HDI Policy. HDI argued that it is not required to pay Nucor’s pre-tender defense costs.

HDI submits that its position is supported by Gully & Associates, Inc. v. Wausau Insurance Cos., 536 So.2d 816 (La. Ct. App. 1 Cir. 1988).  In Gully, the Louisiana Court of Appeals for the First Circuit held that, because “the insurer’s duty to provide a defense does not arise until the insurer receives notice of the litigation . . . . [the insurer] is not responsible for the legal fees and costs incurred prior to the notification date.”

The language of the HDI Policy repeatedly indicates that the insured must notify HDI regarding legal actions or occurrences that may give rise to liability. Additionally, the HDI Policy states that “[n]o insured will, except at that insured’s own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without [HDI’s] consent.”

The court noted that it was the insured’s prerogative to retain the attorney of their choice before notifying the insurer of the action, “but under the clear terms of the policy they had to exercise that prerogative at their own cost.”

Contractual Liability Coverage

Nucor’s Defense Costs

Whereas an insurer’s duty to defend does not arise until the insurer receives notice or tender, the same principle does not apply to indemnitors, such as DES. The general rule is that an indemnitee is not required to provide notice, let alone tender a defense, to the indemnitor under an indemnification contract, unless the contract itself requires notification or tender of defense.

While Nucor is not entitled to reimbursement of pre-tender defense costs by virtue of being an additional insured under the HDI Policy, there remains the issue of whether DES is entitled to recover its payment of Nucor’s pre- and post-tender defense costs from HDI, pursuant to the contractual liability provision of the HDI policy.

HDI does not dispute that the ICA is an “insured contract” within the meaning of the contractual liability provision. However, HDI disputes that the contractual liability provision requires HDI to reimburse DES for its settlement of Nucor’s defense costs in the Comeaux action. In support, HDI noted that the contractual liability provision states, in relevant part, that the Policy extends to “reasonable attorneys’ fees and necessary litigation expenses incurred by or for a party other than an insured.” HDI submits that, because Nucor is an insured under the policy, its attorney’s fees and costs in the Comeaux litigation are expressly exempted from contractual liability coverage.

Under the express language of the contractual liability provision, HDI is not required to reimburse DES for Nucor’s pre- or post-tender defense costs in the Comeaux litigation.

Because the Court concurred with HDI’s interpretation of the Policy, the Court also concluded that HDI’s conduct was not wrongful or unjustified.

While Nucor is entitled to recover fees from DES pursuant to the ICA, Nucor is not entitled to recover prosecution fees from HDI pursuant to the Policy. Nor is DES entitled to seek reimbursement from HDI, pursuant to the Policy, for DES’s settlement payment of Nucor’s prosecution fees.

DES’s claims-as to DES’s reimbursement of Nucor’s pre-tender defense costs arising in the Comeaux action, Nucor’s litigation costs in pursuing coverage under the ICA and the HDI Policy, and penalties pursuant to La. R.S. 22:1892 and 22:1793-are dismissed with prejudice.

ZALMA OPINION

If an insured wishes to recover from a liability insurance policy it is essential that they give notice to the insurer of a need for a defense. In this case the insured and the additional insured waited before asking for a defense. They were entitled to, and actually received the defense asked for, from the moment the insured asked for defense. They have no right for the costs they incurred for defense before giving notice to the insurer. The lesson: “Don’t sit on your rights. Ask for a defense immediately upon receiving notice that a claim will be or has been filed in a court.”


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.locals.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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Bad Faith Set-Up Suit Fails

Insured Who Refuses to Allow Insurer to Defend or Indemnify Has No Right Against Insurer

It Takes Knowledge & Skill to Set-Up an Insurer for Bad Faith and an Excess Judgment

When the district court determined that an insurer’s duty to defend its insured, on which Moreno’s claims are based, was never triggered, relative to Moreno’s underlying personal injury suit, because the insured, N.F. Painting, Inc., never requested a defense or sought coverage Moreno appealed. In Osman Moreno v. Sentinel Insurance Company, Limited, No. 20-20621, United States Court of Appeals, Fifth Circuit (June 2, 2022) the Fifth Circuit resolved the dispute.

FACTS

In July 2016, Moreno worked as a painter for N.F. Painting, Inc. (“N.F. Painting”) on a project undertaken for Beazer Homes Texas, L.P. and Beazer Homes Texas Holdings, Inc. (collectively “Beazer Homes”). Beazer Homes, a homebuilder, contracted N.F. Painting for work on one of its developments. While on site, Moreno fell from a ladder and sustained serious injuries.

In November 2016, Moreno sued N.F. Painting and Beazer Homes for damages, in Texas state court. At all relevant times, N.F. Painting was insured by Sentinel Insurance Company, Limited (“Sentinel”) under a “Business Owner’s Policy.” As part of a “Master Construction Agreement” with N.F. Painting, Beazer Homes was an “additional insured” under the Sentinel policy.

N.F. Painting’s policy provided coverage for business liability, including personal injury, up to $1,000,000. Regarding payment under that coverage, and the provision of a defense for the insured, the policy stated, in pertinent part:

Despite being served with Moreno’s suit on March 9, 2017, N.F. Painting did not contact Sentinel to request, or even inquire about, coverage and/or a defense under its liability policy. Nor did it send Sentinel a copy of the petition or any other documentation received in connection with the suit. Instead, N.F. Painting retained the services of attorney Armando Lopez. On April 3, 2017, Lopez filed an answer on behalf of N.F. Painting and, on May 12, 2017, provided responses to Moreno’s requests for admissions and disclosures. In those discovery responses, N.F. Painting denied possessing any insurance that would cover the incident.

Beazer Homes, however, did not hesitate to contact Sentinel about Moreno’s suit.

By letter dated June 2, 2017,  Sentinel agreed to defend and indemnify Beazer Homes “without a reservation of rights” (pursuant to the construction contract between Beazer Homes and N.F. Painting) in the state court suit filed by Moreno.

In mid-September 2018, Beazer Homes settled with Moreno and was dismissed from the state court suit. The litigation between N.F. Painting and Moreno, however, progressed and, on October 23, 2018, Moreno filed a “First Amended Petition,” alleging (for the first time) that he was injured while working “as an independently contracted painter.” It is undisputed that Sentinel was not notified when the amended petition was filed.

Shortly before trial was scheduled the parties entered into a “Proposed Agreed Judgment” “order[s], ad-judge[s], and decree[s],” among other things, that: (1) Moreno was “an independently contracted painter” and not an employee at the time of his July 3, 2016 injury; (2) Sentinel provided Business Liability insurance with a $1,000,000 limit of liability to N.F. Painting, Inc., at the time of Moreno’s injury; (3) N.F. Painting, Inc., placed Sentinel on proper notice of Moreno’s claims; and (4) Moreno was entitled to recover a total of $1,627,541.35 in damages, before interest and costs, from N.F. Painting, Inc.

Approximately one month later, on June 26, 2019, Moreno sued Sentinel in Texas state court. Sentinel and Moreno filed cross-motions for summary judgment.

The district court reasoned that Moreno had not shown that relevant “facts” were “actually litigated” by true adversaries and were essential to the judgment; nor had Moreno established privity. The district court additionally determined that N.F. Painting had not satisfied the notice requirements of the policy, and had failed to otherwise notify Sentinel of Moreno’s suit and had failed to request a defense.

ANALYSIS

Moreno’s claims against Sentinel are premised upon on his assertion that Sentinel had wrongly refused to defend its insured, N.F. Painting, relative to the personal injury claim that Moreno previously asserted against N.F. Painting in state court and, thus, is legally responsible for the damages awarded against N.F. Painting in the May 20, 2019 Agreed Judgment.

Duty to Defend and Indemnify

As noted by the district court, it is well-established, under Texas law, that mere awareness of a claim or suit does not impose a duty on the insurer to defend under the policy. [Nat’l Union Fire Ins. Co. of Pittsburgh, PA v. Crocker, 246 S.W.3d 603, 608 (Tex. 2008).]

Put simply, there is no duty to provide a defense absent a request for coverage.

The Texas Supreme Court explained that notice and delivery-of-suit-papers provisions in insurance policies serve two essential purposes: (1) they facilitate a timely and effective defense of the claim against the insured, and more fundamentally, (2) they trigger the insurer’s duty to defend by notifying the insurer that a defense is expected.

The rule is clear: an insurer has no duty to defend and no liability under a policy unless and until the insured in question complies with the notice-of-suit conditions and demands a defense. The rule applies regardless of whether the insurer knows that the insured has been sued and served, regardless of whether the insurer actually defends another insured in the same litigation and regardless of whether the insurer was aware of an interlocutory default judgment against the insured.

It is the “action by the insured” in sending the suit papers to the insurer that “triggers the insurer’s obligation to tender a defense and answer the suit.” [Members Ins. Co. v. Branscum, 803 S.W.2d 462, 467 (Tex. App.-Dallas 1991, no writ)]. Defendants were entitled to rely on the fact that plaintiffs were represented by counsel and surely would have made a demand for defense and indemnification if they wanted defendants to be involved.

It is clear that, under Texas law, an insurer’s duty to defend is not triggered unless and until the insured requests that a defense be provided. And, if a duty to defend is not triggered, it likewise is not breached when a defense is not provided.

Here, as stated, N.F. Painting did not seek defense or coverage from Sentinel when it was served with Moreno’s original state court petition; nor did it forward the suit papers that it received to Sentinel for that purpose.

Even after Sentinel assumed the defense of Moreno’s claims against Beazer Home, in June 2017, N.F. Painting did not tender (to Sentinel) defense of the claims that Moreno had asserted against it, or request coverage from Sentinel for the claims. Rather, Lopez’s representation of N.F. Painting continued, without further request, or inquiry, by N.F. Painting regarding Sentinel’s duty of defense or coverage. This remained true even when Moreno amended his complaint, in October 2018, to allege independent contractor (rather than employee) status, and N.F. Painting agreed, in May 2019, to entry of the Agreed Judgment against it for approximately $1.6 million in damages.

As the notice of suit and delivery-of-suit-papers policy provisions have been construed by the Texas courts, an insured’s transmittal of suit papers to the insurer triggers the duty of defense because, in the ordinary case, the documents are sent with the expectation that having the documents will enable and cause the insurer to promptly provide (or at least fund) the insured’s defense against the claims asserted against it. This, however, is not the ordinary case.

In short, the undisputed facts show that N.F. Painting chose, with the assistance of counsel, to handle Moreno’s personal injury claims in its own way, without involving Sentinel in its defense, as it was entitled to do.

Having made that decision, it is N.F. Painting, and thus Moreno, as third-party beneficiary, not Sentinel, who must bear responsibility for any resulting adverse consequences. Because no defense ever was sought, it was not owed.

Despite actual knowledge that the insured had been sued, insurers were prejudiced as a matter of law by entry of default judgment and being deprived of the right to answer, defend, conduct discovery and fully litigate the merits of the claims asserted against the insured.

ZALMA OPINION

Individuals, with no experience in insurance coverage law, make odd decisions on whether to seek defense or indemnity from their liability insurer. N. F. Painting decided there was no coverage and hired a lawyer to defend it while ignoring the assistance their insurer was willing to provide and, in fact, provided to an additional insured. Then when it was about to lose at trial, with an amended complaint, it entered into an agreement with the injured person to stipulate to a major judgment and assign its rights against Sentinal to set up a bad faith case. The scheme failed since no insurer is obligated to defend an insured who refuses to ask for a defense.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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Accused of Fraud Failed to Promptly File Dispositive Motion

Provider to PIP Insured not a Party to Contract

Plaintiffs Hartford Accident and Indemnity Company, Property & Casualty Ins. Company of Hartford, Trumbull Insurance Company, and Twin City Fire Insurance Company (together, “Hartford”) claim that Defendant Greater Lakes Ambulatory Surgical Center LLC submitted fraudulent claims for no-fault benefits for treatment of individuals who were in auto accidents. Hartford asserts claims of fraud, silent fraud, and unjust enrichment.

In Hartford Accident And Indemnity Company, et al. v. Greater Lakes Ambulatory Surgical Center LLC, No. 18-cv-13579, United States District Court, E.D. Michigan, Southern Division (May 26, 2022) Greater Lakes moved for leave to file a motion for judgment on the pleadings under Federal Rule of Civil Procedure 12(c), arguing that Hartford’s tort claims must be dismissed because the parties’ relationship is governed by contract.

Analysis

The scheduling order, entered in July 2019, set a dispositive motion deadline of March 20, 2020. Hartford moved for summary judgment the day before that deadline, and a hearing on that motion was scheduled for September 24, 2020. But a week before the hearing-six months after the dispositive motion deadline-Greater Lakes moved for leave to file a motion for judgment on the pleadings.

The Court has the ability to modify the schedule to allow Greater Lakes to file a dispositive motion, but only for good cause. Fed.R.Civ.P. 16(b)(4). Although district courts enjoy wide discretion under Rule 16(b)(4), leave to amend a schedule should be denied when evidence of diligence is lacking. [In re Nat’l Prescription Opiate Litig., 956 F.3d 838, 843 (6th Cir. 2020).]

Greater Lakes showed neither that it could not have filed its dispositive motion despite its diligence nor that the delay was because of excusable neglect. Instead, it alleges that it retained new counsel in September 2020 who concluded that Hartford failed to state a claim. Attorney Shereef Akeel did first appear here in September 2020. But attorney Lukasz Wietrzynski represented Greater Lakes from the beginning of this litigation until October 2021.

Wietrzynski either made an intentional decision not file a dispositive motion by the deadline or he made an error in failing to do so. Either way, Wietrzynski’s failure to timely file a dispositive motion does not provide Greater Lakes with good cause or excusable neglect.

The Court rejected Greater Lakes manifest injustice argument because its proposed motion for judgment on the pleadings lacks merit. In deciding whether a plaintiff has set forth a “plausible” claim, the Court must construe the complaint in the light most favorable to the plaintiff and accept as true all well-pleaded factual allegations.

Greater Lakes contends that Hartford’s tort claims must be dismissed because the parties’ relationship is governed by the no-fault policies. Greater Lakes maintains that those policies required it to provide proof of loss before Hartford became obligated to pay the insurance claims. Thus, Greater Lakes argues that the allegation that it submitted fraudulent proof of loss relates to its performance under the policies and “sound[s] in contract” rather than tort law.

Under Michigan law, nonperformance of a contractual obligation gives rise to a breach of contract claim but generally not to tort liability. An exception to this “contract-only” rule is that tort liability may exist if the complaint alleges breach of a legal duty separate and distinct from a defendant’s contractual obligations. For example, claims of fraud in the inducement and “fraud ‘extraneous to the contract’ are permissible, whereas ‘fraud interwoven with the breach of contract’ cannot support an independent claim.”

Here, the complaint does not allege the existence of a contract between Hartford and Greater Lakes. Although Greater Lakes argues that the no-fault policies govern this dispute, it was not a party to those policies.

The contract-only rule does not bar tort claims when no contract exists. Greater Lakes insists, without supporting precedent, that the no-fault policies govern because healthcare providers can “step into the shoes” of insureds to obtain payment under the policies-meaning there is a contractual relationship between providers and insurers.

Even if there were a contract between Hartford and Greater Lakes, the Michigan Supreme Court has held that insureds may bring separate claims for fraud and recovery of no-fault benefits.

Unlike a no-fault claim, a fraud claim does not arise from an insurer’s mere omission to perform a contractual or statutory obligation, such as its failure to pay all the PIP benefits to which its insureds are entitled. Rather, it arises from the insurer’s breach of its separate and independent duty not to deceive the insureds, which duty is imposed by law as a function of the relationship of the parties.

The court also rejected the theory that the no-fault act preempted the fraud claim. The court acknowledged the contract-only rule, noting that “where, as here, the breach of separate and independent duties [is] alleged, [the insureds] should be allowed an opportunity to prove” their tort claims. Since “misrepresenting material facts and deceiving their insureds” involved the breach of an independent duty, the fraud claim survived.

Greater Lakes argued that whether the no-fault act preempted the tort claims but not whether the plaintiffs could assert concurrent breach-of-contract and fraud claims. Greater Lakes is wrong on both counts. Since actions for payment of no-fault benefits are often asserted as breach-of-contract claims,

Conclusion

Greater Lakes showed neither good cause nor excusable neglect for its motion for leave to file a dispositive motion six months after the deadline, and its claim of manifest injustice lacked merit. The Court denied Greater Lakes’ motion for leave to file a motion for judgment on the pleadings.

ZALMA OPINION

Hartford, probably frustrated by the failure of the state to prosecute fraud perpetrators, acted proactively sued the providers of health care for insureds that it claimed were fraudulent. Greater Lakes, faced with a motion for summary judgment it thought it would lose, filed a belated motion for a Judgment on the Pleadings and lost its request to file a late dispositive motion that the USDC’s Magistrate Judge found was impotent. It is an act of “chutzpah” or unmitigated gall to bring this motion but it did succeed in slowing the opportunity of Hartford to obtain a summary judgment.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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Zalma’s Insurance Fraud Letter – June 15, 2022

ZIFL Volume 26 Issue 12

Zalma’s Insurance Fraud Letter Contains articles on the following subjects in great detail at ZIFL-06-15-2022. The following are some of the articles available with the full 20 pages available at the link.

Insurance Fraud & the States

State insurance departments near the turn of the century recognized that insurance fraud is a serious crime taking multiple billions of dollars from the insurance industry. Local police and prosecutors were not concerned, even after insurance fraud was made a felony, because no one suffered physical injury or death. Insurance fraud just cost a lot of money to insurers who were perceived as extremely wealthy and more victimizers than victim.

Since almost no one was being prosecuted for insurance fraud states, like California, enacted statutes that required insurers to thoroughly investigate all claims, institute a special fraud investigation unit whose only purpose was to detect, investigate, gather evidence, and present that evidence to prosecutors to prosecute the crime. The Special Investigation Units (SIU) did the work only to find most of their investigations ignored and their successes received little or no encouragement from the insurers and the state. Both wanted all claims settled quickly and fairly. The sales people could not explain why their fraud perpetrator clients were being placed under oath and asked to prove their loss rather than just receive a quick and unquestioned check.

Reporting On an Accusation of Insurance Fraud Results in Defamation Suit

Fair Report Privilege Protects Reports of Insurance Fraud

Fox Television Stations, LLC (Fox), William Melugin, Daniel Leighton, and Kris Knutsen (collectively, the Fox defendants) appealed from orders denying their special motions to strike (Code Civ. Proc., § 425.16; anti-SLAPP statute) the complaint filed by Dr. Jay W. Calvert, a nationally recognized plastic surgeon, and Jay Calvert, M.D., Professional Corporation (the professional corporation) (collectively, the Calvert plaintiffs). In Jay W. Calvert et al. v. Fox Television Stations, LLC et al., B310772, California Court of Appeals, (May 25, 2022) the Court of Appeal reversed the trial court’s decision.

Person Accused of Fraud Failed to Promptly File Dispositive Motion

Provider To PIP Insured Not a Party to Contract

Plaintiffs Hartford Accident and Indemnity Company, Property & Casualty Ins. Company of Hartford, Trumbull Insurance Company, and Twin City Fire Insurance Company (together, “Hartford”) claim that Defendant Greater Lakes Ambulatory Surgical Center LLC submitted fraudulent claims for no-fault benefits for treatment of individuals who were in auto accidents. Hartford asserts claims of fraud, silent fraud, and unjust enrichment.

In Hartford Accident and Indemnity Company, et al. v. Greater Lakes Ambulatory Surgical Center LLC, No. 18-cv-13579, United States District Court, E.D. Michigan, Southern Division (May 26, 2022) Greater Lakes moved for leave to file a motion for judgment on the pleadings under Federal Rule of Civil Procedure 12(c), arguing that Hartford’s tort claims must be dismissed because the parties’ relationship is governed by contract.

Health Insurance Fraud Convictions

Osteopathic Physician Admits Illegally Prescribing Drug

Matthew Steven Miller, 43, pleaded guilty in front of U.S. District Judge Ronnie L. White to one count of obtaining a controlled substance by fraud and one count of making a false statement concerning a health care matter.

Miller, an osteopathic physician from Collinsville, Illinois pleaded guilty in U.S. District Court and admitted illegally prescribing an anti-anxiety drug.

Miller admitted illegally writing prescriptions for the anti-anxiety drug Xanax for six people between 2016 and 2018. He did not have a doctor-patient relationship with them, had not examined them, had not determined that they needed the drug and did not document the prescriptions, his plea agreement says. On some occasions, they sold the drugs and split the money with Miller, his plea says.

Miller wrote the prescriptions despite not being licensed by Missouri’s Bureau of Narcotics and Dangerous Drugs and lacking a Drug Enforcement Administration registration number necessary to do so.

Miller was licensed to practice medicine in Missouri, Michigan and New Jersey.

Other Insurance Fraud Convictions

Jacksonville Contractor Pleads Guilty to Felony Home Repair Fraud

Clint A. Stevens, 45, the owner of a Jacksonville construction company pleaded guilty to home repair fraud May 24, 2022 in Morgan County Court.

Stevens, the owner of C&A Construction, pleaded guilty to home repair fraud, a Class 4 felony. The single charge stems from an arrest by Jacksonville Police on April 12th, 2021 after an investigation.

According to the charges, Stevens misrepresented material facts relating to terms of a contract or promised performance, saying September 28, 2020 that he would start repairs on a home on Pintail Court by October 2020 and then didn’t initiate the work.

Underwriting & Rescission

Rescission as a Weapon Against Insurance Fraud

Since the turn of the century the plaintiffs’ bar has attempted to defeat the remedy of rescission and allow their clients more access to courts of law assessing damages against insurers and avoid equity courts who, if rescission was established, would have no right to damages at law. The plaintiff’s bar created the concept of “post loss underwriting” (an oxymoron) to convince a court that the insurer did not use the remedy of rescission properly and force the insurer to pay a claim on a policy issued by deception even when the attempts to get damages from an insurer that has established all of the elements needed to prove the right to rescission.

A ClaimSchool™ Publication © 2022, Barry Zalma & ClaimSchool, Inc., Go to my blog & Videos at: Zalma on Insurance, And at https://zalma.com/blog,  Go to the Insurance Claims Library, Listen to the Podcast: Zalma on Insurance, Videos from Zalma on Insurance, Subscribe to Barry Zalma on Substack.com, Subscribe to e-mail Version of ZIFL, it’s Free!  Read last two issues of ZIFL here. Go to the Barry Zalma, Inc. web site here, Videos from “Barry Zalma on YouTube”  Go to Barry Zalma videos at Rumble.com at https://rumble.com/zalma, @zalma on Truth Social, Go to Zalma Books – E-Books and Articles by Barry Zalma  at the Insurance Claims Library where ClaimSchool publishes the ZIFL, several books and e-books written by Barry Zalma and sponsors Mr. Zalma’s speaking engagements, Follow Barry Zalma on Twitter at https://twitter.com/bzalma, Go to the Insurance Claims Library; Subscribe to Barry Zalma on Substack.com, GGo to the Insurance Claims Library; Listen to the Podcast: Zalma on Insurance

 

 

 

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Explaining Reasonable Conduct of Insurer

How Courts Deal With Defenses to the Tort of Bad Faith

I will not be posting for a week after this but you have available more than 4250 posts and more than 400 videos at rumble.com/zalma.

See the full video at https://rumble.com/v17nfbd-explaining-reasonable-conduct-of-insurer.html and at https://youtu.be/AWkk0PffGy4

When the Court found that an insureds claim was debatable, the bad-faith claim must fail. Bad-faith claims were insufficient as a matter of law where the status of Kentucky law on the issue was “fairly debatable.” [Willowbrook Invs., LLC v. Md. Cas. Co., 325 F.Supp.3d 813 (W.D. Ky. 2018)

The courts, legislatures and the insurance departments of the various states must recognize that an insurer with the best of all possible fraud investigation units will, on occasion, err. A company with a highly trained and motivated fraud investigation unit made up of professional investigators and attorneys who are human, will err on occasion.

The public, and those who serve on juries, must understand that an aggressive fraud investigation, even if it reaches an incorrect result, is not malicious and if negligent, not an act of bad faith.

Today, if a jury believes the insurer was wrong in its decision, it must award punitive damages, regardless of the instructions read to it by the judge about the elements of the tort. Because of the bad publicity created by the policyholders’ bar and the press reports of massive bad faith judgments, insurers are not liked by a majority of the people who serve on juries. The prudent defense lawyer will assume that at least three of the jurors will voted for the policyholder, regardless of the evidence presented, and defense counsel must win over the remaining nine.

The bad publicity that was given to insurers by the early bad faith cases has poisoned the public image of insurers. The plaintiff insured only needs to convince six of the jurors who may sit in judgment without anti-insurer prejudice to receive a majority verdict with 9 votes.

As a business necessity, insurers must have the confidence of the public that they are financially sound, secure and have an overabundance of funds available to pay claims. The need to show the security of the company to the public has the effect of convincing juries that a multimillion-dollar verdict against the insurer will not hurt it. Plaintiffs’ lawyers disingenuously tell juries that they don’t want to harm the insurance company, all they want to do is get its attention. They argue that a $10 million verdict might cause an itch in the corporate pocketbook sufficient to cause management to scratch away the need to improperly reject claims. The argument is hard for a jury of working people to withstand.

The Tort of Bad Faith Has Served its Purpose

The tort of bad faith, and the punitive damages that seem to go with it, have, in my opinion, served their purpose. Insurers now have professional claims departments. Insureds are almost universally treated with courtesy and respect. More than 90% of all claims are resolved without litigation or argument. Legitimate claims are paid with alacrity.

Insurance fraud continues to grow. The amount of money taken from insurers every year are in the tens or hundreds of billions of dollars. The fear of punitive damages has made the fight against fraud difficult and almost impossible. Even when an insured is arrested, tried and convicted of the crime of insurance fraud, or attempted insurance fraud. Attempts will still be made to sue the insurer for the tort of bad faith.

Before I retired from the practice of law, I contended daily with insurers who wanted to fight fraud but who found they must decide to pay a claim rather than face the exposure of a punitive damage judgment. Sometimes, the settlement of bad faith lawsuits, where there has been no bad faith and an appropriate denial of a claim or refusal to pay a policy limits demand, the insurer concludes it must pay more to avoid a potential run-away jury.

I can, as my mentors taught me 53 years ago, state with confidence the opinion that an insurer should spend millions of dollars for the defense of a non-covered or fraudulent claim and not a dime for tribute to an insured who brings a spurious bad faith law suit.

However, practical insurance professionals have a need to resolve litigation as inexpensively as possible to protect the shareholders who want the insurer to make a profit. As a result, the insurer will disobey the millions for defense covenant and will make a business decision to pay the non-covered loss or the fraud, rather than take a chance on an adverse verdict.

As with all things in insurance, the attitudes of insurers move in cycles. More often than not, I am now called upon to testify as an expert in bad faith cases that the insurer insists on taking to trial by jury rather than pay off a scofflaw.

I can only hope that this cycle continues and more attempts at fraud are defeated.

The Fourteenth Amendment to the U.S. Constitution

No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

If the law allows an insured to sue for tort damages as a result of a breach of the covenant of good faith and fair dealing equal protection should allow an insurer to sue the insured for tort damages as a result of the breach of the same covenant. Some litigants cannot, under our system of constitutional law, be more equal than others. Yet, until a court agrees, insureds are more equal than their insurer.

Although the courts may think so, the insured’s breach of the covenant of good faith and fair dealing is also separately actionable as a contract claim and that some forms of misconduct by an insured will void coverage under the insurance policy. (Imperial Cas. & Indem. Co. v. Sogomonian (1988) 198 Cal.App.3d 169, 182.

To paraphrase what George Orwell opined in his novel Animal Farm some litigants are more equal than other litigants. Since both the insured and the insurer freely entered into the contract of insurance it would appear only fair if one is allowed to obtain tort damages for breach of the covenant of good faith and fair dealing the other should also have the same opportunity.

While Connecticut, like California, recognizes that every insurance policy carries “an implied duty requiring that neither party do anything that will injure the right of the other to receive the benefits of the agreement,” [De La Concha of Hartford, Inc. v. Aetna Life Ins. Co., 269 Conn. 424, 432–33, 849 A.2d 382 (2004)] no Connecticut court has recognized a tort of “reverse bad faith” against insureds, nor are Connecticut courts likely to do so in light of established precedent. It follows that because an insured’s breach of the covenant is not actionable in tort, an insurer cannot lessen responsibility for its own tortious conduct by putting forth an affirmative defense of bad faith. [Hartford Roman Catholic Diocesan, Corp. v. Interstate Fire & Cas. Co., 199 F.Supp.3d 559 (D. Conn. 2016)]

An insurer can commit the tort and is obliged to pay tort and punitive damages. An insured, who is totally evil, whose only interest in the insurance agreement is to defraud the insurer, who refuses to cooperate with the insurers investigation, who does everything possible to harm the insurer, cannot commit the tort.

The abuse of the tort of bad faith has become so extreme that the tort must, in my opinion, be eliminated. Since the weight of authority is that no matter how reasonable are the arguments to do away with the tort of bad faith, the tort must be applied fairly and equally to both insureds and insurers and if that is impossible the tort of bad faith is contrary to the requirements of the Fourteenth Amendment to the U.S. Constitution and its requirement for equal protection.

An insurer who is wronged by its insured should have the same right to tort damages and punitive damages for breach of the covenant as can the insured. No litigant should ever be more equal than another.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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Reporting on an Accusation of Insurance Fraud Results in Defamation Suit

Fair Report Privilege Protects Reports of Insurance Fraud

I will not be posting for a week after this but you have available more than 4250 posts and more than 400 videos at rumble.com/zalma.

Fox Television Stations, LLC (Fox), William Melugin, Daniel Leighton, and Kris Knutsen (collectively, the Fox defendants) appealed from orders denying their special motions to strike (Code Civ. Proc., § 425.16; anti-SLAPP statute) the complaint filed by Dr. Jay W. Calvert, a nationally recognized plastic surgeon, and Jay Calvert, M.D., Professional Corporation (the professional corporation) (collectively, the Calvert plaintiffs). In Jay W. Calvert et al. v. Fox Television Stations, LLC et al., B310772, California Court of Appeals,  (May 25, 2022) the Court of Appeal reversed the trial court’s decision.

FACTS

This case arises from the Fox defendants broadcasting and publishing news reports about a civil lawsuit filed against Dr. Calvert by his former patient Natalie West alleging insurance fraud and medical battery. In response, the Calvert plaintiffs sued the Fox defendants and Houston for defamation. The trial court found that although the defamation claims arose from protected activity, the Calvert plaintiffs had shown a probability of prevailing on their claims.

On appeal, the Fox defendants and Houston contend Fox’s reporting, including its interview with Houston, is absolutely privileged under Civil Code section 47, subdivision (d), as a fair and true report of a judicial proceeding. Further, the Calvert plaintiffs failed to plead and prove actual malice. The Fox defendants also argue several of the statements at issue do not constitute actionable defamation.

On May 31, 2018 West filed a lawsuit against Dr. Calvert, the professional corporation, the University of Southern California (USC), and others, alleging causes of action for fraud, medical battery, breach of contract, and forcible sexual penetration of an unconscious person with a foreign object. West alleged in her second amended complaint that in 2013 Dr. Calvert performed a cosmetic nasal surgery to reconstruct West’s nose after a failed reconstructive surgery by another doctor. West paid for the surgery in full, but Dr. Calvert fraudulently billed West’s medical insurer for the procedure by falsely characterizing the surgery as a medically necessary correction of a nasal airway obstruction.

West alleged that after the surgery, Dr. Calvert told her the surgery had been “a complete success” but he needed to do two “‘tweaks'” in a second surgery. From 2013 through 2017, Dr. Calvert persuaded West to undergo 12 additional unnecessary and harmful nasal surgeries, in order to bill West’s insurance carrier for additional procedures. West alleged Dr. Calvert “essentially treat[ed]” West’s health insurance policies as “his own personal ATM machine.”

Letters from Dr. Calvert’s Counsel to Leighton and Melugin

On April 25, 2019 Dr. Calvert’s attorney, Arthur H. Barens, in response to an inquiry regarding Fox-owned television station KTTV’s intention to broadcast a report on West’s allegations against Dr. Calvert, wrote to KTTV senior producer Leighton, requesting Leighton review West’s medical files before airing the report.

KTTV published a written version of the report on its website.

The May 15, 2019 Report

On May 15, 2019 KTTV broadcast a second news report on West’s allegations against Dr. Calvert. Melugin reported, “A lot of new details [are] coming out after our investigation into Dr. Jay Calvert first aired on Monday night.” Melugin reported USC had “removed all affiliation with [Dr. Calvert] off of their plastic surgery website.” Melugin stated Hakala held a press conference that day, in which she indicated more than 20 “new alleged victims” had contacted her to make similar allegations of insurance fraud and unnecessary surgeries. In footage of the press conference, Hakala opined USC would not have been in “a huge rush” to distance itself from Dr. Calvert if USC had full confidence in him.

Dr. Calvert’s Demand for Retraction

On May 30, 2018 Neville L. Johnson, attorney for Dr. Calvert, sent a letter to Melugin, KTTV news director Kris Knutsen, and the Fox legal department demanding retraction of the May 13 and 15 reports and accompanying online articles.

The Fox defendants made no retraction.

Dr. Calvert’s Complaint Against the Fox Defendants and Houston

On June 9, 2020 the Calvert plaintiffs sued the Fox defendants alleging a single cause of action for libel. The complaint alleged 60 statements made in the May 13 and 15 reports were “[f]alse [a]ccusations.”

The Fox Defendants’ and Houston’s Special Motions To Strike

The Fox defendants separately filed special motions to strike the complaint.

Dr. Calvert submitted declarations in support of the Calvert plaintiffs’ oppositions. He attached to his declaration in opposition to the Fox defendants’ motion portions of West’s and Houston’s medical records, consent forms, insurance authorizations, and billing histories, which he asserted contradicted their allegations.

The trial court denied the special motions to strike. The trial court found the remaining 47 statements identified in the Calvert plaintiffs’ complaint fell within the scope of Code of Civil Procedure section 425.16 because they “concerned a public figure and a matter of public interest.” The court found the fair report privilege did not apply to any of the statements.

DISCUSSION

A cause of action arising from an act in furtherance of a defendant’s constitutional right of petition or free speech in connection with a public issue is subject to a special motion to strike unless the plaintiff demonstrates a probability of prevailing on the claim.

If the evidence relied upon cannot be admitted at trial, because it is categorically barred or undisputed factual circumstances show inadmissibility, the court may not consider it in the face of an objection.

Defendants Carried Their Burden To Show Most of Their Claims Arose from Defendants’ Protected Activity

The complaint’s allegations of protected activity that provide only context for the Calvert plaintiffs’ defamation claims must be disregarded for purposes of the anti-SLAPP analysis.

The Law of Defamation

The elements of a defamation claim are (a) a publication that is (b) false, (c) defamatory, and (d) unprivileged, and that (e) has a natural tendency to injure or that causes special damage. Additionally, a libel plaintiff who is a public figure must prove, by clear and convincing evidence, that the defendant made the libelous statement with actual malice that is, with knowledge that it was false or with reckless disregard of whether it was false or not.

The Professional Corporation Failed To Carry Its Burden To Show a Probability of Prevailing on Its Claims Because None of the Challenged Statements Concerned the Professional Corporation

The Fox defendants and Houston contend none of the allegedly defamatory statements concerned the professional corporation. The Calvert plaintiffs make no argument to the contrary.

The Trial Court Erred in Denying the Fox Defendants’ Special Motion To Strike the Complaint as to Dr. Calvert’s Claims

A plaintiff must prove the allegedly defamatory statements are not substantially true. Dr. Calvert submitted no evidence in opposition to the Fox defendants’ special motion to strike to show Melugin’s statements regarding USC were not substantially true. He has therefore failed to carry his burden to show a probability of success on his defamation claims based on these statements.

Civil Code section 47, subdivision (d) confers an absolute privilege on any fair and true report in, or a communication to, a public journal of a judicial proceeding, or anything said in the course thereof. When the fair report privilege applies, the reported statements are absolutely privileged regardless of the defendants’ motive for reporting them. Fair and true in this context does not refer to the truth or accuracy of the matters asserted in the judicial proceedings, but rather to the accuracy of the challenged statements with respect to what occurred in the judicial proceedings.

A media defendant does not have to justify every word of the alleged defamatory material that is published. The reporter is not bound by the straitjacket of the testifier’s exact words; a degree of flexibility is tolerated in deciding what is a “fair report.”

The fair report privilege protects most of the challenged statements by West, Hakala, and Melugin regarding West’s allegations against Dr. Calvert

Most of the statements made by Melugin, West, and Hakala pertaining to West’s second amended complaint are privileged. The trial court, therefore, erred in failing to grant the Fox defendants’ special motion to strike as to these statements in the complaint.

The extent Melugin’s reporting of West’s and Hakala’s statements at the press conference-that more than 20 new alleged victims had contacted Hakala-exceeded the scope of West’s second amended complaint, Dr. Calvert’s claims based on these statements fail because he did not show the Fox defendants published the statements with actual malice.

DISPOSITION

The order denying the Fox defendants’ special motion to strike is reversed. The cause is remanded to the trial court with directions to vacate the order denying the Fox defendants’ special motion to strike and to enter a new order granting the motion. The Fox defendants are to recover their costs on appeal. Houston and the Calvert plaintiffs are to bear their own costs on appeal.

ZALMA OPINION

This case made clear the immunity created by Civil Code Section 47 since it applies to the press and to any SIU investigator who makes a report of a suspected insurance fraud to the state. People, like Dr. Calvert, who are accused of insurance fraud in a civil proceeding cannot stop publication of that information nor may he sue for defamation. The immunity is absolute.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

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The Effect of the Tort of Bad Faith on the USA

Living with the Tort of Bad Faith Hurts Both Parties

See the full video at https://rumble.com/v17jc3v-the-effect-of-the-tort-of-bad-faith-on-the-usa.html and at https://youtu.be/I-YF0EeL5CU

It is indisputable that in the 1950’s, 1960’s and 1970’s the insurance industry abused some insureds to avoid paying legitimate claims. Without a factual basis, insureds were accused of arson or other variations on insurance fraud. Indemnity payments were refused on the flimsiest of excuses. People were found to have diseases that only horses could catch. Disability payments were refused because an insured was wheeled in her wheelchair to church one day and, therefore, was not totally house-confined. Insureds were driven into bankruptcy when reasonable demands within policy limits were refused.

To stop this abuse, the courts of the state of California invented the tort of bad faith. It took a universal contract remedy and decided that the breach of an insurance contract without, what the court decided was proper, genuine or even fairly debatable reasons, was transferred from a contract breach into a new tort. Many other states have followed the lead.

Until the invention of the tort of bad faith all that an insured could collect from an insurer that wrongfully denied a claim were the benefits due under the policy. After the creation of the tort of bad faith, the courts allowed the insureds to collect, in addition, the entire panoply of tort damages, including punitive damages.

It worked. Insurers treated the insureds better. The threat of punitive damages made insurers wary of rejecting any claim. The creation of the tort of bad faith was in many ways a good thing for insurers and insureds. What the courts that created the tort of bad faith did not recognize was that it was also the key to Pandora’s box of abusive lawyers who found it to be a new profit center for their practices.

The law of unintended consequences struck with vigor. Lawyers flocked to every available court house to take advantage of the new tort.

Even if a claim against an insured is fairly debatable, an insurer is nonetheless obliged to engage in settlement discussions in an effort to relieve the insured from the burden and expense of litigation. [Summit Ins. Co. v. Stricklett, 199 A.3d 523 (R.I. 2019)] Therefore insurers must understand that even if the lack of coverage if fairly debatable or there is a genuine dispute it still may be held to protect the insured regardless of the lack of a duty to defend or settle. A decision from Rhode Island and other states that use the tort of bad faith to force insurers to provide benefits the policy did not promise to provide.

As Justice Kaus of the California Supreme Court noted back in 1985:

The problem is not so much the theory of the bad faith cases, as its application. It seems to me that attorneys who handle policy claims against insurance companies are no longer interested in collecting on those claims, but spend their wits and energies trying to maneuver the insurers into committing acts which the insureds can later trot out as evidence of bad faith.  [White v. Western Title Ins. Co., 40 Cal. 3d 870, 710 P.2d 309, 221 Cal. Rptr. 509 (Cal. 12/31/1985)]

When an insurer is sued it could be charged with bad faith for taking, what the plaintiff and a court felt were too many depositions, unsuccessful motions for summary judgment, or failing to offer an appropriate amount at a settlement conference. It is now essential, before starting settlement negotiations, directly or in a settlement conference or mediation, as a result of the White v. Western Title Ins. Co. decision to have all parties waive the holding of the Supreme Court in White v. Western Title Ins. Co. before negotiations began.

The decision in White v. Western Title Ins. Co. has proved the adage that “the road to Hell is paved with good intentions.” Although the court had the apparent good intention of protecting an insured against what it saw as wrongful conduct by an insurer devastated the ability of insurers to defend themselves against unfounded bad faith law suits and encouraged more bad faith litigation.

Critics of White and opponents of the admission of litigation conduct as evidence of bad faith raise four arguments.

  1. Sufficient Existing Protections: The trial judge, rules of civil procedure, and ethics rules protect insureds from improper insurer litigation conduct.
  2. Relevance: The litigation conduct of an insurer’s lawyer is only marginally probative of the insurer’s claim handling; furthermore, the prejudice resulting from placing litigation tactics before a jury substantially outweighs the probative value of such evidence.
  3. Chilling Effect: The possibility that an insurer’s litigation conduct may be admitted as evidence of bad faith has a “chilling effect” on an insurer’s defense.
  4. Attorney Compromise: Attorneys for insurers will be unreasonably constrained in their advocacy and will be required continually to evaluate whether they will be advocates or witnesses at trial.

In J.B. Aguerre, Inc. v. American Guarantee & Liability Ins. Co. (1997) 59 Cal.App.4th 6, 68 Cal.Rptr.2d 837, the Court of Appeal affirmed a judgment of dismissal on demurrer, holding a liability insurer did not act unreasonably as matter of law in refusing to meet the plaintiff’s $2 million settlement demand, despite the alleged risk of exposing the insured to uncovered punitive liability. The insured’s alleged fear of his punitive exposure coerced him to contribute to a settlement out of duress.

Looking through the form of the transaction the California Court of Appeal recognized that looking to its “economic substance,” Justice Neal observed as follows:

What we have here, at bottom, is an effort by [the insured] to concoct a bad faith claim out of whole cloth … with the ‘ingenious assistance of counsel.’ … [The insured] has attempted to position itself to pursue a high stakes, bad faith case, seeking punitive damages, from which it hopes to emerge not only with the [underlying] claim disposed of at no cost to [the insured], but a profit as well in the form of damages recovered from [the insurer]. Bad faith litigation is not a game, where insureds are free to manufacture claims for recovery. Every judgment against an insurer potentially increases the amounts that other citizens must pay for their insurance premiums. (emphasis added) [See also, Dynamic Concepts, Inc. v. Truck Ins. Exchange, 71 Cal.Rptr.2d 882, 61 Cal.App.4th 999 (Cal.App. 4 Dist., 1998)]

The logarithmic growth of insurance fraud in the state of California, and other states that have allowed tort damages for bad faith breach of insurance contracts, may be directly traced, in part, to the judicial creation of the tort of bad faith. Before the tort of bad faith, insurers with a reasonable belief that an insured was presenting a fraudulent claim would refuse to pay it and file a suspected fraudulent claim report with the Department of Insurance Fraud Division or Fraud Bureau. Persons perpetrating the fraud would, in most cases, accept the refusal as a cost of doing business and went on to the next fraudulent claim.

After the recognition of the tort of bad faith, those who perpetrated fraudulent insurance claims that were denied went to lawyers instead. Suits for bad faith popped up like wild flowers in the desert after a rainstorm.

Juries, angered by insurers accusing their insureds of fraud, punished the insurers with multimillion dollar judgments. After each judgment, hundreds of cases settled (even though no monies were owed) for fear of being victims of the same out of control juries. Fraud units that had been instituted in the 70’s were disbanded in the late 80’s because of fear of punitive damage judgments and only reinstated after states passed statutes requiring insurers to maintain insurance fraud investigation units.

Insurers need to recognize that since the 1950’s when the tort of bad faith was created, courts more frequently, recognizing the abuse of the tort of bad faith, find that the a “fairly debatable” issue of law like the application of a private limitation of action provision of a policy will defeat both a breach of contract and a bad faith claim.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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A Reefer Trailer is a Vehicle

A Trailer Is Used To Transport, Which Is How Vehicles Are Commonly Defined And Understood and It Is Registered As A Vehicle

Kiolbassa Provision Company (“Kiolbassa”) operates a smoked meat business out of San Antonio, Texas, where it keeps its offices, production space, and a warehouse for storage. Given the nature of its business, Kiolbassa purchased an Equipment Breakdown Policy (the “Policy”) from Travelers Property Casualty Company of America (“Travelers”) to cover damage to perishable goods when the damage is caused by a malfunctioning of “Covered Equipment” on Kiolbassa’s premises.

In Kiolbassa Provision Company, Incorporated v. Travelers Property Casualty Company of America, No. 21-51033, United States Court of Appeals, Fifth Circuit (June 2, 2022) the Fifth Circuit was asked to resolve whether a reefer trailer was a vehicle and, as a result, the loss was excluded.

FACTS

In August 2019, Kiolbassa ran out of storage space in its warehouse and loaded 49,016 pounds of organic beef trim onto a “reefer trailer” (a trailer with an attached refrigeration unit) located on its premises. The refrigeration unit malfunctioned; the beef spoiled; and Kiolbassa lost about $167,000 worth of product. Kiolbassa then filed an insurance claim under the Travelers policies.

Both claims were denied.  Travelers denied coverage under the Equipment Breakdown Policy because the refrigeration unit was mounted on the reefer trailer, which does not meet the definition of “Covered Equipment” in the Policy. Kiolbassa sued for its denial of coverage under only that policy, which insures damage to “Covered Property” caused by a “Breakdown” of “Covered Equipment” on “Covered Premises.”

Travelers does not dispute that the beef trim is “Covered Property”; that the damage occurred due to a “Breakdown” of the refrigeration unit; and that the unit was located on “Covered Premises.” The dispute centers on whether the refrigeration unit is “Covered Equipment.”

In defining the term “Covered Equipment,” the Policy states that it “does not mean” any equipment that is “mounted on or used solely with any vehicle.” The refrigeration unit was “mounted on or used solely with” the reefer trailer. Travelers argued that the reefer trailer is a vehicle, making its denial of coverage appropriate. Kiolbassa, on the other hand, argued that the reefer trailer is not a vehicle because, at the time of spoilage, the trailer was not able to “move on its own”- it was not attached to a semi-truck and was therefore stationary.

The district court agreed with Travelers.

THE POLICY

The relevant portions of the Policy provides, in relevant part, the following:

We will pay for . . . . [s]poilage damage to “Perishable Goods” that is caused by or results from an interruption in utility services that is the direct result of a “Breakdown” to “Covered Equipment” owned, operated or controlled by a private or public utility, landlord or other supplier with whom you have a contract to provide you with any of the following services: air conditioning, communication services, electric power, gas, heating, refrigeration, steam, water or waste treatment.

Section F provides contractual definitions, defining “Covered Equipment” as follows:

‘Covered Equipment’ means any: . . . electrical or mechanical equipment that is used in the generation, transmission or utilization of energy. . . . ‘Covered Equipment’ does not mean any: . . . [v]ehicle, aircraft, self-propelled equipment or floating vessel, including any ‘Covered Equipment’ mounted on or used solely with any vehicle, aircraft, self-propelled equipment or floating vessel.

The term “vehicle” is undefined.

Under Texas law, undefined policy terms must be given their common, ordinary meaning, which is determined with the aid of dictionaries, with those terms read contextually and in light of the rules of grammar and common usage.

The reefer trailer at issue falls plainly within the ordinary meaning of the term “vehicle.” Consulting Black’s Law Dictionary, the term “vehicle” means: (1) “An instrument of transportation or conveyance”; or (2) “Any conveyance used in transporting passengers or things by land, water, or air.” Vehicle, Black’s Law Dictionary 1788 (10th ed. 2014).

Kiolbassa was unable to supply a single dictionary (or similar) definition for “vehicle” in its briefing that would support its position. The insured bears the initial burden of showing that the claim is potentially within the insurance policy’s scope of coverage.

Instead, Kiolbassa argued that the dictionary definitions are unreasonable in light of the Policy and that those definitions should be limited to a conveyance that can move on its own. First, that limitation is not consistent with the common understanding of the word “vehicle.” Self-propulsion is not a vehicle’s defining feature, and whether it can fulfill that function at the time in question is irrelevant to its definition or classification. Second, additional contextual clues point to the reefer trailer being a vehicle: the Texas Department of Transportation considers trailers to be vehicles, Tex. Transp. Code Ann. § 621.001(9); the trailer was registered with the Texas Department of Motor Vehicles; and the trailer was accordingly assigned a Vehicle Identification Number.

To summarize, the trailer is used to transport, which is how vehicles are commonly defined and understood; it is considered a vehicle by the relevant state agency; and it is registered as a vehicle. The court refused to sufficiently change the meaning of the word “vehicle” to exclude the reefer trailer from its definition. It refused to do so.

ZALMA OPINION

Sometimes all a court needs to resolve an insurance coverage dispute is to deal with the obvious. When a trailer is registered by the state as a “vehicle” it is, probably, for the purpose of determining insurance coverage, a vehicle. The insured took a chance with its meat when it’s warehouse was full and lost. Although its argument was interesting it could not overcome common sense and Texas statutes.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

 

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Fairly Debatable or Genuine Dispute Defenses to Bad Faith

Defenses to the Tort of Bad Faith

See the full video at https://rumble.com/v177ocj-fairly-debatable-or-genuine-dispute-defenses-to-bad-faith.html and at https://youtu.be/1gW3RoO2g4I

A bad faith claim should be dismissed on summary judgment if there was a genuine dispute on a reasonable factual dispute or an unsettled area of insurance law. In determining if a dispute is genuine, the court does not decide which party is “right” as to the disputed matter, but only that a reasonable and legitimate dispute actually existed. [Chateau Chamberay Homeowners Ass’n v. Associated Int’l Ins. Co., 90 Cal. App. 4th 335, 348 n.7 (2001), as modified on denial of reh’g (July 30, 2001).

Insurers, afraid of a bad faith judgment, should consider the fact that there can be no bad faith claim for denial of coverage if the insurer was correct as a matter of law in denying coverage. [Frog, Switch & Mfg. Co., Inc. v. Travelers Ins. Co., 193 F.3d 742, 751 n.9 (3d Cir. 1999).] When a court finds that Great American was not obligated to provide coverage under the terms of the Policy, the bad faith claim similarly fails. Before succumbing to the extortionist bad faith suit and offering up millions to avoid trial the honest insurer who knows it acted toward its insured fairly and in good faith must consider that an insurer does not act in bad faith if it declines to pay sums that are reasonably in dispute. While an insured may present evidence showing that the insurer knew there might be some question as to whether there was a legitimate question or difference of opinion over the eligibility, amount or value of the claim. An insured needs to present some evidence of a clear entitlement to coverage. If the insurer is convinced the evidence does not exist providing the insured with an entitlement to coverage, it must, in good faith, refuse to pay and be willing to litigate to the highest court available to prove that it acted properly.

The tort of bad faith is like the mythical vampire—it hides in the dark. The law of unintended consequences applies to the situation and the reasons for its creation – bad acts by insurers costing innocent insureds to suffer was not cured by the tort of bad faith. Rather, insurers and their customers were hurt by the fear of the assessment of tort and punitive damages, increased the cost of insurance across the country. The truth about the tort of bad faith is that it will die only if it is put into the light of day. It does not solve the problem anticipated. Rather, it created a new problem: multiple bad faith suits brought even when the reason for the denial of all or a part of a claim were made because there was a genuine dispute between the insurer and the insured or that the decision to deny was fairly debatable.

Insurers seem to forget, or ignore, the fact that to establish a claim for bad faith in the insurance context, a plaintiff must show two elements: (1) the insurer lacked a “fairly debatable” reason for its failure to pay a claim, and (2) the insurer knew or recklessly disregarded the lack of a reasonable basis for denying the claim.

The tort of bad faith makes a few lawyers very rich; a few insureds receive indemnity for which they did not bargain, and makes the cost of insurance prohibitive to those who seek only to receive the benefits of the contract.

If the courts of the United States still believe – regardless of the evidence now available – that the existence of the tort of bad faith is a good thing and helps to deter insurers from mistreating their insureds, they must limit the use and abuse of the tort of bad faith.

Policyholders and their lawyers rely heavily on bad faith claims in coverage litigation to not only get the insurer’s attention, but to press for favorable settlements due to the risk of high jury awards if the bad faith claim gets that far in litigation. Bad faith lawsuits are traditionally not interested in whether the claim made by the insured was one claimed by the insured but rather are an attempt to profit from a claim – a purpose anathema to the purpose of insurance, to provide indemnity.

There is no doubt that allegations that an insurer acted in bad faith gets an insurer’s attention. However, if an insured can go further and specifically seek punitive damages they can get in the driver’s seat of coverage litigation and change the issue from interpretation of the contract to whether – regardless of coverage – the insurer acted badly and should be punished.

Sometimes, the fear of being abused by courts is the fat that in Wyoming, although typically measured by the objective standard whether the validity of the denied claim was not fairly debatable. Even if a claim for benefits is fairly debatable, the insurer may breach the duty of good faith and fair dealing by the manner in which it investigates, handles or denies a claim. [State Farm Mut. Ins. Co. v. Shrader, 882 P.2d 813, 828 (Wyo. 1994)] A fairly debatable reason to deny a claim is not a defense against torts that may flow from engaging in oppressive and intimidating claim practices. So, when making the decision to fight a bad faith suit the insurer must also be confident that it not only had a good, fair, and genuine reason to deny the claim but must also be able to prove that they treated the insured fairly and investigated thoroughly and in good faith before making the decision not to pay.

If the insured’s claim was fairly debatable the insurer is entitled to deny it without risking a bad faith suit. [Blanchard v. Mid-Century Ins. Co., 933 N.W.2d 631, 637 (S.D. 2019)]

Of course, an insurer does not get to determine coverage unilaterally. There must be a reasonable basis for that determination. A claimant can test the reasonableness of the insurer’s determination of no coverage in the circuit court and, if no genuine dispute exists, the bad faith claim can proceed. On the other hand, if a genuine dispute does exist governing the coverage question, the insured’s claim is fairly debatable and the tort claim for bad faith based upon the insurer’s refusal to pay the claim may not be maintained. [Travelers Indem. Co. v. Armstrong, 565 S.W.3d 550, 568 (Ky. 2018)] A reasonable basis in law or fact for denying the claim is established by the absence of a contractual obligation in an insurance policy for coverage. [Messer v. Universal Underwriters Ins. Co., 598 S.W.3d 578 (Ky. Ct. App. 2019)]

When a claim is “fairly debatable,” an insurer is entitled to debate it. [Anderson v. Cont’l Ins. Co., 85 Wis.2d 675, 271 N.W.2d 368, 376 (1978)] A claim is fairly debatable if it can be disputed on any logical basis, and the question can generally be decided as a matter of law by the court. The pertinent question is whether an insurer has no reasonable basis for denying a claim. A determination whether a particular claim is fairly debatable implicates the question whether the facts necessary to evaluate the claim are properly investigated and developed or recklessly ignored and disregarded. An imperfect investigation alone is not sufficient cause for recovery if the insurer in fact has an objectively reasonable basis for denying the claim. [Reuter v. State Farm Mut. Auto. Ins. Co., 469 N.W.2d 250, 254–55 (Iowa 1991); Peterson v. W. Nat’l Mut. Ins. Co., 930 N.W.2d 443 (Minn. App. 2019)]

It seems clear to me that the tort of bad faith has served its purpose. It should be killed. The courts of the United States should return to the common law of contracts where the insured is provided the benefits of the contract of insurance promised by the policy.

ZALMA OPINION

For many years after the inception of the tort of bad faith there were few defenses – other than the basic contract terms and conditions – to defend against claims of the tort of bad faith. The “fairly debatable” or “genuine dispute” defenses have changed the law in favor of insurers and provided a potential defense that should make it easier for an insurer to defend against the tort.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

 

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Denial of Liability is not a Denial of Insurance Coverage

No UM/UIM Coverage if Responsible Party is Insured

Why Did the Obvious Go to an Appeal?

Juan Brambila appealed an order granting summary judgment in favor of Great West Casualty Company (“Great West”) in Great West’s action for a declaratory judgment determining the viability of Brambila’s uninsured-motorist claim. The appeal presents an issue of first impression concerning the availability of uninsured-motorist coverage when an insured would-be tortfeasor denies liability. In Great West Casualty Company v. Juan Brambila and Port To Port, Inc., Juan Brambila, No. 1-21-0939, 2022 IL App (1st) 210939, Court of Appeals of Illinois, First District, Fifth Division (May 27, 2022) the Court of Appeals resolved the dispute with logic and common sense.

FACTS

In June 2016, Brambila allegedly suffered injuries when his vehicle was struck by a vehicle being driven by John Grygorcewicz, who died in the incident. Brambila sought compensation via two different avenues.

FIRST: an uninsured/underinsured motorist (UM/UIM) claim with Great West, with whom he had two insurance policies through his employer, Port to Port, Inc. Great West denied Brambila’s UM claim on the basis that Grygorcewicz was, at the time of the incident, insured by State Farm Insurance Company, precluding the availability of UM benefits.

Because Grygorcewicz’s State Farm coverage exceeded $100,000, Brambila’s UIM coverage would be reduced to zero by the terms of the UM/UIM policy.

SECOND: In addition to his attempt to recover from Great West, Brambila also filed a common-law negligence action against Grygorcewicz’s estate. During the course of that litigation, Grygorcewicz’s estate asserted an “act of God” defense, claiming that Grygorcewicz was not liable for the accident. Brambila presented that development to Great West and argued that Grygorcewicz’s estate’s denial of liability through this act-of-God defense was akin to a denial of insurance coverage, rendering Grygorcewicz an uninsured motorist. Great West rejected that contention and filed the instant declaratory action seeking a declaration that Brambila is not entitled to UM benefits because Grygorcewicz was insured at the time of the accident and that Brambila is not entitled to UIM benefits because Grygorcewicz was not underinsured.

Great West moved for summary judgment, arguing that Grygorcewicz did not meet the definition of “uninsured motorist” because he was in fact insured at the time of the accident. Great West further asserted that Grygorcewicz’s estate’s act-of-God defense merely denied liability and was not the same as his insurer denying coverage, which had not happened and would be required to make UM benefits available to Brambila.

The circuit court agreed with Great West and granted its motion for summary judgment.

ANALYSIS

An insurance policy is a contract and, as such, is subject to the same rules of interpretation that govern the interpretation of contracts. Accordingly, when construing the language of an insurance policy, the court’s primary objective is to determine and effectuate the parties’ intentions as expressed in their written agreement. If the terms in the policy are “clear and unambiguous,” they must be given their plain and ordinary meaning.

While Brambila may be correct that he is in a similar position to someone who has been injured by an uninsured motorist, in that he allegedly was a faultless victim and would otherwise be unable to obtain compensation if Grygorcewicz is found not liable, his insurance policies clearly and unambiguously foreclose the availability of UM coverage in this case.

Brambila’s policies with Great West both provide that the insurer “will pay all sums [Brambila] is legally entitled to recover as compensatory damages from the owner or driver of an ‘uninsured motor vehicle.'” The policies define “uninsured motor vehicle” to be, in relevant part, a “land motor vehicle” “[f]or which no liability bond or policy at the time of an ‘accident’ provides at least the amounts required [by law]” or “[f]or which an insuring or bonding company denies coverage or is or becomes insolvent.” For two reasons, Brambila’s injuries in this case are not covered by these UM provisions.

FIRST, it is undisputed that Grygorcewicz was insured at the time of the accident.  As a result, Grygorcewicz’s vehicle would not meet the definition of “uninsured motor vehicle” which means that the damages that Grygorcewicz caused Brambila would not be covered by the policies’ UM provisions.

The denial of liability is not a denial of coverage; the two concepts are plainly distinct. A would-be tortfeasor’s denial of liability does not have the same effect as a denial of coverage and that, in the absence of a denial of coverage by the insurer, a denial of liability by the would-be tortfeasor was insufficient to make UM benefits available. Because Grygorcewicz was insured at the time of the accident and his insurer has not denied coverage, Grygorcewicz’s estate’s denial of liability on its own is insufficient to render Grygorcewicz an uninsured motorist.

SECOND, the policies provided only that Great West will pay sums that Brambila “is legally entitled to recover as compensatory damages” from an uninsured motorist. The Illinois supreme court has explained that “the proper interpretation of the words ‘legally entitled to recover’ means that the claimant must be able to prove the elements of her claim necessary to entitle her to recover damages.” [Allstate Insurance Co. v. Elkins, 77 Ill.2d 384, 390 (1979)] “Legally entitled to recover means” that the insured must be able to establish fault on the part of the uninsured motorist that gives rise to damages and prove the extent of those damages.

In order to prove his negligence claim against Grygorcewicz, Brambila would have to prove that Grygorcewicz’s breach of a duty of care owed to him was the proximate cause of his injuries. However, an act-of-God defense alleging that the victim’s injuries were caused by an unforeseeable event that is beyond the power of human intervention to prevent negates this causation element and absolves the alleged tortfeasor of liability.

In the event that Grygorcewicz’s estate establishes that the accident was caused by an “act of God” outside of Grygorcewicz’s control and is found not liable for Brambila’s injuries, Brambila would have failed to prove his negligence claim and would not be “legally entitled to recover any damages” from Grygorcewicz’s estate. Further, if Brambila is not legally entitled to recover any damages from Grygorcewicz’s estate, Great West would not be obligated to provide UM benefits to Brambila for the accident at issue. Where there is no liability of the alleged tortfeasor, a UM insurer has no obligation to its insured.

The only impediment to Brambila recovering from Grygorcewicz’s estate would be the lack of liability, and liability is a requirement for the availability of UM coverage.

Because Grygorcewicz’s estate’s denial of liability does not have the effect of rendering Grygorcewicz an uninsured motorist for the purposes of UM coverage, the circuit court’s order granting Great West’s motion for summary judgment was affirmed.

ZALMA OPINION

To recover under an uninsured or underinsured motorist coverage the insured must prove two things: (1) that the responsible party negligently caused the injury and (2) that the responsible party was uninsured or underinsured. In this case the allegedly responsible party was insured and was not responsible for the damages. It’s a no win situation for the plaintiff Brambila who was faced with an insured allegedly responsible party who claims no liability because he was not negligent and he was insured. A waste of court time.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

 

Posted in Zalma on Insurance | 2 Comments

The Law of Unintended Consequences and The Tort of Bad Faith

Insurance Contract Law

See the full video at https://rumble.com/v173p1n-the-law-of-unintended-consequences-and-the-tort-of-bad-faith.html and at https://youtu.be/jRikx108Q3I

In a typical contract, one party has a duty to perform (construct a building, deliver goods, convey real estate, pay indemnity) and the other party has a duty to pay money or perform a task.  Breach by the performer may take the form of nonperformance, defective performance, or delay in performance. The primary purpose of damages for breach of a contract is to protect the promisee’s expectation interest in the promisor’s performance.  Damages should put the plaintiff in as good a position as if the defendant had fully performed as required by the contract. Damages should never provide a profit to the non-breaching party.

Insurance, like all parts of modern society, is subject to the deprivations of the law of unintended consequences. In the USA alone people pay to insurers more than $1.2 trillion dollars in premiums and insurers pay out in claims as much or more than they take in. Profit margins are small because competition is fierce and a year’s profits can be lost to a single firestorm, earthquake, hurricane, flood or unexpected bad faith law suit.

Neither the courts nor the governmental agencies seem to be aware that in a modern, capitalistic society, a healthy and viable insurance is a necessity.  No person would take the risk of starting a business, buying a home or driving a car without insurance. The risk of losing everything would be too great. By using insurance to spread the risk among all the costs of taking the risk to start a business, buy a home or drive a car becomes possible. The persons insured are dependent on their insurer to take the risk the insureds are not willing to take alone.

Insurance contracts can be simple or exceedingly complex, depending upon the risks taken by the insurer. Regardless, insurance is only a contract whose terms are agreed to by the parties to the contract.

What those quick to settle bad faith suits, most of the massive verdicts were reversed or reduced on appeal. The insurers who always acted in good faith were forced to raise their premiums to cover the payments to avoid bad faith suits. The bad actors also raised their premium, but not as much as the good faith insurers, and lost little business because their premiums were less. They continued to act in bad faith, paid less to insureds than their good faith competitors, and profited while those who treated their insureds in good faith, lost money.

The good faith insurers, faced with the massive verdicts, allowed fear to control reason and even paid claims that were improper or fraudulent. The extra cost was passed on to all insurance consumers, not just to the insurers who acted improperly. The bad actors continued their wrongful acts and only paid the few insureds that sued, after a long and contentious defense to the lawsuit.

Honest and professional insurers paid fraud perpetrators and claims the policy never intended to cover for fear of being accused as being the same as the bad actors. Those who exercised good faith were punished, and those who dealt with insureds in bad faith, profited.

The tort of bad faith, designed to help the innocent, resulted in punishing the honest and professional insurers, rewarding the insurers who acted in bad faith with profit. Also, because of the fear of punishment with bad faith suits, insurers allowed many frauds to succeed rather than face potential tort damages. Contract terms and conditions that were clear and unambiguous were ignored to avoid litigation.

In the more than 70 years of application across the United States, the tort of bad faith has not, in my opinion, had a salutary effect on the insurance business or the people and businesses who are insured. Insurance costs have increased more than is reasonable or necessary so that sufficient funds exist to pay claims and tort damages from those insureds who believe they were wronged.

Not all bad faith suits are certain winners. Not every bad faith suit results in a punitive damages award. In a first party claim in New Jersey brought by the insured against its own insurance company the appellate court conclude that to establish an insurer’s bad faith, the insured must demonstrate that coverage was so clear it was not fairly debatable. If there is a valid question of coverage, i.e., the claim is fairly debatable, the insurer bears no liability for bad faith. [Wacker-Ciocco v. Gov’t Emp. Ins. Co., 439 N.J. Super. 603, 611 (App. Div. 2015)]. Insurers in fear of a potential bad faith judgment, a plaintiff must show the lack of a reasonable basis for denying the claim or unreasonably delaying its processing, and the insurer’s knowledge or reckless disregard that it was acting unreasonably. [Parko Props., LLC v. Mercer Ins. Co. of N.J. (N.J. Super. App. Div. 2020)]

Unfortunately, few insurers are willing to take a chance on convincing a jury that the decision to deny the claim was fairly debatable or that the decision made was as a result of a genuine dispute. In Louisiana and Mississippi, for example, multiple millions were paid to settle claims that flood damage was covered as a result of Hurricane Katrina, although the policies excluded flood and the plaintiff insureds failed to buy flood insurance. Mudslides in Southern California from hills denuded by wildfires, clearly excluded, are being paid because of fear of claims of bad faith and an aggressive department of insurance that construes a mudslide as a loss due to fire.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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Unambiguous Contract Must Be Interpreted as Written

Two Insurers Protected the Insured and Resolved the Coverage Dispute Later

When two insurers dispute which is obligated to defend and indemnify the insured in a bodily injury suit, they both paid half of the settlement and agreed to resolve their differences later in a declaratory relief action – an action of absolute good faith.

In Old Republic Insurance Company v. The Young Men’s Christian Association a/k/a YMCA Of Metropolitan Chicago and Riverport Insurance Company, 2022 IL App (1st) 210294-U, No. 1-21-0294, Court of Appeals of Illinois, First District, Fifth Division (May 27, 2022) the Court of Appeals resolved the dispute after the trial court ruled in favor of Old Republic.

BACKGROUND

Old Republic Insurance Company (Old Republic), sued for declaratory judgment against the Young Men’s Christian Association of Metropolitan Chicago (YMCA) and Riverport Insurance Company (Riverport). The circuit court granted summary judgment in favor of Old Republic. YMCA and Riverport appealed.

In September 2012, YMCA hired Air Comfort Corporation (Air Comfort) as the contractor to perform routine HVAC maintenance on YMCA’s Chicagoland facilities. On September 17, 2012, YMCA and Air Comfort entered into a “Master Agreement Between Owner and Contractor” (Master Agreement). The Master Agreement was drafted by YMCA’s counsel. The Master Agreement provided: Section 6 of the Master Agreement required Air Comfort to obtain commercial liability insurance and to name YMCA as an additional insured on the policy.

On May 13, 2013, an Air Comfort employee, Joseph Dale, sustained injuries while working on the upgrade project at the Indian Boundary facility. Mr. Dale filed a negligence complaint against YMCA, claiming that YMCA failed to inspect and safely maintain the vent pit and grating at its Indian Boundary facility which resulted in his injuries.

YMCA tendered defense and indemnification of Mr. Dale’s lawsuit to Air Comfort’s insurance carrier, Old Republic. Old Republic denied coverage.

The declaratory relief suit sought a declaration that Old Republic owes “no duty to defend, indemnify or otherwise provide additional insured coverage to YMCA” under Old Republic’s insurance policy with Air Comfort for losses incurred in connection with Mr. Dale’s lawsuit. Old Republic’s policy required additional insured persons or organizations to be included in a written contract or agreement.

The complaint alleged: “There is no written contract that required Air Comfort to name YMCA as an additional insured on its *** Policy with respect to work performed by Air Comfort at the Indian Boundary YMCA pursuant to any such contract.”

While the declaratory judgment action was pending, Mr. Dale settled his lawsuit against YMCA for $700,000. In turn, YMCA and Riverport entered into a separate agreement with Old Republic, entitled “Settlement Agreement and Release.” The Settlement Agreement and Release provided that YMCA and Riverport would pay half of Mr. Dale’s settlement amount ($350,000) and Old Republic would pay the other half ($350,000).

The parties agreed that the resolution of Mr. Dale’s lawsuit “does not in any way resolve the matters to be litigated” in the declaratory judgment action, which the Settlement Agreement and Release referred to as “the Coverage Suit.” Pursuant to the Settlement Agreement and Release, the parties agreed that:

“[I]f in the Coverage Suit a judicial determination is made that Old Republic owes additional insured coverage under the Old Republic Policy to YMCA for the [Mr.] Dale Lawsuit, then Old Republic will pay YMCA and [Riverport] $350,000 plus the attorneys’ fees and costs incurred by the YMCA and [Riverport] in defending the [Mr.] Dale Lawsuit.” Similarly, the Settlement Agreement and Release further provided that YMCA and [Riverport] will pay Old Republic $350,000 plus $197,000 for a total payment of $547,000. This would reimburse Old Republic for the $350,000 paid to [Mr.] Dale plus the waived workers compensation lien $197,000.”

The trial court granted Old Republic’s motion for summary judgment and denied YMCA and Riverport’s motion. In so ruling, the trial court stated: “This Court finds there’s no genuine issue of material fact [t]hat there is no writing of which the YMCA becomes an additional insured for that specific location.”

ANALYSIS

Summary judgment was granted by the trial court in this case, on the basis that the Indian Boundary Statement of Work did not require Air Comfort to add YMCA as an additional insured on its insurance policy, and so Old Republic does not have a duty to provide coverage to YMCA for Mr. Dale’s lawsuit.

Significantly, YMCA and Riverport do not contend that the Indian Boundary Statement of Work is ambiguous. The appellate court concluded that  Indian Boundary Statement of Work is, an unambiguous contract, as the language is clear, and the general meaning is easy to ascertain. The Indian Boundary Statement of Work does not provide, anywhere or in any way, that the parties intended for Air Comfort to add YMCA as an additional insured on its insurance policy with Old Republic. In fact, the word “insurance” is not even mentioned in the Indian Boundary Statement of Work.

The appellate court concluded that the Indian Boundary Statement of Work does reference a contract entitled, “MASTER SERVICES AGREEMENT DATED FEBRUARY 11, 2013,” and “Standard From [sic] of Agreement Between Owner and Contractor, dated February 11, 2013.” But, as the trial court pointed out, no such contract document exists. Further, YMCA and Riverport do not claim that they can produce that document. And they do not offer any other explanation regarding the discrepancies in the description of the referenced, non-existent, contract document.

Rather, YMCA and Riverport asked the court to look to the Master Agreement and the Irving Park Agreement to demonstrate the parties’ intent for the Indian Boundary Statement of Work. However, if a contract is unambiguous on its face, extrinsic evidence may not be used to interpret it.

Mr. Dale’s lawsuit arose out of the work contracted in the Indian Boundary Statement of Work between Air Comfort and YMCA for the upgrade project at the Indian Boundary facility. The Indian Boundary Statement of Work is a clear and unambiguous contract that does not reference any other existing contract document; there is no reason for the court to look to another contract.

Accordingly, the court of appeal concluded that there is no genuine issue of material fact that the Indian Boundary Statement of Work did not require Air Comfort to add YMCA as an additional insured on its insurance policy, and so, Old Republic is not required to provide insurance coverage to YMCA for Mr. Dale’s lawsuit. The trial court therefore properly granted summary judgment in favor of Old Republic in the declaratory judgment action

ZALMA OPINION

The two insurers did the right thing for their insured, the YMCA. The lawyer for the YMCA, who drew the various contracts between the Y and Air Comfort, erred in drafting a contract incorporating a non-existent contract and failed – for the project where Mr. Dale was injured – to require that Air Comfort make the Y an additional insured.  The two insurers, although, they disagreed, acted in absolute good faith to their insured and resolved their differences without exposing the insured to damages.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

Posted in Zalma on Insurance | 2 Comments

Bad Faith & Damages

Bad Faith & Damages & The Tort of Bad Faith

See the full video at https://rumble.com/v16z3tv-bad-faith-and-damages.html and at https://youtu.be/m3EPAbrNK88

In 1958 the California Supreme Court, with the best of intentions, changed centuries of contract law in Comunale v. Traders & General Insurance Company, 50 Cal. 2d 654, 328 P.2d 198 (Cal. 07/22/1958) and made an insurer’s breach of contract, under particularly egregious circumstances, a tort and allowed damages more than those allowed under contract common law.

Finding that there is an implied covenant of good faith and fair dealing in every contract that neither party will do anything which will injure the right of the other to receive the benefits of the agreement the court concluded that the principle was applicable to policies of insurance. The implied obligation of good faith and fair dealing requires the insurer to settle in an appropriate case even if the express terms of the policy do not impose such a duty.

The Comunales were treated badly. The insurer failed to consider the interests of its insureds and by so doing – by failing to accept a reasonable settlement offer – violated the duty of good faith owed to the Comunales and allowed them, for the first time in a breach of an insurance contract case, to recover tort damages.

The tort of bad faith (created without precedent out of the good intentions of the court) was expanded, as time went by and insurers were found to be liable for various types of tort damages including punitive damages. The first cases finding a tort of bad faith dealt with third party liability policies until 1972 when the California Supreme Court decided Gruenberg v. Aetna Insurance Company, Civ. 38919, 103 Cal.Rptr. 887, 27 Cal.App.3d 616 (1972) applying the tort of bad faith to first party property claims.

State legislatures have enacted Unfair Claim Settlement Acts to legislate what the Communale court created.  Those who have adopted all, parts, or expanded upon, the National Association of Insurance Commissioners (NAIC) model Unfair Claims Settlement Practices statute include:

  • Alaska
  • Arizona
  • Arkansas
  • California
  • Colorado
  • Connecticut
  • Delaware
  • Florida
  • Georgia
  • Hawaii
  • Idaho
  • Illinois
  • Indiana
  • Kansas
  • Kentucky
  • Louisiana
  • Maine
  • Maryland
  • Massachusetts
  • Michigan
  • Minnesota
  • Missouri
  • Montana
  • Nebraska
  • New Hampshire
  • New Jersey
  • New Mexico
  • New York
  • North Carolina
  • North Dakota
  • Northern Marianas
  • Ohio
  • Oregon
  • Pennsylvania
  • Puerto Rico
  • Rhode Island
  • South Carolina
  • South Dakota
  • Tennessee
  • Texas
  • Utah
  • Vermont
  • Virginia
  • Washington
  • West Virginia
  • Wisconsin
  • Wyoming

The tort was adopted by almost every state of the United States, either by court decision, legislation or both, and the business of insurance and insurance claims handling was never the same again.

Punitive damages were assessed against insurance companies in gigantic amounts with juries and courts awarding punitive damages more than 100 times greater than the amount of compensatory damages for breach of the insurance contract.

After a few decades of abuse of the tort of bad faith by insureds and plaintiffs’ or policyholders’ lawyers, recognizing the impact of the law of unintended consequences, the U.S. Supreme Court, in State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 416 (2003) found it inappropriate to assess punitive damages for more than ten times compensatory damages and that in most cases punitive damages should never be more than one time the compensatory damages.

The National Association of Insurance Commissioners (NAIC) also created an Unfair Property/Casualty Claims Settlement Practices Model Regulation that has been adopted in whole, in part, or have expanded upon the Regulation in the following states:

  • Florida
  • Kansas
  • Kentucky
  • Missouri
  • Nebraska
  • Nevada
  • New Jersey
  • New York
  • Ohio
  • Oklahoma
  • Oregon
  • Pennsylvania
  • Rhode Island
  • Utah
  • Vermont
  • Virginia
  • Washington
  • West Virginia.

In addition, California, and other states, have created their own set of Unfair Claims Settlement Practices Regulations. Whether state created or based on the NAIC model regulation, the state’s Regulations result in the micro-managing of claims handling and set minimum standards of claims handling that plaintiffs can use to create a bad faith presumption if the insurer did not meet the allegedly minimum standards. The Regulations do not deal with the fact that almost every insurance claim is unique and is like a square peg trying to be fit into a round hold.

Since all insurance claims are unique the claims handling of an individual claim may not fit within the requirements of the Fair Claims Settlement Practices Regulations, plaintiffs’ lawyers, invariably seek tort and punitive damages because of the claimed failure to fulfill the minimum standards. The bad faith suits, thereafter, attempt to hold insurers hostage when a claim is rejected – even if the rejection was proper and in accordance with the terms and conditions of the policy.

The attempt to help consumers get their claims paid promptly was another victim of the law of unintended consequences and resulted in encouraging litigation rather than the fair settlement of claims providing the insured the benefits promised by the policy and nothing more than the benefits promised by the insurer.

The tort of bad faith resulted in thousands of law suits seeking tort damages. Hundreds of judgments were entered against insurers for multiple millions of dollars. Thousands of suits against insurers were settled for amounts in multiples of policy limits for fear of becoming the victim of a run-away jury and punitive damages.

The good deed created by the California Supreme Court in Comunale became a nightmare for insurers who could not convince trial judges and appellate justices, that the law of unintended consequences had struck.

For example, the following are just a few bad faith verdicts drawn from news reports:

  • $568,000 to Woman in Case against Progressive Select Insurance
  • $130 Million to Homeowners Underpaid by Farmers Insurance
  • $20 Million Civil Verdict Overturned: Attention to Anyone Being Defended by an Insurance Company for a Car Accident or Liability Claim
  • $13 Million in Insurance Payouts Required for Dropping Clients
  • $233,000 for insurance bad faith estimates for glass repair
  • Uninsured Patients to Receive 35% Refund for Overpriced Medical Bills at Scripps Health
  • Walgreens Pays Undisclosed Amount for Dispensing Wrong Medication Leading to Miscarriage
  • $1 Million Settlement by Allstate Insurance for Failure to Pay Claim
  • New Jersey Woman Receives $50K Verdict against Allstate Insurance
  • Life Insurance Company Hit for $39 Million for Failure to Pay
  • $14 Million Punitive Damage Ordered by Jury for Insurance Company’s Refusal to Pay Benefits
  • State Farm to Pay $2.5 Million to Couple for Denying Katrina Claim
  • $250,000 for Flooding Deaths
  • $20 million verdict against Allstate Insurance.

Bad faith judgments including both compensatory, contract damages, tort damages and punitive damages continue, only held back slightly by the Supreme Court decision in State Farm v. Campbell. The law of unintended consequences continues to wreak havoc on the insurance industry although recent appellate decisions have provided insurers with defenses that make it more difficult for policyholders to succeed in pursuing tort and punitive damages when the insurer’s decision to refuse payment was fairly debatable or there was a reasonable genuine dispute between the insured and the insurer.

ZALMA OPINION

The tort of bad faith proves the concept that the road to Hell is paved with good intentions. The cure of bad faith conduct by insurers led to an abuse of the business of insurance by fraudsters, insureds and lawyers who got rich off tort damages including punitive damages.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

 

 

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Pennsylvania Requires Court to Announce a Convicted Defendant’s Recidivism Risk Reduction Incentive

Convicted of Insurance Fraud Still Entitled to a Legal Sentence

Claire A. Risoldi, in a second try appealed from the Judgment of Sentence, entered after remand for resentencing on the restitution portion of her sentence. Risoldi challenged the legality of her sentence. In Commonwealth Of Pennsylvania v. Claire A. Risoldi, 2022 PA Super 94, No. 1382 EDA 2021, J-A07001-22, Superior Court of Pennsylvania (May 24, 2022) Risoldi’s second appeal requires a finding from the trial court of whether she was entitled to a finding of a recidivism risk reduction incentive (RRRI) finding.

FACTS

On February 5, 2019, a jury convicted Risoldi of various offenses related to her participation in an insurance fraud scheme. On May 17, 2019, the court sentenced Risoldi to an aggregate term of 11½ to 23 months’ incarceration and over $10 million in restitution. On review, this Court vacated the restitution portion of Risoldi’s sentence, remanded for resentencing solely on that issue, and affirmed all other aspects of Risoldi’s sentence. [Commonwealth v. Risoldi, 238 A.3d 434, 465 (Pa. Super. 2020)] The Pennsylvania Supreme Court denied allowance of a further appeal [Commonwealth v. Risoldi, 244 A.3d 1230 (Pa. 2021)].

On June 25, 2021, the court resentenced Risoldi only on the restitution portion of her sentence. At no point in Risoldi’s initial sentencing or resentencing did the court state whether Risoldi is eligible to participate in a reentry plan. Risoldi timely filed a Notice of Appeal and both she and the trial court complied with Pa.R.A.P. 1925.

Risoldi argued only that the sentencing court imposed an illegal sentence on May 17, 2019, and reimposed an illegal sentence on June 25, 2021, because it did not determine her reentry plan eligibility on the record as required by the Sentencing Code.

The court reviewed the implications of a sentencing court’s failure to state on the record if a defendant is eligible for RRRI minimum sentence under a different subsection of the same statute which states, in relevant part, that “[t]he court shall determine if the defendant is eligible for a recidivism risk reduction incentive minimum sentence[.]” 42 Pa.C.S. § 9756(b.1) (emphasis added).

ANALYSIS

The Appellate Court concluded that the legislature’s use of the term “shall” in the statute a sentencing court’s failure to determine on the record if a defendant is RRRI eligible results in the imposition of an illegal sentence. The legislature’s use of the term “shall” confers on the sentencing court the requirement that it determine a defendant’s RRRI eligibility at sentencing, and failure to do so results in the imposition of an illegal sentence.

In the instant case, the trial court did not state on the record at sentencing if Risoldi is eligible to participate in a reentry plan. That aspect of Risoldi’s sentence is, therefore, illegal and subject to correction. The appellate court remanded solely for the sentencing court to determine Risoldi’s eligibility to participate in a reentry plan pursuant to 42 Pa.C.S. § 9756(b)(3).

ZALMA OPINION

It amazes me how many times a person convicted of insurance fraud is able to appeal the sentence imposed. In this case the trial court failed to do what it was required to do and the appellate court sent it back for a re-sentence regarding RRRI. Hopefully the trial court will find she is not eligible.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

 

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Damages for Breach of an Insurance Policy

Damages for Breach of Contract

See the full video at https://youtu.be/e7FSHw-IY0M   and at https://rumble.com/v16ul9c-damages-for-breach-of-an-insurance-policy.html

Generally, the purpose of an award of damages for breach of contract is to compensate the injured party and provide the benefits promised by the contract. The general rule is that damages are meant to place the claimant in the same position as if the contract had been performed.

In the 16th century, when our English forbears began resolving disputes through trial by jury rather than ordeal or battle, courts were divided into courts of law and courts of equity. The law courts dealt with money damages for various offences like breach of contract, negligence or intentional torts.

In order to discourage people from breaching contracts the law allows various remedies to the party to the contract who lost the benefit of the bargain. In the event a breach is proved a court may award:

  1. damages,
  2. specific performance,
  3. contract rescission, and
  4. contract modification or reformation.

While British Common Law was forming damages were the province of the law courts while the other three remedies were handled by the courts of equity. In the 16th century the equity courts were handled by clerics who, it was thought, were better qualified than appointed law judges, to provide the fairness required for equitable remedies.

The damages allowed for breach of contract was limited to compensatory damages. These are damages for a monetary amount that is intended to compensate the non-breaching party for losses that result from the breach. The aim of compensatory damages is to “make the injured party whole again” but not put the non-breaching party in a position better than contemplated by the contract terms.

Damages for breach of contract were traditionally limited to the need to compensate the Plaintiff for the harm proximately caused by the breach. Damages must have been contemplated by the parties or be reasonably foreseeable at the time the contract was entered into. Contract damages do not usually allow recovery for unanticipated harm or injury, as do damages for injuries caused by torts.

Damages for breach of contract must be clearly ascertainable. Proof of actual harm and its cause must be established. Damages restore the Plaintiff to the position they would be in had the contract been fulfilled.  In other words, Plaintiff is entitled to the benefit of the bargain. A Plaintiff suing for breach of contract may not recover an amount greater than what they would have gained had the contract been fulfilled.

Compensatory Damages

Compensatory damages are not meant to be punitive in nature. The goal is not to punish the breaching party for “immoral” conduct, but rather to put the non-breaching party back into the position he or she would have been in, had the contract been performed.

Expectation Damages

These are damages that are intended to cover what the injured party expected to receive from the contract. Calculations are usually straightforward as they are based on the contract itself or market values.

Consequential Damages

These are intended to reimburse the injured party for indirect damages other than contractual loss; for example, loss of business profits due to an undelivered machine. Consequential damages aim to address the flow of problems that reasonably result from a party’s breach of contract.

In order for the injured party to recover, the injuries must be a direct result of the breach and be reasonably foreseeable to both parties when they entered into the contract.  Consequential damages are designed to compensate for secondary or derivative losses resulting from special circumstances particular to that contract or to the parties.

Quantum Meruit

A court can award one party payment for what they deserve for any work that he or she performed before the other party breached the contract. Translated from Latin, the term means “as much as he deserved.”

Statutory Measure of Contract Damages

In California, for example, in very limited circumstances, statutory law specifies the measure of damages. These circumstances usually are:

  1. Obligation to pay money only;
  2. Covenant of seisin (the possession of land or chattels), of right to convey, of warranty, or of quiet enjoyment in a grant of real property;
  3. Covenant against encumbrances;
  4. Contract to convey land;
  5. Agreement to deliver quitclaim deed;
  6. Agreement to purchase real property;
  7. Leases of real or personal property;
  8. Obligations of carriers of passengers, freight, and messages;
  9. Warranty of agent’s authority, or
  10. Other statutory schemes governing the transaction

Traditionally, breach of an insurance contract only allowed damages that were those specified above from law courts who would determine the monetary loss caused by the breach.

In addition, insurance contracts were subject to the courts of equity who could formulate a fair remedy to a dispute over a breach of contract where money was not an appropriate remedy. Equitable remedies involve the court ordering the parties to act or to refrain from acting.

Liquidation Damages

Damages that are specifically stated in the contract because it would be difficult for the parties to prove the exact amount of damage in the case of a breach. To protect the parties to the contract they agree, at the time of contracting, what the damages will be in the event of a breach.

EQUITABLE REMEDIES

In modern American jurisprudence judges sit as both law judges and equity judges.

Types of equitable remedies include:

Specific Performance

Specific performance is usually available when the contract involves some kind of unique goods or other unusual benefit to the other party, and ordinary money damages are not sufficient to make the aggrieved party whole. Real estate is often the subject of specific performance because, in most cases, each piece of property is unique.

The court of equity, being fair to both parties, will issue a judgment that requires the breaching party to perform their part of the bargain indicated in the contract. For example, if one party has paid a premium for fire insurance but the insurer refuses to acknowledge the existence of the policy the court of equity would require the insurer to recognize the existence of the policy and pay the benefits promised by the policy.

In such a situation, the court of equity would leave to the parties the obligation to determine the dollar amount of benefits available to the insured.

Contract Rescission

If the court determines that the contract of insurance was entered into as a result of deception or mistake, the contract which is the subject of dispute can be “rescinded” (cancelled from its inception as if it never existed).  This is a remedy typically given when both parties agree to cancel the contract or if the contract was created through fraud, misrepresentation or concealment of material fact, or mistake of material fact. For detail on the remedy of rescission see Rescission of  — 2nd Edition available as a paperback and as a Kindle book or at amazon.com by searching for the title.

Contract Reformation

The contract of insurance is rewritten by the court with the new contract reflecting the parties’ true intent. Reformation of an insurance policy requires a valid contract to begin with and often is used when the parties had a mistaken understanding when forming the contract. The equitable remedy of reformation allows the contract of insurance to let each party receive the benefits of the contract they believed they made and fix errors in transcribing the understanding to the written contract.

Limitation of Damages by Contract of Special Circumstances

When a contract is terminated according to its terms, damages are limited to those accrued prior to termination.  If the contract contains a provision allowing termination without cause upon due notice, but the party breaches by terminating without allowing the notice period to expire, then damages are limited to those that could potentially accrue during the period of the required notice. For instance, an insurance policy is improperly cancelled before its expiration damages may result if the policy is not replaced and a loss occurs.

When the breach of contract is partial, prospective damages are not available. Plaintiff may recover damages only from the time of nonperformance to the time of trial. Damages may not be recovered for anticipated future nonperformance.

See the next video for more on damages.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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An Occurrence Can Include The Unintended Physical Damage Caused By Intentional Development Activity

Pollution Exclusion is Effective and Does not Make Policy Illusory

In Employers Mutual Casualty Company v. Tiger Creek Development, Inc., David Erickson, and Cherry Pease, No. 4:21-CV-65 (CDL), United States District Court, M.D. Georgia, Columbus Division (May 25, 2022) the USDC was asked to determine whether Tiger Creek Development, Inc. and David Erickson’s liability insurance policy covers a claim arising from their construction project that allegedly caused sediment deposits to pollute Cherry Pease’s pond.

In the underlying state court lawsuit, Pease alleged that Tiger Creek and Erickson’s work on adjacent property caused runoff that polluted and increased sediment deposits in her pond and damaged her property. Employers Mutual Insurance Company sought summary judgment on its declaratory judgment claim that it has no duty to defend or indemnify Tiger Creek or Erickson for the claims asserted by Pease in the underlying state court action

FACTUAL BACKGROUND

Tiger Creek began developing property adjacent to Pease’s property in 2018. Tiger Creek’s work required it to remove trees and vegetation from its property. After Tiger Creek began development, Pease noticed an increase in dirt, clay, and excess water flowing into the creek and pond on her property. Pease also noticed discoloration in her pond, sand deposits at the mouth of her pond and along her creek’s banks, and erosion. Pease believed that the problems with her creek and pond stemmed from runoff caused by Tiger Creek’s development activities on the neighboring property.

Pease alleged Tiger Creek’s clearing of trees and vegetation allowed sediment to wash downhill onto her property. In December 2018, Pease notified Tiger Creek and Tiger Creek’s owner, Erickson, about her concerns. Pease met with a Tiger Creek representative in 2019 and 2020 to discuss her concerns. Erickson attended the 2020 meeting and offered to remove the sand from Pease’s pond but Pease did not accept his offer. Tiger Creek and Erickson notified their insurer of Pease’s claim on June 25, 2020, and Employers Mutual sent Tiger Creek a reservation of rights letter. Pease filed the underlying action in the Superior Court of Muscogee County, Georgia on November 5, 2020.

Employers Mutual’s insurance policy provides coverage in the event of property damage caused by a covered occurrence.

Under the policy, an occurrence is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The policy also states that the insurance does not apply to “pollution, ” which is defined as property damage arising from the “actual, alleged or threatened” discharge of pollutants. “Pollutants” are defined as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned, or reclaimed.”

DISCUSSION

Employers Mutual maintains that no coverage exists here under its policy for three independent reasons: 1) there was no covered occurrence, 2) even if there was a covered occurrence, the pollution exclusion excludes coverage, and 3) Erickson and Tiger Creek provided late notice of Pease’s claim.

Was There an Occurrence?

Employers Mutual argued there was no occurrence because Tiger Creek’s alleged contamination of Pease’s pond was not an accident. The policy does not define “accident, ” but Georgia law provides that an “accident” in the insurance context is “an unexpected happening rather than one occurring through intention or design.” Am. Empire Surplus Lines Ins. Co. v. Hathaway Dev. Co., Inc., 707 S.E.2d 369, 371 (Ga. 2011) (quoting City of Atlanta v. St. Paul Fire & Marine Ins. Co., 498 S.E.2d 782, 784 (Ga.Ct.App. 1998)).

The USDC concluded that an occurrence, as defined by the insurance policy, can include the unintended physical damage caused by intentional development activity. Although cited by neither party, the Georgia Supreme Court’s decision in American Empire Surplus Lines Insurance Co. v. Hathaway Development Co., 707 S.E.2d 369 (Ga. 2011) was found to be instructive to the USDC. In Hathaway, the court found that a subcontractor’s negligent installation of pipes, which resulted in damage to neighboring property, was an “accident” and thus an “occurrence” under the applicable insurance policy. The Georgia Supreme Court rejected the argument that the subcontractor’s acts could not be occurrences because they were performed intentionally, reasoning that a deliberate act, performed negligently, is an accident if the effect is not the intended or expected result; that is, the result would have been different had the deliberate act been performed correctly.

Thus, the USDC concluded that the sediment runoff constitutes an “occurrence” under the policy, however, that did not resolve the issues presented to the court.

Does the Pollution Exclusion Apply?

Employers Mutual argued that, even if the runoff is an occurrence, the policy’s pollution exclusion excludes coverage. No one disputed that the sediment runoff would be “pollution” under the policy’s definition.

The USDC also noted that the exclusion does not render the insurance coverage under the policy illusory. All policy exclusions restrict coverage. That is their purpose. But limiting the circumstances for which coverage is provided does not make the coverage illusory. Employers Mutual’s policy certainly covers other occurrences that could arise from its insureds’ land development activities other than depositing sediment runoff into a neighboring pond.

Further, the insureds here could not have reasonably expected that their policy would have covered sediment runoff when the policy contains a clear exclusion to the contrary. As a result the USDC concluded that Employers Mutual is entitled to a declaratory judgment that the claims asserted by Pease in the underlying action against Tiger Creek and Erickson are excluded from coverage under the policy.

CONCLUSION

Employers Mutual’s motion for summary judgment was granted, and a declaratory judgment issued in favor of Employers Mutual that it has no duty to provide coverage for the claims asserted in the underlying state court action involving the Defendants.

ZALMA OPINION

Contrary to the hope of people who are insured no policy covers every possible risk of loss. The policy will include some exclusions, like the pollution exclusion in the Employers Mutual policy, because the purpose of exclusions in an insurance policy is to limit the coverage available. In this case since both parties agreed to the obvious, that Ms. Pease’s pond was polluted by the acts of the insureds. Since the exclusion was clear and unambiguous there could be no coverage for the damages claimed and the defendants must defend themselves without the assistance of their insurer.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

 

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Zalma’s Insurance Fraud Letter – June 1, 2022

ZIFL Volume 26, Number 11

See the full video at https://rumble.com/v16pykr-zalmas-insurance-fraud-letter-june-1-2022.html and at https://youtu.be/JmYBmTXE2IU

The full issue in Adobe .pdf format is available here.

The following are summaries of some of the articles that can be found in the current issue.

Allianz Subsidiary Pleads Guilty to Defrauding Investors

Prosecutors Also Brought Charges Against Three Former Allianz Employees, With Two Agreeing to Plead Guilty

One of Allianz SE’s ALIZF investing divisions pleaded guilty to securities fraud and agreed to pay about $6 billion in penalties and restitution to investors who suffered losses when some of the subsidiary’s hedge funds tanked during the March 2020 market selloff.

Florida Proposes Changes to Reduce Fraud

Florida’s lawmakers are concerned that property insurance for citizens of the state and intend to work to defeat or deter fraud and abuse by the means of insured’s assigning benefits (AOB) to public insurance adjusters, roofers, contractors or lawyers. Florida’s CFO Jimmy Patronis is leading the effort. Speaking alongside Florida’s Citizens Property Insurance Corporation’s CEO Barry Gilway, Patronis laid out five key areas for reforming Florida’s property insurance marketplace.

North Carolina Judge Orders Lindberg to Give Up Control of Firms to Repay Insurers

Wake County Superior Court Judge Graham Shirley ruled that Lindberg intended to defraud the carriers after signing the agreement to stabilize them in 2019.

In issuing the order, Shirley said he was enforcing the agreement Lindberg signed when they were put under rehabilitation. Greg Lindberg was ordered to relinquish control of hundreds of his firms in a plan to salvage four of his insurance companies.

Good News from The Coalition Against Insurance Fraud

Scammers duped tens of thousands of patients into getting their insurers billed for more than $900 million of unneeded and over-priced compound pain and scar creams in a telemed-fueled scheme. Synergy Pharmacy (Palm Harbor, Fla.) hired a telemarketing firm called HealthRight to cold-call consumers, deceiving them into accepting the drugs and handing over their insurance info. HealthRight then bribed docs to authorize the scripts via its telemarketing platform — even though the docs never met or examined the patients. The docs relied solely on HealthRight’s bogus patient screening to authorize the false scripts. HealthRight generated at least 60,000 scripts, fooling honest pharmacy benefit managers by misbranding the meds and disguising claims to con insurers into paying for the scripts. Telemed schemes are proliferating around the U.S. The arms-length technology has inspired some of the largest insurance schemes of the last five years. Several tried to gouge health insurers with more than $1 billion of false claims apiece. Seven schemers were federally convicted in Greenville, Tenn. in the latest insurance plot.

Health Insurance Fraud Convictions

Sarasota Pain Doctor and Former Insys Sales Representative Convicted for Health Care Fraud

Dr. Steven Chun (59, Sarasota) and Daniel Tondre (52, Tampa) were convicted by a federal jury. Both were found guilty for conspiring to pay and receive kickbacks and bribes, in the form of speaker fees, in return for prescribing the fentanyl spray Subsys. They were both also convicted on five separate counts of paying and receiving kickbacks on specific dates. Tondre was also convicted of two counts of identification fraud in connection with the sham speaker events. Each faces a maximum penalty of 5 years in federal prison on the conspiracy count, and up to 10 years in prison for each substantive kickback violation. Tondre also faces up to 5 years’ imprisonment on each identification fraud count. The United States is seeking a money judgment in the amount of the proceeds of the kickbacks. A sentencing date has not yet been set.

NICB Reports That Fraudulent Disaster Claims Cost P&C Insurers Extra $4.6 Billion to $9.2 Billion

The National Insurance Crime Bureau (NICB) has done some analytical work to quantify the impact of one of the most topical inflationary factors for catastrophe and severe weather claims, so particularly relevant to the ILS and reinsurance market, fraudulent claims.

Other Insurance Fraud Convictions

Guilty of Faking Auto Theft

John Michael Fletcher, 61, was convicted of False Reports and Filing a False Insurance Claim. Fletcher, a Knoxville man was convicted of falsely telling police his car had been stolen before attempting to receive an insurance payment for more than the vehicle’s worth.

On December 7, 2018, Fletcher asked an employee to move his H3 Hummer motor vehicle. He then told Knoxville Police and his insurance company that the Hummer had been stolen. Bright and Roberts explained that Fletcher claimed he had purchased the vehicle for nearly double what he actually paid for it.

Nearby surveillance video showed the vehicle being moved, and once the vehicle was found, there were no signs of forced entry or damage to the ignition showing it had been stolen. At sentencing, prosecutors expect to seek an enhanced sentence because Fletcher reportedly threatened the insurance agent when they did not pay the claim. Fletcher also has a prior conviction for Second Degree Murder out of Washington County, Tennessee.

False Reports and Filing a False Insurance Claim are both Class D felonies carrying a punishment between two and four years. Sentencing for this case will take place on July 16.

New Book: Ethics for The Insurance Professional Third Edition

Available as a Kindle blook. Available as a paperback.  Available as a hardcover.

True Crime Stories of Insurance Fraud

There are now available at https://rumble.com/zalma more than more than 81Video True Crime Stories of insurance fraud.

New Books now Available at Amazon.com: Insurance Fraudsters Deserve No Quarter

New Book That Explains How to Defeat or Deter Insurance Fraud

What every insurer should know about how it can be proactive in the efforts against insurance fraud by refusing to pay every fraudulent claim.

Available as a paperback here. Available as a hardcover here. Available as a Kindle Book here.

California Fair Claims Settlement Practices Regulations 2022

Every Claims Person in California Must Read, Understand, or be Trained About the California Fair Claims Settlement Practices Regulations by September 1 of Each Yea.

Available as a Kindle Book. Available as a Paper Back

 


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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INSURANCE AS A NECESSITY

HOW THE LAW OF UNINTENDED CONSEQUENCES COSTS THE INSURANCE INDUSTRY

See the full video at https://rumble.com/v16br9v-insurance-as-a-necessity.html  and at https://youtu.be/xBvYxc_ooTU

Neither the courts nor the governmental agencies seem to be aware that in a modern, capitalistic society, insurance is a necessity. No prudent person would take the risk of starting a business, buying a home, or driving a car without insurance. The risk of losing everything would be too great. By using insurance to spread the risk, taking the risk to start a business, buy a home, or drive a car becomes possible.

Insurance has existed since a group of Sumerian farmers, more than 5,000 years ago, scratched an agreement on a clay tablet that if one of their number lost his crop to storms, the others would pay part of their earnings to the one damaged. Over the eons, insurance has become more sophisticated, but the deal is essentially the same. An insurer, whether an individual or a corporate entity, takes contributions (premiums) from many and holds the money to pay those few who lose their property from some calamity, like fire. The agreement, a written contract to pay indemnity to another in case a certain problem, calamity, or damage that is fortuitous, that is that occurs by accident, is called insurance.

In a modern industrial society, almost everyone is involved in or with the business of insurance. They insure against the risk of becoming ill, losing a car in an accident, losing business due to fire, becoming disabled, losing their life, losing a home due to flood or earthquake, or being sued for accidentally causing injury to another. The insurers, insureds, or people damaged by those insured are dependent on one another.

In a country where human interactions are governed solely by the terms of written contracts, insurance would be a simple means of spreading risk and providing indemnity based on the promises made by the contract of insurance. But, in this the real world, insurance contracts are controlled by statutes enacted to ostensibly protect the consumer of insurance, regulations imposing obligations on the conduct of insurers and the decisions of trial and appellate courts interpreting insurance contracts.

A simple insurance contract between two parties might say: “I insure you against the risk of loss of your engagement ring valued at $15,000 by all risks of direct physical loss except wear and tear for a premium paid by you of $15.00.” Anyone who could read would understand that contract. If something happens to damage, destroy or lose the ring the insurer will pay you $15,000.00. However, insurers cannot write such a simple contract because the state requires many terms and conditions that complicate the policy wording and confuse the common person. The states and courts that did so had nothing but good intentions to protect the consumer against the insurer and control the actions of the insurer.

EXAMPLES OF UNINTENDED CONSEQUENCES & INSURANCE

Simplified Wording Causes Ambiguity

Insurance contracts can be simple or exceedingly complex, depending on the risks taken on by the insurer. Regardless, insurance is neither more nor less than a contract whose terms are agreed to by the parties to the contract. Over the last few centuries, almost every word and phrase used in insurance contracts have been interpreted and applied by one court or another. Ambiguity in contract language became certain. However, the average person saw the insurance contract as incomprehensible and impossible to understand.

Courts, struggling to understand policies of insurance added to the concern of Legislators:

As said in Insurance Company of North America v. Electronic

Purification Company, 67 Cal. 2d 679, 689, 63 Cal. Rptr. 382, 433 (1967), the insurance company gave the insured coverage in relatively simple language easily understood by the common man in the marketplace, but attempted to take away a portion of this same coverage in paragraphs and language which even a lawyer, be he from Philadelphia or Bungy, would find difficult to comprehend. [Hays v. Pacific Indemnity Group,8 Cal. App. 3d. 158, 80 Cal. Rptr. 815 (1970).]

Ostensibly to protect the public, to salve the concerns of jurists like the one quoted above, insurance regulators and Legislatures decided to require that insurers write their policies in “easy to read” language. Because they were required to do so by law, the insurers changed the words in their contracts into language that people with a fourth-grade education could understand. Precise language interpreted by hundreds of years of court decisions was disposed of and replaced with imprecise, easy to read language. For examples of the “easy to read” or “plain English statutes” go to Appendix 1.

The law of unintended consequences came into play. Instead of protecting the consumer, the imprecise language resulted in thousands of lawsuits determined to impose penalties on insurers for attempting to enforce ambiguous “easy to read” language. The lawsuits cost insurers and their insureds millions of dollars to get court opinions that interpret the language and reword their “easy to read” policies to comply with the court decisions. For more than 30 years, the law of unintended consequences struck the insurance industry that found that a law designed to avoid litigation resulted in exactly the opposite.

The attempts by the regulators and courts to control insurers and protect consumers were made with the best of intentions. The judges and regulators found it necessary to protect the innocent against what they perceived to be rich and powerful insurers. Unfortunately, the plain English statutes had the opposite effect. But, of course, even after it became clear that easy to read policies cause more problems than they cure, the laws and regulations have not been changed.

Bad Faith Causes Bad Behavior

In the 1950s, the California Supreme Court created a tort new to the pantheon of U.S. jurisprudence: the tort of bad faith.

A tort is a civil wrong from which one person can receive damages from another for multiple injuries to person or property. The tort of bad faith was created because an insurer failed to treat an insured fairly, and the court felt that the traditional contract damages were insufficient to properly compensate the insured. The court allowed the insured to receive, in addition to the contract damages that the insured was entitled to receive under the contract had the insurer treated the insured fairly, damages for emotional distress and punitive damages to punish the insurer for its wrongful acts.

Insureds, lawyers for insureds, regulators, and courts across the United States cheered the action of the California Supreme Court, for providing a fair remedy to abused insureds. Most of the states emulated the California Supreme Court and adopted the tort created by the California Supreme Court either by statute or court decision.

The insurers who treated their insureds badly, in fact, profited since they continued their wrongful acts and only were required to pay the few insureds that sued. Those that did not sue added to the wrongdoing insurers profit margins. Honest insurers paid frauds and claims they did not owe and found they needed to raise premium charges to cover the extra expense. The increased premium paid by insureds to cover the extra expense were a clear example of the effect of the law of unintended consequences. The honest insurers who treated those they insured with good faith and fair dealing who paid off fraudsters and paid uncovered claims to avoid bad faith suits needed to charge more than the bad faith insurers who litigated with their insureds.

The law of unintended consequences struck the insurance industry and the insurance buying public. Rather than deter wrongful actions by application of the tort of bad faith, the law of unintended consequences resulted in punishing the honest and correct insurers, honoring the insurers who acted in bad faith with profit, and allowed many frauds to succeed.

Get my Book It’s Time to Abolish The Tort of Bad Faith

Available as a paperback here.  Available as a Kindle book here.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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ERISA Preempts State Law

Analysis of Claim for Services Requires Review of ERISA Plan

Brainbuilders LLC appealed an order dismissing plaintiff’s complaint against defendants IBEW Local Union 456 Welfare Fund (the Plan), Trustees of the IBEW Local Union 456 Welfare Fund (Trustees or Plan Sponsor), I E Shaffer & Co., and Penn Medicine Princeton Health Princeton Employee Assistance Program (Penn Medicine).

In Brainbuilders, LLC, v. IBEW Local Union 456 Welfare Fund, Trustees Of The IBEW Local Union 456 Welfare Fund, I. E. Shaffer & Co., and Princeton Healthcare System, a New Jersey nonprofit corporation, d/b/a Penn Medicine Princeton Health Princeton Employee Assistance Program, No. A-3484-20, Superior Court of New Jersey, Appellate Division (May 24, 2022) the appellate court applied ERISA preemption to resolve the dispute.

FACTS

Judge Craig L. Wellerson dismissed the complaint after he concluded that the parties’ dispute over payment for medical services that plaintiff, an out-of-network provider, provided to a patient was preempted by federal law because its resolution required consideration of the subject Plan’s terms, which had to be resolved in accordance with the Employment Retirement Income Security Act of 1974 (ERISA).

On appeal, plaintiff contends the judge erred because its claim arose from a “single case agreement [(SCA)]” and reference to the Plan’s terms was not required in order to resolve plaintiff’s breach of contract based claims under state law.

The Plan is a health benefits plan sponsored by the Trustees and governed by ERISA. I E Shaffer is the third-party administrator of the Plan. It arranged with Penn Medicine to manage the mental health benefits provided under the Plan. The Plan provides benefits to participants and their qualified dependents for services rendered by in-network and out-of-network providers as detailed in the Plan’s terms.

Plaintiff is an out-of-network provider. It provides services to children with autism spectrum disorders, including applied behavioral analysis (ABA) services.

The parties’ dispute in this matter centered on whether an authorization for payment of benefits to plaintiff contained a clerical error in the approved period of time that the services were to be performed. A participant (the Participant) in the Plan sought services from plaintiff for his son (the Patient), who was also covered by the Plan.

On April 30, 2020, Penn Medicine emailed to Gitty Herzl, plaintiff’s Authorizations Manager, that plaintiff’s request was reviewed and was authorized. After evaluating the Patient, on May 13, 2020, pursuant to the authorization, plaintiff completed another request for authorization, this time requesting authorization for services outlined in its accompanying initial treatment plan which listed goals for the Patient, most of which had target dates between May 2020 and November 2020.

On May 27, 2020, Penn Medicine emailed Herzl approval and plaintiff provided services to the Patient and was reimbursed by the Plan. In September 2020, plaintiff’s Director of Finances, Simon Nussbaum, requested Penn Medicine to pay increased rates retroactively for plaintiff’s treatment of the Patient. Penn Medicine coordinated with I E Shaffer to authorize payments at increased rates retroactively from April 30, 2020, through November 10, 2020, when the Trustees would next meet and could review the increased rate request and make a final determination.

On September 29, 2020, Penn Medicine issued a “revised authorization”. That authorization, which plaintiff referred to as the initial SCA, included the following disclaimer:

Insurance coverage has been verified with I E Shaffer and the patient is currently eligible for benefits. Please be aware that all payments are based on the patient’s insurance eligibility and the [P]lan’s provisions at the time the service is rendered and final claim submission is received at I E Shaffer. [(Emphasis added).]

On November 10, 2020, the Trustees met and denied plaintiff’s rate increase request.

On January 5, 2021, Plaintiff sued and claimed defendants “anticipatorily repudiated and breached their contract with” plaintiff.

After considering arguments, the judge issued an oral decision granting defendants’ motion to dismiss on the grounds that plaintiff’s claims were preempted by ERISA. In granting the motion, the judge explained that because the parties disagreed as to whether the authorization that stated it lapsed in 2021 contained an alleged clerical error, in order to resolve it, reliance on the Plan’s governing provision was required.

ANALYSIS

The dispute is whether or not that was a clerical error. The court was satisfied that all of the language of the Plan is critical to the determination of whether or not the plaintiff has a right to be reimbursed, and the court is well satisfied that the claims of reimbursement are so tied to the language of the Plan that it is inescapable for the court to conclude other than that the dispute relates to the Plan itself. Accordingly, the court granted defendant’s motion to dismiss the plaintiff’s complaint.

ERISA preemption can have profound consequences because the remedies under ERISA are far more limited than under state common law causes of action. ERISA preemption is an affirmative defense. Any state law claims that “relate to” an ERISA plan are preempted.

On appeal, plaintiff argues its claims are not preempted by ERISA because its agreement with defendants is independent from the Plan since it is an out-of-network provider and the parties’ obligations to one another are limited to payment for services as agreed to in what it identifies as the parties’ SCA.

The appellate court agreed with Judge Wellerson’s determination that the dispute over whether a clerical error occurred bears much more than a remote relationship to the Plan.

Any agreement by Penn Medicine to pay plaintiff was reached entirely in writing after plaintiff submitted several requests for authorization that referenced and were required by the Plan. The SCA also referenced the Plan, and plaintiff’s complaint did so as well.

Therefore, resolution of the parties’ dispute would not be limited to merely looking up payment rates of corresponding procedure codes in the ERISA Plan. Rather, it would at the very least require a court to refer to, interpret, and apply the clerical error provision of the Plan-clearly not a cursory task such as verifying payment rates in a chart.

ZALMA OPINION

ERISA is a federal program. Disputes over plan benefits are subject to federal law. State law with regard to ERISA is preempted by Federal law and the disputes over an ERISA plan belongs in federal court and the rights the plaintiff might have are limited and that is why the plaintiff tried state court. Plaintiff’s attempt failed because of preemption.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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The Law of Unintended Consequences & Insurance

The Business Of Insurance Is Subject To The Law Of Unintended Consequences As If It Were On Steroids

See the full video at  https://rumble.com/v167qyt-the-law-of-unintended-consequences-and-insurance.html and at https://youtu.be/EAbMnWUw2a8

The law of unintended consequences is not statutory. No state or federal government has enacted it into law. No executive has signed the law. It is, rather, a law of the nature of people. It is an adage or idiomatic warning that an intervention in a complex system always creates unanticipated and often undesirable outcomes.

General observation requires the hypothesis that actions of people, especially of governments, will always have effects that are unanticipated or unintended, has been proved. Economists and other social scientists have heeded its power for centuries. Regardless, for just as long, politicians, insurers and popular opinion have largely ignored the law of unintended consequences to their detriment.

There is no common-law duty for a court, especially in a heavily regulated sector of the economy like insurance to create new rules. Every court should be loathe to invent duties unmoored to any existing precedent. The law of unintended consequences counsels against it.

A good illustration of the law of unintended consequences can be

To find a good illustration of the law of unintended consequences, one need look no further than the Supreme Court’s decision in Williamson County Regional Planning Comm’n v. Hamilton Bank of Johnson City, 473 U.S. 172, 105 S.Ct. 3108, 87 L.Ed.2d 126 (1985). The Court’s actual holding was pedestrian: that Hamilton Bank’s takings claim was unripe because the bank had not exhausted its administrative remedies, specifically its right to ask the County for a variance to develop the property in the manner proposed. In dictum, however—dictum in the sense that the Court’s pronouncement was at that point unnecessary to its decision—the Court went on to say that the bank’s claim was “not yet ripe” for a “second reason. That reason too was couched in terms of exhaustion: that under state law “a property owner may bring an inverse condemnation action to obtain just compensation for an alleged taking of property”; and that, until the bank “has utilized that procedure, its takings claim is premature.” The Court’s implicit assurance, of course, was that once a plaintiff checks these boxes, it can bring its takings claim back to federal court.

That assurance proved illusory. State-court judgments are things to which the federal courts owe full faith and credit. That obligation means that takings claims litigated in state court cannot be relitigated in federal. Thus—by all appearances inadvertently— Williamson County all but guarantees that claimants will be unable to utilize the federal courts to enforce the Fifth Amendment’s just compensation guarantee against state and local governments.  [Lumbard v. City of Ann Arbor, 913 F.3d 585 (6th Cir. 2019)]

The law of unintended consequences applies as much in jurisprudence as anywhere else; bending a rule to accommodate one litigant doesn’t always achieve better justice — sometimes it just sows confusion in anyone trying to figure out what a court might do in other cases in the future. A prudent court will take the lesson to leave rulemaking to the legislators and administrators, even when the outcome appears unjust. The orderly development of the law is not without rough patches, but it is better than living under the law of unintended consequences. [United States ex rel. Prather v. Brookdale Senior Living Cmtys., Inc., 892 F.3d 822 (6th Cir. 2018)]

In addition, as one dissenter said that the majority’s desire to cure all wrongs by eviscerating the doctrine of governmental immunity, while well-intentioned, is fraught with the law of unintended consequences. Depriving governmental officials of governmental immunity when making policy decisions, when making sentencing decisions, and when running the government would certainly cause most of us to rethink the traditional notion of public service. [Doe v. Dep’t of Corr., 323 Mich.App. 479, 917 N.W.2d 730 (Mich. App. 2018)]

Philosophers, Economists and Politicians

The concept of unintended consequences is one of the building blocks of economics. Adam Smith’s “invisible hand,” the most famous metaphor in social science, is an example of a positive unintended consequence. Smith maintained that each individual, seeking only his own gain, “is led by an invisible hand to promote an end which was no part of his intention,” that end being the public interest. “It is not from the benevolence of the butcher, or the baker, that we expect our dinner,” Smith wrote, “but from regard to their own self-interest.”

Most often, however, the law of unintended consequences illuminates the perverse unanticipated effects of legislation, regulation and the decisions of appellate courts. In 1692 the English philosopher John Locke, a forerunner of modern economists, urged the defeat of a parliamentary bill designed to cut the maximum permissible rate of interest from 6 percent to 4 percent.

The law of unintended consequences provides the basis for many criticisms of government programs. Unintended consequences can add so much to the costs of some programs that they make the programs unwise even if they achieve their stated goals. For instance, the U.S. government-imposed quotas on imports of steel in order to protect steel companies and steelworkers from lower-priced competition. The quotas do help steel companies. But they also make less of the cheap steel available to U.S. automakers. As a result, the automakers have to pay more for steel than their foreign competitors do. So, a policy that protects one industry from foreign competition makes it harder for another industry to compete with imports.

Similarly, Social Security has helped alleviate poverty among senior citizens and the disabled. Many economists argue, however, that it has carried a cost that goes beyond the payroll taxes levied on workers and employers. Martin Feldstein, and others, maintain that today’s workers save less for their old age because they know they will receive Social Security checks when they retire. If Feldstein and the others are correct, it means that less savings are available, less investment takes place, and the economy and wages grow more slowly than they would without Social Security.

The law of unintended consequences is at work always and everywhere. People outraged about high prices of plywood in areas devastated by hurricanes, for example, may advocate price controls to keep the prices closer to usual levels. An unintended consequence is that suppliers of plywood from outside the region, who would have been willing to supply plywood quickly at the higher market price, are less willing to do so at the government-controlled price. Thus, a shortage of a good resulted where it was badly needed.

Insurance is controlled by the courts, through appellate decisions, and by governmental agencies, through statute and regulation. Compliance with the appellate decisions, statutes, and regulations—different in the various states—is exceedingly difficult and expensive.

In the United States alone, people pay insurers more than $1.2 trillion in premiums, and insurers pay out in claims and expenses as much or more than they take in. Profit margins are small because competition is fierce, and a year’s profits can be lost to a single firestorm, hurricane, or flood.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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No Good Deed Goes Unpunished: Insurance Coverage Cannot be Created by Estoppel

 An Insurer Mistakenly Providing Benefits Does not Bind Insurer After it Discovers Error

Dymond Ottey sued Maya Assurance Company for a judgment declaring that the defendant is obligated to provide insurance coverage. Ottey appealed from an order of the Supreme Court, Queens County (Pam B. Jackman-Brown, J.), dated June 27, 2019. The order, insofar as appealed from, granted that branch of the defendant’s motion which was for summary judgment dismissing the complaint.

In Dymond Ottey v. Maya Assurance Company, 2022 NY Slip Op 03397, No. 2019-09825, Index No. 701656/16, Supreme Court of New York, Second Department (May 25, 2022) the appellate court affirmed the trial court’s decision.

FACTS

The plaintiff allegedly was injured on February 14, 2010, when a livery cab from which she was exiting suddenly sped away, causing her to fall to the ground. The livery cab was owned by nonparty ABC Global Limo Corp. (hereinafter ABC Global). The plaintiff commenced an action against ABC Global to recover damages for her personal injuries, and obtained a default judgment therein against ABC Global in the principal sum of $75,000.

The plaintiff also applied to the defendant insurer for no-fault benefits, alleging that it had insured the livery cab. Initially, the defendant paid certain benefits, but it subsequently determined that the livery cab was not covered by it and informed the plaintiff that the payments had been made in error.

The plaintiff then sued for a judgment declaring that the defendant is obligated to provide insurance coverage.

The defendant moved for summary judgment dismissing the complaint. In support of its motion, the defendant submitted evidence which demonstrated that it had insured the livery cab until August 14, 2009, when the insured, ABC Global, submitted a request to remove coverage from the livery cab and transfer coverage to a replacement vehicle. Upon presentation of certain forms by ABC Global, the defendant removed coverage from the livery cab and transferred coverage to the replacement vehicle.

In support of its motion, the defendant argued that, since the livery cab was not covered at the time of the subject accident, it had no obligation to provide coverage.

The plaintiff argued that the defendant should be estopped from disclaiming coverage because it had failed to timely deny coverage, it had begun the representation and assumed the defense of the policy by paying certain benefits, it had lulled the plaintiff into sleeping on her rights, and the plaintiff had been prejudiced thereby as she was now precluded from seeking alternative remedies, such as a claim with the Motor Vehicle Accident Indemnification Corporation (hereinafter the MVAIC).

The Supreme Court (trial court) granted that branch of the defendant’s motion which was for summary judgment dismissing the complaint. The court found that the defendant was not required to issue a disclaimer because the livery cab was not covered on the date of the accident. The court further found that the plaintiff was not prejudiced by the partial payment, since she had 180 days from the date that she received notice of the defendant’s denial to pursue a claim with the MVAIC.

DISCUSSION

The plaintiff argued that the defendant should be equitably estopped from denying coverage because it was complicit in ABC Global’s insurance fraud. She further contends that she was prejudiced by the defendant’s failure to issue a disclaimer and partial payment because the statutory maximum she could receive if she filed a claim with the MVAIC is $25,000, and, therefore, she could not recover the full $75,000 default judgment amount. These arguments are raised for the first time on appeal, and are not properly before the court.

Accordingly, the order is affirmed insofar as appealed from.

ZALMA OPINION

There is no way to force an insurer to provide benefits to an injured person when it had no insurance in effect at the time of the accident. The fact that the insurer provided some benefits until it determined the policy had been deleted before the accident, it promptly advised the plaintiff who then  – rather than take advantage of the MVAIC sued and by so doing lost the opportunity to collect a part of the default judgment she obtained from the operator of the vehicle that caused her injury.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

 

Posted in Zalma on Insurance | 2 Comments

True Crime of Insurance Fraud Video Number 81

Professional Insurance Adjusting

See the full video at https://rumble.com/v166mcn-true-crime-of-insurance-fraud-video-number-81.html and at https://youtu.be/4f4oeo8oCXk

At the turn of the century, insurers, in a search for profit, decimated their professional claims staff. They laid off experienced personnel and replaced them with young, untrained and unprepared people.

A virtual clerk replaced the old professional claims handler. Process and computers replaced skill and judgment.

Insurers intentionally forgot that the promises made by an insurance policy are kept by the professional claims person. A professional claims staff is a cost-effective method to avoid litigation.

The professional claims person is an important part of the insurer’s defense to litigation against insurers for breach of contract.

A staff of claims professionals dedicated to excellence in claims handling are a profit center for an insurance company. Experience establishes that claims professionals resolve more claims for less money without the need for either party to involve counsel. A happy insured or claimant satisfied with the results of his or her claim will never sue the insurer.

Incompetent or inadequate claims personnel force insureds and claimants to lawyers. Every study performed on claims establish that claims with an insured or claimant represented by counsel cost more than those where counsel is not involved.

Prompt, effective and professional claims handling saves money and fulfills the promises made when the insurer sold the policy.

Insurers who believe they can handle first or third-party claims with young, inexperienced and inexpensive claims handlers will be faced with the screams of angry stockholders. Profits, thin as they are, will move rapidly into negative territory. Punitive damages as punishment for bad faith claims handling will deplete reserves. Insurers will quickly question why they are writing insurance. Those who stay in the business of insurance will either adopt a program requiring excellence in claims handling from every member of their claims staff, or they will fail.

Insurance is a business. It must change if it is to survive. It must rethink the firing of experienced claims staff and reductions in training to save “expense.”

Excellence in Claims Handling

Excellence in claims handling is a program that can help insurers avoid charges of bad faith in both first and third party claims.

An insurer must understand that it cannot adequately fulfill the promises it makes to it insured and the Fair Claims Practices Act which exist in almost every state, when dealing with claimants without excellence in claims handling. An insurer must work intelligently and with vigor to create a professional claims department.

Insurance claims professionals are:

  1. People who can read and understand the insurance policies issued by the insurer.
  2. They understand the promises made by the policy and their obligation, as an insurer’s claims staff, to fulfill the promises made.
  3. They are all competent investigators.
  4. They have empathy and recognize the difference between empathy and sympathy.
  5. They understand medicine relating to traumatic injuries and are sufficiently versed in tort law to deal with lawyers as equals.
  6. They understand how to repair damage to real and personal property and the value of the repairs or the property.
  7. An insurer whose claims staff is made up of people who are less than Insurance Claims Professionals will be destroyed by expensive and counter-productive litigation.

A Proposal to Create Claims Professionals

To avoid claims of bad faith; to avoid punitive damages; to avoid losses; and to make a profit insurers must maintain claim staffs who are dedicated to excellence in claims handling. That means they will make sure every promise made in every policy is satisfied by the:

  1. Insurers who only hire insurance claims professionals.
  2. Insurers who train the claims staff to be insurance claims professionals.
  3. Insurers who require that the claims staff treat every insured with good faith and fair dealing.
  4. Insurers who demand excellence in claims handling from the claims staff.
  5. The insurance industry for the last 25 years has decimated the number of insurance claims professionals for insurers to hire.
  6. If any experienced claims professionals exist in the insurer’s staff, the insurer must cherish and nurture them. If none are available, the insurer has no option but to train its people.
  7. Those who treat all insureds and claimants with good faith and fair dealing and provide excellence in claims handling must be honored with increases in earnings and perquisites.
  8. The insurer must immediately eliminate those who do not provide excellence in claims handling from the claims staff.

What Sources Are Available to Obtain Training?

Insurance training is available across the country by correspondence, in local colleges and universities and from law firms that will provide the training as a marketing tool. None of these sources are directed to producing insurance claims professionals. They do provide the basic background information necessary to begin the process of becoming an insurance claims professional. In that regard, I have created electronic training programs on professional claims handling that are available from experfy.com and a different set of courses from illumeo.com.

An excellence in claims handling program can include a series of web-based lectures supported by text materials like my claims books available at amazon.com and over the insurance claims library at my web site at https://zalma.com.

The web lectures must be supplemented by meetings between supervisors and claims staff on a regular basis to reinforce the information learned in the lectures.

In addition, the insurer must institute a regular program of auditing claims files to establish compliance with the subjects studied. There is no quick and easy solution. The training takes time. Learning takes longer. The insurer’s management must support and reinforce the training regularly.

The excellence in claims handling program requires a minimum of the following:

  1. The insurance policy — how to read and understand the contract that is the basis of every adjustment.
  2. The formation of the insurance policy.
  3. Tort law including negligence, strict liability in tort, and intentional torts.
  4. Contract law including the insurance contract, the lease agreement, the bill of lading, non-waiver agreements, proofs of loss, releases and other claims related contracts.
  5. The duties and obligations of the insured in a personal injury claim.
  6. The duties and obligations of the insurer in a personal injury claim.
  7. The duties and obligations of the insured in a first-party property claim.
  8. The duties and obligations of the insurer in a first-party property claim.
  9. The Fair Claims Practices Act and the regulations to enforce it.
  10. The thorough investigation.
  11. Basic investigation of an auto accident claim.
  12. Basic investigation of a construction defect claim.
  13. Basic investigation of a non-auto negligence claim.
  14. Basic investigation of a strict liability claim.
  15. Basic investigation of the first-party property claim.
  16. The recorded statement of the first-party property claimant.
  17. The recorded statement or interview of a third-party claimant.
  18. The recorded statement of the insured.
  19. The red flags of fraud.
  20. The SIU and the obligation of the claims representative when fraud is suspected.
  21. Claims report writing.
  22. The evaluation and settlement of the personal injury claim.
  23. How to retain coverage counsel to aid when a coverage issue is detected.
  24. How to control coverage counsel.
  25. How to retain an expert.
  26. How to control the expert.
  27. Dealing with a plaintiffs’ lawyer.
  28. Dealing with personal injury defense counsel.
  29. The evaluation and settlement of the property damage claim.
  30. Arbitration and mediation and the claims representative.

It Takes Courage to Fight Insurance Fraud

The legislatures of the various states, the United States Congress, the National Association of Insurance Commissioners, The National Insurance Crime Bureau and insurance industry groups have finally decided that the war against insurance fraud is worth fighting.

Until the states, the local police agencies, the district attorneys, the United States Attorneys, and the Attorneys General of the various states join in the battle it will be fought to a stalemate. The insurance industry cannot successfully fight insurance fraud alone.

Insurance industry sources estimate insurance fraud from lows of $80,000,000,000 ($80 billion) a year to highs of $300,000,000,000 ($300 billion) a year. Regardless of which, if any, estimate is accurate the amount of money going to insurance criminals is staggering and approaches no less than 3% to 10% of premium collected.

Every two weeks Zalma’s Insurance Fraud Letter publishes lists of convictions. The major volume of such convictions deal with Medicare and Medicaid fraud. Basic property and casualty fraud convictions are seldom described except when the perpetrator confesses or pleads guilty. Few go to trial. Those who are convicted usually are sentenced to short stays in jail or to home confinement.

Proposal

Insurance fraud is not a local problem. It is a depletion of the wealth of the entire country. The lawyer for the Department of Insurance of each state is the State Attorney General. A special unit could be established in the office of the Attorney General, funded with the monies taken from the insurance industry to support the war against insurance fraud. This unit should be given a simple mandate:

File and prosecute every insurance fraud brought to the unit by the Fraud Division that has a better than 50% chance of success.

The unit should not concentrate its efforts on major insurance frauds. Those can best be prosecuted by major fraud units already existing in the District Attorney’s offices and in offices of the US Attorney.

The state’s unit should concentrate on prosecuting every-day insurance fraud, the frauds of opportunity that take 90% of the money paid to fraud perpetrators, in the range of $5,000 to $50,000.

Single counts should be prosecuted. When prosecutors file multiple charges against individual defendants the case becomes a major action requiring a great deal of time to prosecute. Judges and juries do not want to be involved in a prosecution that takes months to prosecute.

If there are multiple counts available, the prosecutor should charge only the one where the evidence of fraud is overwhelming. If the jury finds for the defendant the prosecutor can charge the next count continuously until the statute of limitation runs.

If all available are charged in one case the prosecutor will offend the judge and jury and the defendant will get mercy from the jury.  Overcharging prosecution is as bad as not charging at all.

Teeth must be put in the posters that say “commit insurance fraud, go to jail.” Departments of Insurance are receiving reports from insurers of thousands of potential fraudulent claims a month. They do not have the staff, the ability or the desire to investigate and prosecute every case brought to them. If only 5 percent of those claims are investigated and prosecuted to conviction, the deterrent effect will be enormous. The Department of Insurance should issue a press release concerning every arrest and conviction. Newspapers should report daily that insurance criminals have been arrested and are going to trial or were convicted and are going to jail. Jail sentences should be made mandatory and remove from local judges the right to grant convicted felons probation and restitution only.

Sentences across the state must be consistent and true punishment. I have seen such inconsistency where cases, after conviction, the criminals received sentences that ranged from 24 hours to 24 years.

It is not enough for the state to say that the insurance companies must investigate and work to fight fraud. The state must also aggressively and vigorously fight insurance fraud.

Today, a person perpetrating an insurance fraud need only be concerned that an aggressive fraud investigation might delay, or reduce, the amount he might recover from his crime. Criminal prosecution for the crime of insurance fraud is so minuscule, in relation to the amount of fraud, as to be nonexistent. It certainly does not act as a deterrent. In conjunction with the formation of a special insurance fraud prosecution unit in the attorney general’s office, the legislatures should enact the following statutes:

As of the effective date of this statute there is no tort of bad faith in this state.

Punitive damages may not be awarded in this state.

Any insurer that, without malice, reports to the Fraud Division, Department of Insurance that it has rejected a claim because of fraud may not be sued in any court of this state, for any tort cause of action.

This section is not intended to eliminate the right of any insured to sue its insurer for breach of the insurance contract.

If the legislatures really want insurers to fight insurance fraud; if the legislatures wish to keep strong and viable this important industry; if the legislatures want to reduce the insurance premiums paid by their constituents, they must make practical the war on insurance fraud. As long as the tort of bad faith and the exposure of punitive damages hangs over insurance companies, the war will be one of attrition where no one will win.

The stories I have fictionalized in this book were written to show how insurance fraud is taking money out of the pockets of innocent and honest people who buy insurance. For every dollar taken by a fraud an insurer must collect two dollars in premiums. Every person in the US who does not commit fraud is paying to support those who do. A minimum of $20.00 for every $100.00 every person insured pays in premiums goes into the pockets of insurance criminals. If the stories in this book make the reader angry, write to your local District Attorney, States Attorney, Attorney General or US Attorney and let them know of your anger.

If enough people complain perhaps, the prosecution levels will increase. Although each of the Videos I have published and in my  book “Insurance Fraud Costs Everyone” are based in fact, the names, locations and facts of the claims have been changed to protect the guilty. No resemblance to any person, except those specifically named, is intended and any resemblance is purely coincidental.

This is mostly a work of fiction based on the real experiences of a practicing lawyer and Certified Fraud Examiner.

Go to https://claimschool.com.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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Health Insurance Fraud Convict Appeals Again

Go Directly to Jail,

Do not Pass Go Again

Douglas Moss, a convicted health insurance fraud perpetrator on his way to federal prison sought an in banc review of his trial and unsuccessful appeal that I reported on at https://zalma.com/blog/go-to-jail-go-directly-to-jail-do-not-pass-go/

The petition for rehearing en banc remains pending. In light of the issuance of a revised panel opinion, adding one paragraph, Moss is granted 21 days to file a supplement to his petition for rehearing en banc, if he wishes to do so. He is not required to file a supplement. If he does file one and the Court desires a response from the government, it will be requested. The current decision, in United States Of America, Plaintiff-Appellee v. Douglas Moss, Nos. 19-14548, 19-14565, United States Court of Appeals, Eleventh Circuit (May 20, 2022) he unsuccessfully tries again to avoid jail, restitution and forfeiture.

THE BASIS OF THE CRIME

Medicare and Medicaid combined spend $1,500,000,000,000 a year, which is more than one-third of the total health expenditures in this country. Like other government health care programs, these two work on the honor system. Both programs take a pay first, ask questions later (if ever) approach. Which leads to crime and more crime, both sooner and later.

A trust-based system is only as good as the people who are trusted. Douglas Moss is one of those who was trusted but not trustworthy. As a physician, he fraudulently billed Medicare and Medicaid for millions of dollars for visits to nursing home patients that he never made. Someone else with a lower billing rate made some of those visits, and others never took place.

For his fraudulent conduct, Moss was convicted of conspiracy and substantive health care fraud, sentenced to 97 months imprisonment, ordered to pay restitution of about 2.2 million dollars, and ordered to forfeit around 2.5 million dollars. He appealed, challenging the convictions, sentence, restitution amount, and forfeiture amount, which is nearly every component of the judgment against him and he lost on every component of his appeal.

FACTUAL BACKGROUND

Medicare and Medicaid are federally funded health care programs. Medicare pays “claims,” which are requests by a health care provider to be “reimbursed” (paid) for services provided to Medicare recipients. CPT codes are a national uniform coding structure created for use in billing and overseen by the American Medical Association. They are used by all health insurance companies and by Medicare and Medicaid.

For Medicare to pay a claim several requirements must be met. The service must be provided to a real patient who is properly enrolled as a Medicare beneficiary; it must be provided by a health care provider properly licensed and “enrolled” as a Medicare provider; it must be a service covered by Medicare; and it must be properly documented and billed. The service also must be reasonable and medically necessary. It is common practice for physicians to submit claims exceeding the amount in the fee schedule, even though they know they won’t get reimbursed the excess amount.

To properly bill Medicare at the physician’s rate for services provided in a nursing home setting, the physician must be the one in the patient’s room directly providing the service to the patient.

THE FRAUD SCHEME

Moss was the medical director and attending physician at four nursing homes. The services Moss billed on one stellar day would have required him to put in nearly 100 hours in that one 24-hour period. People sometimes wish there were more hours in a day, but Moss alone miraculously stretched some of his days to far more than 24 hours. Of course, Moss’ miracle was non-miraculous, it was old-fashioned fraud.

INDICTMENT AND TRIAL

Moss went to trial. After a seven-day trial, a jury found him guilty on all counts. The jury heard evidence about how the representations Moss made in the billings were impossible: his claiming to have performed more than 24 hours of services a day, his claiming to have seen over 50 patients a day, and his claiming to have seen patients in Georgia when he was actually in Las Vegas. It wasn’t a close case.

SENTENCING

Moss’ presentence investigation report recommended a guidelines range of 78 to 97 months. The court sentenced Moss to 97 months imprisonment, the top of the guidelines range. It also ordered him to forfeit $2,507,623.69 and to pay $2,256,861.32 in restitution. The forfeiture amount was for the total that Medicare and Medicaid had paid to Moss, with no reduction for any legitimate services he had provided.

ANALYSIS

Moss was allowed to present six character witnesses: four former patients, one former patient’s wife, and one registered nurse who had worked with him in an emergency room. Those witnesses testified in detail about the medical care that Moss provided, and they testified consistently that in their opinions he had a good character and was compassionate, caring, and honest.

Moss was not on trial for being unkind or uncaring, or for not being compassionate when he did see patients, but for lying about seeing some patients at all and for billing Medicare for services he did not provide.

CLOSING ARGUMENT

It is one thing to argue that a defendant was not motivated by profit and another to argue that he didn’t commit a crime because there was no proof that he had netted a profit. The government does not have to prove a penny of profit to establish the elements of fraud. A paucity of proof of profit is no defense. Defense counsel was not entitled to argue that it was.

SENTENCE ISSUES

The district court did not clearly err in finding that Moss’ intended loss is $6.7 million, not $2.5 million. Intended loss is pecuniary harm that the defendant purposely sought to inflict and also includes intended pecuniary harm that would have been impossible or unlikely to occur.

Moss intentionally billed in a way that would maximize the money he received from Medicare.  The way Moss “maximized” his profits was by always billing his claims at a rate higher than the one in Medicare’s schedules.

Intended loss includes even loss and harm that is unlikely to occur. The appellate court’s review of the intended loss amount is only for clear error, and there is none.

RESTITUTION

Moss contends that the $2,256,861.32 the district court ordered him to pay in restitution is too much. He claims that he is entitled to more than a 10 percent reduction for legitimate services. Moss’ estimate was that the value of legitimate services was $1,079,219.39, which would reduce restitution to $1,428,404.30.

Moss had the burden to prove the value of any medically necessary goods or services he provided that he claims should not be included in the restitution amount. He failed to do so.

The trial court concluded: While presenting evidence as to the number of visits performed, Moss failed to present evidence establishing the legitimacy of those visits.

The appellate court concluded that the district court did not clearly err in rejecting it and in identifying the fatal defect in his methodology we just discussed. The burden was on Moss to show that the services he provided were medically necessary

The trial court committed no clear error in rejecting Moss’ estimate and in ordering restitution in the amount of $2, 256, 861.32.

FORFEITURE

The district court ordered Moss to forfeit $2,507,623.69. That is the total that Medicare and Medicaid paid him for claims billed under CPT codes 99306, 99309, and 99310. Forfeiture was ordered under 18 U.S.C. § 982(a)(7), which provides that, in convictions for federal health care offenses like Moss’, the court “shall order the person to forfeit property, real or personal, that constitutes or is derived, directly or indirectly, from gross proceeds traceable to the commission of the offense.”

Given Moss’ failure to identify a single properly billed claim, he has not persuaded the appellate court that the district court clearly erred.

ZALMA OPINION

The Eleventh Circuit has given much to ex-doctor Moss, including a second opinion affirming his conviction and sentences although he is the consummate health care fraud perpetrator. He belongs in jail and should be prevented from using the money he stole to force the government to try him before a jury and consider two attempts to appeal his conviction and sentence. He clearly violated the first oath a physician takes which is: “first, do no harm.”  A physician relative of mine once told me that it was not until the 1950’s that the chance of getting better when treated by a physician was greater than no treatment at all. If you were treated by Dr. Moss or his co-conspirators the chances of receiving a benefit from the service was close to nil. And, if the treatment needed was not given, and his bills were fraudulent, the patient certainly will get worse.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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True Crime of Insurance Fraud Video Number 80

What a Great Country!

See the full video at https://rumble.com/v15xwbx-true-crime-of-insurance-fraud-video-number-80.html  and at https://youtu.be/NIE7BGGSJUE

Wo Ping Chen was trained as a physician in Hong Kong. Until Hong Kong was returned by the United Kingdom to the Peoples Republic of China, he was the best known Orthopedist in the Crown Colony. Fearing problems with the new government he emigrated to Vancouver, British Columbia, Canada as a citizen of the commonwealth.

He worked as an employee of the National Health Service for a year and then obtained a work visa to the U.S. and crossed the border into the U.S. only to find he could not work as a physician without a license from a U.S. state and attended a U.S. based medical school. After one year of medical school, one year of internship in a Seattle hospital and one year as a resident Chen was able to restart his life.

His first effort upon receiving a license was to apply to the U.S. Government’s Medicare and Medicaid systems for a medical provider number which would give the government the ability to deposit funds electronically into his bank account without having to wait for a check to be received and collected.

His youngest daughter had found a husband and he was facing an expense of over $100,000 to pay for a traditional Chinese wedding and reception. He did not have the cash. He did, however, have a large list of Medicare and Medicaid patients in his data base.

He knew, from experience, that no one in the US Government or their agents would check his billing. He had served the public at low rates for many years. He decided to obtain the cost of his daughter’s wedding by using his computer.

He created invoices for 300 of his male Medicare patients for an office visit and complete blood test at $250 each. He dated the service carefully so he showed only ten of the 300 each day for 30 days. He did the same for 300 female patients for an office visit, a pelvic exam, and an x-ray to check for a potential broken hip, each for only $250. By the end of the month $150,000 was deposited into his account without question. He had the money for his daughter’s wedding and did not have to work for it.

Dr. Wo did not consider himself a criminal nor did the United States Government. He just played the system knowing that it was operated by people who did not care as long as the correct boxes in the computer were checked.

His crime succeeded because he was not greedy. He only did the major crime once. The computer operators at the Medicare payment offices never noticed that he did a cervical exam on an eighty-three-year-old man named Louis Jones.

ZALMA OPINION

Insurance fraud is often successful, as it was for Dr. Wo, because the governmental entities have little incentive to even look for fraud, investigate criminal conduct, or even try to do the job for which the government employees were charged. Dr. Wo was correct, this is a great country, and it gives away other people’s money to anyone with the gumption to ask. That includes my money and yours and Dr. Wo’s success offends me and should offend you.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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Estoppel Cannot Create Insurance Coverage

Lack of Bodily Injury, Personal Injury or Occurrence Bars Coverage

Cambridge Mutual Fire Insurance Company (Cambridge) sued seeking a declaratory judgment that it did not owe Defendants Terry Gaca and Janet Waymen (collectively, “Defendants”) a duty to defend an underlying lawsuit under the terms of their insurance policy. Thomas J. Frederick sued in Illinois state court, alleging Defendants maintained a boarding house and a parking facility for large trucks on their property (the “Underlying Suit”). The Underlying Suit alleged public nuisance, conspiracy to create a public nuisance, and nine violations of City of Naperville (“Naperville”) zoning ordinances under the Adjoining Landowner Act, 65 ILCS 5/1113-15.

In Cambridge Mutual Fire Insurance Company v. Terry L. Gaca, and Janet L. Wayman, individually and as trustee of The Janet L. Wayman Trust, No. 20 C 2447, United States District Court, N.D. Illinois, Eastern Division (May 17, 2022) Cambridge moved for summary judgment.

BACKGROUND

Cambridge sued seeking a declaratory judgment that it did not owe Defendants Terry Gaca and Janet Waymen (collectively, “Defendants”) a duty to defend an underlying lawsuit under the terms of their insurance policy.

Defendants’ policy with Cambridge includes Homeowner’s Liability Insurance and Personal Umbrella Liability Insurance (the “Policy”). The Policy provides:

If a claim is made or a suit is brought against an “insured” for damages because of “bodily injury” or “property damage” caused by an “occurrence” or “personal injury” caused by an offense to which this policy applies, we:

1. Will provide a defense at our expense by counsel of our choice, even if the suit is groundless, false or fraudulent.

“‘Bodily injury’ means bodily harm, sickness or disease, including required care, loss of services and death that results.” “‘Property damage’ means physical injury to, destruction of, or loss of use of tangible property.” “‘Personal injury’ means injury arising out of . . . [t]he wrongful eviction from, wrongful entry into, or invasion of right of private occupancy of a room, dwelling or premises that a person occupies, committed by or on behalf of its owner, landlord or lessor . . .”. Finally, “‘[o]currence’ means an accident, including continuous or repeated exposure to substantially the same general harmful conditions, which results . . . in: ‘bodily injury’ or ‘property damage.’”

The Policy also contains several exclusions. Coverage does not apply to:

  1. “Bodily injury” or “property damage” which is expected or intended by an “insured” even if the resulting “bodily injury” or “property damage”;
  2. is of a different kind, quality or degree than initially expected or intended; or
  3. is sustained by a different person, entity, real or personal property, than initially expected or intended….
  4. “Personal injury”:
  5. caused by or at the direction of an “insured” with the knowledge that the act would violate the rights of another and would inflict “personal injury”….

Based on these events, Cambridge alleged the Underlying Suit does not involve “property damage, ” “personal injury, ” or an “occurrence” under the Policy and moved for summary judgment.

DISCUSSION

The parties agree Illinois law applies. In Illinois, the construction of an insurance policy is a question of law. An insurance policy is to be construed as a whole and requires the court to ascertain and give effect to the true intentions of the contracting parties.

If the underlying complaint alleges facts that fall “within or potentially within” the coverage of the policy, the insurer is obligated to defend its insured even if the allegations are “groundless, false, or fraudulent.” United States Fidelity & Guar. Co. v. Wilkin Insulation Co., 144 Ill.2d 64, 73 (1991) (emphasis in original).

FIRST: an “occurrence” is “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Cambridge specifically argues there is no “accident.” Illinois courts have defined “accident” for the purpose of insurance coverage disputes as “an unforeseen occurrence, usually an undesigned sudden or unexpected event of an inflictive or unfortunate character.” [W. Am. Ins. Co. v. Mw. Open MRI, Inc., 2013 IL App (1st) 121034, ¶ 22]

The relevant inquiry is “whether the injury is expected or intended by the insured, not whether the acts were performed intentionally.”

The complaint in the Underlying Suit asserts public nuisance, conspiracy to create public nuisance, and violations of Naperville ordinances The complaint alleges Defendants intentionally conspired to violate the public’s rights and avoid enforcement of Naperville’s ordinances. Further, the complaint establishes Defendants knew their use of the property as a boarding house and truck lot violated Naperville ordinances, and even sued Naperville to challenge the legality of the ordinances. The complaint in the Underlying Suit establishes the injuries were intentional, not accidental. Therefore, there was no “occurrence” as that term is defined in the Policy.

SECOND: Defendants must be the “owner, landlord, or lessor” of the “room, dwelling or premises” where the alleged invasion occurred.  Because Frederick is the owner of the property that was “invaded,” there is no “personal injury” alleged in the Underlying Suit.

Estoppel

To establish equitable estoppel under Illinois law, Defendants must show:

  • [Cambridge] misrepresented or concealed material facts;
  • [Cambridge] knew at the time [it] made the representations that they were untrue;
  • [Defendants] did not know that the representations were untrue when they were made and when they were acted upon;
  • [Cambridge] intended or reasonably expected that [Defendants] would act upon the representations;
  • [Defendants] reasonably relied upon the representations in good faith to [their] detriment; and
  • [Defendants] would be prejudiced by [their] reliance on the representations if [Cambridge] is permitted to deny the truth thereof.

Defendants failed to establish equitable estoppel. Defendants have not shown Cambridge misrepresented any material facts. The undisputed facts show Cambridge denied coverage at all times. Defendants do not show they detrimentally relied on any misrepresentation by Cambridge.

Defendants say Cambridge is estopped from denying coverage because an insurance company cannot deny coverage and file a declaratory judgment suit. This argument is unsupported by the facts and applicable law. The estoppel doctrine cannot create coverage where none existed in the first place. Because Cambridge followed Illinois law and does not have a duty to defend under the Policy, Defendants’ estoppel arguments fail.

THIRD: Defendants argue Cambridge is estopped from denying coverage because it waited too long to file this action. The Underlying Suit was filed in August 2019, while this action was filed in March 2020. But we need not determine if this delay was unreasonable because, as with Defendants’ second estoppel argument, the doctrine does not apply if the insurer did not breach its duty to defend.

The  Court granted Cambridge’s Motion for Summary Judgment.

ZALMA OPINION

Liability insurance covers a large possibility of claims made against an insured that could potentially be covered by the policy. However, no insurance policy covers every possible loss and never will cover intentional torts. Since the claims were all intentional the insured’s tried to claim that the actions of Cambridge estopped them from denying the request for defense and indemnity. They failed for lack of evidence.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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California Fair Claims Settlement Practices Regulations 2022 Now Available

Minimum Standards for Adjusting Claims in California

Every Claims Person in California Must Read, Understand, or be Trained About the California Fair Claims Settlement Practices Regulations by September 1 of Each Year

This newly updated and rewritten book was designed to assist insurance personnel who do business in the state of California with the obligation to apply the Regulations that should be provided to each claims person in your company.

It will provide advice to:

  • 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

The information needed to properly, efficiently, and fairly resolve insurance claims in full compliance with the requirements of the Regulations so they can understand that the Regulations are merely minimum standards and every insurer requires that the service provided exceeds the requirements of the Regulations.

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 was found to be questionable and limited because of one courageous insurer who fought the CDOI and succeeded before an administrative law judge who limited the right to punish. That success, as far as I have been able to determine, has not been emulated.

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 required annual training the claims person can submit a sworn document to the insurer or insurers for whom the claims person works that avers that he or she has read and understood the Regulations.

Reviewing this book, the Regulations and commentary set forth below should be sufficient to comply with the training requirements of the Regulations.

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.

Since the California Regulations appear to be detailed, Draconian, and as or more extensive than similar regulations in other states, understanding and working under the Regulations should suffice in every state.

The insurer’s lawyer will need to know, and establish, that the insurer fulfilled the requirements of the Regulations since it will show to a trier of fact that the insurer fulfilled the minimum standards required and required its claims personnel to comply with the Regulations. A knowledge of the Regulations can assist the lawyer in evaluating the exposure faced by an insurer and help the lawyer present an effective defense to an insurer sued for breach of the covenant of good faith and fair dealing.

Similarly, the lawyer representing a policyholder client needs complete knowledge of the Regulations to use them to prove that the insurer failed to fulfill the minimum standards set by the Regulations. Although not evidence of bad faith failure to fulfill the requirements of the Regulations can go a long way to convince a trier of fact (judge or jury) that the insurer did not act fairly and in good faith. Compliance with the Regulations is important to the evaluation of a claim for breach of the covenant of good faith and fair dealing and evaluation of a claim of damages resulting from the tort of bad faith.

Knowledge of the requirements of the Regulations is important to everyone involved in the business of insurance whether as an insurance adjuster, insurance claims management, public insurance adjuster, policyholder, defense lawyer, insurance coverage lawyer, and policyholder’s lawyer.

For detail about this book and many more by Barry Zalma go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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True Crime of Insurance Fraud Video Number 79

The Sweet Little Old Lady & Fraud

Insurance Fraud is an Equal Opportunity Crime

See the full video at https://rumble.com/v15t91d-true-crime-of-insurance-fraud-video-number-79.html and at https://youtu.be/pPCiqZAFWo8

The Insured was 82 years old and bored. She was born shortly after the turn of the century to a wealthy family of Connecticut merchants. She had been a debutante. She lived most of her life in luxury. Now, at 82, she was a widow living alone.

She had a small income from her husband’s estate and 82-years-worth of things. The things bored her. Living alone bored her. Simply passing the days caused her nothing but unexplainable exhaustion. Her life needed something to keep her interest. The Insured, regardless of her age, had a fine and steady hand. Her penmanship was, in these days of computers, exotic.

She recalled that shortly before World War II she and her husband lived in New York City and got an appraisal on all of their fine things by Leo McCarthy, the foremost art appraiser of the pre-war years. She found the appraisal, after some searching in an old trunk. It was written on sheets of 11 1/2 by 14-inch artists vellum. A pen and ink drawing illustrated each line of fine descriptive script on the appraisal. She took one sheet to the local stationery store and had them order a pad of fifty sheets of similar paper. When the paper arrived she sat at the kitchen table for weeks meticulously copying with a fountain pen each sheet of McCarthy’s work. The line drawings she traced lightly with a very soft pencil and then drew over the pencil lines in ink. She only changed the values to reflect, what she believed to be, modern prices. She cautiously erased all the pencil lines with a soft gum eraser. Each page was a masterful copy as ably illustrated as any bible page illustrated by a medieval friar.

The agent submitted the application, and a copy of the appraisal, to a Lloyd’s correspondent with whom he was familiar. The Lloyd’s correspondent forwarded the appraisal and application to a London broker who submitted it to certain underwriters at Lloyd’s. The risk seemed a good one. The appraisal was more professional than that which Underwriters had come to expect from the United States. Lloyd’s quoted a 3% rate that the insured accepted. The policy was issued.

No one asked before issuance to look at the fine arts. No one visited the Insured’s home. The agent and the insurers accepted her representations in good faith.

The agent responded, with sympathy: “Being burglarized is nothing to be ashamed of. It happens every day. That’s why you bought insurance. What was taken?”

“Everything, all my fine things. They are all gone.”

Lloyd’s directed a local adjuster to investigate the claim. When he arrived at the Insured’s home he found minimal furniture in relatively poor condition. He found the Insured to be a pleasant old lady who stood only five foot one inches tall. She was thin and frail looking and could not have weighed more than ninety pounds.

She told the adjuster:

I had hired a lady from El Salvador to help me clean my silver. It’s just too big a job for me now that I’m 82. Her name was Juanita. I don’t know her last name. I believe her number and name was on a card on the bulletin board at the Ralphs grocery store.

Juanita and I had been cleaning the silver for about an hour using very strong ammonia when the fumes began to bother me and I became faint. I really don’t know what happened, but the next thing I remember I was waking up on the kitchen floor. Juanita was gone. My silver was gone. All my art work and porcelain was gone. I trusted that woman. I fed her. She broke bread with me and then robbed me when I was incapacitated by the fumes. Imagine that!”

The adjuster believed her. She was obviously so honest. She looked him straight in the eye and answered every question.

Upset at the calumny of the El Salvadorian domestic the adjuster wanted to help. He promised to complete his investigation rapidly. He would make sure her claim was paid as promptly as possible.

The adjuster had been well trained. He knew that Lloyd’s underwriters expected him to verify the appraisal with Mr. McCarthy. He knew that they also required that the claims handler verify the values of the things claimed stolen.

He began his investigation. The Insured had told him that McCarthy’s office was in New York. He immediately dialed the information operator in New York seeking the offices of Leo McCarthy, appraiser. There was no listing. He contacted a local art appraiser who, impressed by the detail of the appraisal, wanted to meet McCarthy. The appraiser, however, had never heard of McCarthy. She searched the list of the American Association of Art Appraisers and did not find his name. She called several friends. McCarthy was unknown. She called an appraiser she knew in New York and asked if he had ever heard of an appraiser by the name of Leo McCarthy.

He replied: “Of course, a dear man, one of the finest art appraisers who ever lived.”

“Where can I find him? A friend needs to speak to him about an appraisal he did.”

“That will be difficult.”

“Why?”

“Because he died on Midway Island in 1943.”

The Insured had made only one mistake. She had used the signature of an appraiser long dead.

Underwriters instructed the adjuster to deny the claim for fraud. They further instructed the adjuster, because of the Insured’s advanced age, not to report the attempted fraud to the police or the Bureau of Fraudulent Claims.

A month later a lawyer called to inquire about a potential settlement. He implied that it would not be wise for an insurer to litigate against a poor, little old lady. The adjuster merely repeated the denial and asked that before counsel filed a lawsuit that he determine the date of Mr. McCarthy’s death and the location of his coffin. He explained to the lawyer that it is difficult for a man who died in 1943 to sign a fine arts appraisal in 2019.

He did not file suit. He confronted the insured who, with hesitation, told him the truth. The lawyer withdrew his representation and refused to file suit.

A fraud was thwarted. The Insured put some excitement into the dull life of an 82-year-old widow. Little harm was done and the adjuster has a story about a fraudulent claim that will top that of all his contemporaries. Because they rescinded the policy Lloyd’s returned the premium.

Everyone should understand that people from every level of society, every race, creed, age group or country of origin commit insurance fraud.  No one looks like a fraud. The most innocent looking, like the Insured, will present a fraudulent claim while the most criminal looking ex-convicts will present an honest claim.

Insurers must, to conduct a thorough investigation without bias, stop the criminal actions of sweet old ladies or hardened criminals equally.

ZALMA OPINION

Insurers must, to conduct a thorough investigation without bias, stop the criminal actions of sweet old ladies or hardened criminals equally.

If not, crime will succeed.  The innocent ex-convict will lose the indemnity to which he is entitled.

The criminal grandmother will recover and everyone who buys insurance will pay more than they should.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

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Lawyer Appointed by Insurer had a Duty of Zealous Representation

DEFENSE LAWYER HIRED BY INSURER DOES NOT BIND INSURER

Comegys, an independent insurance agency, had an independent contractor relationship with Safeco, a liability insurer-in short, Comegys marketed Safeco insurance policies to the public. Comegys was allegedly negligent in procuring automobile insurance for one of its clients, Robert Smith. Comegys had provided Smith with an automobile insurance policy from Safeco, which Smith eventually needed to rely on when he caused a car accident that ended in a motorcyclist’s death. Comegys offered to settle (and did settle through the errors and omissions policy it had with Endurance) the potential negligence claim Smith had against it.

In Endurance American Specialty Insurance Company et al v. Liberty Mutual et al, No. 19-14664, United States Court of Appeals, Eleventh Circuit (May 16, 2022) the Eleventh Circuit resolved the dispute.

FACTS

Relying on the indemnification provision between Safeco and Comegys, Endurance sued Safeco. Endurance wants to be indemnified by Safeco because the attorney Safeco provided to Smith after the car accident pointed out the potential negligence claim Smith had against Comegys.

At trial, the jury found that, because Safeco had refused to indemnify Comegys, Safeco had both breached its contract with Comegys and violated the implied covenant of good faith and fair dealing. The jury awarded Endurance, the errors and omissions insurer for Comegys, about $1.6 million in damages plus a $25,000 deductible and $30,000 in attorneys’ fees paid by Comegys during litigation. Safeco appealed.

Comegys and Safeco operated under a contract, the Limited Agreement, that allowed Comegys to act as an independent contractor for Safeco “for the limited purpose of placing Safeco insurance products.”

The Limited Agreement contained a set of indemnification clauses between Comegys and Safeco. The indemnification agreements provided:

  1. Safeco agreed to take responsibility when it messed up and its mess-up affected Comegys (and Comegys agreed to do likewise), and
  2. Whether Safeco (or Comegys) messed up was defined by the terms of the Limited Agreement.

Smith’s Safeco automobile insurance policy became important when his car caused an accident with a motorcyclist in June 2015. About two weeks after the incident, the motorcyclist died in the hospital of his injuries.

Twelve days after the motorcyclist’s death, Safeco tendered Smith’s $1.25 million policy limit to the motorcyclist’s estate by mail. The estate rejected the tender because the estate believed its claim was more than the policy limit. In compliance with the insurance policy, Safeco then provided Smith with a defense attorney, whose job it was to represent Smith in any case the estate brought against him.

Smith’s attorney and the estate’s attorney then began discussing how to settle. In reviewing the history of the case, Smith’s attorney realized that Comegys might have been negligent in procuring automobile insurance for Smith. After the estate officially filed a wrongful death action against Smith in state court in December 2015, Smith’s attorney reached out to Comegys, asking Comegys to indemnify and defend Smith on the basis that Comegys had negligently procured insurance for Smith prior to the accident.

After a non-binding arbitration found Smith responsible for $7 million in damages, Smith and the estate entered into a joint stipulation and agreement. The terms of the joint stipulation were that the parties would agree to a mutual release of all claims, in exchange for Safeco’s $1.25 million policy limit on Smith and Smith’s assignment to the estate of his negligent procurement claim against Comegys.

The estate then sent Comegys a demand for $2 million based on Smith’s negligent procurement claim. Comegys’s errors and omissions insurance with Endurance had a policy limit of $2 million. Comegys and the estate settled for about $1.5 million in exchange for Comegys’ release from all liability. The settlement explained that Comegys was not at all admitting fault or wrongdoing in procuring insurance for Smith. As Comegys’ errors and omissions insurer, Endurance paid out this sum to the estate.

Endurance, on Comegys’ behalf, filed suit against Safeco for, among a host of other things, breach of the indemnification agreement between Comegys and Safeco in the Limited Agreement and breach of the implied covenant of good faith and fair dealing.

The case went to trial. In what the Eleventh Circuit concluded must have been the jury attributing the actions of Smith’s attorney to Safeco the jury then agreed with Endurance that Safeco had breached the indemnification provision and the implied covenant of good faith and fair dealing and entered a multi-million dollar judgment in favor of Comegys.

ANALYSIS

Under Florida law, indemnity contracts are subject to the general rules of contractual construction and must be construed on the express intentions of the parties. Looking at this breach-of-contract case, there is one problem according to the Eleventh Circuit, there was no breach. So, there was no legally sufficient evidentiary basis for Endurance to win this case.

Endurance apparently distracted the jury with facts that are totally irrelevant to this appeal. The distraction method may have worked with the jury in this case, but it did not work with the Eleventh Circuit.

What Endurance leaves off is that for Safeco’s actions to fall under the indemnification provision, the actions must fall into one of three buckets:

  • Safeco has breached the Limited Agreement;
  • Safeco has negligently or intentionally committed an act, error, or omission in the placement of business pursuant to the Limited Agreement; or
  • Safeco has negligently committed an act, error, or omission in the carrying out the terms of the Limited Agreement.

FIRST: Comegys was within the scope of its authority when it procured a Safeco insurance policy for Smith. Safeco then covered Smith. In due course, when Smith had an accident and needed his insurance coverage to kick in, Safeco tendered the policy limit within twelve days of the motorcyclist’s death. Safeco provided Smith with an attorney to negotiate the claim. And Safeco ultimately paid the policy limit pursuant to the settlement between Smith and the estate. In other words, Safeco covered Smith, just like it told Comegys it would in the Limited Agreement.

SECOND & THIRD: Endurance’s case is based on two facts: Smith’s attorney (provided by Safeco) 1) brought up the possible negligent procurement claim to the estate during negotiations and 2) recommended an insurance lawyer to the estate, if the estate wanted to assume the negligent procurement claim against Comegys in Smith’s place.

In a very generous reading of Endurance’s arguments at trial, it is basically saying that Safeco acted through the attorney it provided to Smith, ultimately prompting Comegys to voluntarily settle with the estate without Comegys admitting any fault.  Endurance argued, because Comegys settled with the estate as a volunteer, Safeco now must indemnify Comegys even though Comegys never admitted any liability.

Endurance’s position was that Endurance equates the actions of Smith’s attorney with the actions of Safeco. However, the two are not the same.  Safeco was bound by the terms of the Limited Agreement. Smith’s attorney, on the other hand, was not bound to protect Comegys in any way. Smith’s attorney had a duty of zealous representation, which is exactly what he provided to Smith in settling with the estate. Smith’s attorney was acting on behalf of Smith, not on behalf of Safeco.

The next problem with Endurance’s argument is that by looking at the plain (and clear) language of the Limited Agreement between Comegys and Safeco, it cannot be read as covering in any way, shape, or form how Safeco ultimately insures its policyholders.

Finally, Endurance’s breach-of-contract claim hinges on the fact that the indemnification provision protects Comegys from all liability or loss arising out of Safeco’s breach. The problem for Comegys is that in its settlement agreement with the estate it specifically disclaimed all liability, and it has not proven that it lost anything because of Safeco’s actions.

Because the indemnification provision between Safeco and Comegys hinges on Comegys having some sort of liability or demonstrating that Safeco’s actions caused loss, Safeco is not liable where Comegys is a volunteer in settlement. A court cannot create coverage out of whole cloth where it otherwise would not exist.

The Eleventh Circuit concluded that it refused to penalize Safeco for Comegys’ volunteer payment to the estate. Even if Comegys had been negligent and that fact had been proven in court by the estate, the Eleventh Circuit would still refuse to hold Safeco liable for Comegys’ own alleged negligence because Florida requires those kinds of arrangements to be clearly stated by contract. Safeco, therefore, was entitled to judgment as a matter of law. The case is remanded for entry of judgment in favor of Safeco.

ZALMA OPINION

Comegys convinced a jury that a lawyer appointed by an insurer to defend an insured is the insurer when, in fact, the lawyer is retained only to defend the insured, Smith, to the best of his or her ability. The lawyer’s action, working to best defend Smith cannot be claimed as wrongdoing against another. Comegys convinced the jury but could not convince the Eleventh Circuit because it, unlike the lawyer for Comegys and the jury, read the contract.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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